Moving Mountains (With No One to Move Them)

The news has been pretty good lately. Record low unemployment. U.S. economic growth is up.

But it’s not all rainbows and unicorns. Along with the trade war with China, the U.S. is facing a major driver shortage. According to Bloomberg, that shortage is as high as 296, 311 (2nd quarter of this year). New federal regulations on when time starts and the requirements for digital books have led to drivers being able to drive less, increasing the requirement for drivers to cover more time. With a shortage in drivers comes an increase in transportation costs as there is more demand than there is supply. And it’s affecting both [full] truckload and less than truckload.

It doesn’t help that Union Pacific has announced cuts of up to 475 jobs, with more cuts to come up to at least 2020 in order to more closely align its operating model with the Hunter Harrison Model (CSX). While the goal is to maintain similar service level with fewer personnel, it has yet to be seen how this will affect freight costs from railroads that are already able to charge a premium.

But business goes on – it doesn’t stop just because there’s a driver shortage or a railroad restructures.

It does create challenges. The industrial gas supplier that serves the company I work for has missed some deliveries, or lead times for some gasses are longer. They have the gasses availble, but no qualified drivers to deliver them. Attracting drivers continues to be a challenge for them.

So what’s the solution?

Some companies, such as Uber and Tesla, are working on autonomous trucks to drive freight across the U.S. In fact, Uber was running autonomous trucks in “stealth” on Arizona’s highways for a while before ramping up overt operations. While many regulations right now call for a driver behind the wheel, regulations could change that would allow a driver of an autonomous vehicle to sleep while it’s driving, or to eliminate the driver altogether.

When will some of these solutions roll out to the rest of the United States? Hopefully soon. The company I work for has quite a few lead times they’d like to shorten, and freight costs we’d like to drive down.

What can be done in the interim?

This is where the procurement and supply chain professional comes in.

  • Can materials be ordered further in advance? And in larger shipments?
  • Can more orders be consolidated into larger orders?
  • Can a supplier hold more stock at their warehouse closer to your location?
  • Does Just-In-Time not make sense right now, and does the benefit outweigh the cost of your organization holding more stock at your location?
  • Does your organization have drivers? Does it make financial sense to use them to go and get supplies from the supplier?
  • Are you able to use more materials and services that manufactured and/or readily available locally?

These are just some of the questions you and your organization will have to ask themselves.

You and your organizations still have mountains to move, regardless of the driver shortage. It’s up to you to find out how.

What solutions have you worked on in light of the driver shortage?

Standardization In Processes to Reduce Costs

Go to any department in your organization. How consistent are the ways people are doing things? How consistent are the results in that department? Is everyone on the same page, each person executing their job by a set of processes? Or is everyone doing their job their own way?

If your company is like the company I work for, standardized processes are a near-term goal – or in some cases a far off dream. Each person in a department has their own way to do work, and feels their way is best. Their way has worked thus far, why change it?

Standardizing processes is key to streamlining a department, and in procurement it can mean money saved that directly affects the bottom line.

Purchase Orders

Purchase orders are a primary issue when working to standardize. Some procurement agents process purchase orders one way, some another way. Some buyers have a checklist they follow each time, while other buyers just run the PO through the ERP system and send it to the supplier without another thought.

Standardizing purchase order processing should include, at minimum, the following:

  • Check pricing against negotiated numbers.
  • Consolidate duplicate line items.
  • Confirm material need dates.
  • Confirm shipping method and carrier.
  • Receive order acknowledgement from the supplier.
  • Update expected/promised delivery date from supplier in the ERP, and notify the stakeholder.

Just these simple standardized steps can ensure consistent outcomes each time. Consistent outcomes mean dollars saved internally in time worked on purchase orders and externally in keeping supplier pricing of materials and freight consistent with pre-negotiated prices.

Contracts

Contracts may be more complex than purchase orders, but standardization can be achieved in the process. The procurement specialists that are responsible for RFPs and contracts should have a checklist of everything they need to do, from the moment they receive the RFP/contract from their stakeholder, up to award. This checklist may even include contract management.

Templates are another way to standardize RFPs and contracts. While stakeholder specifications and requirements may differ, the organization should have a single template for procurement specialists to follow with standard information that each RFP and contract must include, such as RFP timeline, milestones, and evaluation criteria. The organization may have two or three checklists and templates for different RFP/contract situations, but each should follow a standardized, enforced process.

Conclusion

Standardization has many benefits, and in an organization’s procurement processes it translates into savings that directly affect the bottom line.

In fact, the German Institute for Standardization, DIN, recently published a report on how standardization positively effects companies. In the report, they found that not only did standardization give companies competitive advantages, but also lowered transaction costs and had positive effects on the buying power of the companies surveyed.

Now is the time to begin process standardization in your procurement organization.