How to Reduce Small Package Transportation Costs in a Challenging Economy

In his strategy-packed session, “How to Reduce Small Package Transportation Costs in a Challenging Economy,” Rick Collins, vice president of AFMS Logistics Management Group, acknowledged that negotiating shipping rates can be daunting – but it should no by means be a missed opportunity.

He contended there are plenty of areas for potential negotiation, especially in the areas of shipping surcharges. And Collins should know: His firm, AFMS Logistics Management, was founded by former shipping company executives, like him. They worked for the major carriers, including FedEx and UPS.

According to Collins, rising fuel costs, global market uncertainty, DHL’s exit from the North American market, and the United States Postal Services’ discounting of services will all contribute to significant 2012 integrated carrier rate increases. To negotiate the best possible rate, he recommends knowing your “package profile” – including, but not limited to, which of the 100-plus surcharges that exist are being applied to your bill, as well as average package dimensions and pick-up/delivery density.

To build this profile, Collins strongly recommends taking advantage of the electronic billing and billing analysis tools most carriers offer. This data will enable month-by-month comparisons of surcharges, maps of where packages are being sent and so on.

“Negotiate on what you ship most,” Collins advised. “Or, figure out the most common weight. Doing either is way more effective than saying, ‘Give us your best rates.’”

According to Collins, shipping revenues don’t drive discounts; package characteristics do. So, don’t be surprised if a competitor – who’s shipping fewer packages, but to busier hubs – enjoys a better discount from a carrier. To this end, he suggested cutting down on box dimensions wherever possible, even if it’s just an inch or two. “It can lead to huge discounts.”

Further advice for reducing your shipping rate is to identify packages that can be shifted from air to ground transport, reducing cost while maintaining transit times. He also recommended evaluating the costs of shipping from potential locations before breaking ground on a facility or distribution center.

Because surcharges often represent 15 percent to 20 percent of your shipping bill, these are great opportunities to negotiate rate reductions, Collins asserted. Surcharges range from fuel, residential (versus business) delivery, address corrections, oversize charges, dimensional change charges, Saturday deliver and declared value (insurance). “Note that the USPS applies none of these surcharges,” he pointed out.

One surcharge with major potential for negotiation is related to delivery area. As Collins explained, even metro areas –Phoenix, for example – are subject to these fees. In fact, 55 percent of the nearly 43,000 zip codes in theUnited Statesare subject to delivery area surcharges.

“Your pricing is driven only by two things: market conditions and shipment/package characteristics,” Collins told attendees. “So, while some surcharges are easier to negotiate than others, all are negotiable.”

Before you do, though, he recommended conducting an assessorial summary of what surcharges are most frequently applied and represent the highest dollar values, and then negotiating on those.


A Culture of Ethics

Most people are aware that accepting gifts from a supplier presents an ethical challenge, but what happens when it’s someone from another culture who presents you with the gift, and to refuse would be a significant cultural faux pas?

These challenges and other ethical dilemmas were discussed during Tuesday’s panel discussion, “A Culture of Ethics in the Marketplace.”

Consistent, clear communication is key to minimizing ethical risks, according to panelist Charlie Villasenor, chairman and CEO of the Procurement and Sourcing Institute of Asia (PASIA). In addition, he suggested, “Use technology to develop good compliance systems and best practices, and have third-party ethics auditors do regular reviews.”

A lack of lead time is a major cause of ethical-violation situations at Textron Systems, said director of procurement Mark S. White. Sloppy documentation occurs when people are in a rush; plus, they might skip steps along the way that could lead to trouble if the company were to be audited.

A few other risks mentioned in the panel:

* Employees might post something on Facebook or another social networking site that could compromise proprietary information– either intentionally, or inadvertently. Find a way to monitor supplier/buyer relationships on these sites if this is a concern.

* Back-door sellers: Employees who go to work for a supplier company after they are laid-off from your company. Again, this can bring intellectual property risks. Non-compete agreements signed upon leaving your company should include specific language to address any potential issues.

