I interviewed Jessica Hillyer who discussed Ways to Cut Transportation Costs.
Today we're speaking with Jessica Hillyer who will discuss ways to cut transportation costs. So, Jessica, can you first provide a brief background of yourself?
Hi, Dustin. Thanks for having me. I really appreciate it.
Well, real brief, I'm a logistics broker. And I come from the food industry, manufacturing industry, chemical background. And I've also got a little bit of electrical maintenance — not really, because I was just an apprentice. So really, I come from the manufacturing environment, and then I landed in transportation and fell in love with the puzzles.
Can you share some ways that you've successfully cut transportation costs?
Well, one of the things that I was able to do, and I'm able to provide that same service level to my prospects and clients is understanding cost per pound. Well, understanding what a cost per pound is quite literally cost divided by your unit, whatever your unit of measure is for... A food shipper, they're really going to measure their supply chain in pounds. And it's much easier to understand are we maximizing the truck inside of the reefer or van, whatever the type of transportation unit that we're using. So when we think about the cost per pound, we have to understand are we shipping super light products that's going to weight the truck out... I'm sorry. That's going to cube the truck out with the cubic footage that's allowed in the truck? Are we going to scale the truck out by not using up the actual space in the truck, but we're going to scale it out to 40—, 41,000 pounds? Because that's all a reefer can handle or 2150 cubic foot.
So understanding, we have to define what is a full truckload. And then from that one, we want to understand what does it cost to move that truck from point A to point B. And we're going to keep it simple, not do multi-stop. That is another headache. So what does it cost to move that truck from point A to point B.? If it costs $2,000, let's say... If it costs $2,000, so cost divided by pounds, and we're going to do 40,000 pounds. So we're going to quite literally divide 2,000 divided by 40,000, and we get it to be 5 cents a pound, $0.05 a pound.
So if I have a truck that is $2500 for that same 40,000 pounds, that truck is now costing me at a .0625 cost per pound. So my pounds went up. So understanding what that cargo value is worth and how much profit that the customer is able to get back on that shipment is all really centered around are we filling the truck up. Are we scaling the truck out to weight? Sometimes that doesn't happen because sometimes we ship really, really, really super light stuff in a truck. Sometimes it's insulation. Sometimes it could be plastic pellets. It could be sandwich binds. Whatever it is that we're doing. It could be a lighter product. But the cost is also a factor in here.
So the key is to negotiate rate, especially if we know that the fixed variable or the fixed number here is going to be the weight because I'm going to target my metric for the customers to ship out trucks at 40,000 pounds. Then the variable here is going to be the price of the truck.
So if we can control the fixed cost, then we can also try to shrink the variable cost. And how you're going to do that is you're going to negotiate those rates. Now you can do spot quotes, which is not good. Spot quotes is just madness, and brokers tend to want to steer from those types of shipments anymore, just because it's an unreliable market, and nobody wins. But it's also a good market for brokers to make a lot of money and take advantage of shipments — shippers, I should say. So to get locked in with one-year, two-years, three-year contract allows for a broker to build relationships with carriers or transportation aspect carriers in order to provide the transportation service for shipper.
So one of the things that a shipper can do is increase volume award and decrease the amount of vendors. So very much like going to the spot market where we send out a blank carbon copy email with 25 to 50 transportation vendors, the thing is, all of those 25 to 50 transportation vendors are going to be bidding on the same freight that's going to drive that cost down. But ultimately, what's going to happen is you're going to start to impact the actual market. And you want to be careful with being a shipper that wants to impact the market on that level. You don't want to get a reputation for having cheap freight because then none of your reliable carriers are going to want to haul your freight.
So the thing to do, what I would suggest to do, is to enter into an RFP. This helps you two-fold. Number one, it locks in rates so that you can have a very consistent freight spend and budget forecast for the year on what your transportation is going to be able to cost you. And it also allows you to build relationships and partnerships with folks that you're never going to see — your carriers. Because when you help feed them, they're going to help you, and they're going to help be that end meet-and-greet to your customer and your distribution.
So when you negotiate those rates, you want to take into consideration the rate per mile is [inaudible 00:06:21], the market rate. And then your fuel surcharge is either going to be your business development agent for that particular asset carrier. It could be their paycheck or a loan. Or it's going to be, if you're using a broker, it's going to be their paycheck as well. So it's your broker fee.
So the rate per mile is going to include fuel, whether you as the shipper want it to include fuel, it is. To negate this right here is to go to a company called Breakthrough Fuel. And what they're going to do is they're going to give you a real time-gate analysis because they've partnered with the Pilot stations, I believe– Pilot, or truck stops, throughout the United States to where they're going to go a real-time feedback on the diesel fuel market. And that is what your carrier is going to get on a weekly basis. That's not negotiable. They sign a contract. End of story. End of discussion. So now they can't price gauge you or do any price fixation on the fuel surcharge.
