The ‘r’ word (as in ‘recession’) is rearing its ugly head as businesses and service providers alike struggle with the challenges being thrown at them by the economy. The ever-deepening credit crunch, low consumer spending, increasing transportation costs, and a fluctuating currency have all led to a less than optimal business environment.

Companies are looking at every aspect of their operations for cost savings—including the supply chain.

 “A common theme within our very diverse customer base is that overall demand is lower, particularly in the retail sector and the building materials and related products sector. The economic slowdown in the U.S., driven largely by the slowdown in construction is impacting the domestic supply chain and the international supply chain of our customers,” says Craig Stoffel, vice president, global logistics, Werner Enterprises Inc.

“Many of our customers are asking us to help them come to terms with their cost expectations for 2009,” says Jim Butts, senior vice president, C.H. Robinson. “They are asking us for price forecasts and want to know how we can help mitigate their costs.” Companies need this information to make presentations to their own Boards, outlining plans for the next year and justifying budgets; to say nothing about reducing logistics spends, squeezing out competitive advantages and maybe even making their lives easier.

“At a time when demand is slowing, the cost of delivering product is rapidly increasing,” says Stoffel. So, while shippers are seeing their transportation costs rise, fuel costs are being felt first hand by carriers, rail providers, ocean liners and air carriers. Indeed, some non-asset based 3PLs have seen partners shut down. “We are facing some financial stability issues with some of our partner carriers,” explains Stoffel.

Werner is attempting to lower operating costs within their own fleet and network by reducing fuel consumption through better management, dual driver and routing programs, and implementing alternative power unit (APU) devices on their trucks—savings which will help Werner control their own costs, and ultimately, their customers’ transportation costs.

Currency fluctuations are wreaking havoc on business balance sheets as well. The falling U.S. dollar changed the landed cost of globally sourced products, components and raw materials. At the same time other currencies, particularly the Chinese RMB, are increasing, leading businesses to question their current sourcing strategies and leading them to consider newer emerging markets. “Customers are modifying their vendor base and moving to places like Vietnam, Indonesia, India and becoming less dependent on China,” says Tony Zasimovich, vice president, international logistics, APL Logistics.

What can your provider do for you?

All of this causes pain throughout the entire supply chain as businesses analyze every aspect of their operations. Most of the providers are finding that what customers really want are options. They want to know what the best mode mix is for shipping their products, what options they have for warehousing and distribution, and what alternatives there may be to their current transportation designs. They know they need to make changes and are asking for help in identifying the most effective moves.

One of the first things you can do, according to Zasimovich, is to get the goods where they need to be when they need to be there, as cheaply as possible. Services such as APL’s OceanGuaranteed service, offer a lower cost alternative to airfreight with a money back guaranteed transit time at about 25 percent of the cost of airfreight.

Sometimes the most basic steps such as identifying inefficiency and squeezing out waste, are made with a new sense of urgency. As an example, Werner was recently asked to remodel a traditional container import program to shorten transit time and reduce costs. Originally, the customer was loading full containers by SKU in China for delivery to a U.S. warehouse where the product was unpacked and repacked, then delivered over the road to the U.S. retailer. Werner’s solution was to load store ready containers at a central consolidation warehouse in China for direct delivery to retail locations in the U.S. Savings to the customer were significant; results were achieved by maximizing on the lower cost warehouse labor in China, loading the product once as opposed to twice (less handling also reduces the chance of damaged goods) and streamlining transit plans within the U.S.

“The complexity of the problems our customers are dealing with are greater now. Organizations are getting leaner and must get better at integrating domestic and international freight. That means that you can no longer manage with two separate transportation departments; today’s solutions really need to overhaul the entire supply chain,” explains Stoffel.

Third-party logistics providers, in particular, are finding their key customers asking them to take a more proactive involvement in their business. Zasimovich gives the example of a Fortune 500 company with 30 divisions, each managing it own transportation activities. APL centralized the booking and control for all divisions, enabling the company to better manage its transportation costs by redirecting air shipments to ocean where possible, using expedited where needed, and creating visibility throughout the entire organization.

“If you have a close relationship with the customer it’s fairly easy to identify things that will make them more efficient and maximize their spend,” says C.H. Robinson’s Butts.

With budgets under pressure, many businesses are choosing to outsource more of their supply chain functions. “Over the past few weeks, we had one customer who was looking to outsource their overseas operations in order to variablize cost, and another who was looking for more of an outsource/in-house blend,” says Zasimovich. Werner’s Stoffel sees a similar trend. And in keeping the focus on customer needs, he says that they are creating a lot of hybrid solutions, involving a customer’s existing carriers, using Werner’s extensive fleets and contracting asset-based companies to develop the most cost effective supply chain.

“You have to design supply chains that utilize the most effective routings and transportation mode combinations to reduce miles traveled, optimize shipping container size and utilization, and reduce the amount of handling from source to final destination,” explains Stoffel.

“We are definitely seeing more collaborative efforts with our key customers,” says Zasimovich. “We are sharing plans, listening to objectives and identifying problems.”

Yet while some areas of trade are contracting, still others are seeing unanticipated growth. The change in the value of the dollar has made American goods more affordable in foreign markets and some businesses are seeing increased demand overseas. As a result, these businesses are finding themselves shifting their focus from importing, where they typically had invested the bulk of their supply chain technology, finances, and talent. Now businesses that were primarily importers are struggling to bring their export supply chains up to the level of their import ones.