* Smaller companies (Mom and Pops) are sometimes undercapitalized and if things get bad, desperate times may call for desperate, unethical measures. By all means, not every small company will behave this way, but it should still be on your radar if you are working with a company that shows any signs of financial instability.

Ethical behavior starts at the lower rungs of the organization, with individuals following codes of conduct– as well as having appropriate reporting means should they encounter violations. “Ethical behavior used to be an expectation, but today it’s much more than that. It’s a requirement,” stated Steve Smiley, owner of Ghost Hill Logistics Inc. and Chair of the ISM Ethical Standards Committee.

ISM has prepared guidelines for the principles of ethical behavior to help its members navigate the choppy, unpredictable waters of ethics. Click here to access these guidelines today.

Tackling the Talent Challenges of 2012

The room was filled to capacity for Monday afternoon’s “Developing Supply Management Panel,” moderated by Nancy Q. Smith, director, strategic partnering at Exemplary Performance. It seems that a talent issues are of paramount interest to supply management right now, and during the panel, attendees learned about an “end-to-end talent management process” to help bring structure to the complex tasks of hiring and retaining talent.

The end-to-end talent management process has 7 steps, beginning with “Developing Strategies.” Panelists noted that it’s crucial to know the capabilities and talents of everyone in your group and weigh that against what you’ll need to achieve results. It’s also important to remember this is a process that changes constantly. “Make sure you properly prepare your workforce because the business needs are always evolving,” said Brent E. Edmisten, former vice president of supply chain operations for Hawker Beechcraft Corporation.

Many times, people get hung up on thinking they need elaborate software or tools to create a talent management process. Linda Lundquist, manager, supply chain processes and optimization for Caterpillar, Inc., said it’s fine to start with a simple spreadsheet to keep track of needs and talent and identify any gaps.

Other tips included:

* Skills assessments that are completed by both the employee and the manager, which can help open a dialogue about what each party’s needs and expectations might be;

* Review job descriptions, since they might be out of date. Periodically revisit the roles and duties of each employee to keep the team focused and on-task;

* Want to get to know the Generation Y employees? Take them out to lunch and have a frank conversation about what they want and what motivates them. “You can’t cookie-cutter a generation,” said Edmisten.

“At the end of the day, people have to feel valued and appreciated,” said Edmisten. “Don’t think you have to work around people. Work with them.”

To see the complete 7-step Talent Management Process model and view slides from this presentation, click here.

What are some of your challenges regarding talent? Inside Supply Management magazine would like to tackle this subject in the coming months and we’d love to hear from you. Please leave a comment if you’d like to share your thoughts!

Non-Manufacturing Economic Growth Will Continue Through 2012

During the Business Survey/ Economic Outlook presentation on Tuesday morning, projections regarding the economic growth of the non-manufacturing sector were positive. According to the 2012 Semiannual Forecast, a 4.8% net increase in revenue is expected for overall revenues. “Non-manufacturing will continue to grow for the rest of 2012,” said Anthony S. Nieves, C.P.M., CFPM, chair of the Non-Manufacturing Business Survey Committee (NMBSC). “Hopefully, this will translate into an increase in the employment rate, as well.”

Speaking of employment, respondents to the NMBSC’s survey forecast that employment will increase 1.9 % during the balance of 2012. However, 59% expect their employment levels to remain unchanged.

Overall, non-manufacturing companies are currently operating at 85.2 % of normal capacity, with production capacity expected to increase 3.3% in 2012. Prices paid increased 1.8 % through the end of April 2012, and capital expenditures are expected to increase 3.6 % in 2012.

For more details about both the Non-Manufacturing and Manufacturing Reports on Business, you can view full texts of these reports on on the first and third business day of each month.

Being Prepared is Good Business: The American Red Cross

Monday’s Keynote Address Luncheon was the place to be on this overcast Baltimore afternoon! The halls were packed to capacity with Conference attendees, who enjoyed a delicious lunch as the Chair of the ISM Board of Directors, Sidney Johnson, took the stage to welcome everyone and, especially, congratulate the student recipients of the 2012 R. Gene Richter Scholarship Awards and the four winners of the ISM and Michigan State University Awards for Excellence in Supply Management:

The American Red Cross: Organization/Structure Category

Cisco Systems, Inc.: Process Category

IBM Corporation: Technology Category

T-Mobile USA, Inc: Sustainability Category

(For a detailed look at each of these award winners, see the April 2012 issue of Inside Supply Management magazine.)

