Know Thyself, Know Your Partners, Know the Market:

Using Freight Market Intelligence to Drive

Transportation Cost Savings

Kyle Lynch Group Manager, Global Transportation

The Clorox Company

Matt Harding Principal, Transportation Practice

Chainalytics

Andrew Brazell Manager, Transportation Practice

Chainalytics

Today’s Discussion

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The Situation Transportation is very complex.

The Complication Transportation managers rely on stakeholders whom they don’t control to deliver cost and service objectives.

The Solution Effective leaders rely on market intelligence and business intelligence.

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Freight Market Intelligence

What is Freight Market Intelligence?

Members… • Common view of value from external information

• Proactive, open, receptive to evaluation

• “Stewards” of cost controls with a goal toward efficiency, accuracy, and performance

…offer data… • Abundant, residual, valuable

• Harmonization and “Big Data” benefits

…to synthesize internal and external insights… • Atomic to aggregate, referencing models not rates

• Reassembly for insights

..into action. • Internal (Business Intelligence) with External (Market Intelligence)

• Supporting decisions leading to action

• Shorter and shorter cycle times in to insight

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Freight Market Intelligence Process

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Other Constituencies Support and

Performance Focus

Internal • Supply Chain Design • Support Processes • Vendor/Customer

Alignment

External • Carrier Relationships • Network Expansion • Contracting

Performance/KPI

Transportation Function Organizational Focus

Transportation & Carrier Management

Procurement

Budgeting

Business Intelligence

Planning & Execution

Content Service Providers Market Focus

Homogenized “Big Data”

Develop

Representative Market

Synthesize

Output

Develop Market Intelligence

TMS XACTS 1. Shipment Data 2. Accept/Reject 3. OT Service 4. Other

Data Driven Interaction

Data Driven Interaction

Synthesize Market Intelligence

Freight Market Intelligence Goal

Maximize outward orientation, which leads to greater effectiveness of decisions and actions in a highly dynamic market.

Why it works: “Destruction and Creation” – Col. John Boyd

• Limited Resources

• Individual Focus

• Direction of Views

• Reality, e.g. What are True Market Levels?

• Lack of Outward View = Chaos

Source: http://pogoarchives.org/m/dni/john_boyd_compendium/destruction_and_creation.pdf 6

“Synthesis” Defined

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Geography Lanes &

Territories Business Unit

Carrier

Type

Service

Type

Equipment

Types On-Time Service

Accept Ratio

Contract Details

Allocation & Density

Of Lanes

Leverage & Buy

Strategy

Atomic Level Shipment

Benchmarks

Aggregate Level

Do core carrier programs offer

cost advantages?

How does lane density affect rates?

Do payment terms, fuel programs, accessorials,

or bid frequency affect rates?

What is the market cost of high

accept ratios?

Do high service requirements affect rates?

What is market cost premium for

expedited shipments?

Which carriers types are providing

greatest value to market?

Do differing practices and technology

affect rates?

Recent Findings on Freight Markets

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What can we learn about buyers, sellers, and lane density?

Recent Example • Scope: Long Haul Dry Van (>250 Miles) • Time Period: 2011Q2 to 2012Q1 •$8.4B Annual Freight Costs •Analysis: Contrasting Annual Market Position of…

– Shipper-Carrier Revenue vs. – Shipper Lane Density at 3DZ Level

Market Allocation Comparing Shipper-Carrier Spend to Lane Density

Example: Annual Lane Volume Category

Shipper X has 57 loads per year from Origin 3DZ (123) to Destination 3DZ (456).

All shipments from Shipper X from 123 to 456 are flagged with Annual Lane Volume Category of C) 51-250.

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Market Allocation Comparing Shipper-Carrier Spend to Lane Density

Example: Annual Shipper-Carrier Spend Category

Shipper X has $3.4MM in Annual Spend with Carrier Y.

All shipments with Shipper X and Carrier Y are flagged with Annual Shipper-Carrier Spend Category D) 2.5-5MM.

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Market Allocation Comparing Shipper-Carrier Spend to Lane Density

Calculation Example: Annual Market Position (All Category Combinations)

Inputs Sum Reported Costs = $3.5MM Sum Estimated (Benchmark) Costs = $3.8MM

Outputs For each category…Annual Market Position = (R – E) / E = (3.5 – 3.8) / 3.8 = (-.3)/(3.8) = 7.90%

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Market Allocation Comparing Shipper-Carrier Spend to Lane Density

Very Consistent Trends

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Summary of Findings

Lane density strategies yield better benefits than consolidated carrier strategies.

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F1 Strong positive correlation of market position to shipper-carrier spend per year. • Service, flexibility and efficiency in relationships all valid

components not modeled • Core carrier programs are not a pure cost-only consideration • Economies of Scale challenged from a pure total cost

perspective

Summary of Findings

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F3 Previous models exhibit similar and consistent relationships. • Greater extremes during temporary abundant or scarce

capacity

F2 Strong negative correlation to lane density. • “Onesy” lanes generally cost more • Smaller revenue relationships less costly that large revenue

relationships • Economies of scope prevail with lane density

Recommendations

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R2

R1

R3

Minimize chaos and wasted effort by extending outward views.

Challenge conventional wisdom. This is key in order to successfully adapt to a changing environment.

Develop a broader market understanding to stay current and become more effective.

Business Intelligence

Reporting has become sophisticated, integrated, and influential. • Operations managers have access to more data than ever

before.

• The challenge is translating this into actionable information.

