Master Sustainability with a Better Approach to LTL Sourcing. Shipper and Carrier Success Stories Perspectives from Users of Freedom Logistics.

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1 Logistics Management Solutions Master Sustainability with a Better Approach to LTL Sourcing Shipper and Carrier Success Stories Perspectives from Users of Freedom Logistics. 1

2 Master Sustainability with a Better Approach to LTL Sourcing Shipper and Carrier Success Stories Perspectives from Users of Freedom Logistics. Systems created to transact business favor the trading partner that is the hub of the network. It is, therefore, unusual when a system benefits all the trading partners in a network -- but Freedom Logistics is such a system. Although its primary benefits accrue to the Shipper, Carriers also benefit significantly. This paper will delineate the benefits that accrue to both shippers and carriers. Case Study examples with testimonials from current users will highlight the benefits that they have received and the competitive advantages of the Freedom Logistics network. THE LTL PROCUREMENT PROCESS It is worthwhile to repeat some of the background that we included in our March, 2012 White Paper entitled, Achieving Increased Profits through Better LTL Rates and Service. In that paper, we said that the rate negotiation process tends to be adversarial, since an RFP and response is often followed by a repetitive auction. Though this process can drive prices as low as possible, it is predatory to the carriers. These practices can eventually cause the carrier to seek other shipper customers and discontinue service to the shipper, or go out of business. We believe there is a better procurement process whose foundation is accurate and excellent information and a balanced negotiation. This process begins with Freedom Logistics conducting a complete evaluation of the candidate shipper s LTL shipments. This has two parts. First, their shipment history is collected and analyzed to determine shipping lanes, volumes within those lanes, carriers currently employed, and their total LTL freight spend. Second, Freedom develops a freight profile by examining their products shipped and all of the attributes and shipping rules. Freedom models the potential savings for the shipper and develops a thorough RFP from their data, then conducts a Sourcing Event. The Freedom Logistics procurement process is carrier-friendly because the carrier gets accurate and complete information to make their bids and the process is quick and easy to manage. It begins when Freedom sends its network carriers what one carrier described as the best RFP in the business. In addition, Freedom s experts can talk intelligently to the carriers about the specifics of each shipper s business; the network carriers see all of the freight and the effort required to manage it. Each carrier can customize its pricing to the shipper s book of business. They bid the preferred lanes that represent their network strengths and carry freight that they understand. Required accessorial services, such as inside delivery or liftgate, can be anticipated from the complete product profile; they do not become a surprise later on. Due to the data-intense RFP s quality, Freedom doesn t need to conduct more than a single bid cycle with its network carriers. Auctions are not required, saving all parties time, expense, and aggravation. 2

3 On return of the carriers bids, Freedom homogenizes the data, optimizes, analyzes, and builds a customized rate structure for the shipper. Freedom Logistics holds the master contract with each carrier and all clients (Freedom shippers) use the same master tariff. Each carrier provides contract pricing to Freedom Logistics for each individual shipper (and not blanket pricing). This method of sourcing has major benefits for both parties. Shippers benefit from Freedom s aggregated buying power, unique sourcing process, optimized base rate and rules tariff, and contract negotiation expertise. Shippers get special pricing for their specific book of business, standardized Fuel Surcharges and Accessorial charges with below market rates, and protection through the Standard Contract Terms and Conditions. These benefits accrue immediately and also maximize sustainable results. Carriers benefit from receiving great information that helps them determine the real cost and profit potential of the shipper s network. The procurement RFP depicts the entire opportunity and they can bid for the business they want. SHIPPER SUCCESS STORIES In our White Paper, Achieving Increased Profits through Better LTL Rates and Service, we delineated savings from six representatives of different industry types and these savings ranged between 12.5% and nearly 26%. In this paper, we will also delineate sustained savings, or savings that accrue over the period of time since the shipper joined the Freedom Logistics program. The chart to the right depicts the sustained savings achieved by six different Freedom Logistics customers. CASE #1 Customer Original Spend One of the world s Leading Distributors of Foodservice Equipment and Supplies distributes nationwide from its six full-service distribution centers, using its own fleet plus a network of national carriers. Although they stock over 12,000 items in their DCs, they source 50,000 items from a network of over 3,000 suppliers. Often, they will instruct their suppliers to ship direct to their customers, bypassing their DCs to expedite delivery and to save handling and transportation costs. They began as a Freight Payment customer with TranzAct and implemented the Freedom Logistics program in Their primary motivation was to realize savings on their LTL freight bill, but they have discovered many other uses for the product and the tools provided. Their savings from the program have been in line with savings that many customers enjoy. Last year they saved 7% on a $6M freight spend. Their savings over five years have been nearly 12% on a sustained basis. In addition, they have been able to employ the StarRate and StarBrite tools furnished with the Freedom Logistics program to shorten their order-to-cash cycle and monitor both carrier and supplier performance-to-plan. Base Year Current Spend (2011) Savings % Industrial Chemical Manufacturer $862, $702, % Electronic Components Manufacturer $865, $589, % Household Chemical Manufacturer $1,857, $1,531, % Animal Health Products Distributor $2,510, $2,100, % Packaging Manufacturer $805, $645, % Bearing Manufacturer $1,230, $822, % 3

