The client had outsourced its European distribution of large-form automotive products to a leading 3PL, with a combined all-in price covering freight and value-added services. The client had accepted year-over-year price increases but lacked the transparent view on actual cost drivers required for negotiation.
Story
The client is a leading manufacturer of transportation refrigeration equipment. While market freight costs were falling, product inventories in the Distribution Centre (DC) had grown significantly, giving the 3PL strong arguments for further cost increases.
We facilitated a 2-day on-site Value Stream Mapping (VSM) workshop to define in detail the end-to-end process from the factory to the customer. We then ran a transportation-cost benchmark exercise using our kg³ freight procurement solution in combination with an analysis of the results of the VSM to split the all-in price between warehousing and freight.
The VSM quantified the efficiency of the operation at 36% and identified antiquated paper-based systems at the DC as a key driver of cost and time waste. Through a local implementation of their own best-practice digital solutions the 3PL would be able to reduce costs and pass the savings back to the client.
Conclusion
We identified 29 recommendations to reduce costs and lead times, of which 17 are directly within the control of the client (12 for the 3PL). Detailed benchmark analysis and VSM report provided the basis for a successful cost-reduction negotiation.