9 Items That You Should Be Checking As Part of Your Invoice Approval Process

Invoice Approval ChecklistIn this post I will outline 9 items that you should be checking as part of your invoice approval process.

As part of our role as a Logistics Manager we need to ensure that what we are being charged for by our freight forwarders and customs brokers are not only in line with our rate schedule but also compliant with the relevant customs regulations.

In previous posts I have written about  understanding international freight forwarding costs  and understanding customs clearance costs  but in this post I will focus on the process of checking the invoices that you receive from your international freight forwarder or customs broker to ensure that they are correct.

It is a well known fact that the error rates on charges from international freight forwarders, customs brokers and cartage companies can be quite high and not undertaking a thorough auditing process could lead to significant amounts of money being unnecessarily paid.

Furthermore, an incorrect customs value or an incorrect tariff classification may result in financial penalties being imposed by the customs authorities if customs duty is short paid as a result of erroneous information being declared on the customs entry at the time of importation.

Invoices from your international freight forwarder will typically fall into two cost categories:

  • Freight and Service Charges
  • Duty and Tax Charges

Both categories and 9 key items that you should be checking for are discussed in detail below.

Freight and Service Charges

These charges can include:

  • International freight charges – per container or cubic meter for sea freight shipments or per kilogram for air freight shipments
    • Additional freight surcharges may include – wharf or aviation security fees, a bunker adjustment factor (BAF) for sea freight shipments or a fuel surcharge for air freight shipments
  • Local handling charges – per container or cubic meter for sea freight shipments or per kilogram for air freight shipments and in some cases a fixed fee will apply
    • Sea freight charges may include – port service charge (PSC) , sea cargo automation and compliance fees and a delivery order fee
    • Air freight charges may include – airline handling fee, airport terminal fee and an airline documentation fee
  • Customs Clearance and Delivery charges – per container or cubic meter for sea freight shipments or per kilogram for air freight shipments and in some cases a fixed fee will apply
    • Import customs clearance fee (agency), cartage charges and a fuel surcharge fee

As part of the invoice approval process the following items should be checked:

  1. Check the shipping documents to make sure that you are not being billed for someone else’s consignment
    • Check the shipper and the consignee details are correct
  2. Compare the arrival date of the shipment and the service providers invoice date to make sure that you are being billed within a reasonable time frame after the arrival of the shipment
    • Check flight date for air shipments and the on board date for sea shipments
    • Requesting a discount for late billing is an option that can be explored
  3. Ensure that the origin port and destination port on the invoice match those on the airway bill or bill of lading
    • It is this combination of port pairs that drives the rates that will be charged by the service provider
  4. Ensure the freight rates and the service charges that have been invoiced are consistent with what you have agreed to as part of your published rate schedule
    • The provision of rate schedule with a predefined validity period is a normal expectation
  5. Ensure all calculations are correct
    • Check the currency being used is correct
    • Check the exchange rates being used are acceptable – freight forwarders have a habit of using exchange rates as a means of revenue raising
    • Check the quantity and rate calculations are correct e.g. USD 3.50 per kg x 50 kg =

Duty and Tax Charges

Import duty and import taxes are calculated based on the import value of the goods.

In most countries the import value of the goods is based on either the FOB value or the CIF value of the goods.

In Australia the import duty payable is calculated by multiplying the FOB value by the duty rate and the GST payable is then calculated by adding the duty to the CIF value of the goods and multiplying this amount by the GST rate

For example:
If the FOB value is $1000 and the duty rate is 5% then the amount of duty payable is $50
If the CIF value is $1100 and the GST rate is 10% then the amount of GST payable will be $115 – ($1100 + $50) x 10%
The total duty and GST payable on importation will be $165

Prior to approving an invoice for duty and tax the following items should be checked:

