In the years that I have taught Supply Chain courses, many students have expressed the desire to start their own importing or exporting business. In some cases they were motivated by an interest in a particular product they encountered on an international trip. Others wanted to turn a hobby into a business. In these early stages the nuts and bolts of international logistics are less important than the product, the markets, and realistic expectations on the part of the student. As an instructor I always want to provide guidance and assistance along with real world business facts. The attached Twenty Questions are a good way to start the process,

IS THIS BUSINESS FOR YOU

Transportation mode and carrier selection always involves tradeoffs between cost and service. It is helpful to understand the relationship between variable costs and rates. Here is a link to a Transportation Carrier Matrix that I have used in supply chain classes. It is a snapshot view of the various modes by industry type, operating costs, rates, services, and markets.

TRANSPORTATION CARRIER MATRIX

Reverse logistics programs are fast becoming a major requirement in 3PL and procurement contracts. Not long ago “returns” were considered a nuisance by manufacturers, retailers, and logistics providers. They were handled only as a courtesy to customers. Today, environmental legislation is forcing companies to take responsibility for waste. At the same time consumers expect clear and efficient returns programs when making purchases. The EU is leading the way on reverse logistics with strong legislation and policies. In the US reverse logistics is evolving as progressive companies realize the opportunities to enhance their public image, lower operating costs, and improve productivity. In other words reverse logistics is moving from an added cost “returns” program to a value add process. Here are some recovery options in reverse logistics*

• Reuse– inspect, clean, and use again for identical or similar purpose, value add
• Remanufacturing– dismantle and reassemble or use for parts, value add in remanufacturing w/improvements
• Recycle– sorting process for scrap, no real value add but can recover some costs

While the above  is good business practice it is difficult to plan and execute from a logistics point of view. One reason for this is uncertainty in timing and quantity of returns. Product life cycle and rate of technological innovation play a big role in timing of returns.

Successful reverse logistics implementation involves both external and internal factors. External factors include legislation, customer demand, and incentive. Internal factors include environmental concerns, strategic cost/benefits, volume and quality of returns, resources utilized, and integration and coordination.

• Customer demand– environmental responsibility is becoming a competitive necessity
• Incentive– companies need to make returns worth it for end users
• Environmental concerns– growing trend, not optional going forward
• Strategic cost/benefit– can help increase sales and asset utilization but will increase costs. Benefit is mostly long run after initial investments in equipment, design, process, and labor.
• Volume and quality– returns must be managed to avoid scrap as much as possible
• Resources– use available resources and assets as much as possible
• Integration and coordination– must use info systems to gain competencies in recovery so reverse logistics does not become a profit drain but a profit center
• Performance measures– forward logistics measures are not adequate for return logistics. Need to develop different metrics for return logistics. Ex: time required for product recovery, % recyclable/reusable at end of product life, core return rate, % product weight or volume disposed in landfills

*Global Logistics and Supply Chain Mgt by Mangan, Lalwani, Butcher, and Javadpour, 2nd Ed, John Wiley & Sons, 2012

Measuring and managing logistics performance is a full time job for logistics professionals. The volume of data can be daunting. Managers in other functions such as finance, marketing, or manufacturing may need a quick view of logistics data as it relates to their responsibilities. Here are a few general measures for the dashboard. Please let me know of others you have used.

Absolute Performance- monitor absolute logistics failures rather than averages. For example, 99.5% on time performance appears very good. However, in a high volume operation, it could mean hundreds or thousands of late orders per day.

Inventory Turnover- common measurement in asset mgt.

Order Fill Rate- customer service and warehouse productivity measurement. Can also use item, line, or value fill rate.

Warehouse Utilization %- indicator of good asset mgt.

Warehouse Productivity- measure of units received, stored, picked, packed, and shipped per hour.

Order Cycle – reduced order cycle means less inventory in the system and greater customer satisfaction. Longer order cycle means more inventory in the system and reduced customer satisfaction.

Lost Sales- inverse relationship with inventory. Higher inventory costs, lower risk of lost sales. Lower inventory costs, higher risk of lost sales.

Transportation costs- always a trade off…. bulk shipments can reduce transportation costs but leads to higher inventory levels in system. Higher transportation costs due to mode shift (air vs. ground or air vs. ocean) can reduce inventory in system by shortening the order cycle.

Commodity value- higher dollar value means increased transportation, inventory, and packaging costs.

