Healthcare Purchasing News asked seven logistics executives for tips on improving freight and shipping practices and processes to control costs and ultimately reduce them. Here’s what they shared.
Sophie Rutherford, Vice President, Business Development, Jump Technologies Inc.
With good reporting tools, hospital supply chain leaders can look at inbound freight reports and identify cost-driving activities within their organizations. By monitoring shipping trends, you can understand the habits of internal requisitioners, and identify who’s ordering supplies using priority overnight services, what the items are being shipped overnight, and which departments have high, recurring inbound freight charges. By looking upstream at the contents of these inbound shipments, you can identify potential inventory issues and help eliminate the need for constant overnight shipments. Managing inventory better can reduce these costs; better forecasting can eliminate expedited delivery.
Next, it’s a good practice to consolidate shipments. One major hospital system in New York City is working with vendors to consolidate their inbound shipments, so instead of receiving three boxes, each containing one item, they’ll get one box containing three items. They’re seeing significant cost savings by working with their vendors on this approach and while it takes some vendor management, it’s definitely saving hard dollars.
Finally, wherever you can, automate manual processes, replacing paper with simple bar-code scanning using inexpensive, smart devices. This may not seem related to the management of freight costs, but it will help build the ongoing reporting you need, along with an audit trail of incoming shipments. With new regulations related to implantables, including tissue and devices, it’s even more critical to automate the receipt and delivery process. Look for systems that can produce an electronic chain of custody record that includes package condition, temperature and date/time stamp for delivery, to help ensure compliance and support patient safety. This will also help overall management of inbound freight and help reduce replacement costs.
Marc Mullen, Vice President and General Manager, OptiFreight, Cardinal Health
- Collaboration is key. To ensure success with freight management, it’s crucial for everyone to constantly communicate to drive participation and save the most money possible. Effective communication with suppliers will ensure they stay in compliance and use the most cost-effective shipping method every time. Educating your employees will remind them to use the freight management tools available. Overall, transparency and understanding within your entire team will generate greater program compliance.
- Increase mode optimization. Suppliers and employees can continue to save even more by focusing on mode optimization. This helps determine how to ship packages fastest and at the lowest rate possible without impacting the delivery date. For example, transit maps illustrate the most cost-effective mode to ship based on your proximity to your suppliers. These hidden strategies can unlock thousands of dollars in freight savings.
- Track key benchmarks. Freight management programs offer data analytics tools that allow freight costs to be measured and managed. By monitoring key metrics such as shipping rates, shipping modes and handling fees, you can gain insights to inform better decisions in the future.
- Look ahead. Speaking of the future, it’s always beneficial to look for new tools that lead to cost savings. In addition to expanding the number of suppliers in their networks, freight management programs can be a steady source of innovative ideas.
Jake Crampton, Founder and CEO, MedSpeed LLC
- Require transparency. Shipping costs could be buried in the cost of goods or in line items of many different budgets. The first step in gaining control is to know what the baseline looks like and asking that shipping costs be separated on invoices.
- Centralize the responsibility. In many organizations, multiple departments/people are responsible for freight and shipping management. Centralizing the shipping/intra-company logistics responsibilities to one group or person can help to reduce fragmentation and waste, thus reducing costs, without diverting the focus from a healthcare operation’s core mission.
- Dig deeper. While a focus on shipping costs will undoubtedly yield savings, additional value can be achieved by examining intra-company logistics. There could be multiple intra-company logistics operations serving a single healthcare location, driving by one another along the road. A logistics analysis could determine that there is opportunity to add efficiency and connectivity with a unified approach.
• Eliminate overlap. Since an integrated network connects every facility and department within a healthcare organization, significant savings can be derived by leveraging logistics to complete some shipping deliveries. If a driver is already stopping at a clinic to pick up specimens, he or she could drop off supplies from the distributer at the same time.
- Ensure alignment. In this uncertain healthcare climate, it is essential for shippers, manufacturers and all logistics providers to be aligned with the strategic objectives and mission of a healthcare organization. Finding vendor partners that understand the importance of keeping costs down and creating value is more important than short term transactional savings.
Andre T. Davis Sr., MBA-HCM, Marketing Manager, TRIOSE Inc.
“As healthcare shifts from volume to value, we’ve noticed a concerted effort among our roughly 300 healthcare institutions to lower costs, enhance quality (by reducing variation), and ultimately to improve operational outcomes. As a healthcare logistics and supply chain partner, TRIOSE helps clients understand their operational data, allowing them to diagnose when and where undesired supply chain activities occur. In addition, TRIOSE provides its clients with a set of best practices that sustain cost control measures and enhance freight spend visibility. Taking the steps below can drastically improve your supply chain:
- Identify weak links in your managed supply chain. These links can vary, with suppliers, labs, pharmacies, administrative offices, or individual employees all as potential cost drivers. These links send shipments via expedited service levels without a real need (e.g., sending Next Day Air shipments to the building across the street) – supply chain costs can increase nearly 4 times due to this premium service level.