  1. Ensure there is a “tie up” between the shipping documents (air waybill / bill of lading) and the commercial documents (invoices / packing list)
    • There should be a common identifier on all documents to ensure the correct goods are being entered for customs clearance purposes
  2. Ensure that the correct customs value has been used for duty calculations
    • The total value of the commercial invoices should equal the value shown as the total invoice value on the customs entry to ensure compliance with customs regulations
  3. Ensure the rate of duty being applied is correct
    • Duty rates can vary based on the country that the goods are being imported from and as can also be different as a result of any trade agreement that has been established between the two countries
    • Duty rates can also vary depending on the tariff classification of the goods
  4. Ensure all calculations are correct
    • In most cases the amount of duty and tax payable is calculated automatically when the customs entry that is submitted through the customs import system
    • Providing the value for duty and the duty rates are correct there should be no issues with the amounts that have been calculated and are required to be paid

Whilst thoroughly checking each invoice will increase the time it takes to perform your invoice approval process I can guarantee the investment will definitely result in credits for incorrectly charged fees and will also remove the risk of any potential customs compliance issues.

Feel free to provide some feedback or  let me your thoughts on this post by making a comment below


The Weekly Logistics List

The “Weekly Logistics List ” is a weekly email especially curated for logistics and supply chain managers and provides tips, tools and techniques for managing 3rd party logistics service providers.

If you would like to sign up to receive the “Weekly Logistics List” and download a FREE copy of my guide to “Managing 3rd Party Logistics Service Providers Using Outlook and OneNote” enter your details below.

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New Speaking Engagement | 2017 Supply Chain Forum

2017 Supply Chain Forum

I am pleased to announce that I will presenting at the 2017 Supply Chain Forum

The forum will be held in Sydney, Australia  on Tuesday the 19th and Wednesday the 20th of September at the Swissotel Sydney

I will be participating as a speaker in a keynote discussion session that will discuss the topic:

“Taming Disruption – Breaking in Barnstorming Technology”

The brief for this discussion is below:

The technology intensive, ‘always on’ supply chain is redefining business.

The frontier of innovation is busy and dynamic, where The Internet of Things, predictive analytics and collaborative robotics and sensors provide supply chain managers with more data and insight into their operations than science fiction ever envisaged.

However, uprooting established structures is daunting, and innovation is about more than clever breakthroughs. There must be purpose, strategic design and practicality in our design to allow innovation to manifest as impact.

Given this circumstance:

  • What are the most transformative current technologies a supply chain manager can implement?
  • Are there foreseeable new business models, ventures or challenges that modernisation presents, beyond its immediate implementation?
  • What distinguishes a supply chain manager prepared to harness technological change from one who is not?

Also participating in this discussion session are Phillip Haddad from Booktopia, Indrasen Naidoo from Roy Hill and Felix Ohle from Viva Energy

To download the brochure Click Here

To view the full agenda Click Here

To view the list of speakers Click Here

To register for the event Click Here

Feel free to reach out to me if you would like further information and I hope to see you at the 2017 Supply Chain Forum next month

 

2017 Supply Chain Forum

 

3plmanager – one of the best logistics blogs on the planet

Feedspot Top Logistics Blogs We are proud to announce that 3plmanager has been voted one of the best logistics blog on the planet by Feedspot – a modern RSS reader that allows you to put all of your reading in one location.

3plmanager has been voted in the top 75 logistics blogs on the internet.

The top 75 logistics blogs have been selected using search and social metrics and the ranking is based on the following criteria:

  • Google reputation and Google search ranking
  • Influence and popularity on Facebook, twitter and other social media sites
  • Quality and consistency of posts.
  • Feedspot’s editorial team and expert review
 

Japan Post books $4.7b writedown on Toll and flags 1700 job cuts at the business

According to a Reuters report today , Japan Post Holdings has confirmed it will book its first annual loss in at least a decade, after unveiling a $US3.6 billion ($4.7 billion) writedown on its Australian logistics arm Toll Holdings.

Japan Post estimated its loss at 40 billion yen ($470 million) for the year ended in March, becoming the latest Japanese company to stumble after a high-profile overseas acquisition.

“The price we paid for Toll was high,” Mr Nagato said. “The writedown is intended to wipe the slate clean.”

Japan Post, a conglomerate that spans postal delivery, banking and insurance, had originally forecast 320 billion yen in net profit for the financial year ended in March, down 25 per cent from the previous year.

