Cutting Costs

Written on Tuesday, August 9th, 2016
Cutting Costs
Published originally in Canadian Shipper, July/August 2016 Edition

Reducing supply chain costs is paramount in improving the bottom line. What elements are involved in the equation?

A panel of supply chain industry experts discussed the key components of supply chain network costs and audits at this spring’s Cargo Logistics Canada show in Montreal. Moderated by Canadian Shipper Editor Julia Kuzeljevich, the panel featured Ashcroft Terminals’ Vice President, Projects & Development, Kleo Landucci, Corrie Banks, President, Triskele Logistics Ltd., and Ann Pompilio, Chief Financial Officer of 3PL Links.

Protocols and Processes

According to Triskele Logistics’ Corrie Banks, “we typically will find 7-10% of savings for any organization we work with. It’s quite often a lot higher than that. We evaluate supply chains and identify ways they can eliminate waste. Our team comes from operational backgrounds so we don’t just look at the data, but understand goods movement at an actual tactical level. What is your system doing, what errors are you experiencing, that kind of thing. When you’re doing an audit, the input components include data, invoices, (what you were rated, and what you were actually charged). We also like to look at what your business processes are doing. Te more you touch something in your supply chain, the more it costs. When you have those things going on, it ends up costing you an awful lot of money,” she said. Your network design can affect your supply chain costs. Are you using a lot of warehousing, are you storing a lot of inventory, and why?

“Finally, we look at your operations,” said Banks. “My favourite thing to do is to get the sales team, the operations team and the supply chain team all in the room at the same time-those competing priorities and decisions can signifcantly revise your costs. Once they understand each other they can come up with solutions that are effective and efficient for the whole entire process.” It’s highly recommended to standardize your processes, Banks said. “Use photographs and keep it really, really simple. Don’t put a lot of words into things. We process visual information faster than we do written info. With the diversity we have in the supply chain sector now, photographs tell you a lot more when you’re somebody trying to learn a new job-and ten step visual photographs actually break down your operations so they’re easier to follow. Map the value chain: Customers won’t pay you for the errors in your supply chain, but they will pay you for goods movement. “You want to look at how much time you are spending processing paper and talking to the sales team about transit times/interdepartmental conflict. You also want to look at bringing in the people who are outside of your team. Downstream and upstream processes offer a lot of information and education. Challenges happen because of bad communication. Including all stakeholders offers much higher value,” Banks said. According to Banks, supply chain waste happens in: overproduction, defects, inappropriate processing, unnecessary motion, transportation, unnecessary inventory, and in wait times-anytime you’ve got people at the ready and they’re waiting. She cited an example of truck congestion in the Calgary region where 10 minutes of congestion for truck drivers translated into $1.7 billion dollars passed on to the consumer. “When you’re trying to tell a story about why people need to care about supply chain costs, and what it does, all those costs that we have in our supply chains get passed on to the costs of the goods sold and the materials that we are personally purchasing,” she said. Reducing costs involves creating a common understanding of expectations, “and I like to assume nobody knows anything until you’ve had an integrated conversation with everyone. If you go in assuming people know what the process is, you’re going to have some communication challenges. One person’s interpretation of a document or a conversation could be completely different from another one’s. So having everybody in the room and setting an expectation, making sure that everyone says yes, I understand, creates accountability as well, and it makes sure that people are paying attention to the information you are providing to them,” Banks said.

By documenting and standardizing your processes in the most simple form, using photographs and white boards, you avoid spending days and days writing big huge manuals, or spending a lot of time analyzing or trying to capture information that you don’t necessarily have. “Investigate the root cause of what an issue is, understanding the problem and all of the issues that are contributing to it. I find that we have problems in supply chain where we have rush or special deliveries because there is more than one problem that has happened throughout the life cycle of that issue. So making sure you know what all the issues are and then (look at) existing processes. Create a standard operating procedure but it doesn’t mean that it’s now written in stone. It might be that that process was really good at a certain point in time and that it needs changes or revisions. It needs to be flexible-you need to be able to change it. You need to be able to hear the feedback from the people who say, I’m confused and this doesn’t make sense to me,” Banks said. The whole point of continuous improvement is you start, even though it might not be a perfect start. If you wait until the sun, the moon and stars align you might be potentially missing out on opportunities to save yourself big money. My other favourite thing to do is create accountability and visibility. The first time that you forget to do something I assume that you don’t know. The second time I assume that you’ve forgotten. The third time there’s a consequence. Te third time usually means I’ll nail you with a penalty of some kind. We know some big box retailers who like to do that kind of stuf. Te reason that they do it is as a deterrent. It’s not because they’re trying to gouge people but they’re trying to make sure their supply chain is efficient. I also like to get the entire team together you can create accountability and you can make sure that everybody understands. But it can’t be a fnger pointing exercise or a blame game,” Banks said. Most people show up to work every day because they want to do a good job, so you have to assume it’s the process that isn’t clear, she pointed out. “Try and create systems that get it right the frst time but plan for when it doesn’t. If you’re going to build standard operating procedures don’t build procedures that say the truck gets there on time every time. Build a SOP around what happens if you have a dumped load, or an accident, or if a truck goes missing for whatever reason. Get your data and then stick to the facts. Data can be as simple as a white board.” There’s a point where you need big data and where you need small data. And you just need to figure out where you’re at. “Focus on fixing one issue at a time. If you’re’ trying to fx too many things at once, your team will have a very hard time remembering what the new process is. Continuously build on your starting point-the thing that makes continuous improvement a lot harder for most people is that there is no destination. You have to make sure that you recognize the milestone points and that you’re making progress along the way.” Who is in charge of the documentation? “When you are pulling all the stakeholders together, it’s important to identify who the point person is, especially when you have multiple or interdepartmental challenges. Many organizations will have someone who is the lean manufacturing specialist. In other organizations, you don’t necessarily have that with smaller teams. I would say the person who has the most to lose or the most to gain should be the person who is leading the charge. There has to be some pre-work before you start having those conversations. You need alignment at the senior levels about what those SOPs are. Once you have that alignment then you have those actual conversations and they can designate whether it’s an IT person, a sales person or a supply chain person,” she said.

