Inbound Shipping Management White Paper By Frank Cirimele. Gaining Control of Inbound Shipping to Significantly Reduce Transportation Costs

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1 Inbound Shipping Management White Paper By Frank Cirimele Gaining Control of Inbound Shipping to Significantly Reduce Transportation Costs

2 Inbound Shipping Management Contents Introduction... 2 Challenges of Inbound Shipping... 2 Lack of Visibility... 2 Lack of Control... 2 Rising Freight Costs... 3 Overcoming the Challenges of Inbound Shipping... 4 Inbound Shipping Managed Services... 5 Conclusion % of companies surveyed by the Aberdeen Group report that inbound freight management is a key focus point Aberdeen Transportation Management Benchmark Report, Sept 2006 Introduction Inbound logistics is receiving a lot of attention as businesses continue to look for ways to manage shipping costs. Traditional Transportation Management Systems (TMS) vendors help with logistics planning, but do little to address what happens in the day-to-day execution. The problem is complex and logistics expertise as well as software systems are important to reigning in the escalating costs and inefficiencies. How big is the problem of inbound management? Inbound freight accounts for between 40-80% of total freight spend and 75% of companies surveyed by the Aberdeen Group report that inbound freight management is a key focus point. Total freight spend is between 3.6% and 5.2% of surveyed companies total sales, according to Aberdeen s results. To get a handle on costs, businesses say they need increased visibility into shipments and orders, more control of inbound shipping processes, and increased collaboration with carriers and suppliers. Existing processes are inconsistent at best real time freight tracking and tracing is unavailable, plan optimization and routing rules are often not followed by suppliers; cost information is difficult to obtain; and current manual systems don t scale well with growth. Unfortunately, 90% of shipping executives surveyed said that their current systems, including their Transportation Management Systems (TMS), are inadequate for addressing their inbound shipping needs. Shipping managers need a practical way to seize control of the inbound freight problem. One alternative, and the focus of this white paper, is to use new, specialized managed services, in combination with available technology, to specifically address the inbound freight challenge. Challenges of Inbound Shipping Logistics and Supply Chain Organizations face three primary challenges when it comes to gaining the upper hand on inbound logistics spend. One: Lack of Visibility Logistics executives are constantly besieged by operations, sales, planning, purchasing, and accounting groups requesting more accurate and timely information on inbound shipments. Today, identifying what s in transit, where it is, when it will arrive, and how much it will cost, requires piecing together information from internal paperwork, carrier websites, and phone calls a time consuming, inefficient process. And that s for one shipment. A comprehensive report might take hours or days to prepare. In addition, transportation managers who must rely on predominately manual processes to track and trace freight, find themselves answering it gets here when it gets here. This lack of predictability has ripple effects throughout the company, leading to excess inventory, sales obstacles, and variances in the company s performance. In most organizations, the lack of reliable, easily accessible, real-time data means they must reach out to suppliers for shipment details (carrier name, carrier tracking number or bill of lading, etc). This is an inefficient and labor intensive process, and ultimately, a costly way of dealing with inbound shipping. Two: Lack of Control Most companies have developed carefully optimized plans and routing guides that specify how users and suppliers should ship material. However, they have little control over whether these guides are followed, even though they are paying the freight charges. They must rely on

3 Inbound Shipping Management In one example, a company with over $18M per year in inbound freight costs reported paying invoices from over 100 carriers despite having negotiated preferred terms with five carriers and stipulating their use on each order. their suppliers and employees to execute on routing instructions and guidelines, without any means to enforce these optimized plans. This is less of a problem with outbound spend, since companies typically have direct control over their outbound freight. But most purchase order terms are Ex Works (EXW), where the buyer pays the inbound transportation costs and assumes the risk for the delivery of the goods. The buyer, in this scenario, is dependent upon the supplier to follow the supplied routing instructions. Unfortunately, suppliers do not consistently follow routing instructions, due to their focus on shipping product to hundreds of customers on a daily basis. The bottom line is that when a supplier fails to adhere to the shipping request (e.g., carrier selection, service level selection, account number identification, special instructions, notifications, etc.), the buying company bears the additional freight expenses, as well as the costs resulting from delays in receiving purchased items, supply chain disruptions, and a lack of visibility into the shipment. Costs that usually cannot be tracked back to the product level for accurate Cost of Goods (COGS) calculations. In addition, once items are en route, the buyer has no means to make changes, whether reacting to external events such as a weather event, or the need to split a shipment for separate delivery destinations. It may be weeks or months before the increased costs are visible because the invoices for the shipping must be entered and paid before finance can generate a spend report. Even then, all one knows is the total cost. To break down the data in more detail requires going through paperwork manually, logging into multiple carrier shipping portals, and compiling the information various ways to analyze the problem. So, unless a specific question arises or someone makes a project of analyzing the inbound spend, the true costs of inbound shipping remains unknown. Three: Rising Freight Costs According to the Aberdeen Research Group, on average, surveyed businesses experienced an increase of 14.5% in truckload rates, an 11.5% increase in LTL and ship rates, and a 15.1 % increase in international air rates over the last two years. Clearly, external shipping rates are outside the logistics manager s control. But that means that careful management of the shipping ecosystem is of greater importance. In addition to increasing visibility and control as discussed above, logistics managers are forced to look to other areas of savings: Reductions in staff size Smaller IT services budget Increase centralization of shipping However, such changes may only exacerbate the problem. So how do shipping managers control outside costs with fewer internal resources? Inbound Shipment Managed Services (ISMS) You could benefit from ISMS if: Inbound shipping is 40% or more of the total logistics spend Internal resources / expertise are inadequate for hands-on shipping management Communication problems with carriers or suppliers impede your supply chain Your true shipping costs can t be reliably determined You can t track / trace inbound shipments consistently