The company, 80 per cent owned by the government, bought Toll in May 2015 for $6.5 billion in a deal designed to boost its global logistics reach and offset a decline in its domestic postal operations.

At the time of the Toll deal, Toru Takahashi, then-chief executive of Japan Post, had said there would be no major job cuts at Toll.

But Toll has been hit with a drop in parcel volumes as Australia’s economy is buffeted by falling commodity prices, leading Japan Post to book the writedown charge.

Despite Toll’s problems, Nagato said Japan Post was “constantly looking out for other acquisitions, including those beyond the logistics sector.”

Source – Reuters

 

New Speaking Engagement | Automated Warehouse, Smart Technologies & Supply Chain Integration Forum

I am pleased to announce that I will presenting at the Automated Warehouse, Smart Technologies & Supply Chain Integration Forum

The forum will be held in Melbourne at the Marriott Hotel on the 22nd and 23rd of May 2017.

I will be presenting a case study on “Maximizing Productivity in E-Tail Warehousing and Distribution Operations” and will be discussing the following:

  • From shopping cart to the customer’s door – Implementing a SMART system which delivers value
  • Developing order fulfillment processes to suit online retailer order and stock profiles
  • Creating a scalable & flexible workforce and warehousing facility

To view the full agenda Click Here

To view the list of speakers Click Here

To register for the event Click Here

Feel free to reach out to me if you would like further information and I hope to see you there next month

 

Weekly Logistics List | 5 Other Things to Consider when Selecting 3PL Service Providers

5 Other Things to Consider when Selecting 3PL Service Providers

This week week we look at 5 other things you should be considering when selecting a 3PL service provider

We have previously discussed the The 4 Rs (and 1 G) of Selecting a 3rd Party Logistics (3PL) Service Provider and these will always be a major consideration throughout the 3PL service provider selection process.

There are also a number of other things that should be taken into account. These include the:

  1. Operational capability
  2. IT capability
  3. Growth potential
  4. Financial stability
  5. Relationship equality

1. Operational capability

Whilst cost will always be weighted heavily as one of the key evaluation criterion, the operational capability of the potential 3PL service provider will also need to be seriously considered.

Ideally the candidates being considered will be doing business with organisations that have a similar profile to your own organisation.

Do they have experience handling products in the same or similar industry to yours?

Are they delivering to the same customers or to customers with similar requirements as yours?

Are they capable of  servicing a multi channel distribution strategy – a wholesale, retail and eCommerce customer base?

Whilst your industry knowledge may enable you to answer the above questions the best way to confirm operational capability is to ask the potential service providers to submit a number of referees and to make the effort to seek feedback directly from the referred customers.

2. IT capability

Whether you are a small eCommerce start up or a large multinational corporation you will invariably require some form of IT systems integration with your 3PL service provider in order for them to operate in an efficient and cost effective manner.

This will usually require an electronic interface between your operating systems in order to synchronize inventory , to send orders and to receive shipping information.

As part of the selection process you need understand  and evaluate the 3PL service providers capability to create and maintain this type of interface.

Ideally they have already integrated your operating system for one or more other customers and they can demonstrate a successful experience of having done so.

3. Growth potential

Obviously the main aim of any business is to grow.

The 3PL service provider that you select should also be capable of, or have the potential to grow with you.

This does not just mean they have the flexibility to provide a larger warehouse to hold more inventory and to support an expanding customer base or product offering.

It also means they have the capability or potential to offer other services that are not currently provided  in both the local market or globally if that is what is required to support your growth.

As further explained below, the relative size of the 3PL should also be taken into account when assessing growth potential.

4. Financial stability

The third party logistics (3PL) market is a relatively fragmented one.

Its participants range from global organizations to local operators all vying to provide international freight forwarding , customs clearance, warehousing and domestic transportation services to companies that have chosen to outsource these functions.

Given the multitude of options that will be available it is important to ensure that proper due diligence is undertaken to establish the financial stability of the organisation that will significantly influence the satisfaction of your customers and ultimately control the realization of your revenue.

Things to consider include an understanding of the ownership structure and funding, the recent financial performance , the currnet credit rating, the existing customer base for diversity and the level of insurance coverage.