Business Intelligence Today

Basic

Types of BI Reporting

Data Source Single Source Multiple Sources Multiple Sources

Calculation Method Simple Medium Complex

Used By Transportation Only Logistics Multiple Functions

Intermediate Advanced

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Basic Reports

Single source, simple calculation, primarily used by transportation. Carriers by Spend

Carrier

Annual Spend

($MM) Cumulative

Carrier A $27 16%

Carrier B $26 32%

Carrier C $13 40%

Carrier D $11 46%

Carrier E $9 52%

Carrier F $9 57%

Carrier G $8 62%

OTD Report

Customer

Weekly

OTD Orders Late

Customer A 91.18% 68 6

Customer B 96.77% 31 1

Customer C 75.00% 4 1

Customer D 97.14% 35 1

Customer E 87.50% 8 1

Customer F 96.67% 30 1

Customer G 77.01% 87 20

Tender Accept Report

Carrier Primary Lanes Secondary Lanes Grand

Total % Count % Count

Carrier A 57.69% 78 50.00% 2 57.69%

Carrier B 96.19% 105 100.00% 1 96.19%

Carrier C 67.54% 111 10.53% 95 67.57%

Carrier D 100.00% 11 100.00%

Carrier E 93.75% 32 0.00% 47 93.75%

Carrier F 66.67% 99 28.47% 72 66.67%

Carrier G 50.00% 10 50.00%

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Intermediate Reports

Multiple systems, complex logic, used outside of transportation.

Origin Code Destination

Grand Total

Average

(Weighted) % Change Total Loads

Average

Lane Cost

Average

Savings /

(Loss)

02E0 Customer A 44,623 2.50% 1 $383.87 $9.59

02E0 Customer B 42,708 -4.75% 18 $1,621.74 ($77.10)

02E0 Customer C 42,309 -6.80% 18 $668.44 ($45.46)

03E0 Customer D 45,270 3.06% 16 $820.83 $25.11

03E0 Customer E 20,679 -47.22% 2 $56.30 ($26.58)

0030 Customer F 44,748 -0.03% 14 $176.92 $99.96

0030 Customer G 44,145 11.02% 4 $907.30 ($3.09)

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Advanced Reports

Multiple systems, complex calculation, with cross-functional use.

Category Total IP FTT

Loads Cost % Loads Cost % Loads Cost %

Out of Pattern 13 $ 7,485 96% 12 $ 6,521 98% 34 $ 19,675 93%

Truckload Utilization 44 $ 7,013 87% 81 $ 8,647 87% 73 $ 19,399 85%

IM Utilization 10 $ 5,105 85% 15 $ 8,949 91% 20 $ 8,918 69%

Least Cost Carrier 26 $ 4,034 92% 40 $ 5,044 94% 52 $ 9,077 90%

Total Premium Freight 93 $ 24,637 148 $ 29,160 179 $ 57,068

Total Freight (LH + FSC) 328 $ 315,041 646 $ 537,673 501 $ 564,970

Premium Freight % 8% 5% 10%

% PF by Month

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Premium Freight Reporting

Objectives • Identify business choices that negatively impact cost • Create a tool and process that drives continuous improvement • Increase ownership of transportation costs across supply chain

Components • TL Utilization • Least Cost Carrier • IM Utilization • Out of Pattern

Process

Publish Weekly Report

Conduct Analysis

Review Key Root Causes

Add to Aggregate

Report

Identify Action Items

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Premium Freight Requirements

System and stakeholder inputs generate the report.

Load Transactions (ERP/TMS)

Route Guide (TMS/Bid)

SKU Level Transactions

(ERP)

Planned Source by SKU (ERP)

REPORTING DATABASE

Truckload Utilization Goal

Intermodal Utilization Goal

Feedback Updates

Methodology &

Calculations

Report Tool (BI, Excel, etc.)

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TL Utilization

Objective: Quantify cost impact of loads where trailer is not fully utilized.

Premium Freight Cost = % Underutilized * Load Cost

Example • Toronto, ON to Aberdeen, MD: Loads 50% Full

Key Stakeholders • Deployers

• VMI Order Analysts

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Least Cost Carrier

Objective: Quantify cost impact of loads shipped above awarded cost on the lane.

Premium Freight Cost = Variance in Carrier Rate and Planned Rate

Examples • Houston, TX to CO: Secondary carrier use spiked

• Multiple Lanes: High cost secondary carrier covering majority of secondary tenders

Key Stakeholders • Transportation Managers

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Intermodal Utilization

Objective: Quantify cost impact of loads shipped on OTR that could have gone IM.

Premium Freight Cost = Variance in OTR Cost and IM Cost

Examples • Sonoma, CA to Chicago, IL

• Spring Hill, KS to FL (Multiple Cities)

Key Stakeholders • Deployers

• Customer Supply Chain Managers

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Out of Pattern

Objective: Identify loads shipped from an unplanned origin.

Premium Freight Cost = Variance in Out of Pattern Cost and In Pattern Cost

Examples • Fairfield, CA to Atlanta, GA (Planned Origin: Atlanta, GA)

• Houston, TX to Aberdeen, MD (Planned Origin: Aberdeen, MD)

Key Stakeholders • Deployers

• Planners

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Results

Saved $MM.

Fixed unknown system issues. • SAP setting to single stack a SKU which is double-stackable • TMS configuration

Generated huge organization buy-in. • GMs and VPs of Finance reference “Premium Freight” • Moved meeting time to afternoon so Finance (on the West

Coast) could participate

• Premium freight declined from 14% to 9% YOY

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Recommendations

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R1

R3

Build a straw man, start using it, and then engage others and tweak where appropriate.

Look at premium freight in both $ and % terms.

Determine how you’ll build premium freight reductions into your P&L.

R4 Think about the lowest level of detail, then build from that level up.

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Questions?