4 StarRate is a web-based rating/routing engine and optimizer that identifies the preferred mode and carrier(s) to use for a given shipment. Both cost and service comparisons are available. Further, use of StarRate can be extended to other information customers 1 within, and external to, the shipper s organization. Since supplier-direct shipment is a common occurrence, the company extended the use of StarRate to its suppliers so they could route direct shipments to customers and employ the company s preferred carriers and enjoy their preferential rates. (TranzAct implements a shipper-branded web-based inquiry for suppliers to receive routing instructions; they are supplied with the preferred routing minus the carriers cost.) The company then uses the StarBrite reporting tool to audit performance-to-plan to ensure that their suppliers use the proper carriers 2. In the event they do not comply with the routing instructions, the company will charge the suppliers back for the difference between the company s rate and the actual movement rate. To accelerate their order-to-cash cycle, the company extended the use of StarRate to their accounting department. Accounting employs the tool on supplier-direct shipments to determine what the pre-paid shipment cost for the invoice should be (and that amount is added to the invoice). If they waited for the carrier freight bill to arrive before they produced the invoice for the product, there would be a substantial delay. They would have to receive the freight bill, match it to the order, and transcribe the shipment costs before the invoice could be completed and sent. Employing StarRate to pre-determine the shipping costs allows them to invoice the customer immediately. The StarBrite reporting system has been particularly important to the company during the past several years. When reductions-in-force occurred, StarBrite allowed them to continually measure and monitor both carrier and supplier performance-to-plan and ensure they receive the maximum economic benefit from the Freedom Logistics program. The corporate traffic manager believes that Freedom Logistics is also helping them control their costs during this current environment of significant and unbudgeted rate increases. CASE #2 One of the largest Global Manufacturer of Bearings, Constant Velocity Joints, and Other Precision Industrial Equipment operates from nearly 70 plants worldwide. Their Senior Logistics Team Lead for Transportation Management stated that they were not technically-sophisticated with their transportation and logistics systems and sought better ways to manage transportation and control costs. Previously, they employed ten LTL carriers but had no contracts with these carriers. Nearly three years ago, they implemented Freedom Logistics to achieve holistic management of their LTL program. Their savings were significant. Last year, their savings from a $1.4M LTL freight spend were 42% (when compared to the rates they had prior to implementing the Freedom Program). Their savings over three years have been 34% on a sustained basis. These savings were achieved by following the Freedom Logistics procurement process. This resulted in a slight change to their carrier profile (one new carrier was added while another existing carrier was dropped) and a completely new rate structure. They believe that exposure to Freedom Logistics network carriers allows them to achieve lower rates and better service. As their distribution network changes (plants and distribution centers), they 1 An Information Customer is any party that has a material interest in a process or system, but does not manage the process. Though the transportation department manages the Freedom Logistics system for their company, there are many other potential information customers that can benefit from the information it contains. To derive maximum benefit, one should identify as many information customers as possible and extend the tools usage to them. 2 Exception reporting is sent to the appropriate personnel on a monthly basis. It contains the cost differential between the carrier used and the carrier that should have been used. It can also contain chargeback and penalty information for suppliers. 4

5 have the ability to immediately develop and implement a new book of rates for new facilities, and they have the flexibility to add or change trading partners as needs dictate. The company also sought to establish long-term relationships with their carriers to ensure stability and quality of service. The Senior Logistics Team Lead particularly praises the manageability of the system. While the procurement process yields lower rates and contractual relationships, they are provided with performance-to-plan reporting to ensure their key metrics are being met. They believe they get immediate attention to issues and problem adjudication. They have also extended the StarRate tool to other information customers within the organization. It is important for them to be able to include total landed costs when quoting prices to customers. Their customer service organization employs StarRate to determine the shipping cost to add to the product cost in quotations. CARRIER SUCCESS STORIES Above all else, carriers want accurate and complete information when responding to shippers RFPs. It is a riskavoidance need. The better the information, the more certain the carrier can be that their quotation will protect them from unanticipated costs and will yield the proper ROI. CASE #1 One of the Largest National LTL Carriers offers seamless deliveries throughout North America. They also offer expedited and specialized transportation services. Their Vice President for Corporate Accounts manages the relationship with all third party providers (including Freedom Logistics) and this market segment represents 25% of their business. He states that all third parties are not created equal. He believes that Freedom Logistics is an excellent service provider and presents them with the best quality information during the RFP process. He states, Data is King and expands that they need granular geographic (lane) and product data to enter into their cost model if they are to develop the best rates for the customer -- the better the data, the better the rates. In addition, he believes that Freedom Logistics has invaluable competitive advantages because they work with highlevel decision makers and when they bring an RFP forward, it represents an actual customer with a real need. They have a commitment from an actual LTL shipper so the carrier always responds to Freedom RFPs. (Other providers go on fishing expeditions, looking for rate quotes without representing an actual client or potential business. As these providers become known as fishers, the carrier will not even respond to their RFPs.) This carrier has also just implemented a new costing model that fully-allocates all costs, including a refined overhead allocation -- including the cost of responding to, and administering, contracts. With this model, any provider that is difficult to do business with will see increased rates due to that administrative burden. Many of the contracts have predicted volumes and the carrier accounts for actual volume received to ensure that they get the volume they expect. (Otherwise, they will implement a much higher default pricing.) Freedom Logistics, and its customers, almost always deliver the volumes predicted during the RFP process. (Freedom determines the appropriate number of carriers to include in any given solution for a shipper. This ensures respectable levels of business for each carrier by not diluting the volume among too many carriers.) 5