Streamlining the inland gateway

Ashcroft Terminals, an inland rail terminal located 3.5 hours’ drive/200 miles from the Port of Vancouver, was acquired with the intent of reducing costs to supply chain stakeholders using the gateway. According to Kleo Landucci, Ashcroft terminals’ Vice President, Projects & Development, enhancing this West Coast gateway is crucial to trade. “We have both mainlines on site, and every single product going into and out of the lower Mainland has to pass through Ashcroft terminals’ property to go into or out of the rest of North America,” Landucci noted. “We currently have 32,000 feet of rail track. When we acquired the facility we only had 2000 so we’ve been building over the last ten years. We operate on just under 10% of our geographic footprint,” she said. Ashcroft Terminals services all centres of the natural resource industry in the country with transloading services for various bulk products from railcar to truck and truck to railcar, feet management, rail car storage, search supply solutions for customers, railcar repairs, and a railcar cleaning facility that will be brought onstream for the next year. Intermodal business is the third leg of the Ashcroft stool. “The vision was to containerize product closer to source, closer to where it was being extracted, and to streamline the product by amalgamating it and avoiding congestion in the lower mainland. When we started there was very little activity-just one customer doing a small amount of coal transloading. As we went we saw that the demand for cost-effective solutions, for doing things outside of congested areas, was taking precedent. Tat’s why we focused on the bulk side. It really took of over the last ten years. For the last two-three years we’ve seen terrific demand on the feet management side, primarily in the oil and gas sector-to amalgamate and build full trains for them to better hit their facilities in and out,” Landucci said, An open employment model aims to give control of certain costs back to the customers. “We have a management team and crew and we are happy to provide any of the services I mentioned. But if you are a customer and you’d like to control your costs-as long as you are adhering to our safety protocols we will allow you to come in and operate on a daily basis,” Landucci said.The master plan is built around fluidity for the rail lines. “Everything we do has to be completely efficient for both CN and CP to come in and out and operate as efficiently and safely as we can. We have 40 km of internal track and we intend to build much more than that. Te twinned loop track is key to efficient, direct hook and haul east or westbound to take full trains right of the main line, and to keep the flow. It’s the basic structure that is really the key to this. With source loading, we take the empty cans, put them on a chassis and drive them to the mill. We allow the mill to source load those containers themselves using the existing labour they have. They are the last person to shut the container door before it gets to China. On our site we would also weigh it-all aspects covered, or they can ship us the lumber and we will transload it. We’ve done everything to create the most flexible model possible and the highest quality rail product,” she said.

Reliable data is key

Ann Pompilio is Chief Financial Officer of 3PL Links, a non-asset based supply chain solutions provider. She noted that when you take into account most typical customer invoices, 5-8% of them have errors on freight total spend. While “real time visibility” provides all the decision makers a tool from which to make decisions, “real-time” is what is important to the customer. So you must establish, with you external customers, and also internal customers, what you want to capture, and what are the data requirements around capturing this? “Make sure your KPIs on the dashboard match. Without defining these, it leads you down a path that’s not necessary. It’s work, but it will come back to you in spades,” Pompilio said. Now you have a database, now you have accuracy, now you can break down inventory turns, accessorial breakdowns, etc. Now you’re fishing in the pond where the fish are. “In summary, business rules are the key to getting information. It allows you to work collaboratively. Data must be accurate. You have to have a database that you can trust. When working around proprietary issues, "set parameters around confidentiality. Understand the client’s end game, and give them the confidence it’s protected information-we find then the issues go away and now they are a partner."

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