Navigating through the great freight debate

What are the bends and curves you may be missing along the way?

Âsk a Supply Chain executive savvy on current events how he or she might improve freight management performance - including inbound and outbound shipping - and they might start singing, "Send in the drones," to the tune of a popular Frank Sinatra song and as a wink-wink nod to a prominent Internet shipping company.

Aside from indulging in childhood remotecontrol vehicle fantasies the specter of managing freight effectively and efficiently is nothing to smirk about, dismiss outright or postpone passive-aggressively. Procrastination and denial do not allewate the pressure or silence the alarms when the monthly expense reports land on your desk for comparison to the budget figures.

Bottom line: There's a lot that product manufacturers, distributors and shipping companies get away with. Generally and typically, iTs all legal . But if you don't red-flag it or raise questions about something it morphs into a sacred cow that becomes standard operating policy - a revenue drain for the provider but a profit generator for the supplier or shipper.

What to do? Healthcare Purchasing News tapped a number of freight management executives for insights on the latest trends, key performance-based questions to ask and the benefits behind conducting forensic analyses, in-depth audits of inbound and outbound shipping expenses.

HPN: What are some of the key freight management trends for healthcare organizations?

Security: Products are becoming increasingly more expensive, more complex and of higher value to an organization. In order to provide the level of product security needed on these critical items, organizations are looking at tightening up the control to ensure the products that they are shipping and/or receiving are protected against several factors including, fraudulent or counterfeit products, chain of custody and unregulated industries causing unnecessary increase in product cost.

Cost: Changes in regulations in conjunction with the economy have seen costs for shipping to skyrocket over the last few years. As organizations grow, complexity is added to the supply chain and therefore making it more of a challenge to manage the cost of shipping and receiving. As the organization grows you must also recognize other costs associated such as labor, supplies, etc. Each of these has an impact on the bottom line and can increase your costs as a shipper or the costs passed to the receiver.

Loss and/or shrinkage: Many organizations must be very cognizant of product loss and product shrinkage through theft. Loss can encompass several factors due to damage, misplacement, expiration and spoilage. Each of the above can be mitigated through use of technology and providing access to items to those with actual need and restricting those that do not. Technology will allow for effective tracking of items, checking equipment out to personnel and/or departments through bar coding or the use of RFID. Proper inventory management can also be positively affected through the use of technology by providing a tool for product/ stock rotation, notification of imminent expiration and/or spoilage tracking.

Supplier/Vendor management: Organizations are becoming more and more aware of their options and control they have over the process. Many organizations recognize their lack of knowledge and expertise in freight management. They need assistance to help with the convoluted path to reduced cost and increased savings. To that regard, they partner with vendors such as OMG LLC who have the skill set, knowledge, industry experience and reputation for handling these aspects for their clients. Partnering with a vendor who places the client organization's goals as their own provides a unique advantage in which the vendor can leverage a more extensive network to assist with cost mitigation, avoidance and reduction. OMG also provides its clients with a comprehensive look at the organization as a whole to provide recommendations for changes within individual departments and recommendations regarding current vendors or suppliers to maximize cost savings.

Regulatory expertise: Organizations today must travel the murky waters of regulations and compliance within their industries, regions, states, and countries they operate in. For suppliers you must account for all associated costs to ensure adequate profit margin is obtained, but the pricing must also be competitive in order to remain viable in the industry. Dependent upon whether shipping and freight are handled internally or externally through a shipping/ freight company, it is necessary to ensure your product wall reach your customer base within reasonable timeframes and prices. Consumers, individuals and organizations alike, are much more sensitive to overall cost of the product, which includes shipping, insurance, etc. vs. times past where these items were glossed over if the product price was acceptable. In many cases, the shipping and insurance added to the product cost was not the most viable, cost effective option. Organizations that do not possess the required regulatory expertise, whether internally or through a partner vendor, risk impact to their business and profit loss as they are not aware of the true cost and/or impact due to an uneducated decision.

- Brandin Parrett, Director, Operations, OMG LLC (Onsite Management Group)

The first big trend is the health systems' ability to expand their view of freight management to full logistics, including all aspects of transportation of goods, documents, specimeas and supplies in, out and within a healthcare network. It's just not enough to focus only on the inbound expense charged by suppliers. In order to maximize reduction in cost it is important for a health system to gain efficiencies in all inodes of transportation.

The next big trend is creating benchmarks. These benchmarks are not just how a health system is performing against themselves, but how well they are performing against other health systems of similar size and demographics.

