CASE STUDY – Transportation Spend Management
A precision scale manufacturer based out of the U.S. had $4.4M of international spend across 35 countries. Their goal was to conduct an RFP to reduce their cost by ten percent or more and help normalize their import and export discounts.
The client’s internal billing process was set up to bill the importing country for the shipping cost. Currency factors were not being considered. The primary carrier had 85% of the business and express service was the primary mode of transportation. Some countries were using domestic service providers to reduce costs for deliveries within each origin country. The client began to roll out a new SAP implementation corporate wide. This required that 100% of all locations importing product were required to pay the freight cost. Small parcel import rates are normally more expense than export rates. In this client’s case, there was a 25% difference between their import vs. export rates by country.
The consulting team, led by LCRP, identified which countries were considered primary, secondary and minor using historical carrier billing files. We then identified the percent of shipments each country was being billed for, factored in import vs. export rates, and then “normalized” the cost for each country.
Taking the SAP implementation into account, we created a customized RFP for each of the four current carriers. The RFP explained how the SAP implementation would require changes comparing the current billing process to our client’s new processes. Each carrier was asked to blend their import vs. export rates to “normalize” the cost incurred by each country. Our analysis identified a significant opportunity to reduce costs when factoring in currency rate differences by county. This was something that the client never considered but would result in significant savings.
The RFP also requested that each carrier provide two proposals, one to maintain existing business and the other to meet all of our client’s needs. In the end, the client reduced the number of carriers from four to three and realized a 30% cost reduction in overall transportation spend.
Once the new contracts were implemented, the savings by country and billing location was monitored for contract compliance and to identify and avoid unnecessary cost going forward. The client was pleased to not only realize an immediate ongoing savings, but also have a new process in place to identify future opportunities to save.