Published In:
CFO Date Published:
15th October 2002 Author:
Simon Segal
With 112 fashion stores in Australia and an additional 35 Red Earth businesses, Steven Dainty, Esprit general manager, finance and administration, finds "outsourcing of our transport function is necessary for Esprit to continue to focus on its core business of retailing".
One of the main things Kelvin Burns, director of operations at Nintendo Australia, tells logistics and mail group TNT that he looks for in a courier service is "a commitment to partnership". This includes regular meetings, where any actual or anticipated problems can be sorted out.
Certainly Ross Passalaqua, Mayne Logistics general manager, sales and product development, talks about "bringing solutions-based expertise".
Courier cost management specialist Kim Gillespie, of Expense Reduction Analysts (ERA), finds the key to sourcing savings on courier overheads is in understanding the level of service required. "Many companies never review their courier suppliers nor negotiate rates when they hire a courier service. Couriers are simply deemed an incidental. But their services often add up to a substantial six-figure sum."
Other cost leakages occur when staff are poorly briefed on the service levels available and the lack of reliable process to ensure items are delivered when they are required. "Organisations often end up over-serviced totally unnecessarily."
To Passalaqua, cost savings can be enhanced through consolidating courier services with a single supplier capable of satisfying business requirements, both between capital cities and regional centres. "It is important that businesses have a clear understanding of their current and past usage in terms of geographic spread, frequency of usage and their delivery requirements determining the combination of services and service levels with their preferred service provider."
For his part, Peter Langley, divisional director - domestic, at TNT Express, finds the incorrect usage of services can be a contributing factor for cost leakages and "inevitably lead to increased delivery costs within the business".
"The off-my-desk, out-of-mind notion, where the customer just wants to move the items quickly, could lead them to send the package straight away, without really considering which service is the most economical for their requirements. Does it really need to be there today, or can it be delivered the following day?"
What should also be considered, he adds, is what a company promises its own customers in terms of delivery.
As a courier cost management specialist, Gillespie notes that negotiating the best rate is only the first step to managing courier service costs. "It's then up to the organisation to identify the most appropriate rate and service level for its needs."
An important consideration is the packaging, as cubic volume is a driver of costs. Interstate movement of consignments is charged according to either the actual weight or an equivalent weight based on the size of the consignment. Industry practice is to convert bulky freight to an equivalent weight that reflects transport costs. For this reason it is important that consignments are appropriately packaged. The more space the consignment occupies, the greater the costs of transport, irrespective of the consignment's actual weight. So if the size of the parcel can be limited through the use of appropriate packaging, customers can potentially minimise the cubic volume of the consignment and, in turn, cut courier costs.
Gillespie reckons savings of around 10-20 per cent can be realised for local and interstate courier services. For international services, this can be far more.
The solution, he suggests, is to review usage patterns in not only identifying courier needs but also in determining whether current suppliers measure up. "The ideal is to stay with the existing supplier to avoid change, but sometimes this is not possible due to uncompetitive rates or bad performance."
To Gillespie, the review process should determine who is responsible for couriers in a particular organisation, not just from an establishment standpoint but also from a maintenance and administrative perspective. "One can then review how new rates are currently negotiated and how delivery priorities are set, implemented and processed. Often the person in charge of couriers doesn't hold the rate card and doesn't have the authority or knowledge to negotiate new runs."
He argues that companies should also have systems that check the rates and the process of allocating to cost centres. "But this is still really the beginning. The key issue is what types of service are currently being used. For instance, locally, bicycle or van, and also what level of service; that is, locally, standard or VIP? For interstate work, overnight or road express? The options are endless. What needs to be considered is what is being delivered: documents or merchandise? And also where to and how often? Many organisations have standard daily runs. The price for these can be negotiated over and above the rate card."
Kim Gillespie, Expense Reduction Analysts (left): the ideal is to stay with the existing supplier to avoid change, but sometimes this is not possible due to uncompetitive rates or bad performance
Ross Passalaqua, Mayne Logistics (right): it is important that businesses have a clear understanding of their current and past usage
Technology is an increasingly important area where cost savings can be realised. Passalaqua notes that "leading third party logistic providers now offer customers access to IT systems that save customers time and money. Such systems provide users with facilities to make bookings, print freight labels, track and trace consignments, display a signature as proof of delivery and prepare reports - all from your PC. This technology provides efficiencies in streamlining processes for customers and thus helps drive down the bottom line."
Companies with their own computerised despatch systems can integrate the courier's system into their existing warehouse management system. This reduces duplication of processes, provides an electronic link with the courier's track and trace facilities; and provides updated consignment tracking information.
Langley enthuses about state-of-the-art track and trace systems that enable the monitoring of freight at item level and a suite of time-definite and day-definite products to satisfy the broad requirements of specific industries.
Using the correct distribution company can help contain cost leakages, says Langley. "The customer should appoint and use distribution companies that can service their particular needs. It is important to understand that carriers have similar product names; however, they provide very different service offerings, all with specific cost implications."
Gillespie says the company ought to be able to gauge whether the existing courier service is performing properly and whether it is providing the most appropriate level of service options. "If it isn't then talk to the supplier, with the ultimate penalty being cease of contract."
Staff can also be educated on what service levels are available and on implementing the most efficient courier briefing service - from a simple internal post-it system that briefs the despatch department, to an internet ordering facility. "These options can also carry a mandatory cost centre and/or client reference requirement to facilitate and accelerate the soft invoice payment process which further assists with rate discounts."