5. Relationship equality

The relative size of any potential partner should also be considered.

If you are a small to medium organisation then it is probably better to seek out a small to medium 3PL service provider rather than selecting a larger organisation.

In this scenario both parties are as important and as reliant on the other to grow and succeed.

A large organisation will always be given priority over a small to medium organisation when the large 3PL service provider is faced with making a choice on which customer it will be better off serving.


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The “Weekly Logistics List ” is a weekly email especially curated for logistics and supply chain managers and provides tips, tools and techniques for managing 3rd party logistics service providers.

Try it out. You can unsubscribe at any time and you can also rest assured that we do not share our list with anyone – ever!

 

Weekly Logistics List | 5 Signs that the Success of your 3PL Service Provider Relationship is at Risk

relationship riskThis week we take a look at 5 signs that might indicate that the success of your 3PL service provider relationship is at risk.

Maintaining effective 3rd party logistics service provider relationships requires effort from both parties.

Ultimately however, the responsibility lies with you as the logistics or supply chain manager to keep things on track.

Throughout the relationship, particularly longer term partnerships, both parties may start to become complacent about the disciplines required to sustain an effective supplier management process. Signs that “relationship fatigue” may be starting to occur include the following:

  1. Emails not responded to in as timely a manner as normal
  2. Operational reviews postponed or cancelled on regular basis
  3. Reports submitted late or incomplete
  4. Assigned tasks not completed by the agreed timelines
  5. Projects delayed

1. Emails not responded to in a timely manner

In today’s world email is the primary source of communication for most people and it is expected that a response will be received in a timely manner.

This expectation is no different for 3PL service provider relationships and responsiveness should be one the key evaluation criteria for selecting and managing 3rd Party Logistics Service Providers.

A timely response to an urgent operational issue is critical in many instances.

A lack of responsiveness can be a sign that the service provider’s customer service team or the client relationship manager has competing priorities and is probably having to deal with the demands of too many other customers.

2. Reviews postponed or cancelled

Operational reviews can occur daily, weekly or monthly. More strategic reviews usually occur on a quarterly or annual basis.

The success of any 3PL service provider relationship is driven by a disciplined review process and this process is reliant on both parties being committed to attending the reviews as per the agreed schedule.

An ongoing review meeting  that is postponed or cancelled on a regular basis is a sign that one or both of the parties is prioritizing other activities over the scheduled meetings and that they have lost sight of the role that maintaining a regular review schedule has on the overall success of the relationship.

3. Reports submitted late or incomplete

A key part of the 3PL service provider management process is to review a series of reports that provide an overview of the volume , cost and performance of the services being provided by the supplier.

The reports and the supporting data are arguably the most important element of the 3PL service provider management process as they provide a snapshot of the operational activity. They are an essential element that enables the successful management of the service providers cost and performance.

Typically the data and the reports are prepared by the service provider and should be submitted in advance of the review.

During the review the service provider should present the report and be prepared to provide commentary on any variation to volume, any increase or decrease in the cost of the services or why there are exceptions to the expected service levels.

Reports not submitted prior the review or when the service provider has not analysed the data before the meeting are signs that the service provider does not respect how important the data and the reports are to the overall management process.

4. Assigned tasks not completed

An outcome of most 3PL service provider meetings will be a number of tasks or actions that have been assigned to the service provider.

Each task will have had a due date assigned to it and it is expected that the action will be completed on or before that date.

Tasks not completed on time are another sign that the responsible party is under resourced and prioritizing other tasks.

5. Projects delayed

Operating in an efficient and cost effective manner is a fundamental expectation of  any 3PL service provider relationship.

What sets a service provider apart from others is the organisations approach to identifying and implementing continuous improvement projects  and cost reduction initiatives.

The outcomes of these projects can have a significant impact on the operational and cost effectiveness of the services being provided but also help to enhance the relationship with the service provider.

Conversely, if the commencement or completion of the project is delayed the opposite will be true.

The lack of senior management support, the absence of a formal project management methodology and a dedicated project manager are signs that the project may be at risk of being delayed.


