2013 Operations Summit Proven Tips to Manage Your Supply Chain Jeff Kline President

2013 Operations Summit Proven Tips to Manage Your Supply Chain

2013 Operations Summit Proven Tips to Manage Your Supply Chain Why Care? Direct-to-consumer retailers spend an average of 2% to 4% of gross sales on vendor inbound freight ranking it among the top eight operational expenses While often overlooked, supply chain management impacts gross margin, purchasing staff productivity, inventory control, receipt processing, and fulfillment operations.

2013 Operations Summit Proven Tips to Manage Your Supply Chain Proven Tips This session will provide you with proven ideas to reduce inbound freight costs and manage your supply chain. Following the presentation we will have Q & A and if time permits would like to hear some ideas from you.

2013 Operations Summit Proven Tips to Manage Your Supply Chain 1.Take charge of vendor small parcel shipments 2.Leverage LTL volume to reduce costs 3.Negotiate cost not discounts 4.Negotiate FAK class exceptions 5.Join a buying consortium 6.Review FOB terms 7.Issue a vendor routing guide 8.Monitor & enforce vendor compliance 9.Pre-Audit Freight Bills 10.Use technology to manage inbound supply chain Top Ten List

2013 Operations Summit Proven Tips to Manage Your Supply Chain LTL Freight Costs LTL freight costs are determined by weight; distance and freight classification The National Motor Freight Classification (NMFC) publishes a list of every kind of item that ships via truck and assigns a class. Freight classes range from 50 to 500. The higher the class the higher the cost. Density is a key factor in determining class. More dense items such as printed catalogs have low classifications. Fragile or bulky items fall into higher classifications.

2013 Operations Summit Proven Tips to Manage Your Supply Chain Take Charge of Small Parcel Make sure your parcel carrier discounts inbound shipments and counts revenue toward volume based discounts Require vendors to ship small parcels collect or 3 rd party to avoid lost discounts or excessive freight markups Establish weight & size limits for vendor parcel shipments

2013 Operations Summit Proven Tips to Manage Your Supply Chain Leverage LTL Volume Select a few good LTL carriers … that directly meet your service needs one national carrier and a few regional carriers Negotiate use of a common, non- current rate base such as Czarlite.

2013 Operations Summit Proven Tips to Manage Your Supply Chain Negotiate Cost Not Discounts Always do your homework and benchmark your current LTL costs Understand true costs Base Rates – current vs. old? Accessorial charges – waived? Fuel surcharge – published or negotiated? Compare carrier pricing based on total cost of actual shipments.

2013 Operations Summit Proven Tips to Manage Your Supply Chain Negotiate FAK Exceptions One effective strategy to help reduce freight costs is to negotiate “freight all kinds” (FAK) exceptions. An FAK is an exception to a classification rating published in the NMFC. By negotiating FAK’s with your carriers your company may be able reduce costs. See examples on next slide.

2013 Operations Summit Proven Tips to Manage Your Supply Chain

2013 Operations Summit Proven Tips to Manage Your Supply Chain Join a Buying Consortium A consortium is an association of two or more individuals, companies, or organizations with the objective of participating in a common activity or pooling their resources for achieving a common goal. Many small to mid-sized companies are finding that there’s power in numbers. Your company may qualify to join special industry consortiums designed to provide freight savings and other value added services.

2013 Operations Summit Proven Tips to Manage Your Supply Chain Buying Consortium (continued) A few Industry Associations... Footwear Shippers Alliance Retail Apparel Group Services (RAGS) Early Childhood Furnishings Alliance Medical Shippers Alliance Plastic Container & Storage Shipping Alliance

2013 Operations Summit Proven Tips to Manage Your Supply Chain Footwear Shippers Alliance Formed to push back against the largest freight rate increase in history on footwear. In 2010 the footwear classification changed from Class 100 to 150 increasing rates 50% FSA has successfully negotiated a special freight class of 77.5 on all footwear.

2013 Operations Summit Proven Tips to Manage Your Supply Chain Review FOB Terms If your company is responsible for freight (FOB Origin) require vendors to ship collect with your carriers Avoid “prepay & add” and save 30-40% Review delivered pricing – “free freight” may not be free

2013 Operations Summit Proven Tips to Manage Your Supply Chain Issue a Vendor Routing Guide A well designed vendor Routing Guide is the most important tool to manage inbound freight Routing Guides should address: carton markings; packing slips; carrier selection; bill-of-lading instructions; penalties for non-compliance; and contact info. Keep it simple – one page

2013 Operations Summit Proven Tips to Manage Your Supply Chain Route Guide o B/L Instructions o FOB Terms o Ship Collect o Carrier Selection o Weight & Size Limits o Reference Requirements o Contact Information

2013 Operations Summit Proven Tips to Manage Your Supply Chain Monitor & Enforce Vendor Compliance Distribute Route Guides to the right people including your sales rep and the vendor’s Shipping Department The best direct merchants have a formal compliance program that monitors vendor performance and enforces non-compliance

2013 Operations Summit Proven Tips to Manage Your Supply Chain Monitor Vendor Compliance Every vendor shipment should be checked for compliance: Right carrier? Bill of lading correct? PO# shown on cartons and pack slip? Keep a Score Card on each vendor Report cost of non-compliance

2013 Operations Summit Proven Tips to Manage Your Supply Chain Enforce Vendor Compliance Every compliance violation should be addressed Send letters to vendors and request their help to follow routing instructions Keep buyers in the loop and seek their help if needed Consider chargebacks for repeat offenders – typically additional cost plus admin fee

2013 Operations Summit Proven Tips to Manage Your Supply Chain Audit & Reporting Always pre-audit freight bills (13% of bills have errors) Maintain a shipment data base Track freight expenses – MTD;YTD Monitor carrier performance

2013 Operations Summit Proven Tips to Manage Your Supply Chain Use Technology to Manage Manage your supply chain with a Transportation Management System (TMS) Your TMS should be able to: Track intransit shipments for all carriers Provide routing and rate quotes Prepare shipping documents & book shipments Manage & track freight claims On-line billing with supporting backup On demand reports with functionality to export data to Excel

2013 Operations Summit Proven Tips to Manage Your Supply Chain Use In-Transit Tracking to … Allow Buyers to prioritize receipts in advance and reduce backorders Improve productivity in Receiving by projecting receipts and improving workforce management

2013 Operations Summit Proven Tips to Manage Your Supply Chain Use Technology to Manage Many of my clients use EasyFreight™ as their TMS. It’s a proprietary system developed by DM Transportation. EasyFreight™ can be utilized to manage all of your inbound, outbound and drop-ship logistics activity. It can be integrated into your technology or used as a standalone web-based system

2013 Operations Summit Proven Tips to Manage Your Supply Chain

2013 Operations Summit Proven Tips to Manage Your Supply Chain 1.Take charge of vendor small parcel shipments 2.Leverage LTL volume to reduce costs 3.Negotiate cost not discounts 4.Negotiate FAK class exceptions 5.Join a buying consortium 6.Review FOB terms 7.Issue a vendor routing guide 8.Monitor & enforce vendor compliance 9.Pre-Audit Freight Bills 10.Use technology to manage inbound supply chain Recap - Top Ten List

2013 Operations Summit Q & A Tips from Audience

2013 Operations Summit Proven Tips to Manage Your Supply Chain Thank You Jeff Kline President LTL Expert Kline Management Consulting, LLC