Can you reduce waste in your transport operation?
Many companies are missing opportunities to reduce waste in their transport operations argues Tim Fawkes of transport management company 3t Logistics (www.3t-europe.com). Tim has these suggestions for making a start.
Many industries are facing the same problem in Britain and Europe: rising costs for energy, transport, labour and raw materials. In order to maintain profit margins, savings must inevitably be made but the tricky part is identifying where and how – all without detracting from the quality and service that you offer clients.
In my experience there is one area of the business that more often than not offers significant potential for making significant savings – logistics. Many organisations that we work with at 3t have wastage in their transport operations, but can rarely see where those savings can be made. Many organisations claim that they already have efficient systems in place or plan to do so in the near future. However, when margins are tight there is no excuse for failing to look at all the areas where savings can be made.
Most companies fall at the first hurdle: measuring waste in their transport operations. If there are no procedures However, these arguments are weakened by the fact that very few of these organisations have procedures in place to measure the waste in their transport operations. If they are unable to measure waste, they are also unable to identify effective strategies for its management and reduction.
The rising cost of transport
Whilst costs have risen steadily in most areas of packaging production, transport outlay has escalated significantly over the past 12 months. This is largely due to the increased costs and reduced margins within the haulage industry. In fact, fuel costs, which have risen by 37% since 2010, are now estimated to constitute around one third of a haulage company’s expenses according to the Road Haulage Association. This means that the average haulage company’s costs have increased by around 12% during the last year and the average profitability of the top 100 UK hauliers is now just 4%. These increased costs are usually passed on to the client as a fuel surcharge – which means that you are almost certainly paying significantly more to move supplies and products than this time last year.
Go green or pay the price
Costs will also increase as companies will soon be taxed based on the carbon generated by their transport operations. With the introduction of EU targets to reduce carbon emissions, the UK government has announced plans to achieve the target of reducing emissions by 50% by the year 2025. This means that all industries will come under increasing pressure to take action to reduce their carbon footprint over time. Whilst 2025 sounds a long way in the future, procedures that will affect your business are being put into place now. Mandatory carbon reporting is expected to be in place prior to 2012, with plans to tax dirty fuel such as coal and diesel in place soon after. This means that there will soon be a very clear financial incentive to reduce the amount of fuel consumed within each business function.
Offsetting the cost
Few packaging companies have sufficiently generous margins to comfortably absorb these costs and inevitably need to find ways to offset them by becoming more sophisticated in managing and reducing waste in their transport operation. This can be best achieved by focusing on two main areas.
(1) Empty running: the distance a haulier has between a delivery and the next collection.
(2) Vehicle load fill: the amount of the vehicle space used when transporting goods.
Currently, empty running accounts for 27% on average of all kms travelled, whilst the average vehicle load fill is around 69%. In addition to reducing cost, maximising vehicle load fill and minimising empty running also reduces the amount of energy consumed and the amount of carbon dioxide produced. Many independent logistics consultancies such as 3t (www.3t-europe.com) are able to carry out greenhouse gas reports that show companies how much carbon dioxide, methane and nitrous oxide is produced in fulfilling their transportation needs. These consultants are also able to highlight ways in which greenhouse gasses can be reduced and the financial benefits that go hand in hand with reduced greenhouse gases.
Maintaining an objective view
Reducing waste isn’t easy, and it can be difficult to bring an objective view to the process, which is why external advice from experts can be so useful. If you are looking to reduce waste, the starting point is measuring current transport activity in detail. For example, do you know how full your vehicles are when they leave the factory or how much empty running is involved in their transport network? It can be difficult to capture the accurate data that you need to tackle areas of waste effectively. A spread sheet system is rarely able to apportion costs accurately or provide the flexibility to interrogate information at shipment level. We often advise our clients to consider implementing an independent transport management system which will capture relevant data and report back information that enables you to reduce waste in your supply chain.
Play to your strengths
It’s easy to be critical of managers failing to tackle the waste issue, but in the packaging industry as in most areas of manufacturing, cost pressures mean that there is little or no capacity in management time to focus on optimisation techniques. Moreover, few companies realise the potential for waste reduction: the focus tends to be on production efficiency or raw material procurement. However, companies need to resist the temptation to cut labour costs to the extent that there is no resource to drive improvements. It is here that an external consultancy can again play an important role by freeing up management time to play on their strengths and focus on the core business.
Share the benefits
Whilst you may have a close working relationship with your haulier, it’s important to remember that they are a supplier and may not be interested in strategies for reducing the number of vehicles involved in your operation. As the figures earlier in this article demonstrate, hauliers are having a difficult time financially so their main priority will be to run their own operation for maximum profit – which may come at the expense of yours. So it’s important to come to an arrangement with your haulier: if they can improve efficiency, they should be able to share the benefits.
Few packaging manufacturers deal with one supplier – it simply doesn’t make sound economic sense. Similarly, limiting yourself by working with one haulier is unlikely to reduce empty kms as you are reliant on your requirements exactly fitting your carrier’s network for every delivery. Using a network of quality haulage companies offers more flexibility to fulfil requirements as and when you need it. If you have a good transport management system in place to administer the increased complexity, it can also be cost effective to hire hauliers on a regional basis.
Match the tariff to the system
Pricing is crucial in any industry so consider the transport tariffs that you have with your providers. Does the tariff structure encourage efficiency from your haulier? A load based tariff may offer few incentives to your haulier to reduce the number of loads shipped. Similarly, if you are planning the transport and have a shipment based tariff, where is your incentive to reduce the number of loads? If you have multiple tariffs are you sure that you or your provider are utilising the best option?
Can customer service be a compromise?
Good customer service is vital if you want to stay in business and grow, but obliging the customer can be a costly business. If your customers take an inflexible approach to dictating when goods should be delivered and in what quantity, you may need to look for a compromise. For example, offer your client a share in the transport saving achieved by taking a delivery on a set day. It’s also useful to have the facility to calculate client costs in terms of transport so that you can identify where savings can be made or where services need to be realigned to correspond with profitability.
No one has money to waste in the current economic climate. So, even if you feel confident that your transportation costs are streamlined and efficient, it may be worthwhile taking a second look. Not only does it make good financial sense to look at ways of minimising waste in your supply chain, but it will soon become a legal requirement with penalties imposed on those who continue to ignore the issue. It’s also important to remember that reducing transport costs does not have to mean a reduction in service; it is a matter of improving and streamlining the processes that you have in place – which can have benefits for all those involved in your operation from supplier through to consumer.