Outbound Intra-Company Freight

Situation

• 40 plus suppliers were delivering to 17 plants and logistics depots

• All flows were treated individually with little or no attempt to create synergistic networks flows

• Significant sourcing inertia existed, most routes had been with the same supplier for many years

• Suppliers were managed for price only, there were regular increases in price being accepted

Analysis

• The client continued to use the threat of competition in the face of overwhelming evidence that switching was rare

• Most sourcing decisions were driven by preference and prejudice (local issues)

• Supplier management was handled, in the main, by time-pressured, unfocused production staff

Solution

• A generic cost synthesis model was developed by a small central expert resource

• This cost model was applied to four selected routes involving three suppliers. This identified initial potential savings of around 2 million SEK (10%)

• Negotiations with those suppliers were conducted lead by the small central expert resource. Those negotiation results were communicated to all plant-based production staff involved in handling freight companies via a series of local seminars

• The plant based staff then applied local "price-down" pressure to all their remaining suppliers using the original negotiation results as a benchmark and the generic cost synthesis as the rationale

Results

• 2.0m SEK (10%) immediate savings (four routes)

• 15m SEK further savings from the multiplier effect of the first negotiations

• Actively demonstrated which suppliers were committed to developing their business with the client and had a cost structure that permitted them to do this

• Created a platform from which to commence a more sophisticated strategic programme of flow/network management across all routes with the aim of creating a more responsiveness system with lower inventories