4 Inbound Shipping Management Overcoming the Challenges of Inbound Shipping Clearly, managing inbound shipping is challenging. Fortunately, there are now practical, managed services that enable companies to manage processes, increase visibility, and gain control of their inbound shipment costs. A complete managed service solution combines expertise in complex logistics and with an on-demand system for logistics management. Logistics Management Automation (LMA) Systems are a key component of a successful managed service for inbound freight because they allow all the participants in the ecosystem to be managed suppliers, carriers, partners, employees, and customers. In Aberdeen s Transportation Management Benchmark report (Sept 2006) noted that while 70% of companies have seen freight costs increase, a few leading companies have actually reduced their total freight costs over the last 2 years. They did so by using software systems to increase the visibility into shipment status, and by increasing the control they have over such decisions as carrier choice, routing, and price. In addition, well designed Managed Services delivered by logistics experts and powered by LMA ensures compliance by suppliers and employees to the customer s optimized route guide. Automation and domain expertise is a powerful combination to achieve savings. Automation Automation of the routing guide, shipping processes, and reporting are important to effective outsourcing of logistics to a managed services provider. One which all participants of the ecosystem can access with appropriate permissions simplifies and accelerates logistics execution thus, an ondemand (web-based) system is important to achieving the cost savings and efficiencies. The managed services providers should be using a system that is: Carrier neutral allowing buyer to choose the most costeffective shipping method Encompasses the entire shipping ecosystem suppliers, carriers, transport modes and employees. Has a Web-services architecture allows for integration with partners and internal systems Is permission based Allow real-time, anytime anywhere visibility into all shipments. Has a powerful, flexible rules engine Companies can globally enforce and update routing instructions, carrier selection and special shipping requirements in a flexible, user-friendly environment. Logistics Management Automation As with any best-of-breed application, an automated inbound shipping management solution must have "five 9s" availability, a market-leading feature set, and a reasonable cost of ownership. To overcome the obstacles facing logistics organizations, however, the inbound shipping management application must also have more specific traits: To combat rising transportation costs the application must make it easy for users around the world to execute policies that deliver immediate freight savings. Today, that means the application must be built with a state-of-the-art web services architecture, in order to receive live carrier rates over the Internet. No more theoretical savings, but hard ROI based on live, vendor neutral access to real-time market rates. To regain control over global logistics, a best-in-class application must have a rules engine, based on optimized plans and routing guides. The system must be flexible to accommodate company-tailored business rules, yet powerful enough to force all users, both internal and external, to follow the policies that ensure efficient and cost effective shipping. The system s usability must be such that controls can be designed and implemented by logistics experts with decades of hands-on experience in global logistics, rather than by computer technicians. For true shipment-level visibility and reporting, a carrierneutral, mode-agnostic data repository is critical. Ondemand, managers must be able to identify up-todate trends and patterns, accurately forecast demand and supply, and make real-time decisions based on actual data, rather than guesswork. The system must be fast and scalable. It must be able to support rapid growth demands, while not feeling bloated with unnecessary features requiring onerous training or orientation. Busy logistics professionals need practical tools that deliver results immediately. The technology driving the automation must be based open standards and an SOA architecture to allow easy integration with existing systems, including ERP. The inbound shipping application must allow for rapid deployment. Delays due to IT controls and backlog reduce savings and put the success of deployment at risk.