Mr. Johnson then introduced the keynote speaker– the president and CEO of one of the Award-winning companies, The American Red Cross, Gail J. McGovern.

McGovern shared her empassionated viewpoint of the work the ARC does each and every day. “When I want to restore my faith in humanity, I visit one of our blood donation centers and hear some of the stories of why people donate blood,” she said. (Over 9 million blood products are shipped each year by the ARC, representing 40 percent of the U.S. blood supply.)

When McGovern joined the organization in 2008, the non-profit had a deficit of US$209 million, a high amount of debt and procurement was done separately at hundreds of chapters around the country. There was ample room for improvement. Chief Procurement Officer Jill Bossi headed up a new centralized procurement department, and by 2012, over $31 million in savings was realized and inventory had been restructured to best prepare for disasters, wherever they might occur.

The ARC has also launched the Ready Rating Program, according to McGovern. This web-based program offers companies an opportunity to get a comprehensive analysis of its own disaster-preparedness. Participating companies also get customized feedback and a scorecard to help them maximize their risk management plans. “We’re getting very positive ratings from customers, many of whom have improved their preparedness scores by 57% (average) in one year,” said McGovern.

For more information on the no-cost Ready Rating program, visit


Joe Cavinato, Ph.D. Named Winner of the 2012 J. Shipman Gold Medal Award

At an honorary luncheon during today’s 97th Annual International Supply Management Conference and Educational Exhibit in Baltimore, Joe Cavinato, Ph.D., became the 81st recipient of the J. Shipman Gold Medal Award — the highest award within the Institute for Supply Management‘s (ISM) power to confer.

The J. Shipman gold Medal Award originated in 1931 with the New York City affiliate of ISM (then known as Purchasing Management Association). It was established in honor of Johnson Shipman, a modest, ritering man highly regarded for his vision, intellect and influence on important issues. Despite the accolades, Shipman refused all honors and posts, both local and national.

Since that time, the J. Shipman Gold Medal Award is presented annually to an invidiviaul who has made a major contributions to the supply management profession, to ISM and to the community. Cavinato fits all these bills exceedingly well.

As Norbert Ore, CPSM, C.P.M., chairman of the ISM — J. shipman Nomination Committee, pointed out, innovation is certainly one Cavinato’s trademarks. In the mid-1980’s, the medalist created financial models he called “financial supply chains” — the cash-to-cash cycle among them. He used these models in his writing, teaching and client presentations.

Another Cavinato trait, in droves: conceptual thinking. “In the early 1990’s, [Cavinato] began to definte and promote ‘supply management’ as a field greater than just ‘purcahsing’ or ‘procurement,'” Ore told attendees. “He expressed the differences in the following: ‘You’re a buyer when you get involved once you receive a requisition; you’re in procurement when you get involved before the requisition is produced; and you’re a supply professional when you get involved before the product is even created.'”

Although the time allocated wouldn’t allow Ore to list all the contributions and accolades already bestowed on Cavinato — including several outstanding teacher awards from universities across the United States — one in particular bears recoginition: his leadership as executive director of the Center for Strategic Supply Leadership (CSSL) at ISM since 2004. He also pointed out that Cavinato has written, co-written or contributed to 15 different supply management books, and has nearly 250 published articles under his belt.

“[Cavinato] is a visionary and recognized leader, mentor to many, and friend to many more,” Ore told attendees. “He has received many awards — awards befitting an original thinker, a valued contributor and a respected teacher and scholar. He has excelled in all his roles with a scholar’s mind and a buyer’s heart.”

For those familiar with Cavinato’s speaking talents, his acceptance speech was engaging and — as he rarely wastes an opportunity to be so — educational.

