Shared Warehouse Services for Return on Cost

Not many people appreciate the time, energy, effort and expense companies invest in warehouse operations. The management of these operations has typically been a “back office” function with little or no notoriety unless a customer has not received a shipment they had been expecting from them. At that point, the first reaction from people is usually the “warehouse did it”. We wish it was that simple but it isn’t.

According to a number of industry experts, warehouse associated expenses typically account for 1 to 4% of their cost of goods sold numbers. Many of these expenses are called “fixed” costs such as buildings, taxes, insurance, material handling equipment, utilities and maintenance. These costs are incurred whether they ship very little or ship to the maximum capacity of the facility. In slower periods the facility and full staff are maintained. During peak periods additional temporary labor may be acquired, space becomes tight, and productivity is impacted. In either case, the operation is either underutilized (higher cost per unit shipped) or over capacity (diminishing return due to inefficiencies)

The solution is to control warehouse cost by sharing these fixed costs and resources with other companies in a variable cost environment of a shared warehouse facility. A shared facility already includes a full management staff. Facility management functions will not have to fall under dedicated company employees. Additional shared warehouse labor not assigned to your company will be cross-trained to become familiar with your operation to provide additional support as needed. These associates will be utilized during peak periods, eliminating negative impact to productivity.

The key is to provide the right amount of space and labor as determined by your actual activity. This can only be accomplished in an environment that shares these expenses with other companies to convert what was a fixed cost facility into a pay-as-you go model. In this case your cost are more closely aligned with your activity and your ability to predict your warehousing costs are more reliable. Note: Besides the obvious cost considerations of this model, service levels are usually pre-determined before the operation is running. These service level benchmarks are measured and tied to performance guarantees. So if your initial goal was cost reduction or containment in a shared model the outcome could be both cost and service enhancements. This warehouse operation now becomes a corporate necessity verses a “back office” function.

To learn more about contract warehousing, contact Chris Baumann at Transport Systems Inc at baumann@transportsystemsinc.com.

Chris Baumann
Executive Vice President & Partner
Transport Systems Inc
170 Mt. Airy Road
Basking Ridge, NJ 07920
(908) 766-1100

To learn more about Transport Systems Inc please click on the following link www.transportsystemsinc.com

GOOD NEWS FOR PEOPLE WHO SHIP PLASMA TV'S!!!

This is a follow up to two posts ago about the proposed NMFC changes. All of the items that were posted (Just scroll down will ya! Dont make me write them all out again!) were approved as docketed with the exception of the third item list, Televisions.

Item 63322 has been cancelled and item 63321 has been modified to include Plasma televisions or video or multimedia monitors or displays.

Item 63321 has two subs;
Sub 1 for screen sizes of 40 inches or greater at class 200 and Sub 2 for screen sizes of less than 40 inches at class 125.

See, sometimes the NFMC people actually lower classes. This actually provides a big advantage for shippers of those items as the difference between a class 250 and a class 200 is 25% reduction in freight cost.

Wow, this is found money for these Plasma TV people. Ah, good for them. Don't worry folks, our time will come...I hope!

ADDING "SHIPPING & HANDLING" TO INVOICE

Many people ask me about adding freight to invoices and the legalities of it. This is a good topic as many companies use a simple line item to cover the cost of freight, pay for departmental expenses and even to make a profit.

Shippers must be careful how they indicate this on their invoices though. What a lot of people do not realize is that if a shipper indicates "Freight" or "Freight Prepaid & Added" on an invoice, they are required to pass along the actual freight charges on the invoice. And the "truth in billing" provision of the ICC Termination Act (49 U.S.C. 13708), which requires carriers to disclose the actual charges on their freight bills and indicate any off-bill allowances, assures that no fake back-up can be provided.

However, shippers can easily protect themselves if they simply change the wording on their invoices to "Shipping & Handling". This implies to the payer of the goods that other costs, along with freight, are being charged to them.

If your company is charging freight plus incidentals and indicate this by simply putting "Freight" on your invoice, change it today to "Shipping & Handling". Right now you are open to scrutiny by your customers. If you are on the other end of this and are being charge for "Freight" and are concerned about being over-billed, tell your vendor to come up with a freight invoice as backup. If the charges do not match up, you have every right to get a refund of the difference.

NOTE: It is not the "rule" but it is generally better to have your freight billed collect from your vendors. Since many shippers do charge "Shipping & Handling", even if your vendor has a better freight deal, it could still pay to ship it collect to avoid the extra handling charges.