If you would like to sign up to receive the “Weekly Logistics List” and download a FREE copy of my guide to “Managing 3rd Party Logistics Service Providers Using Outlook and OneNote” enter your details below.

The “Weekly Logistics List ” is a weekly email especially curated for logistics and supply chain managers and provides tips, tools and techniques for managing 3rd party logistics service providers.

Try it out. You can unsubscribe at any time and you can also rest assured that we do not share our list with anyone – ever!

 

Weekly Logistics List | 5 Habits for Effectively Managing Meetings with 3PL Service Providers

This week we look at 5 Habits for Effectively Managing Meetings with your 3rd Party Logistics (3PL) Service Provider.

Whilst meetings may not always be the best use of time in many situations they are however an essential element in the process of successfully managing 3rd party logistics service providers.

As a logistics or supply chain manager you will spend a large proportion of your time facilitating and managing service provider relationships via a series of weekly, monthly and quarterly review meetings.

Adopting the below habits will help to establish an efficient process for preparing, conducting and managing the outcomes from your meetings.

  1. Create and communicate the agenda prior to meeting
  2. Ensure the right people are in the room
  3. Demand that everyone comes prepared
  4. Stick to the schedule
  5. Distribute meeting notes and action items ASAP

As an extension of the above principles I have developed “A Guide for Managing 3rd Party Logistics Service Providers using Microsoft Outlook and OneNote


To download a FREE copy of my “Guide for Managing 3rd Party Logistics Service Providers using Microsoft Outlook and OneNote” – Sign Up to the Weekly Logistics List by completing the subscription form below.


1. Create and communicate the agenda prior to the meeting

Every meeting must have a specific purpose and supported by clearly defined agenda that is communicated to all participants in advance of the meeting.

The agenda should set out each topic that is to be addressed , who will lead the discussion and the amount of time that has been allotted to each agenda item.

For non recurring meetings, the agenda should be sent out within 72 to 48 hours of the meeting date.

Any request to include additional agenda items should be submitted by participants prior to the meeting and should also be communicated to all other participants before the meeting.

To keep participants and presenters focused, displaying the agenda on a whiteboard or projecting it on to a screen can be useful.

2. Ensure the right people are in the room

Selecting who should attend will vary depending on the objective of the meeting but careful consideration should be given to ensuring that those attending can contribute to the objective.

Often times it is usually who has NOT been invited to the meeting that is the problem.

In fact , in many cases there are participants that could probably be better utilizing their time elsewhere. I know that I have been in that category on more than one occasion!

There is nothing worse than having to defer a decision to a later date or not having access to the right information or an insight into a topic of discussion because the most relevant person has not been invited.

For example , if a quarterly review agenda includes a discussion on declining operational performance then it is unlikely that the service providers key account manager will have the same understanding of the situation as the operations manager or the customer service representative.

Similarly,  if a weekly operational review agenda includes a discussion on the same topic ensuring the key account manager is in attendance is important to ensure that they get a proper understanding of the situation in order to take the appropriate action within the organisation to fix the issue.

3. Demand that everyone comes prepared

In addition to ensuring the right people are in the room it is also imperative that all participants come prepared for the meeting.

This means if a participant has been allocated a task or action from a previous meeting then that task or action has been completed or undertaken as per the assigned schedule.

If the meeting agenda requires a report to be presented then the report needs to have been prepared in the agreed format , the data being presented must be complete and up to date and if commentary is required then this must also have been prepared in advance.

For example , if dispatch timeliness performance  is not meeting the agreed KPI the responsible party should have already undertaken the necessary investigation to determine the cause or causes of the failure and more have importantly developed a corrective action plan to address the issue.

4. Stick to the schedule

Meetings are notorious for starting late and going over time.

To be an effective meeting facilitator it is important to stick to the schedule.

Ensure your meetings start and finish on time, you follow the agenda and that the presenters adhere to the time that has been allocated to their agenda item.

Quite often topics that are important, but not specifically related to the existing agenda items will come up – rather than stray from the agenda and potentially going over time, create a “parking lot” for these items.

