Best Practices in Transportation Procurement

Bringing the Paper Savings to Reality

Moderator:

• Paul Page – Editorial Director, The Journal of Commerce

Speakers:

• Gary Girotti - Vice President, Transportation Practice, CHAINalytics LLC

• Joe Lombardo - Group Manager, Transportation, Nestle USA

• Paul Bacon - Product Manager, Transportation Bid Collaboration, i2 Technologies

Who is Chainalytics?

• Chainalytics formed in 2001 (HQ in Atlanta, GA)

– 50 FTEs in US and India

– Experience of over 400 engagements

• Supply Chain Analysis Focused In:

– Supply Chain Design

– Transportation Sourcing & Operations Improvement

– Inventory & Portfolio Planning

• Transportation Procurement Experience

– 100+ Transportation bids over the past 7 years

• All industries, All modes

– Technology Expertise

• Chainalytics has experts on staff for all the major technology vendors

– Access to our proprietary TL Benchmarking product (MBBC)

• Current MBBC model includes $12B in freight spend refreshed every 6 months

• Much more the just rate comparison. MBBC determines the cost drivers that determine rates

Supply Chain

Analytics

Infrastructure

Planning

Portfolio

Management

Inventory

Planning

Transportation

Planning

Transportation

Operations

Transportation

Sourcing

2

Guiding Principals to Transportation Procurement

• Transportation is not a commodity – it is a service

– The subjective aspect of the quality of the service needs to be included in the analysis

– Shippers should consider all costs (direct and indirect) when trading-off soft aspects

• A transportation procurement event is as much a relationship management

process as a pricing event

– The outcome of a typical event is a non-binding agreement

• Shippers do not guarantee volume and carriers do not guarantee they will take the

volume tendered

– As such, the procurement event must be looked at as part of a continual process of

relationship management with your service providers

• Going to market, or market testing your rates, should be a healthy part of

the relationship management process

– Carriers’ networks change as much, if not more than, the average shippers’ networks

– These events should be well communicated, regularly scheduled, and fair

3

Procurement Best Practices:Procurement Life Cycle

Data

4

Procurement Best Practices:Procurement Life Cycle

Data

5

These areas

get all the

focus

Procurement Best Practices:Procurement Life Cycle

Data

6

These areas

get all the

focus

But these areas

have the

biggest impact

on actual

savings

realized

LHD Capacity Predictions

Balanced

Somewhat

Available

Easily

Available

Jun 2009

Balanced

Somewhat

Available

Easily

Available

12%

2%

4%

30%

52%

Dec 2009

Balanced

Somewhat

Available

Easily

Available

Somewhat

Tight

37%

11%

2%

2%

9%

16%

9%

7%

7%

Jun 2010

Balanced

Somewhat

Available

Easily

Available

Somewhat

Tight

Very Tight

2%

7%2%

13%

15%17%

11%

15%

11%

7%

Dec 2010

12%

82%

6%

18%

46%

25%

11%

7%

28%

43%

20%

2%

Survey responses from 46 for LHD transportation

procurement directors managing over $10B in spend7

Procurement Savings 2008 - 2009

0%

5%

10%

15%

20%

25%

30%

35%

Retail Retail Beverage Mfg

CPG Mfg Packaging Mfg

Packaging Mfg

Food Mfg Food Mfg Food Mfg Food Mfg Food Mfg Food Mfg PharmaYear 2008 2008 2008 2008 2008 2008 2008 2008 2009 2009 2009 2009 2009

Mode TL TL/IM TL Ref TL/IM TL LTL LTL TL TL Ref TL/IM TL/IM TL Ref LTL

Spend ($MM) 38$ 75$ 40$ 230$ 19$ 10$ 0.6$ 38$ 54$ 160$ 49$ 176$ 8$

Average 15% savings

Individual procurement events have yielded significantly

greater rate reductions than the average

8

Rate Savings and Fewer Carriers

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

0

10

20

30

40

50

60

70

80

90

100

Food Mfg Food Mfg Food Mfg Retailer Food Mfg Food Mfg

Pe

rce

nta

ge S

avin

gs

Nu

mb

er

of

Car

rie

rsCarrier Rationalization & Savings in Recent Procurement Events

Baseline Carriers Awarded Carriers Savings %

Given the unprecedented level of change in carrier and shipper

networks, now is the time realign carrier relationships

9

NUSA Transportation Overview

• Logistics Planning for ~300 Facilities

– Nestle Factories

– Nestle Distribution Centers

– 3rd Party Warehouses

– Co Pack and Co Manufacturing

Vendors

– Supplier Vendors (Inbound)

• Divisions

– Confection & Snacks

– Beverage

– Emerging Markets

– Healthcare

– Infant Nutrition

– Prepared Foods

– Professional

– Refrigerated Pasta & Cookie

Dough

11

NUSA Transportation Overview

• Temperatures

– Ambient (Dry)

– Temperature Controlled (Cool)

– Refrigerated

– Frozen

• Modes

– Truckload/Stop Truck

– Less Than Truckload (LTL)

– Rail

– Intermodal

– Parcel

– Air

– Tanker

– Ocean

– Pool

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What does Nestle look for in a Carrier and 3PL?

