Middle Market Perspective on Distribution and Transportation

Middle market companies often view distribution operations as an inbound receiving function to support manufacturing—necessary to receive, store, and ship product to customers. And most firms place little emphasis on improving this business-critical function. Whereas manufacturing operations are considered essential for the company, distribution operations are viewed as less complex and staffed with less skilled personnel. Fortune 500 companies including Amazon and Walmart have demonstrated how investment in distribution and transportation can produce market leaders, but middle market companies rarely embrace the need to optimize their distribution operations.

Distribution Optimization

As with almost all operational issues, understanding and optimizing distribution involves people, process, and technology changes that are unique to this important function. Because distribution interacts with many other functions, it must be approached with an understanding of how changes within distribution will impact other areas of the firm.

People

FortéOne experts can assist in assessing current distribution staff and if changes are needed, help to create an employee acquisition and retention program.  Our distribution consultants can also create and deliver education and training to your distribution staff that enables them to understand the full scope of their functional responsibilities and improve overall performance. When necessary, we can also work with your Human Resource personnel to source and interview new distribution operations personnel.

Process

Most process knowledge in middle market companies is gained through experience and contained within the firm in “tribal knowledge” known only to a select few. Few processes and/or policies are documented, so it is difficult and costly to educate and train new employees. FortéOne operating partners can assist you in developing, documenting, and implementing best practice processes with appropriate policies to improve your distribution operations. Formal operations process and associated metrics allows distribution center management to improve performance based upon defined metrics, rather than relying on general employee observations and/or feedback from customers. Daily performance reviews by function and key metrics creates a continuous feedback loop, promoting daily improvement based on near real-time performance information. Our clients realize significant improvement in operational performance when these programs are implemented.

Technology

Distribution operations technology was once an expensive standalone application integrated into an ERP system and only used by Fortune 500 companies, but warehouse management systems (WMS) have become less costly and generally available to middle market companies in the past 15+ years. In many cases, the advanced warehousing capabilities found within current middle market ERP application will now support advanced warehousing capabilities needed by most companies. While the capabilities exist in many companies, distribution operations personnel often do not “turn on” these modules or access these capabilities to improve the efficiency of their operations.

FortéOne operating partners have assisted many companies in implementing the use of WMS in middle market businesses. Working with your operations and information technology personnel and your technology provider, we can enable the necessary functionality and train your personnel on how to appropriately use the technology. In most cases, these no need to buy and implement additional technology, rather we can help you leverage your existing technology.

Both inbound and outbound transportation, which have become increasingly complex to manage efficiently, are tightly integrated, and required to support the distribution function. In the remainder of these article, we discuss how to optimize transportation within your company.

Transportation Planning

Transportation planning manages the inbound transportation of materials to the manufacturing site and the outbound transportation of customer orders to customers. Although not ideal, many middle market companies continue to  buy transportation services via the transportation spot market without transportation supplier contracts. We work with these clients to establish transportation supplier relationships and pricing where it is appropriate. Many times, we are able to introduce a third part logistics (3PL) entity that manages all transportation transactions from tendering through freight payment and provides reconciliation—all at a substantially lower cost than in-house management. More advanced middle market companies plan and manage their inbound and outbound transportation via a Transportation Management System (TMS) provided within their ERP solutions or provided to them by their outsourced logistics provider.

Like other planning activities, we begin by analyzing shipment and transportation data to understand the company’s transportation network. FortéOne operating partners have worked in hundreds of firms, and our work to optimize their inbound and outbound transportation services has shown that every company requires a unique approach to achieve optimum results.

Transportation Optimization

In the middle market, transportation spend and performance is often managed by Accounts Receivable personnel rather than supply chain management personnel. Freight audit and payment, distributor or customer chargebacks, and transportation accessorial fees are often managed by financial personnel that have many other responsibilities—leaving them little time to focus on these fees. In most cases we see these charges are rarely disputed and are paid as invoiced, largely because the personnel conducting the audit and payment process lack the expertise to dispute the charges.

FortéOne operating partners have deep and detailed transportation experience. Our people have run large national 3PLs and we understand the intricacies of transportation negotiations and what constitutes appropriate charges. We work internally with your personnel and externally with your suppliers and customers to reduce and often eliminate costly chargebacks and accessorial charges, which can add up quickly. In some cases, we have seen these charges equal several hundred thousand dollars annually. As part of our service, we also educate your personnel on what charges are reasonable and what charges are not, and provide negotiation methods that allow you to sustain the savings and reduce future the charges.

When appropriate, we work with middle market suppliers to outsource freight audit and payment functions. Outsourced providers have audit tools and data that allow for more thorough and complete auditing and payment. In several of our clients, FortéOne has reduced freight payment charges from 2-5% percent annually based upon improved auditing capabilities, in addition to the 6-10% savings gained through contracts for multimodal freight charges.

Summary

Improved customer service and reduced operational expense are possible if a middle market company optimizes their distribution and transportation capabilities. These functional areas are often overlooked as performance improvement areas; however, distribution and transportation refinements can provide substantial financial savings with minimal disruption to your current operations. If you are experiencing increasing freight costs, or reduced transportation service levels, please give us a call.  A short call will allow us to understand your situation in more detail and offer opportunities to improve your operations.