You can either add them to the agenda for future meetings or it is possible that the topic may require a meeting of its own to be scheduled as part of a separate action item.

5. Distribute meeting notes and action items ASAP

It is not uncommon for participants at the same meeting to have a different interpretation of what was discussed and what the outcomes of the meeting might be.

To reduce this risk there are two steps that can be taken:

  1. At the end of the meeting the facilitator should do a quick “wrap up” highlighting the key discussion points, repeating any actions arsing from the meeting and confirming the date of the next meeting if applicable.
  2. As  a follow up to the “wrap up” the facilitator should also distribute the meeting notes and actions items within 24 to 48 hours of the meeting taking place.

The meeting notes will document the key discussion points, confirm the agreed action items, the responsible party and the due date for each action item.

This way there is no confusion as to what was discussed and agreed at the meeting.

Below is a sample of how Meeting Notes and Action Items can be distributed via email using  Outlook and OneNote to Manage Third Party Logistics Service Provider Relationships.

 5 Habits for Effectively Managing Meetings with 3PL Service Providers

 


If you would like to sign up to receive the “Weekly Logistics List” and download a FREE copy of my guide to “Managing 3rd Party Logistics Service Providers Using Outlook and OneNote” enter your details below.

The “Weekly Logistics List ” is a weekly email especially curated for logistics and supply chain managers and provides tips, tools and techniques for managing 3rd party logistics service providers.

Try it out. You can unsubscribe at any time and you can also rest assured that we do not share our list with anyone – ever!

 

Weekly Logistics List | 5 Key Performance Indicators for Monitoring your 3PL Operations

This week we look at 5 Key Performance Indicators (KPI) for managing your third party logistics (3PL) operations.

Whilst there is a tendency to think that a lot of KPI are required to monitor an outsourced 3PL operation , the reality is that the following 5 are really all that are needed.

  1. Inbound receiving timeliness
  2. Dispatch timeliness
  3. Inventory accuracy
  4. Returns processing timeliness
  5. Cost per unit shipped

1. Inbound receiving timeliness

Inbound receiving timeliness – sometimes referred to as “dock to stock” is the measure of the 3PLs ability to process inbound inventory in a timely manner.

For this key performance indicator (KPI) , the clock starts from the time the order arrives at the 3PL facility and ends once the stock has been checked, put away to a pick face or bulk storage location and has been confirmed by the 3PL as available to ship.

The service level agreement will determine the expected performance level but a reasonable expectation is 24 hours for AIR and less that full container loads (LCL) shipments and 48 hours for full container loads (FCL)

A goal of 95% or more of inbound orders being checked and put away by the agreed service level is a reasonable expectation for  any 3PL.

2. Dispatch timeliness

Dispatch timeliness measures the efficiency of the order fulfillment process.

For this key performance indicator (KPI) the clock starts from time the 3PL receives an outbound order and ends when the order has been picked and packed and is ready for dispatch or collection by the carrier.

The expected service level will vary depending on the order type and the service level agreement with the 3PL.

For eCommerce orders or “at once orders” (where there is no future disaptch specficied) same day shipment is a reasonable expectation providing the order is received by the agreed cut off time.
e.g. any order received by 10 am should be ready to ship on the same day and any order received after the 10 am cut off is not expected to be ready to ship ship until the next day. Most 3PLs will make every effort to ship these orders on the same day but they should not be considered as a service level failure if they do not.

For orders where there is a future dispatch date specified – sometimes refereed to as the “ship by date” or “cancel date” the expectation is that the orders will be ready to ship on or before the specified date.

The 3PL should be measured on their ability to make the order ready for dispatch or collection by the carrier on or before the future date specified on the order.

Regardless of the order type, a goal of 95% or more of outbound orders being ready to ship by the agreed service level is a reasonable expectation for  any 3PL.

3. Inventory accuracy

Inventory accuracy is ultimately measured as function of the outbound order fulfillment process.

If an item that is required to be picked and can not be located during the order fulfillment process then there is obviously a problem with the integrity of what is showing as stock on hand in the 3PLs warehouse management system (WMS) and what is physically located in the pick face or bulk storage location.

