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PRODUCTS & SERVICES


of these factors combined provide the bulk of the resistance to lowering shipping and freight prices.”


Mitch Blau, Regional Director, The Audit Group Inc., an accounts payable and purchas- ing audit services firm for healthcare orga- nizations, pinpointed labor as a convenient crutch, too, even as freight and shipping companies are just beginning to dabble in driverless vehicles.


“There has been a de-


crease in demand and an increase in supply for con- tainerboard and linerboard,


Mitch Blau


which is why price of those materials has gone down,” Blau observed. “Fuel costs, which have declined in the first quarter, could rise at any time. That being said, consumers are accustomed to volatility at the pump but not to changes in shipping costs. It’s difficult and unpopular with customers to decrease prices if you’ll only have to increase them later when the price of fuel increases. “While costs for fuel and materials are lead- ing indicators to freight and shipping prices, they are not the only catalysts,” he added. “Labor, equipment, and state and federal fuel surcharges are also major indicators that seem to be increasing rather than decreasing.” But Tracy Leatherman, Vice President, Sales, TRIOSE Inc., linked declining freight volumes as a reflection of a sputtering economy with overall declining growth. “Although fuel surcharges may be lower, the volatility associated with these costs creates additional uncertain- ty in the marketplace, which forces carriers to adjust via


Tracy Leatherman


their bottom line,” he said. “It will take time for any impact on corrugated raw materials to have an impact on shipping costs if at all.”


Pricing threats


So what are the biggest threats to freight and shipping prices this year, besides, of course, a savvy, well-informed Supply Chain leader? Freight and shipping firm executives tallied the score.


“Transparency is a big threat to freight


and shipping prices,” insisted MedSpeed’s Crampton. “Many times these costs are hid- den or embedded into the cost of goods so there isn’t visibility into what an organization is actually paying in freight in shipping. By being transparent with these costs, they can be addressed on their own — outside of the cost of goods.” Meanwhile, OMG’s Parrett pointed to pure market competitiveness as the culprit. “Oversupply, better supply chain manage- ment and low fuel costs have made the market


so competitive over the last 18 months that ‘what’s in the box’ has no foothold in pric- ing negotiations,” he emphasized. “There are simply too many boxes chasing too few spaces. Negotiations for pricing have been based on weight or measure and what’s in the box. Everything was designed to bring maximum revenue to the carrier without regard for the customer.”


Smart Supply Chain leaders are moving more towards short-term contracts, or spot- rate hunting, according to Parrett. “Those that have been utilizing this strategy have been getting much better deals than those with long-term contracts,” he said. “Even those that are infrequent shippers can use today’s Internet-based technology to comparison shop among the many excellent regional and national shipping service providers.” Parrett further noted that customers are becoming smarter — and more skeptical — about the notion of free delivery. “If delivery is included in the price of the


merchandise that you buy, it would be a good idea to have the shipment quoted with and without free delivery,” he said. “You can then price the shipping cost as a stand-alone transaction to see if you are overpaying for delivery. Suppliers may also be willing to share any in-bound or out-bound shipping discounts that they have negotiated with their shipping/freight companies. Utilizing the technology at your fingertips provides the single most devastating threat to pricing, sim- ply due to the fact that you are an informed customer and know your options.” Concentrating on rates simply isn’t enough, according to OptiFreight’s Mullen, especially when you overlook the big picture. “Everyone likes to focus on rates, but truly maximizing savings is all about the breadth of your freight management program,” he said. “A high discount looks great, but if only a portion of your suppliers actually participate, then your percent of ‘unmanaged’ freight will be high — and discounts don’t apply to your ‘unmanaged’ freight. You need to focus on managing your vendors or work with a freight management provider that can maximize vendor participation.” Developments in fuel efficiency may shift some of the costs, The Audit Group’s Blau predicted.


“As vehicles — both consumer and commercial — are increasing their fuel efficiencies, less gas is being purchased, which means fuel-based highway taxes are decreasing,” he indicated. “As a result, many states are looking to increase their fuel surcharges in order to pay for neces- sary maintenance of bridges and roads. Ultimately, this increase in shipping costs will be passed on to the end-user.” Look to labor, Ryder’s DiBernardi insisted.


50 July 2016 • HEALTHCARE PURCHASING NEWS • hpnonline.com


“Trucking remains a labor-intensive in- dustry,” he said. “Trucks don’t go anywhere — and freight doesn’t move — without pro- fessional drivers, and they won’t stay in ser- vice without skilled maintenance technicians. Yet more and more companies are finding trucks idle and shipments delayed because of a shortage of drivers and technicians. “It all comes down to supply and demand,” DiBernardi continued. “Experts predict that demand for commercial truck drivers will grow by 21 percent through 2020. But the supply of drivers is shrinking. The American Trucking Associations (ATA) estimates the trucking industry is short 40,000 professional drivers today, and the shortage is expected to grow to 330,000 by 2020. Ninety percent of transportation carriers report they cannot find enough drivers to meet their requirements. And tougher government safety regulations being put in place to help reduce accidents have already made the shortage worse. The core issue is that the number of drivers retiring or leaving the business is higher than the number of new drivers entering the profession. The median age of a professional driver today is 50 years old. Fewer than 11,500 people are trained to be drivers every year.” TRIOSE’s Leatherman noted that healthcare organizations simply should improve inven- tory management processes to make a differ- ence, along with certain regulation changes. “Typically, an overall increased focus on inventory management can allow transporta- tion costs to be lowered by bundling orders and by allowing the shipper to use a standard service level rather than an expedited, and more costly, service level,” he said. “Potential future changes to government regulations surrounding hours of service would lead to additional costs for extra trucks and extra drivers for the same shipments that needed less previously.”


Focusing on a metric


While some may feel that freight and ship- ping represents a massive and monumental auditing task, industry experts and observ- ers acknowledge that starting with a spe- cific metric to benchmark third-party logistics company performance may be just what the dock ordered.


“Your freight management services pro- vider must be able to deliver competitive rates and drive down your cost per pack, but that’s not possible unless they have a comprehen- sive process or system to manage your vendor participation,” Mullen said. “You can have a low cost-per-pack and feel good about your freight management, but if your percent of freight outside of your program is increasing, so are your costs and the cost-per-pack is only part of the story. You’ve got to be looking at both metrics, cost-per-pack and unmanaged


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