• Reliability

• Repeatable excellence

• Value and cost savings

• Expertise and knowledge base

• Problem solving ability

• Continuous improvement

• Support

• Positive culture

• Strong management

• Technology focus

• Global capabilities

13

2009 RFP Goals

• Reduce carrier base

• Move to larger asset based carriers

• Grow business with a diversity supplier (3PL)

• Move to SmartWay carriers

• Increase EDI carriers

• Savings

• Incumbent focus - only 1 new carrier added

• Eliminate protective service charge

• Temperature based FSC program

14

i2 Transportation Bid Collaboration

Who is i2?

• A leading provider of next-generation “best-of-

breed” supply chain management solutions

– Visibility

– Planning

• A proven track record to solve the most complex

supply chain problems

• Industry-focused solution domain expertise

– Transportation

– Retail

– Consumer industries

– AAIM (Automotive, Aerospace and Defense,

Industrial, and Metals)

– High Technology

• i2 has the advanced and mature intellectual

properties for supply chain management

• i2’s supply-chain business process platform is

based on service-oriented architecture (SOA)

i2 Technologies Corporate Offices Dallas, Texas

16

– Collaboration

– Execution/Control

i2 Transportation Customers

17

Transportation Bid Collaboration Overview

• Engagement Management

– Flexible modeling capabilities allow different modes to be handled through one

unified application

• Carrier Management & Bidding

– Bid spreadsheet download/upload

– Combinatorial bidding & conditional discounts

– Bid validation

– Visibility into carrier progress

– Automated and ad hoc messaging capabilities

• Optimization & Analysis

– Most powerful constraint based optimization engine available

– Constraints (awarding, selection, price, capacity, etc.)

– Speed & scalability (largest to date 65K lanes & 1.8 million bids)

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2 – 4 weeks 2 weeks 1st round/1 week additional rounds

CompleteNegotiations

2 weeks

CreateBid Package

EvaluateCarriers

OpportunityAssessment

ReviewBid Package

Invite Carriers&

Open Bidding

CreateBids

Optimization&

Analysis

SelectTarget Rates or Awards

1 week each round

i2 Solution: Transportation Bid CollaborationProcess Overview

ReviewResults

Close Bidding&

Review Bids

19

TBC Engagement Management Provides

Flexibility and Control

One Application for All Engagements

Flexible Service Hierarchy

20

TBC Carrier Bidding Saves Time & Money

Bid Validation

Conditional Discounts

21

TBC Optimization & AnalysisAchieves Accurate and Executable Results

Scenario Builder

Scenario Reports

22

Analyzing Transportation CostsReducing costs during the freight procurement process

23 Source: META Group

Why Transportation Bid Collaboration?

• Web-based solution

• Supports multiple modes

– Truckload, Intermodal, Less-Than-Truckload, Ocean, and Air

• Industry leading solution provider

– Active client participation in product roadmap

– 15 plus years supporting transportation industry

– Supporting Consumer Goods, Hi-Tech, Food/Beverage, Manufacturing,

Grocery, Retail, Healthcare & Auto

– 40 plus TBC customers

• Over $1B in transportation spend bid for 2009

• Average savings of 15.9% in 2009

24

Nestlé USA Bid Results

2009 Nestlé USA Bid Results

Dry Truckload

• Savings exceeded targets

• 35 carriers invited

• 18 carriers awarded, 19 with Nestlé Fleet– New Carriers - 0

– Brokers - 3

– EDI - 8

– SmartWay - 10

• 26 Scenarios run

Temp Control TL/IM• Savings met expectation

• 70 carriers invited

• 37 carriers awarded, 38 including Nestlé Fleet– New Carriers - 1

– Brokers – 4

– Intermodal - 5

– EDI - 26

– SmartWay - 28

• 33 scenarios run

The process took about 16 weeks from beginning of data

collection until new awards went into effect

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Best Practices and Learnings

• The central tenant of carrier relationships, is treat your carriers fairly– If you negotiate an 18 month rate agreement - stick to it

– Two rounds of bidding is fine as long as you give the carrier some information between rounds

– Communicate as much as you can to the carriers:

• About your problem areas

• About what you are looking for as far as services

• About how your operations behave

• The carrier market is very soft, so carriers are willing to be aggressive on price - but also look for other value added services– Reporting, trailer pool management, EDI communication

– Make a credible case to support your FSC program and stick to it

– The escalator should be relative to the fuel efficiency of the average truck plus allowance for empty miles

• Do not assume, look at the numbers– This is where the optimization engine is very powerful in helping you understand the

cost of the operation constraints you impose

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Achieving the Projected Savings

The keys to obtaining the projected savings are:

1. If the rate is too good to be true, it likely is not true– Benchmark so you know where the market is, and what is true

– If you do not know the carrier, be very careful in counting savings

– Chainalytics typically estimates• A carrier new to the network needs to beat the incumbents by 3-4% to make

the switch worthwhile

• A carrier new to the lane or locations needs to beat the incumbents by 2-3% to make the switch worthwhile

2. Monitor to the plan– The results of a bid is just a plan of what you expect to do

– Have a process that monthly/quarterly monitors actual activity to the plan• Ensure plan changes are tracked for carrier failures, implementation errors,

network changes, new lanes, etc.

3. Maintain regular and structured communications with suppliers– Regular performance reviews, promotional forecasts, new lane awards, etc.

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Q&A