Inventory accuracy issues can be caused by errors in the receiving and put away process or in the order fulfillment process. They can also be caused by  theft or pilferage occurring whilst the goods are being stored at the 3PL site.

Cycle counting and stock takes can be undertaken to check the integrity of  the stock on hand and to mitigate the occurrence of ordered items not being available to ship during the order fulfillmnet process.

In this KPI the 3PL is being measured on their ability to maintain accurate inventory levels which are supported by robust inbound receiving and outbound dispatch processes that must also be performed in a timely manner in order to also satisfy the expectations of the receiving and dispatch  KPIs.

The service level agreement will determine the expected performance level but a reasonable expectation is that a discrepancy of less than 1% of the total units on hand would be discovered during the outbound order fulfillment process or as a result of any cycle counting or stock taking activities.

4. Returns processing timeliness

Returns processing timeliness measures the ability of the 3PL to process returned goods in a timely manner.

Historically goods were only returned if an item was received in a damaged or faulty state or to rectify a warehouse picking or shipping error.

As a percentage of units shipped the volume was much lower for these types of cases but these days the volume is significantly higher due to the increase in the number of eCommerce orders. To entice customers to buy, many online retailers offer free returns and therefore customers will buy multiple color or size options with the intention of sending back what they don’t want.

In order to cater for this increased volume of “convenience returns” it is now even more important that returns are processed in a timely manner as quite often a large portion of the goods will be in perfectly good condition and will need to be processed and returned to stock as soon as possible so as they can be made available for resale.

For this key performance indicator (KPI) the clock starts from the time the 3PL receives the returned item and will end when the item has been processed and either put back to stock for good items or disposed of, or quarantined pending further action, for faulty or damaged items.

The service level agreement will determine the expected performance level but 48 to 72 hours for processing returns is a reasonable expectation.

A goal of 95% or more of returned items being processed by the agreed service level is a reasonable expectation for  any 3PL.

5. Cost per unit shipped

Whilst the other four key performance indicator (KPI)  are measuring process performance the cost per unit (CPU) shipped KPI is a measure of the overall cost of the 3PL operation using units shipped as the common denominator.

Although it is important to monitor the total and combined cost of each activity (receiving and put away, storage, order fulfillment) using a relative measure provides a better comparison of each cost period.

Obviously an increase in outbound volume will increase the overall cost of the 3PL operation.

For an efficient operation however the cost per unit (CPU) shipped should remain constant or should actually start to reduce as the outbound volume increases.

A rising CPU is a trigger to start taking a closer look at the charges for each activity to determine what is driving the anomaly.

Cost per unit (CPU) shipped is calculated  by dividing the total cost of the operation for the period by the total number of units shipped for the same period. It typically excludes the transportation costs from the 3PL site to the customer.

It is difficult to compare the cost of one 3PL operation to another as the customer requirements and therefore the cost components for each activity can vary, the key however it to be able to detect inconsistencies in the cost per unit shipped from period to period, to determine the cause and to take the necessary action to rectify the situation.

For some practical tips on how to reduce some of these costs you can refer to my previous post on 5 Opportunities for Cost Reduction in your 3PL Warehouse


The “Weekly Logistics List ” is a weekly email especially curated for logistics and supply chain managers and provides tips, tools and techniques for managing 3rd party logistics service providers.

Try it out. You can unsubscribe at any time and you can also rest assured that we do not share our list with anyone – ever!

To sign up to the Weekly Logistics List and to download a FREE copy of the my guide “52 Tips for Reducing Logistics Costs” please enter your details below.



Feel free to provide feedback on the above list or share your “Logistics Lists” with the 3plmanager.com community by making a comment below

 

Weekly Logistics List | 5 Opportunities for Cost Reduction at your 3PL Warehouse

This week we look at 5 opportunities for cost reduction at your 3rd Party Logistics (3PL) warehouse.3pl cost reduction tips

When looking for ways to reduce costs at your 3PL first make sure you totally understand the way in which the costs are calculated and what actually drives the cost.

After that take a look at each section of the cost schedule (typically receiving and put away , storage, order fulfillment and transportation) and see if there is anything that you, or your 3PL service provider could being doing to change the way you are currently operating.