Density of product- High density (lbs/ cubic ft or kgs/ cubic meter) means lower transportation and inventory costs since the product takes up less space in containers or warehouse.

Loss and Damage- greater susceptibility to loss or damage means higher transportation rates and higher warehousing costs due to special handling.

Location Decision- Distance from sources or markets = relative advantage or disadvantage vs. competitors. This is an upper mgt responsibility.

In a previous post I gave a brief overview of inventory management. All companies are interested in reducing inventory as long as the result is no lost sales, customer service issues, or material shortages. One way to reduce total inventory is to consolidate DC’s or warehouses. This is due to the fact that safety stock is held at each location, so fewer locations equals less safety stock. The effect on inventory levels by adding or eliminating warehouses can be calculated by using the Square Root Rule. I am attaching a summary of the Square Root Rule and an example.

INVENTORY AT MULTIPLE LOCATIONS

EXAMPLE IMPACT OF SQ ROOT LAW ON INVENTORY

Logistics Management magazine hosted a very informative webinar on Jan 30th which featured a number of experts discussing managing costs via multiple modes. The speakers presented forecasts of rates and capacity in their respective areas of expertise. They also offered advice to shippers. Here are my takeaways from the webcast:

Trucking

• Large and small  fleets are reducing fleet size but replacing older equipment with newer, more fuel efficient units resulting in not much change in overall TL capacity
• Flat demand plus trend towards Supply Chain Optimization will delay capacity crisis in trucking industry
• LTL rates hikes approx. 1-3% in 2014 if YRC survives and could be as much as 7-9% if YRC does not survive
• Capacity issues may surface in 2016-2017 due to more restrictive regulations and driver shortages
• Shippers are advised to develop partnerships with a small number of core carriers to maintain service levels if capacity does become an issue

Rail and Intermodal

• Intermodal volume will grow 4-5% in 2014
• Railroads continue to improve OR’s on the strength of intermodal
• Although intermodal demand is up rate increases expected to be modest due to pressure on OTR rates
• Shippers are advised to have contingency plans in place in the event of rail disruptions due to catastrophic events or natural disaster

Air Cargo

• Load factors increasing
• On shoring or Near Shoring trends worrisome to air cargo operators
• Air cargo rate making differs by geography and capacity is the major factor
• Fuel costs always a concern
• Carriers will continue to replace older aircraft with newer, more fuel efficient, planes
• Carriers will continue to manage capacity to control costs and improve load factors

Container Shipping Rates

• Global supply/demand balance will not reach equilibrium until 2016
• Excess supply continues in 2014
• Rates, especially spot rates,  will be volatile as carriers manage demand
• East-West rates will fall 1.5% in 2014
• Global rates flat after falling 5% in 2013. Little change in 2014
• Risk to shippers is carriers may skip sailings due to volatility but no real capacity shortage
• Shippers  advised to develop relationships with carriers to ensure access to capacity

Parcel

• Duopoly enables carriers to raise rates in 2014
• FedEx + 3.9%
• UPS + 4.9%
• DHL +3.9%
• USPS +2.4%

The supply chain functions with the biggest financial impact are inventory and transportation management. Logistics managers tend to focus on transportation decisions as one of their major responsibilities. It is important, however, that all managers in the supply chain have a good understanding of inventory policy. The attached is a brief synopsis of Inventory Management from the textbook Supply Chain Logistics Management .

INVENTORY MANAGEMENT

The motor carrier and air freight industries are extremely competitive, giving shippers an advantage in carrier selection and negotiations. A  common mistake made by shippers is failing to prepare before meeting with carrier representatives. Another mistake is focusing on price. A better strategy is to emphasize value in your discussions with carriers. If you determine that they have the capabilities to provide  quality services, then you can move the discussion to price. Consider: if simply asking for lower rates can result in transportation savings, how much better would the result be with a little preparation? Here are some suggestions from someone who has spent many years on the carrier side of the table.

Determine your specific transportation needs and goals ….for example

• Price- compare net rates (not % off because base rates differ), minimums
• Transit Times/Reliability- including pick up and delivery, terminal services, linehaul
• Inventory Costs- reduced transit time = reduced inventory costs… how transportation adds value
• Product Differentiation- faster, better service as a marketing tool
• Capability/Access- carrier has right equipment in right place at right time
• Security- carriers claim ratio and loss/damage experience
• Relationship- responsiveness and problem solving protocols

Analysis Prior to Negotiation

There is not much advantage to withholding your shipping profile from carriers. Because the industry is so competitive you will get a better deal if transportation providers know what volume they are bidding on and any specific service requirements. If this information is not available to them they will hedge their bets and be less aggressive in their offers. Gather some data and present it. This will give you professional status in the eyes of your carriers. Here is some minimum information needed. Most of it can be found in bill of lading or invoice files.