6 He believes that Freedom Logistics is staffed with transportation experts -- that they can communicate openly and resolve issues quickly and equitably. In the event an account is not performing as planned, they have an excellent channel to address and adjudicate any issues. CASE #2 A major Regional LTL Carrier that operates in an 11 state geography has an outstanding service and safety record. Their Executive Vice President echoes what his national counterpart said above about the importance of data quality and completeness. He adds that they have had a long-term (15 years) and balanced relationship with Freedom Logistics and, although Freedom primarily represents the shipper, they are an excellent and fair trading partner. When the relationship began, Freedom approached this carrier to understand what the cost drivers were for them in an RFP. They then implemented the information gathering to ensure they responded to those information needs so this carrier (and others) got the information they needed to make pricing decisions. He states that no other provider approached them in a similar manner with similar questions! He believes that a good relationship is a critical success factor. Any issues are addressed immediately and issues can be resolved over the phone (without a long and onerous exchange of documents). Payments are made properly and on a timely basis in accordance with the contract terms. He praises the expertise and the professionalism of the Freedom Logistics staff and adds that the long-term stability of the organization adds to their peace-of-mind. The other services offered by TranzAct are complimentary and add to the organization s credibility. Finally, he believes they have always been dealt with honestly, and the trust that grows from that way-of-working is invaluable. FREEDOM LOGISTICS IN YOUR ORGANIZATION Freedom Logistics implements a collaborative construct between shippers and carriers. Freedom s way-of-working emphasizes collaboration and fairness to both parties, which also implies financial wellness for both parties. This balanced process also makes the Freedom Logistics model sustainable. Freedom has a better process and BOTH parties profit! With Freedom Logistics, Shippers get: Immediate and sustainable reductions in LTL spend; large shipper leverage for smaller shippers A network of vetted, qualified, stable carriers that can carry volume and provide geographic coverage Protection in the form of the terms and conditions in the contract A simplified tariff structure with special pricing for each shipper s specific lanes (and not subsidizing others) A standardized Fuel Surcharge, Discount, and Accessorial structure, with below-market rates The ability to measure and audit the entire process and performance-to-plan High-end shipment management and reporting tools for cost control and measurement Carriers get: The best RFP in the business; shipment history shows entire opportunity and great information that helps them determine the real cost and profit potential of the shippers network Fairness in negotiations - not a repetitive auction process Flexibility in their quotation format (particularly in the geographic component -- they can be as granular as necessary) which encourages the carrier to bid its strengths 6

7 Increases that are on time and reasonable (even when others are not providing increases at all); Freedom honors contractual anniversary dates No cap on Fuel Surcharges Clear and manageable accessorial charges and rules All clients (shippers) use the same tariff, but get contract (not blanket) pricing Additional volume and larger book of business; new opportunities that may not be uncovered by house sales These representative Case Studies clearly indicate the importance of accurate and complete information. This is the critical success factor which sets Freedom Logistics apart from other service providers. Without great information, the carriers cannot properly quote a book of business. This absence may cause carriers to artificially inflate rates to account for and protect from unknowns or, as one carrier stated, to ignore the RFP. Freedom Logistics Best-in-the-business RFP raises Freedom above the competition. It enables and sustains the balanced approach that Freedom has implemented so successfully for hundreds of shippers and dozens of carriers. The quality of the RFP comes from the expertise and experience within the Freedom Logistics staff. They have worked collaboratively with carriers and shippers to develop the best communication vehicle and to ensure it meets both parties information needs. Finally, once implemented, Freedom provides excellent shipment management and reporting tools that provide quick, easy, and flexible process management and measurement. ABOUT US Freedom Logistics is a service offering from TranzAct Technologies, Inc. is the leading provider of Transportation Spend Management Software and Services. TranzAct delivers state-of-the-art logistics management solutions that enable shippers to plan and control transportation expenditures. TranzAct also helps shippers improve practices by providing the tools necessary to remain in control. Our solutions provide shippers of all modes with freight audit and payment, reporting and TMS applications, carrier sourcing and pricing, and logistics diagnostics and business process improvements. For more information, or to speak with a transportation guidance expert at TranzAct, please call or click here. Get started We ll take the first step with you. TranzAct helps shippers reduce their transportation spend by providing the resources necessary to remain in control. We ll help you benchmarking your current LTL Rates. To make your decision easy, we are offering this service free-of-charge. It provides you with a risk-free way to begin reducing your corporate LTL costs. For more information, or to speak with a transportation guidance expert at TranzAct, click here or contact us at