Some low hanging fruit might include the following opportunities:

  1. Minimize the number of inbound cartons with mixed SKU to reduce receiving and put away costs
  2. Develop a disposition plan to deal with obsolete or slow moving stock to reduce storage costs
  3. Optimize the dimensions of the packaging being used in the order fulfillment process to reduce freight costs
  4. Monitor transportation service levels to reduce freight costs
  5. Improve communication with your service provider

1. Minimize the number of mixed SKU cartons

Products stored in warehouses are held  in either in a pick face or in a bulk storage location before being picked and packed as part of the order fulfillment process

Pick faces are typically set up to hold one SKU per location and only one SKU per carton is normally held in bulk locations.

With this being the case when a 3PL receives an inbound carton with mixed SKUs the first thing they will do is to separate the SKUs into single cartons before putting the products away to the pick face or the bulk location.

Quite often the 3PL cost schedule will include an additional cost for sorting and repackaging mixed SKU cartons.

To eliminate or minimize this cost it is as simple as instructing your suppliers not pack your orders in mixed SKU cartons.

2. Dispose of obsolete and slow moving stock

3PL storage costs are calculated based on the number units on storage or the amount of space the units take up in the warehouse.

Whilst not the main revenue driver, the longer your stock sits in the warehouse the more storage revenue the 3PL will earn. As a result the service provider has no real incentive to suggest ways to reduce your inventory holding.

In addition to gathering dust the value of slow moving and obsolete stock will also continue to diminish in direct relation to the actual cost associated with storing each SKU for the period that they are on storage.

Every business should have a disposition plan for this this type of stock. Selling at a discounted prices or in the worst case scenario destroying the stock on hand are options quite commonly used.

For relatively low value products there will come a time when the ongoing storage costs, not to mention what has already been incurred,  will be greater that actual realization value of the stock on hand.

A proactive logistics or supply chain manager will ensure that this scenario is communicated the relevant stakeholders within his or her organisation and will drive some action in order to reduce storage costs.

3. Optimise dimensions of outbound order packaging

Transport costs are based on the greater of the gross or cubic weight of the package that the order is shipped in.

An order with a gross weight of 8 kg shipped in 3/4 full carton with a cubic weight of 12 kg will be charged at the 12 kg rate.

Having a variety of cartons or satchels with different dimensions will increase the ability to pack an order into the optimal packaging size and hence reduce the shipping costs.

Whilst standardizing shipping cartons may reduce overall packaging costs it can also lead to an increase is freight costs and therefor an increase to the total logistics cost .

To download a FREE Chargeable Weight Calculator for Road Express Transport shipments – CLICK HERE

4. Monitor transportation service levels

In most cases the 3PL service provider will on-charge the freight costs associated with shipping your orders to your customers.

Whilst the service provider may be able to offer better rates as a result of the volume discounts they have negotiated with their preferred carriers any saving is negated if your orders are being shipped at a service level that is not in line with what you would normally expect.

In some cases the reason for using an expedited freight service levels will be valid but regardless of the reason it will have a significant impact on your overall freight cost.

The use of an expedited service level will probably occur as result of needing to satisfy customer expectations but the key will be to understand what has caused the need to use the service in the first place.

Most likely it will be as result of poor planning within your organisation but may also be a result of an error made by the 3PL service provider.

By reviewing freight costs at the service level on a regular basis you will quickly notice exceptions to the use of the default service level and will be able to take the appropriate action to minimize the re-occurrence and reduce the ongoing freight costs.

5. Improve communication

Obviously not a line item on any 3PL cost but improved levels of communication with your service provider you can can lead to a significant reductions in logistics costs.

Letting them know that they you are expecting spike in order volume as a result of a marketing campaign allows the 3PL to ensure the proper level of resources are on hand during normal work hours and therefore reduce or eliminate any overtime charges that may be required to meet normal service levels.

Sharing information in relation to the timing and sell through expectations of new product releases allows them to better plan the location and pick face configuration for these products which will improve order fulfillment efficiency and the overall cost per order shipped.


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