PURCHASING FREIGHT TRANSPORTATION EFFECTIVELY                    

Co-authored by Welch’s and TransportGistics (2^nd 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:

 

1. 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.

2. 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.

3. 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

4. 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

5. 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:

1. 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.

2. 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). 

3. 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.

4. 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