• Volume/Frequency- # of shipments per day, week, or month
• Weight- average weight per shipment
• Dimensions- standard dimensions, if any… palletized or non palletized…pictures are helpful
• Heaviest Shipping lanes- domestic and international
• Services- priority or economy, express or deferred
• Density- pounds per cubic foot ( for motor carriers)
• Classification- NMFC item numbers (for motor carriers)
• Dimensional Weight or Dim Factor (for air freight forwarders)
• Packaging type- transportation only, display, labeling
• Freight Payment Terms- prepaid, collect, third party
• Control- Who has authority to sign an agreement?  Who makes routing decisions?

Request for Proposal/Request for Quotation

A formal RFP or RFQ is an effective way to both reduce transportation costs and gain the value that you need from your carriers. Ad Hoc Logistics can prepare your RFP/ RFQ, get it to the appropriate transportation providers, and even negotiate on your behalf. Get started by contacting Ad Hoc Logistics.

According to CBP Customs and Border Protection passing rates for the customs brokers exam average only 3-11% nationwide. The test is given twice per year in April and October. It consists of 80 multiple choice questions and a passing grade is 75%. The exam is open book which makes it seem easy. However, the books consist of  the HTUS Harmonized Tariff of the United States and CFR 19 Code of Federal Regulations, totaling hundreds of pages. The difficulty is in being able to quickly access the right section for each question. It is a four hour exam so three minutes per question is not much time.

I took a prep course in Boston taught by  Atty. Mary Wright. The class met two nights per week for 6 weeks prior to the exam. Mary explained the material very thoroughly from her background as a customs attorney and prior experience as an import specialist for CBP. We also reviewed previous exams in class. As good as this class was, I would not have been able to pass the exam without additional study. I estimate that I spent about 40-50 hours on weekends leading up to the exam. I used 6 previous exams and a 3 step process. In step 1 I took each test for accuracy, ignoring the clock. In step 2 I took the tests again in the same order, while timing myself to make sure I could finish within 4 hours. I believe that step 3 was the key to my success. For this phase I circled all the questions I had missed in steps 1 and 2 and created a separate mini exam which I took several times until I answered all the questions correctly. I had many years of transportation experience but no customs brokerage background before taking Mary’s course. This actually proved to be an advantage for me. Most of the others in the class were working for brokers and may have felt overconfident.

Day to day logistics is a function of supply chain management. Logistics consists of planning, organizing, executing, controlling, and problem solving. While supply chain is strategic in nature, logistics is more tactical. The goal is to solve problems so that they stay solved leaving more time for planning, organizing, executing, and controlling. Here is a simple model that managers and front line supervisors can use in solving basic logistics problems:

Problem Solving (Tactical)

This model is for small to medium sized tactical problem solving. To use this model you must “own” the problem and have the power to solve it. Your goal is simplified planning and immediate implementation. More complex problems will require a more detailed solution.

Step #1  Problem Statement/Impact

Write one or two sentences which clearly describe the problem and the pain points. If you can’t be definite about this you have very little chance of solving the problem.

Step #2  Cause/Effect

Managers often jump from problem identification to solutions. This is especially true in logistics, which is action oriented. However by taking the time to analyze cause and effect you are more likely to solve the problem. What are the root causes of the problem? What are the impacts on costs, productivity, sales, etc?  What else happens as a result of this problem? This step helps you make sure that you are solving the right problem.

Step #3  What Info Is Needed?

Determine the data, reports, or evidence you need to analyze the problem. This will help you prove to yourself  and others that the problem needs to be solved.

Step #4  Where Will I get It?

Identifying where the info can be located speeds up the process.

Step #5  List Solutions Steps/Implement

If you have completed Steps 1 thru 4 the solutions should be obvious. If still unsure about solutions re visit  Steps 1 and 2. Prioritize the tasks and give yourself deadlines. You may opt for a trial solution as long as you are not devoting big resources during the test period. Implement, don’t agonize.

Step #6 How Will I Measure and Manage in the Future?

To avoid a recurrence of your problem decide how you will monitor and manage the issue going forward. Communicate the changes and why you are making them. Create a checklist or dashboard.