Third on the list comes right from the hospital provider playbook: Contract management. Contracts are negotiated daily with little focus on freight terms and then once terms are in place ensuring those terms are followed. The latter is easier to do than the former. [Materials management information systems] are not set up to handle the unique freight terms offered across thousands of suppliers.

The fourth trend is the health systems' ability to hold all the departments accountable for their freight expense. On the provider side this accountability is the best way to influence positive changes in behavior.

Last but not least is true mode optimization. Many times freight management companies identify opportunities to move small parcel Air Shipments to Ground, however that is not enough. Hospital providers must push back and demand more. It is imperative that health systems take a step back and redefine mode optimization to include shipping within a health system using courier both outsourced as well as internal fleets, capital and large cargo freight management, inbound and outbound shipping, as well as construction management and warehousing. Health systems must have full view of their freight management portfolio, be able to benchmark, have a way to track freight terms, enforce departmental accountability, and have a clear definition of mode optimization to be successful.

- David Peck, Vice President, Operations, TRIOSE Inc. (and a former community hospital Vice President)

Capacity/Driver shortage: The driver population is aging. One of the biggest challenges faced by trucking companies or carriers who rely on truck drivers is recruiting quality drivers. With a number of candidates expressing an aversion to spending long periods of time on the road or away from friends and family, carriers are having difficulty filling the available positions.

Rate increases: Due to a variety of factors such as capacity and driver shortages, economic growth, government regulations, and the impact of recent weather events, carriers have increased rates. We anticipate that the rate hikes will continue in the foreseeable future.

Regional parcel carriers: Regional carriers, which have been around for some time, are gaining attention recently. In a business model challenging national ground carriers, they offer an attractive savings opportunity but need to improve coverage and service consistency to gain credibility. It will be interesting to see how much of a factor they become in the future.

Retail transportation: Transportation related to the retail industry is a big business, and one that is in the midst of a lot of change and experimentation by carriers and retailers. Retailers have recently been featured in the news about creative new ways to transport products, including same day delivery, courier sendees "crowdshipping" solutions. Whatever happens in the retail segment is likely to have a future impact on transportation models in other industries.

The role of technology and big data in freight management: Technology and data are critical to continuous efforts to identify ways to make supply chains more effective and efficient. Identifying incremental cost savings from shipping processes and freight management decisions (carriers and modes) is getting more focus and is increasing the need for robust transportation management systems, or TMS, and related detailed shipment data. Most shippers can significantly reduce their freight spend by adopting advanced logistics techniques like consolidation and pooling but lack the technology and data to identify and prioritize opportunities and model the results. To capitalize on these savings opportunities, they need to invest in technolog)', or partner with third part)' logistics providers that offer technolog)' and analytics as part of their portfolio.

- Marc Mullen, Vice President and General Manager, Solution, Services and Marketing at Cardinal Health

In an environment where healthcare providers are facing increasing pressures to decrease costs, increase efficiency and provide best-in-class care to more patients, supply chain and freight management are more crucial than ever. It's time to take freight management to the next level - beyond routing guides, General Ledger (GL) coding and invoice auditing - to fully realize existing opportunities. Here are five trends in freight management that hospitals and healthcare providers can capitalize on today to enhance their supply chains for tomorrow:

Collaborative supply chain analytics are on the business agenda. More healthcare logistics decision makers are realizing the value of conducting a supply chain analysis to identify logistics efficiency opportunities as well as surface broader business insights. However, many organizations still lack the bandwidth, skill set and perspective to effectively analyze their supply chain data and understand all of its implications. Leveraging the in-depth experience of a third-party logistics provider allows the decision makers to plug into an outside utility that brings expertise, benchmarks, strategic insights and a known set of optimization tools to the table. The fresh perspective helps ensure collaboration to identify immediate changes that can be implemented along with additional, long-term insights to maximize efficiencies and enhance business operations.

Rebound from the inbound/outbound focus. No sports team functions well with a strong defense and no offense (or vice versa). The same goes for supply chains. Many organizations focus on a unilateral flow when they think of their supply chain, outbound may dominate inbound, or the reverse. Either way, opportunities to optimize exist in the latent half of the supply chain, but rarely are they explored because supply chain decision makers tend to direct their focus on day-to-day operations and associated challenges. This is where outside partners can be helpful, particularly when developing a supply chain strategy. By also focusing on the latent half of the supply chain, any healthcare organization can achieve a full picture of their supply chain strengths and gaps, and identify greater efficiencies across the organization.