He took attendees back to the 1980’s, when CPOs had a frustrating time getting executive-level recognition for the value they delivered. Based on his groundbreaking interviews with CEOs, Cavinato determined that the CPOs who were on their CEOs’ radar were perceived as (a) businesspeople first and procurement people second, (b) problem-solvers and (c) oracles.

In the 1990’s, supply managment became “all about value-add and ‘doing things better,'” Cavinato continued. And, in the 2000’s, ‘outside-the-box’ capabilities became distinguishing characteristics of highly visible CPOs. These included low-cost country sourcing, new product reveneus, end-to-end supply chains and corporate social responsiblity. This was also when CPO-to-CEO career ambitions gained the most traction.

Wrapping up, Cavinato outlined three trends he sees on the supply management horizon: 3-D printing (which he predicts will have particularly major impact on medical device and aerospace supply chains), unpredictable dynamics, and ever-increasing CEO expectations of CPOs and their supply management teams. “We’ll be more highly regarded as sources of opportunity for our companies,” he said. “CEOs want CPOs who’re predictive — who see not only opportunities, but potential dangers.”

Cavinato also expressed his excitement that supply management now attracts the “best and brightest in the class.” He suspects it’s due to the forward-thinking reputation the profession has gained: namely, as a growing field.

As Cavinato pointed out, the hallmark of any growing field is refusal to accept the status quo. “It’s looking outside your own job, your own company and your own country, and then applying what you see for your organization’s benefit and growth,” he concluded. “My advice is six words: Be a leader in what’s possible.”

Manufacturing Best Practices in a Services Environment

When John MacLean joined American Airlines as CPO, the procurement function was essentially a tactical, order-placing model, with no defined strategy. A few different factors necessitated the need for a strategic roadmap.

The Department of Transportation measures the airline by whether or not its 3,400-plus flights per day arrive and depart within 15 minutes of their scheduled times. This translates to about 1.1 million flights per year; daily, it means accommodating 105 million passengers and 650 aircraft flying three to four flights. As MacLean points out: “It takes a lot of services to keep them flying.”

To achieve the supply management function’s current strategic state, MacLean devised a roadmap comprised of:

A value statement. Essentially, this statement — as with most organizations’ supply chain value statements — dictates that supply management will create value.

Department training. MacLean implemented staff training on skills development (reverse auctions, negotiation and so on); business (including ethics and supplier diversity); and applications (AAPICS, COGNOS, Ariba).  

Education. Currently, about 95 percent of American Airlines’ supply management staff holds college degrees (48 percent with bachelor’s, and 42 percent with master’s degrees). To keep the pipeline of educated supply chain talent populated, the procurement function even has its own LinkedIn group. Here, supply management students can start interacting with the organization even before they interview.

A value strategy. “We don’t have buyers; we have commodity managers,” MacLean explained. Each commodity manager has a value strategy for everything they buy, which includes some typical elements: a market study, supplier study and needs study.

Supply chain optimization. When MacLean joined American Airlines, it had more than 17,000 suppliers. Today, it hovers around 4,000. “That seems like a lot,” he conceded. “But, the suppliers of jet fuel aren’t providing us with Godiva chocolates, too.” Part of his supply chain optimization strategy is horizontal and vertical expansion of existing suppliers when possible, as well as supplier consolidation.

Strategic sourcing. A fairly typical seven-step sourcing process is in place at American Airlines.

Business unit strategy. Business units include maintenance & engineering (M&E), flight (pilots and crew), marketing and airport services. All are supported by the purchasing and transportation function. MacLean makes it a point to get involved early in these business units’ meetings versus their outcomes being “thrown over the wall.” He ensures his team is involved in the creation of these other departments’ strategies.

Combined, this strategic roadmap has generated some impressive measurements: value savings of 8.25 percent; fuel delays of only .02 percent; and diversity spend of $370 million.

It has also contributed to the organization’s 2011 placmeent of the largest aircraft order in aviation history, exceeding $40 billion. All departments were involved in those negotiations, including procurement and finance. As a result of the cohesiveness of these departments’ processes, it took American Airlines three weeks to put in place three massive contracts — a task that could easily take up to a year under different circumstances.