Rising logistics costs are an issue for industries throughout the world. In Britain, the Chancellor’s postponement of a 3% fuel duty rise earlier this year was welcomed by manufacturers, hauliers and motorists. However, the fact remains that the rise, now scheduled for January 2013, will still go ahead and for some companies this could prove to be the proverbial final straw. Already several years into a recession, most organisations have already reduced costs as much as they can. With hauliers doing the same, it is difficult to see where the additional revenue to fund the duty increase – and other additional rising costs – will come from.

But there are still areas where savings can be made. In my experience as a transport management consultant, many companies across a range of industries including packaging, could do far more to reduce their logistics expenses, but lack the knowledge of where to start. This was borne out by the responses from a recent survey of transport managers which revealed that over half felt that negotiating better rates with suppliers was a viable solution to the issue of rising costs. Whilst this sounds logical in theory, most hauliers have cut costs as much as possible and to do so further would simply result in running at a loss, and eventual closure.

 To help offset these rising costs, most transport firms now have fuel surcharges with their clients. This means that it is they who will pay any additional fuel duty imposed in the future, not the haulier. With margins so tight, most companies will then be forced to pass this further down the supply chain to their customers – and ultimately to the individual the form of rising prices in the market place. So, the only truly effective long term solution is to address how the supply chain works and to operate more efficient transport processes.

Companies come to us to save money – but quite rightly are unwilling to sacrifice the high quality service that they offer.  There is a common perception amongst businesses and their clients that reducing costs inevitably means offering a reduced service. However, I’m pleased to confirm that improving transport management systems almost always enhances customer experience.  If the right cost saving measures are put in place, more efficient systems will result – which has to be good news for everyone. Having worked with international packaging manufacturers Linpac Packaging for over five years to streamline and improve logistics practice, I can testify that reducing costs really can go hand in hand with improved client experience.

The Linpac Solution

Part of the internationally renowned Linpac group, Linpac Packaging is firmly committed to sustaining the highest standards of customer service. So, when the company identified their supply chain as an area with potential for improvement, it was clear that service levels were not to be compromised, but if possible, enhanced. Linpac Packaging was originally set up as Lincolnshire Packaging in 1959. Since then, the company has grown to take a major part of the packaging market and comprises 70% of the whole Linpac Group. The company:

• operates across 16 manufacturing sites
• has 23 sales operations
• services 37 countries worldwide and
• supplies over 10,000 different products.

The global packaging industry is fiercely competitive and the management team at LINPAC realised that in order to grow their market share and increase profitability, areas with wastage needed attention. It was essential that any changes should have significant benefits for customers, and the company felt that the changes would be best managed by outside experts. Transport management specialists 3t Logistics (www.3t-europe.com) were called in with the brief of assessing Linpac’s logistics systems, identifying where changes could be made which they would then implement, manage and monitor.

Whilst the company were able to provide high levels of customer service, this came at a high price – which was becoming increasingly difficult to sustain and which failed to make the best use of resources. In 2007, Linpac operated two main distribution centres, a vehicle fleet and five satellite depots in the UK, all with their own staff, stock and vehicles. 3t initially identified four key objectives which would drive the whole project:

1. To reduce transport costs through improved vehicle utilisation and reduced empty running.

2. To reduce inventory through centralisation of all stock in one location.

3. To reduce administration through the automation of communication and processes and reducing non-standard transport requests.

4. To increase visibility and levels of communication within transport processes, alongside the introduction of continuous improvement mechanisms.

The Improvement Process

One of the first tasks was the centralisation of stock which involved withdrawing from Linpac’s satellite sites. The company’s in-house fleet was also outsourced to carefully selected shared user carriers, significantly reducing operating costs. Furthermore, by establishing a new nationwide delivery network with their carrier partners, the company was able to guarantee next day delivery of products in the UK. Specialised software developed in-house by 3t now enables more efficient management of the Linpac parts database.  All orders are filtered through this tool to gain precise order sizes and allow the most accurate load utilisation possible. The booking system enables operatives to enter order numbers onto a booking slot on the web portal which then auto plans shipments through the system and builds loads for Linpac, feeding through to the despatch screen. This means that all orders to be loaded are `under one roof`. The despatch screen shows which loads are due out by carrier, plan number, time and bay. There is also a facility to log arrival, loading and departure and colour code the screen which allows live progress checks.

Additional cost saving procedures to improve efficiency have been implemented over the five year period. These include

• The introduction of optimal transport diaries
• Advice on minimum order quantities
• Visual interfaces of upcoming loads and their present status, enabling better despatch planning
• The introduction of a parts database to enhance vehicle utilisation
• Order tracking by status up to delivery
• Online POD provision.
• Full cost to serve transport management reports

Key Performance Indicator

The introduction of key performance indicators (KPIs), which are measured against and reported on daily, ensure that delivery service levels in excess of 99.5% are maintained. This transport excellence programme has become part of Linpac’s European best practice approach to transport management and has been rolled out to other Linpac operations, including those in France and Spain. The weekly KPI report includes targets for each of the following:

1. Deliveries on time - Percentage of total deliveries where arrival is less than 30 minutes late.

2. Cost per m³ – Gross cost per despatched unit.

3. POD upload rate - Percentage of PODs outstanding beyond the service level as defined within the MOP for each site.  The report provides a snapshot, as well as identifying the level of compliance against the measure documented in the MOP.

4. Collection on time – Percentage of total collections where arrival is less than 30 minutes late.

5. Delivery confirmation compliance – Percentage of delivery confirmations received within 30 minutes of the delivery window closing time.

6. Vehicle utilisation – Total vehicle utilisation expressed as a percentage.

7. Issues as a percentage of shipments – Count of issues as a percentage of total shipments.

The Carbon Factor

However, whilst saving money and enhancing customer experience is the driving force behind most transport management initiatives, companies across all industries will increasingly need to be aware of their carbon emissions and take steps to reduce their environmental impact. Government targets of reducing the UK’s carbon emissions by 50% by 2025 require organisations to start taking action now – or face financial consequences in the form of additional taxes. Linpac is committed to reducing carbon emissions, aiming to create a closed loop packaging process. With the ultimate goal of positioning themselves as the most environmentally aware packaging organisation in the UK and Europe, the company can now calculate emissions via government formulas. This data is then used to implement measures that significantly reduce transportation carbon dioxide emissions – by up to a third in some cases.

Linpac has demonstrated that managing transport operations has benefits for everyone: from shareholders through to staff and customers. Furthermore, the measures that they have introduced and the approach to eliminating waste from the supply chain are strategies that most organisations in just about any industry could apply – with equal success. So, whilst a company may think that they have done all they can to streamline their supply chain, it may be worthwhile taking a second look and following Linpac’s positive example.

Tim Fawkes

Business Development Director,

3t Logistics