PURCHASING FREIGHT TRANSPORTATION EFFECTIVELY
Co-authored by Welch’s
and TransportGistics
(2nd in the
series)
Introduction
This white paper is the second in the series of four (4) that
addresses freight transportation purchasing. The titles are:
Freight
Transportation Purchasing Philosophies; Purchasing Freight
Transportation Effectively; The Role of the Logistics Leader
in Purchasing Freight Transportation; and Contract Carriage
Agreements. The first in the series was co-authored by TransportGistics
and
Toyota and spoke to the importance of having
a well understood and articulated philosophy as the cornerstone
for achieving best transportation purchasing practices.
“Purchasing Freight Transportation Effectively”, is co-authored
by TransportGistics and Bruce True, Logistics Manager for
Welch’s. It is the second white paper in this continuing
series and presents how Welch’s purchases their transportation
services.
About the Authors
Welch’s
Bruce True began his career at Welch’s as the Inventory Planning
Manager where he was responsible for Material Planning. Working
his way through inventory he added breadth to his knowledge.
His experiences, along with his keen interest in logistics
and transportation earned him the title of Logistics Manager.
He is responsible for: Transportation (rail and motor); Supply
Chain Systems Management; and Juice Availability (monitoring
inventory and usage). Mr. True earned his Bachelor’s from
Northeastern
University and is a member of APICS and CPIM.
TransportGistics,
Inc.
TransportGistics is a global, multi-product
and services company that provides market leading, simple,
incremental solutions for transportation management and
logistics functions within the supply chain.
TransportGistics’ commitment to education
is portrayed through its advancement of professional logistics
and transportation programs.
Its white paper site presents important and timely transportation and logistics subjects
each month, and is regularly visited by more than 22,000 companies,
universities and governments, worldwide.
Through its question and answer section,
TransportGistics and its readers are actively engaged in asking
and answering questions. This
activity has created a forum through which logistics and transportation
professionals exchange ideas and information.
TransportGistics, Inc. is an active partner
at the
Center of
Excellence in Wireless
Internet and Information Technology at the
State University
of New York-Stony Brook.
Executive Summary
Proper freight costs can mean the difference between profit
and loss. Freight transportation
costs account for a significant portion of the overall corporate
budget and must be purchased effectively, controlled and monitored. In order to purchase freight transportation
services effectively, it is imperative that a set of decision
criteria be established that, at the very least, understands
the culture and mindset of the company, the products shipped
and received, the distribution market area, the delivery and
service expectations, and the carrier market. Once the decision criteria is established, a
well orchestrated plan should be created that will include,
at the very least, a transportation purchasing philosophy,
a negotiation strategy, a control program and a performance
monitoring routine. At
the conclusion of this phase, it would be appropriate to document
the entire process and compile a “freight transportation purchasing
profile”.
The purposes of this white paper are to present Welch Foods program
for purchasing freight transportation effectively and to incorporate,
by reference, the information contained in Freight
Transportation Purchasing Philosophies.
Description of Welch’s
Transportation
Welch’s is headquartered in
Concord, Ma, and is the world’s leading manufacturer
of
Concord and
Niagara grape-based products. The company
produces a range of products from juices, to frozen concentrates,
to jams and jellies. Gross
sales were $676 million in its most recent fiscal year.
The vast majority of revenues come from domestic sales, with
much of that being produced at 3 company owned factories:
North East,
Pennsylvania which covers the eastern third of
the country;
Lawton,
Michigan which covers the middle of the country;
and
Kennewick,
Washington which covers the western third. Each
plant produces and distributes most of the products in the
Welch’s portfolio. That fact, combined with the fact that
less than 1% of our volume ships LTL, means that we have no
need for forward warehousing, choosing instead to ship our
products directly from our plants to the customer. Like every
company, Welch’s transportation description and its philosophies
and operating styles defines its unique characteristics and
requirements. We maintain no company owned trucks and have
chosen instead to operate a core-carrier program. Each plant
has anywhere from 1 to 8 core carriers, with a number of additional
carriers assigned as back-ups in each lane.
Carrier Selection Process
Core carriers are selected for each lane via a bidding process
that takes place about every two years for each plant. Lanes
are defined as shipments to a particular state. Carriers can
bid to become the Core Carrier for the entire lane, or to
become a back-up. Bid packages are sent to each Carrier that
has expressed an interest in our business, and that we feel
might provide us with the service we require.
Bid packages include the following:
-
A Carrier
Questionnaire
The questionnaire asks for background
information about the company, including such things as size,
number of pieces of equipment, insurance information, and
references.
-
A copy
of our contract
We want Carriers to review and agree
to our contract up front. In the past there have been instances
where a Carrier awarded the business would balk at signing
our contract.