Another thing to tackle is your [inaudible 00:07:24]. If you’ve locked in what you're going to pay, then it's another predictability analysis, that you're going to able to say that I have heavy detention on this lane. And you can expect that a carrier or a transportations provider is going to expect to be paid a little more on that because that trucker is going to sitting there. And when those trucks aren’t moving, they're not making money.
The last but least in this little snippet way that you can reduce transportation cost is for vendor management. So your transportation providers, if they're getting one or two trucks from you a month, they're not going to be very... You're not going to be high on their list to take care of. Butif you're they're bread and butter, then they're going to take care of you. You want to be careful about the amount of volume that you're able to give a transportation provider because if they have a claim, you want to make sure that they can cover it with the right insurance, with the right brokerage bond or asset bond. You want to make sure that you're not going to put them out of business and ultimately stick it to your customers. So you want to keep that in mind.
But vendor management, you can develop scorecards for your vendors based on service levels, based on how well they interact in customer service, or how well managed they are, or the amount of volume that they can handle, whether or not you feel you're able to get the value added service that you're paying for based on the price. So with that comes metrics. So are your carriers meeting your metrics? So you have to define what metrics are important to you as a shipper so that I can clearly meet those metrics. And then you have to really go black and white and detail with those metrics are. If you're telling me that... Let's say flatbeds, that you need to have tarps. Well then I'm only going to 4-foot tarps. I'm not going to go look for 8-foot tarps. I'm going to get 4-foot tarps. So if your product's damaged, it's coming back on you because you didn't clearly define your metrics.
So I know it's a pain in the patootie, but it's well worth it in the end when everybody is on the same page, and even the shipper can provide ways for your partners to be able to service this account.
So once you're able to lock in rates, this is going to be able to provide a huge savings right away because it's able to be locked in and any deviation has to be approved. And that approval is going to come from your controller who is going to be, ultimately, to be able to say how much the buffer that they're going to add onto it.
Why did you choose these methods?
So the reason why I chose these methods is because when I was a logistics analyst at AdvancePierre Foods and went in to really start to dive into what was our biggest waste, we found that cost per pound was kind of out of control in certain regions, especially shipping from Georgia to Florida. In addition, I found that some of the SOPs were unwritten. So a lot of the carriers had no idea what we expected from them, yet we were holding them accountable to these metrics. And once we were able to pull these carriers in and out of meeting, one in particular was Rusty from Armstrong Transportation — great guy. He didn't really have an idea of what our metrics were, and it wasn't really fair to him because he didn't... It was never communicated to him on how to service this account. So when we developed — Greg Blackman and myself, who also I have to credit him for training me in Microsoft Excel — we created a lot of SOPs, standard operating procedures, for how to handle our freight. And with those SOPs, we were able to clearly define, okay, we had a deviation on XYZ. What drove that deviation? Is this a one-off? Is this going to be a reoccurring event? Do we need to reexamine any SOP? Because we would have periodic audits, especially when things went awry.
The strategy that we developed there was really just building that cross-functional chain with the warehouse, the carriers, the customer service, with supply planners, what other folks in the logistics department, to really see, okay, how can we all be on the same page here and move in that ebb and flow that is the harmony of supply chain that's really beautiful here.
And my last question is how can you find new ways to cut transportation costs?
Some of the other things that you can do to find new ways to cut costs — pay attention to digitization of supply chain. We're entering into a new type of...I kind of want to say a new world. But we're entering into a new type of future that we're going into with all of this technology. So how can we... You know you've heard of blockchain, value stream mapping...how can we do that in a way that's not going to gouge us by having these electronic solutions, the Internet of Things, how can we do that and still keep the human element? Because at the end of the day, it's all about relationship, even with your vendors. Your relationships with your customers are what's most important. So to keep relationships [inaudible 00:13:06] with your vendors is what's really going to drive it because if they can expect you to do the same thing and be consistent, then they can consistently provide the service levels. Transportation spends and rates, all of those are negotiable. And if you don't like it, then you can risk going out and forging a new relationship, either saving those rates and starting all over. There's all different kinds of strategies. There's all different methods to do it. But it starts from relationships and team building.
So understanding where you are now and where you want to be and coming up with a roadmap for success for all team members. That's your transportation. That's your warehousing. That's your third-parties that you're never going to meet, or maybe you meet them in six months or every three years. But getting everybody on the same page and keeping everybody engaged. You always have to have your finger on the pulse when it comes to transportation because it can change in a [inaudible 00:14:06].
So I hope you've gotten something out of it. I try not to ramble but sometimes I get so excited about it. And, Dustin, I really appreciate you having me, and I look forward to seeing more from the Supply Chain Future. Thanks a lot. Jessica, out.
About Jessica Hillyer