I hope you find this helpful to your business!

NMFC: Freight Class Changes

A National Classification Committee meeting is set for June 4th & 5th. This always negatively effects somebody. Any shippers who sell or distribute the follow products better stay tuned to the outcome. Updates will be provided at the Nation Motor Freight Traffic Association's website (http://www.nmfta.org/) Here are the products adversly effected:

Under the “Boilers, Furnaces, Stoves and Related Articles Group”:

27340 Stoves or Ranges, NOI, iron or steel
27380 Charcoal, NOI, Coal or Wood
27400 Cast; plate or sheet………CL 70
27410 Sheet, NOI……..
SU……………………. CL100
KD……………………. CL 85

It has been proposed to change Item 27380 to a 3 tier density item (less than 6 pcf class 175; 6pcf but less than 10 class 110; 10 pcf or greater class 70); cancel items 27400 & 27410 and include them in Item 27380 under the new density item.

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Under the “Athletic Goods Group”:

16930 Nets, Basketball….. CL 100

It has been proposed to be modified as follows:

16930 Nets, Basketball,
Sub 1 NOI CL 100
Sub 2 Steel cable, with or without components of other materials……CL 70

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Under the “Electrical Equipment Group”:

63322 Televisions or Video or Multimedia Monitors or Displays, plasma….CL 250

It has been proposed to have 4 different classes based on the screen size as follows:

Sub 1 60 inches but less than 70 inches CL200
Sub 2 50 inches but less than 60 inches CL200
Sub 3 45 inches but less than 50 inches CL150
Sub 4 less than 45 inches CL 125

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Under the “Fireplaces or Fireplace Accessory Group”:

69410 Fireplaces, imitation NOI
69412-Note

69420 Fireplaces, sheet steel, NOI
69422-Note

It has been proposed to cancel item 69410 and add this provision to item 69420 and and to change item 69420 to include both Fireplaces and Imitation Fireplaces under the same item which will be modified to a full 9-Sub density item (classes 70-400)

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Under the “Dental, Hospital or Medical Supply Group”:

57060-Walkers, tubular metal, wheeled or not wheeled….
SU CL300
KD CL 200
KDF CL 175

It has been proposed to change this item to a full density, 9 sub item (classes 70 through 400).

**************************************************************************************************************************************************************************************************

The disposition should be available by June 11th, upon review I will advise further on these subjects.

Feel free to ask any questions below in the comments section if you have any freight related questions.

RATE INCREASES, AHHHHHHHHHHHHHHHH!!!

This April, most major trucking companies will be implementing their General Rate Increase on all freight rates. On March 26th, Old Dominion Freight Lines and UPS Freight took a 5.1% and a 5.9% increase respectively. Fed Ex Freight’s took their increase on April 2nd. You can be sure that by the end of April every major trucking company will have increased shippers rates by at least 5%.

And one thing that the LTL carriers do not highlight is that this rate increase is a weighted average. What that means that your increase varies depending on weight break and shipping lane. So you may be located in a place where the carrier is actually implementing a 12% increase. And shipments under 500lbs usually take a huge increase, generally 10-12%.

HOW TO AVOID SUCH AN INCREASE? Good question, I am glad you asked. Once it is implemented, your pretty much stuck with it. However, you can be proactive and when you negotiate your freight negotiate your initial deal and then ask for the rates to be locked in for two years. Or there are reputable 3PL's out there who already protect their customers from such increases.

CREATING FASTER CASHFLOW

I was just visiting a potential customer today who is disobeying the number one commandment, "Thou shalt not slow down thine own cash flow." The is the scenario, this shipper waits for the trucking company to send them a freight invoice before they invoice their customer.

Come on folks, it is 2007! Every night, after a less than truckload freight carrier picks up your freight, they post their charges on their site. Why wait for the snail mail? That could add 3 to 5 days before you even receive a freight invoice. Then another 3 to 5 days before your customer gets your invoice. That is 6 to 10 days slower than you would get a check from your customer. And that doesn't consider weekends or holidays.

Plus the freight carriers make it so easy to view. You don't need to put a reference or a pro number. Just log in with your user ID and you are good to go. You can even set this up to be emailed right to your A/P person so all they have to do is open their email in the morning.

This tool is also great for customer service people as it almost always lists estimated delivery times and lets you know when it does deliver.

Keep it simple folks. And don't get in the way of your own cash flow!