Cost savings above expectations
As part of a project to optimize freight costs together with Kloepfel Consulting, an internationally active mechanical engineering company was able to achieve high savings. The project covered air freight, sea freight and courier express parcel services (CEP). This case study clearly shows that there is considerable potential for savings in logistics.
Initial situation
As is very often the case with companies, the mechanical engineering company had established business relationships in the area of logistics. Despite all the advantages, this had the disadvantage that in some cases no structural and regular price negotiations were carried out. In such a case, potential savings remain untapped. Sometimes the parties involved are not even aware of the exact savings potential, especially in volatile markets.
The company’s logistics division is partly organized on a project basis. In addition, there are many different relations. Relationships are the connections between different locations – for example, the Hamburg to Shanghai connection or the Hamburg to Mumbai connection.
This project-based approach goes hand in hand with greater complexity and was therefore one of the biggest challenges during the consulting project. For example, special requirements are placed on logistics service providers for air freight and sea freight for project-based shipments. They need to be highly flexible, especially when it comes to time-critical goods. One focus in air freight, for example, is on the selection of airlines to be used and their routings.
There are special requirements for logistics service providers when it comes to sea freight. Some of the machine manufacturer’s customers are located in remote areas away from the major cities. It was therefore necessary to negotiate sufficient free time so that the containers could be returned to the ports of unloading without delay.
One particular challenge is the high volatility of freight prices, especially in the air and sea freight sectors.
The market for courier express parcel services (CEP) has an oligopolistic structure with a few large providers. To date, the mechanical engineering company has maintained a long-standing business relationship with two service providers. However, the company has accepted various price increases from CEP service providers in recent years.
Target setting
The general objective of the project was to establish functioning and cost-saving standard processes for the machine manufacturer’s logistics. To this end, it was decided to establish a strategic partnership with the relevant logistics service providers.
In addition, more transparency was to be created regarding relevant data for air freight, sea freight and CEP.
One of the main objectives was to reduce the existing high level of complexity in logistics. In logistics, complexity refers to the multitude and interaction of different elements involved in the transportation and shipping processes. This includes factors such as different transport routes, various service providers, diverse customer requirements, various means and modes of transportation and complex customs formalities. This objective was achieved by planning a clear separation between regular routes suitable for tendering and ad-hoc routes in both air and sea freight. At the same time, the daily work complexity was to be reduced in the area of courier express parcel services (CEP).
The fundamental focus of the freight optimization project was to reduce costs. Among other things, this was to be achieved through the targeted allocation of freight volumes to several service providers in the areas of air and sea freight. In the CEP sector, the cost optimization project examined whether it is more efficient to use re-seller or parent account approaches. Re-seller approaches refer to the use of third-party providers who purchase and resell freight services on behalf of the company. Parent account approaches, on the other hand, refer to direct cooperation with large freight service providers. In this case, the company itself has a central account – i.e. a user account – and uses it to manage the services for various subsidiaries or departments. Both approaches were examined as part of the consulting project to identify the most cost-efficient strategy in the CEP sector.
Methodology, measures
The consulting project was characterized by a clear structure. The extensive experience of the Kloepfel consultants, including their knowledge of the logistical processes and possible challenges, was a great advantage. Kloepfel Consulting’s way of working generally allows a rapid approach to optimizing freight costs and an efficient project process overall. In this case, as already announced in the introduction, the topics of air freight, sea freight and CEP were dealt with.
First of all, the consultants from Kloepfel Consulting gained a precise picture of the current logistics situation at the mechanical engineering company. In particular, the requirements for the logistics service providers were collected and discussed in detail.
The shipment data was also recorded. Once the data had been processed, it was possible to determine what and how to put out to tender strategically. To this end, the tender documents were created based on the shipment data and the defined requirements.
A request for proposals was sent to more than 90 freight forwarders with various core competencies for both air freight and sea freight alone. The offers received from the forwarders were analyzed by the Kloepfel consultants. Based on the results, the consultants created several scenarios in which the freight volume was divided up with regard to the routes and the contractual and delivery conditions to be taken into account.
Various options were analyzed for the courier express parcel service (CEP) sector. The advantages and disadvantages of using re-seller and parent account solutions were considered in order to make an informed decision for the upcoming tenders.
Based on all this information, the logistics managers at the mechanical engineering company made a decision on the next steps and future collaboration with the logistics service providers. The consultants from Kloepfel Consulting continued to support the mechanical engineering company in the decision-making process and subsequent implementation.
Here, the mechanical engineering company was able to draw on the broad expertise and large supplier network of Kloepfel Consulting. It was also particularly helpful that Kloepfel Consulting uses various tools of the latest generation for the respective work steps. These include extensive benchmark databases and the market-leading tendering tool with many registered service providers.
Result of the project for the three areas worked on
The savings achieved in the three areas worked on have even exceeded expectations. Recent years have shown that the consultants from Kloepfel Consulting achieve average cost savings of 15.1 percent in their freight cost optimization projects. In the project presented here at the machine manufacturer, the savings for each of the three areas worked on were even considerably higher. Another advantage of the project is that the overall administrative effort was reduced. For example, handling for future tenders was made easier – with greater transparency of the data.
Air freight: 41.7 percent cost savings
As part of the project with the Kloepfel consultants, the mechanical engineering company can now achieve cost savings of 41.7 percent per year compared to before.
The company now works continuously with three logistics service providers. In addition, there is a pool of service providers that is used for ad hoc tenders.
Sea freight: 32.8 percent cost savings
AAbove-average savings were also achieved for sea freight. The annual cost savings here are 32.8 percent.
Courier express parcel services (CEP): 47.2 percent cost savings
47.2 percent cost savings were achieved for CEP services. The machine manufacturer is now working with a re-seller in the CEP sector. Leading CEP service providers such as DHL Express and UPS handle the operational processing on behalf of the re-seller.
Transparency in the CEP sector has also been significantly increased. This was achieved by switching to the 1-supplier solution, i.e. a solution with only one provider for certain services, with an IT portal for tracking and tracing as well as only one invoice and one reporting system.
Conclusion
As shown above, the mechanical engineering company was able to achieve very high-cost savings through the freight cost optimization project with the help of Kloepfel Consulting. The company continues to benefit from this even after the project has been completed.
With their experience and well-structured approach, the consultants from Kloepfel Consulting were able to significantly improve tender management, i.e. the processing of tenders, at the mechanical engineering company. Kloepfel consultants, who arrived as temporary colleagues, helped to increase transparency and reduce the complexity of the processes. As a result, logistics processes were significantly improved and costs reduced.
Would you also like to optimize your freight costs? Then give us a call and increase the efficiency of your logistics together with Kloepfel Consulting.
Contact:
Kloepfel Group
Christopher Willson
Tel.: 0211 941 984 33 | Mail: rendite@kloepfel-consulting.com