- Identify non-compliant suppliers. Non-compliance is typically thought of as a supplier refusing to use your managed freight program (this can increase costs by up to 60 percent), but it also can mean a few other things. Other non-compliance varies from lacking proper P.O. documentation thereby hampering cost allocation visibility, lacking proper packaging that impacts the quality of the item received, and mischarges that undermine your cost-savings initiatives.
- Increase focus on your supplier contracts. By being aware of which contracts are expiring far in advance, you can negotiate better terms or alter free freight stipulations to better fit your procurement practices. Supplier contracts that are just renewed or that lack oversight run the risk of increasing your supply chain costs. If your contract stipulates free freight on certain days or for large volume purchasing, is someone ensuring the freight was waived? Are you being charged handling fees erroneously
- Aggregate and extrapolate data quickly to fuel better decision making in lowering costs and improving quality. More effective than analyzing dated information is having data in an actionable format – this enables tracking and improvement measures that would otherwise be significantly more difficult to implement.
Kevin Clonch, Director of Global Transportation Service Provider Development, Ryder
As e-commerce and omni-channel fulfillment service level pressures continue to mount, private fleet shippers need to make a decision about how they are going to overcome the challenges that are plaguing transportation managers. While on the outside their network looks like it’s getting the job done, in the majority of cases, there is room for network optimization and cost savings, which can be found through:
- dock scheduling,
- driver management,
- backhauls, and
- right-sizing of the fleet.
- Dynamic planning capability
- Flexibility to manage variations in demand
- Increased network visibility regardless of mode
- Mitigation of capacity changes and driver issues
- Business intelligence and analytics
- Fleets vs for-hire carriers cost comparisons
- Strategic decision-making support
James Hancock, Director, Sales, Veritiv Logistics Solutions, a division of Veritiv Operating Company
- Use a fourth-party logistics (4PL) company to gain access to technology and visibility without significant investment. A 4PL company can also manage a number of the execution areas on your behalf since this is oftentimes outside of your organization’s core competency.
- Always conduct an annual bid for your high volume lanes. The 4PL company you work with can conduct the bid process on your behalf.
- Separate your commodity freight from your specialized freight. Many inbound items may have very special requirements, so in many instances it is in your best interest to allow your vendors to route this freight and benchmark their rates. For more commoditized items you can use standard third-party logistics (3PLs) to handle at the lowest possible cost.
Don Carroll, Vice President, Business Development, Vantage Point Logistics Inc.
- Utilize both FedEx and UPS for your freight management initiatives. Using both carriers makes it easier for your suppliers to accommodate your program resulting in more managed shipments and savings. It also allows for cost optimization based on zones, service levels, accessorial fees, etc.
- VPL typically designates a primary and secondary carrier for each customer using either as circumstances dictate.
- While there can be tangible benefits with a single carrier approach, they are, in most instances, far outweighed by the extra savings accrued when you can offer suppliers an alternative carrier. Since many vendors will ship only with their preferred carrier it makes sense to have access to both. VPL’s standard practice is to utilize both FedEx and UPS for each of our customers. Based on customer preference, we designate a primary carrier and use the other only when beneficial. This dual carrier approach significantly increases vendor participation and compliance resulting in a corresponding increase in program savings. To keep it simple for our customers we consolidate all VPL charges (FedEx, UPS and LTL) into a single weekly invoice.
- Take advantage of pricing options that promote transparency, flexibility and collaboration. Most healthcare providers can’t tell us how much they actually pay their current freight company to manage their freight. This is because those management fees are included in the carrier charge passed along to the customer and are rarely exposed. Healthcare providers are beginning to take advantage of recently introduced pricing models that separate management fees from carrier costs. Some of the more common options include a flat fee per managed delivery, an exposed margin calculation, a monthly service fee and/or a gain share. These fee-for-service arrangements benefit the customer in a number of ways: They can now use their own carrier pricing if beneficial to them; they know exactly what they are paying their freight management provider for the services being provided; it creates greater alignments to help lower the total delivered cost of goods. VPL was the first healthcare solution to introduce transaction fee billing as our primary pricing model with other options made available as customer needs might dictate.
- Partner with a company that can meet your invoicing and accounting requirements. The most common pain point we hear from prospective customers involves the amount of time and they spend reconciling and processing their current freight company’s weekly invoice. They spend time searching for P.O.s, validating addresses, reformatting the invoice to accommodate their AP system or maintaining custom scripts to help with this activity. VPL has a demonstrated ability to eliminate all of the human touch points required to load, process and pay a VPL invoice. We do this by creating a uniquely formatted invoice for each of our customers based on their system requirements and accounting rules. We deliver the invoice electronically with all charges pre-allocated to the appropriate GL accounts. Our invoices are so seamless and easy to process that our customers’ AP teams barely know we exist and that’s just the way we like it.
- Take complete control of your freight management initiatives by self-managing. The inbound freight management model has matured to the point where more IDNs are now looking for ways to effectively eliminate the need to utilize a third-party freight program. These IDNs would prefer to transition their freight savings initiatives to an in-house, self-managed model that they have complete control over. The biggest challenge for them is finding the subject matter expertise to design their own program and then finding then developing the technology necessary to support their design. VPL is committed to supporting these forward thinking IDNs and have developed a software solution for just this application.