“Increased exporting volumes have brought us into a consulting role with many of our customers who are first time exporters,” says Stoffel. It’s an opportunity for logistics companies to provide their customers with another level of service. “Many of these first-timers are entering these new markets in a fragmented way,” says Zasimovich. “They need to streamline and implement controls” to help identify problems more easily and make the export chain more predictable, a critical element in the supply chain where surprises usually cost money.

The renewed focus on exports has led some 3PLs to venture into forwarding and to bolster their international freight services. Recently, C.H. Robinson made a significant acquisition in Transera, a non-asset based global project freight forwarder. “Transera extends our global forwarding expertise,” explains Butts who says that the acquisition answered a growing area of customer demand for over- dimensional freight shipping.

Having a strong presence in the in-country market can also help customers save money when venturing into a new global arena. APL, says Zasimovich, has a large global footprint that can serve customers in international locations, particularly China and India. Less developed emerging markets tend to have infrastructure, equipment and capacity issues. Where possible, APL addresses this by building their own infrastructure to gain more control and certainty, as they have done in India by securing a license to run trains from New Delhi to the port of Mumbai.

In the international trade game, information is key with accurate, real time data saving both time and money. “To maximize efficiency, a business must be exercising all options and to do that they need total visibility and systems need to be fluid and dynamic,” explains Butts. Processes are becoming web-based, improving visibility and predictability for all the supply chain partners. This is particularly important when dealing with multiple partners stretching around the globe.

Exception management is also an important element of technology systems and can result in significant cost savings for shippers. Good exception management programs collect data and notify shippers as soon as an expected milestone is not met. This level of monitoring allows them to discover problems early on in the transportation cycle and to come up with alternatives, or perhaps even reroute freight. While models can identify and analyze costs, systems that run scenarios will allow business to see how their decisions are likely play out in reality. These types of exercises are becoming commonplace as companies are weighing the benefits of suppliers in various locations around the globe versus transportation costs and the risk of delays in shipping from remote locations.

Although there are definite signs that the economy has faltered, C.H. Robinson’s Butts is relatively upbeat, saying the businesses are used to working in a challenging environment. “It’s a competitive world and times seem to always be getting tougher,” says Butts, “there is a constant demand for improvement and little room for error.” Challenging economic times just bring this into sharper focus. wt

Sidebar: Books Are Fun Turns the Page on Warehousing and Distribution

With challenges come opportunities, a fact that both Books Are Fun and C.H. Robinson are able to capitalize on. Books Are Fun, Ltd. (a Reader’s Digest company) is a leading display marketer of books and gifts. The company employs a network of over 850 independent representatives and serves schools, corporations, early learning centers, and numerous hospitals, universities, government offices, and non-profit organizations across North America.

In an effort to streamline their warehousing and distribution process, Books Are Fun contracted C.H. Robinson to conduct a warehouse optimization study. “C.H. Robinson was able to help us take out costs by re-engineering parts of our supply chain,” says Michael Small, vice president, operations, Books are Fun. Small says that C.H. Robinson was able to look at the location of both their warehouse and reps, re-route some shipments and re-engineer the flow of goods to various warehouses and distribution centers. They also helped negotiate some of the warehouse contracts, allowing Books Are Fun to variablize most of their costs, and helped the company re-engineer a reverse logistics process to make it more efficient.

While that may have been the biggest project, Small says that C.H. Robinson has also helped in smaller ways. With costs increasing overall, especially fuel surcharges, which are constantly escalating, C.H. Robinson helped standardize the company’s accessorials, establishing flat rates for individual carriers. While it doesn’t lower the rates, it provides more consistency for planning and forecasting.

Small believes that their relationship with C.H. Robinson will continue to evolve, with the company becoming more involved in supply chain design with Books Are Fun. He talks about C.H. Robinson as a ‘true partner.’ “I don’t use that term loosely,” says Small. “We hold them accountable, and treat them as we would an employee. That means we have ongoing communication; we can’t make demands like that and keep them in the dark.”

Sidebar: Success for Sergeant's Pet Care

Omaha-based Sergeant’s Pet Care Products Inc. has been a leading supplier of pet supplies since 1868. While the company has been around a long time, it is constantly evolving and growing into new products and new markets, something that has been particularly challenging this year.

Mitigating the costs of overseas shipments has been an important element of Sergeant’s cost saving efforts. “With the changing economics for many of our products, we have to continuously look for the most effective supplier who can provide more value for our shipping dollar,” says Nick Gubser, vice president, operations & purchasing, Sergeant’s Pet Care Products Inc.

Gubser says that Werner has helped them analyze shipments, and through the Werner network they have been able to consolidate goods coming from multiple vendors, thus reducing overall freight costs.

When times are tough, companies have to be flexible and open to new ideas. Gubser says that Werner has been willing to adapt to Sergeant’s changing needs.

 “Werner has the ability to provide a completely seamless solution regardless of our needs. If we have situations that require expedited services or unusual handling, they have been able to design efficient and cost effective solutions to meet our needs,” says Gubser.

Sergeant’s relies particularly on Werner’s presence in China. “The fact that they have a support system in China allows us to get real time information and quickly develop alternatives that might otherwise take longer and ultimately delay shipments,” says Gubser. And as any shipper knows, a delayed shipment costs money.