Supply Chain Optimization Meets Spend Management

CLVL’s Approach to Driving Value throughout the Supply Chain A white paper analysis of American BioSurgical’s Supply Chain enhancements

CLVL Solutions, LLC is a solution based management services company that partners with mid-size to large companies (including private-equity concerns) to identify, coordinate and implement project engagements designed to significantly reduce costs and improve operational efficiencies. CLVL is unique as each solution we recommend is delivered on an independent “performance-fee” engagement basis, coupled with a continuing process improvement component. Where there may be collateral benefit, there is no measured cross-over of success from one solution to another. Each solution project must be successful in its own right to be compensatory. CLVL has nearly fifty associates throughout the United States which have been trained to identify companies and private-equity concerns which may be candidates and interested in partnering with us.

Through an existing relationship with the CEO and CFO of a medical device company, American BioSurgical, a CLVL associate was able to determine that one or more of the services we provide would likely benefit American BioSurgical’s operation. After initial meetings, it became clear the immediate need was to assist American BioSurgical with their shipping/transportation spend management. As the project progressed, it became evident the client’s entire logistics model needed to be updated/restructured to match their current business model and allow for anticipated growth. What follows is a “Case Study” of how CLVL, working through a strategic partner, delivered significant results for American BioSurgical.

The Case for Value Added Services in Logistics Spend Management

Transportation costs represent a major component of the operating budgets of today’s manufacturing, distributor, retail and supply organizations. These costs, which are highly susceptible to economic and fuel price volatility, have a direct impact on profitability.

Most spend management consultants deliver value only at the carrier negotiation phase of supply chain strategy.  They may have the pricing visibility to determine fair market value rates for carrier and 3PL services, and the ability to audit invoices, but this value ends here. That’s why many of today’s spend management consultants are appropriately referred to as “negotiators” and “auditors.”

Carrier negotiation and auditing is only one piece of the supply chain spend puzzle. To optimize and manage spend throughout the supply chain, effective companies work closely with their spend management advisors to identify every instance where the carrier(s) intersect with the supply chain. How will goods be shipped inbound to distribution centers? How efficient is the geographic mix of distribution centers and warehouses? What does the storage plan look like? What is the most cost-effective mix of carrier services for outbound shipping? Are customers participating in funding shipping costs, directly or indirectly?

Each of these areas represents major cost savings potential. Overlooking any aspect is a savings opportunity lost – yet, the majority of todays spend management consultants and logistics professionals fail to continually drive spend management rigor this deep into the supply chain.

Case Study: American Biosurgical

Early in 2009, American Biosurgical (ABI) recognized a need to reduce redundancies and inefficiencies throughout its supply chain. The company had very limited logistics expertise.  With a team comprised of mostly quality operational and sales executives leading the way, ABI recognized it was time to bring in a general supply chain consultant to assist with these efforts.

This consultant’s end recommendations were to close down a distribution center in Atlanta, Georgia and transfer operations to its two remaining centers in Los Angeles, California and Mexicali, Mexico.  While these recommendations were well received, this consultant did not provide an implementation roadmap/process plan. ABI struggled to understand how to smoothly transition operations, carrier agreements and modify their inbound/outbound logistics operating processes to accommodate this change in strategy.

In May, 2009, ABI turned to CLVL, a management services consulting group.  After meetings with the existing logistics/operations management group, CLVL brought in their partner, NPI, a niche spend management advisor that focused on reducing spending with carriers. NPI had been contracted to manage carrier RFPs, selection and contract negotiations.  As a spend management consultant, now armed with detailed knowledge of ABI’s exiting supply chain process, CLVL/NPI was tasked with validating the previous consultant’s recommendations, updating same for the current defined ABI business model and  developing and executing an implementation plan that would optimize savings for every carrier ‘touch-point’ throughout the supply chain.

CLVL/NPI exceeded ABI’s expectations by not only securing the most favorable pricing and terms for carrier services; they also developed a full carrier workflow that removed redundant efforts resulting in minimized spending.  These services included:

• Validation of inbound and storage plans.  NPI assisted with the development/validation of the inbound freight and warehouse plans as well as developed carrier selection criteria, conducted provider interviews and created target pricing for carriers. This helped ABI achieve significant cost savings and improve service to their clients.
• Validation of outbound plans.  NPI assisted ABI with the development and validation of outbound planning. This determined the most cost-effective movement plan and modes for the delivery of goods to the end customer.
• Data modeling and centralization. NPI compiled fragmented supply chain and carrier data from multiple sources into a centralized and secure location. NPI then completed intensive data modeling exercises to help maximize the ABI savings opportunity.
• Carrier selection and contract negotiations. NPI issued RFPs, pricing targets and conducted interviews for the selection of ABI’s air freight, ocean freight, third-party warehouse management, LTL, TL and small parcel carriers. Using the pre-defined pricing targets created during the RFP process, NPI negotiated best-in-class pricing.
• New carrier implementation. NPI worked hand-in-hand with the new provider and ABI to review carrier and warehousing contracts, walk through the new operating plans with ABI, and establish measured data-point thresholds for continuing process improvement.
• On-site reviews. NPI worked directly with ABI and the new chosen provider by providing input and client support during multiple site visits.

Spend Management Beyond the Contract Delivers Big Savings

The impact of CLVL/NPI’s spend management efforts have delivered substantial savings to ABI. By securing fair market pricing, CLVL/NPI efforts will reduce ABI’s transportation spending by 17-20%, resulting in six-figure annual savings.

As important as these significant negotiated savings are to ABI, perhaps the greatest long-term benefit has been the complete restructuring/re-engineering of the company’s logistics model.

As the Atlanta center closes and the new distribution plan goes into effect, NPI will assist in managing the complete transition of operations to the West Coast, allowing ABI’s operational and sales teams to focus on closing and servicing business. NPI has assisted in creating a new workflow for the movement of goods through the modified supply chain. This workflow ensures minimal carrier spend and increases efficiency at every step. Instead of ‘retrofitting’ savings into an existing supply chain strategy, CLVL/NPI has been able to optimize carrier contracts for savings through a completely restructured logistics strategy.

A traditional supply chain consultant would have charged a six-figure fee for a similar engagement scope of services.  As part of this performance based contract, CLVL/NPI was able to provide these services at no additional expense to ABI; primarily due to their deep level of business process, supply chain and carrier management expertise.

“CLVL/NPI have been a tremendous asset to ABI in assisting us with the implementation of new operating plans while managing the carrier selection process and improving rates,” says Gi Buford, Director of Quality and Logistics at ABI.

CLVL/NPI will continue to tweak ABI’s supply chain optimization strategy as operations warrant and function as an extension and leader of ABI’s disparate logistics staff. NPI’s best practices and ongoing benchmarks ensure that ABI never misses a cost savings opportunity with their carrier mix, and that carrier performance is always at its highest.

Conclusion

As the case study above demonstrates, carrier spend management must go far beyond contract negotiations to reach its full potential. It must be integrated throughout the contract and handled as a process – not a one - time event – one which incorporates a continuing process improvement component which allows for future business model changes.

For these reasons, companies would be remiss to partner with logistics advisors that don’t understand the comprehensive impact of carrier management throughout the supply chain. Cost savings opportunities – and pitfalls – are littered across the supply chain continuum, from RFP and negotiations to the way goods are moved inbound and outbound. To truly optimize spend management and supply chain operations, business model definition and spend management expertise is needed at every level of carrier management and on a continuing basis.

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