5 Inbound Shipping Management Logistics Expertise Moving freight around the country, or around the globe, is an exception-driven process with unforeseen changes taking place regularly; e.g., how to avoid a snowstorm on the East Coast, a sudden supply problem in China or a transportation strike in France. A dynamic global logistics environment requires domain experts to manage daily activities, communicate issues with stakeholders and make decisions on-the-fly. When outsourcing, select a provider whose logistics team s expertise is both deep and broad so they can handle every imaginable contingency. Compared to hiring inhouse staff with such expertise, outsourcing can be a very cost-effective option. Inbound Shipment Managed Services The role of the managed service is to address the problem of supplier compliance, reduce costs, and to bring logistics expertise to bear on every inbound shipment. Offerings vary in the degree of automation, the integration of the players in the ecosystem, and in depth/breadth of expertise. The best managed services providers use an LMA system and connect the suppliers directly into the system. The LMA system also gives them the ability to both implement rules and process and change them rapidly. Compliance by suppliers is achieved initially through the customer s request. Once suppliers benefit from the reduction in errors, they prefer the managed service and the improved customer satisfaction. The customer uses the same LMA system to track and trace inbound shipments, finally gaining complete visibility, and process control over the entire inbound logistics element of their global supply chain. When an LMA system is not used, the primary benefit to the customer is the expertise of the managed service provider. Best Practices In order to effectively manage all aspects of inbound shipping, a managed service must be able to: Provide the ability to track and trace shipments for multiple customer roles Process shipment for all modes of transport Demonstrate logistics expertise in carrier relationships Manage shipment scheduling, processing and execution Manage contract negotiation and renewals Monitor and enforce business rules Seek dynamic, vendor-neutral freight bidding for air & surface transportation, as needed Provide shipment settlement Provide comprehensive real-time reporting Understand and manage reverse logistics The Henry Wine Group (HWG) (the largest importer, distributor and broker in the U.S. dedicated exclusively to fine wines) faced rapid growth in inbound volume, from a few thousand cases of wine imported per month to over 60,000 cases per month. Unfortunately, their processes for managing this inbound shipping activity had not changed to keep pace with this fantastic growth. At the same time they faced increasing pressure from their expanding list of customers inquiring when HWG would deliver product to them. Unfortunately, again, due to their dependence on manual processes, they had little visibility into in-transit product. To research pending orders they would be forced to jump on the phones, or cycles, to track down in-transit goods After looking at their options, The Henry Wine Group realized they needed a Logistics Management Automation solution. Unfortunately, they had neither the technology expertise nor the budget to build a solution in-house, or go through the time and expense of deploying and integrating a licensed TMS solution. HWG needed a cost-effective and flexible solution that they could deploy quickly and easily and would scale with their business, The Henry Wine Group chose Agistix, a leading web-based Logistics Management Automation service. In addition, HWG needed their suppliers to use their preferred carriers and service levels but many are small, boutique businesses without sophisticated systems, staff or processes. HWG chose the Agistix managed service ISMS and their suppliers simply call when they are ready to ship and the paperwork is provided to them electronically. HWG s shipments ship the most economical way every time. Results: Savings exceeded 11% of hard freight costs in less than a year of use. HWG realized an ROI of more than 25% in the first 6 months alone. Don Locke, CFO of The Henry Wine Group: Engaging with Agistix has allowed us to tightly control costs at the same time we increase the volume of wine we source from abroad. Automated processes mean that managers can easily track shipments and make decisions quickly based on real-time information. And we have been able to achieve all this without increasing staff size.

6 Inbound Shipping Management The advantages of such a turnkey system are numerous. The best pricing is secured for both ad hoc shipping, as well by applying prenegotiated carrier contracts to regular inbound shipping. Thorough tracking of all logistics activities provides more informed shipping history when negotiating new contracts Logistics expertise in the managed services provider ensures business rule development and enforcement is performed by professionals able to monitor the processes, execute modifications as exceptions arise, and recommend long-term changes as the international shipping environment changes. Invoice consolidation and visibility into the true costs of inbound shipping enable businesses to implement process changes, if necessary, and reduce costs. Outsourcing both the technological solution and the logistics expertise, eases the burden on internal shipping organizations, as well as IT staff. A service empowered by a LMA solution is fast and inexpensive to deploy, requires no new hardware or software, and provides access to users company-wide depending on role. Conclusion Logistics, Supply Chain and Procurement executives are under increasing pressure to improve their shipping processes. Organizations are increasingly focusing on inbound shipping as an opportunity for cost savings. A combination of logistics management software and expert managed services provides an ideal solution to the complexities of inbound shipments where suppliers are a big factor in the cost-reduction effort. Partnering with a proven, reliable company, who also has the ability to deliver both the system and the services is an ideal way to ensure the entire shipping process is effectively managed. Agistix is the first vendor to deliver on a new vision for enterprise-class global transportation solutions: Logistics Management Automation (LMA). The Agistix Inbound Shipment Management Service (ISMS) is a comprehensive, yet easy-to-use, turnkey, outsourced and affordable solution that solves visibility and control challenges of inbound logistics. Engaging with Agistix has allowed us to tightly control costs at the same time we increase the volume of wine we source from abroad. Don Locke, CFO of The Henry Wine Group Improving visibility, controlling processes, and better cost management through a managed service empowered by a Logistics Management Automation, reduces costs and improves operations Agistix. All rights reserved.

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