-
Welch
company profile
Outlines our company operation, including:
-
What types
of products we ship, along with handling requirements
-
Minimum equipment
requirements
-
Plant loading
hours, along with specific plant requirements
-
How our bids
are defined (cost per mile), and how invoices are paid
-
Our criteria
for accepting the winning bid
-
Bid
template
An outline of shipments for each lane
up for bid is presented. The template is an Excel spreadsheet
and includes such things as:
-
Number of
historical shipments for each lane, broken out between dry and frozen
-
Number of
loads shipping as truckload, versus consolidated
-
Carrier
performance report
We measure our Core carriers on several
criteria, including such things as on-time delivery, accurate
invoicing, and their number of missed loads. We include a
copy of this report card with the bid packages so that Carriers
understand how their success with Welch’s will be judged.
Carriers who fail to meet our performance criteria will be
replaced.
In order to be considered, a Carrier must return a completed
bid template, along with the following documents:
-
Welch contract
compliance statement
-
Completed
Carrier questionnaire
-
Copy of insurance
certificate
-
Copy of
Motor Carrier Safety Rating letter
-
Authority
(Contract Carrier or Broker)
By receiving all of this information up front, we ensure that
any bids that we consider are from Carriers who meet our requirements.
Final Selection
Final selection is based on some of
the following decision criteria:
-
Size
of the company
We have found that smaller companies,
where we can be a significant portion of their business, tend
to give us better service than the national Carriers.
-
Ability
to handle refrigerated loads
A large portion of our shipments contain
at least some frozen product (we will ship dry and frozen
on the same truck, which allows our customers to more easily
order in truckload quantities).
-
Carrier
should have its own assets
While most of our Core Carriers do
broker out some of their volume, we expect them to carry the
majority of our orders on their equipment, using their drivers.
We believe that this ensures consistent service. Also, we’ve
found that Carriers who have some of their own equipment are
in a better position to respond to any last minute rush orders
that may develop. Non-asset based Carriers tend to be back-ups,
rather than Core carriers.
-
Carrier
must have a demonstrated history of providing outstanding
service
Our core carriers do not tend to be
the lowest bidders. Instead, we believe that they offer us
the best combination of price and service. Our experience
has been that the lowest bidder does not usually provide the
best service, which results in damaged customer relations
and high fines due to poor on-time delivery.
The Importance of Long
Term Relationships
Our previous white paper, “Freight Transportation Purchasing
Philosophy”, co-authored with Toyota-NAPO, positioned long
term relationships as a cornerstone in their purchasing philosophy.
Likewise, Welch’s, puts it into practice by first stating
its understanding of the value of good, long term carrier
relationships.
We value having good relationships with our Carriers. With
the growing service demands of our customers it is imperative
that we maintain a close partnership with our Carriers. Many
of our Core Carriers have been with us for a number of years,
primarily because of the balance created between price and
service. Consistent with the mutual respect shared between
Welch’s and its carriers, our carriers can be counted on,
to pull out all the stops to handle our business during peak
shipping periods. Likewise, “we will do whatever it takes
to handle the all-to-frequent emergency shipments to maintain
these relationships”. Because of the importance Welch’s assigns
to establishing long term, valued relationships with its carrier
partners, all parties are positioned to work together solving
problems of mutual concern. Below are examples of some of
the things we do and don’t do:
-
Work with
our Carriers to reduce costs where possible, without attacking
the carriers’ reasonable profit
-
Avoid “nickel-and-diming”
-
Pay freight
bills quickly and on time
-
Effective
communications
Simple things, such as controlling
freight payables provides the assurance of meeting our partners’
expectations, not the least of which is, account profitability.
One of the costs of doing business is the cost of money. Welch’s
negotiations recognize this and it is their obligation to
achieve on time payables, just as it is their carriers responsibility
to achieve on time delivery.
Another component that Welch Foods has found to be an important
plank in their freight transportation
purchasing profile is communication. Communication
not just between the Traffic Department and the carriers,
but it is also communication with all departments at Welch’s
and their carriers. Welch’s supports daily communication practices
annually at its Carrier Conference. In this venue, issues
and concerns are discussed so as to achieve a clear understanding
of expectations and deliverables.
Continuous Improvement
Implementation of a process and the collateral procedures would
be short lived without a continuous improvement process. Having
achieved the mutual respect and understanding of our carrier
partners, it is just as important that performance be monitored.
Mr. True says, “While we are generally pleased with the way
we currently conduct business, our process allows us to identify
areas of opportunity and weakness. As an example of recent
discoveries, the following items are being considered:
-
Conduct bids
via on-line software
-
Standardize
accessorials
-
Allow Carriers
to bid on portions of lanes”
Conclusion
Purchasing freight transportation effectively can mean the
difference between profit and loss. Welch’s program is effective
because it recognizes and understands who they are, and what
they need. Their program contains the relevant components
that drive their partnerships successfully.
Continuation
Please consider this white paper as a continuum in this subject
area, succeeding white papers will address common issues and
address them with common solutions. We encourage our readers
to direct any specific questions or comments to papers@transportgistics.com.
Disclaimer
The information presented herein represents the opinion of
the author(s) but not necessarily the opinion of TransportGistics,
Inc. nor is it presented as a legal position or opinion.
All content copyright by TransportGistics,
Inc. All rights are reserved. The author(s) of this article
retains the copyright to their article. No material may be
reproduced electronically or in print without the express
written permission from the individual authors and/or TransportGistics,
Inc. papers@transportgistics.com