Technology investment isn't justfor patient records. Many hospitals are focused on technology investments as they embrace EMRs and move toward more automated or electronic solutions from the billing department to the point of care with patients. The supply chain is another area where IT investments are essential for freight management and overall visibility. Technology investments that leverage in-transit visibility to high-value or temperature-sensitive products can have a larger impact to the bottom line long-term by mitigating risk and helping save crucial materials in-transit. An outside partner can help update and integrate IT platfonns to make shipment tracking easy and help build a future-focused supply chain with scalability.

Packaging is front and center. Packaging is receiving renewed attention by healthcare manufacturers and providers alike. Recently, Evaluate Pharma predicted that seven of the top 10 pharmaceutical products will be temperaturesensitive, which tells us this attention will only grow. When done correctly, packaging not only protects a product from outside elements and maintains a temperature range when needed, but can also be optimized to minimize weight and cost when appropriate. Healthcare providers should not overlook packaging considerations when looking at their overall freight management.

Partnerships and collaboration are driving change. As the U.S. population continues to age and the Patient Protection and Affordable Care Act is implemented, pressures to decrease costs and increase efficiencies will continue to mount, making it important to prioritize efficient freight and transportation today in order to be viable in the future. Forming a collaborative relationship and true partnership with a third-party logistics provider will allow for leverage and advantage of economies and efficiencies.

- Robin Hooker, ^ Director, Healthcare Sector Marketing, UPS

What key questions would you recommend providers ask any company - including a thirdparty freight management service - about to ship them product and how should they answer?

Are any aspects of your business impacted by single-source suppliers or one key customer?

The answer to this question should be no. Vendors that rely on a single source for supplies or are severely impacted by a single customer's actions provide a significant risk in future sendee.

What business continuity plans are in place to avoid significant supply disruption?

If the answer is none, you need to look at another vendor to supply your critical items. As the consumer organization, if you are looking for this to be a long term supplier, you need to be able to rely on consistency and quality to ensure your business is not affected. This can also affect the ability for maintenance on key products to ensure continued operation.

What quality control is conducted on your product, service and/or suppliers? Do inspection and correction occur before or after the fact?

Quality control and inspection need to happen during the manufacturing and shipping process. Any supplier or shipper that does not have a robust quality control program in place should be suspect. Suppliers or shippers that utilize a reactive method for quality control typically provide the largest issues for consumer organizatioas for correction and or maintenance. Do you regularly review your shipping methods for opportunities in efficiency and cost reduction?

The answer to this should always be yes. Any organization that does not constantly look for efficiency and cost reduction will only hurt them in the future. Companies that do not look for cost reduction or pass cost reductions to their customers need to have a look at their business model. It is important that consumer organizations work with supplier organizations which understand their business and what is important to them.

How healthy is the vendor company and are they looking to the future?

The vendor company must be financially stable and have an eye for the future. If the vendor organization does not keep abreast of upcoming regulations, technology, etc., the company may soon be financially unstable and therefore may not be suitable for a long term partnership.

- Brandin Parrett, Director, Operations, OMG LLC (Onsite Management Group)

What are the current freight terms in my contract?

1. We charge you for all shipments

2. We don't charge you freight

3. We charge you a flat fee for freight

4. We will only charge you for rush orders

5. Any the above

What is the service level and instructions my facility has set up in your system to ship out products?

1. Varies from vendor to vendor

2. Everything is to be shipped Next Day Air

3. Follow the Purchase Order instructions

4. Use a 3rd Party Shipper Number

5. There are no instructions

Will you participate in my third party freight program?

1. No way! I'm not dealing with a 3rd party company

2. Absolutely, I support your cost savings initiatives (but other answers are possible, too)

3.1 can if you put instructions on your Purchase Order

4. Only on certain products

Are there additional transportation charges, such as packaging and handling fees?

1. There is no set s tandard

2. We charge you a handling fee

3. We charge you for placing your order during our lunch hour

4. We charge you for HAZMAT

5. We charge you a fee to ship using your 3rd party shipper number

All other factors being equal, which of these freight terms is best for the hospital?

1. FOB Origin/Freight Prepay & Add

2. FOB Destination/Freight Prepaid

3. FOB Destination/Freight Prepay & Add

4. FOB Origin/Freight Prepaid

5. It doesn't make a difference

- David Peck, TRIOSE Inc.

For suppliers (manufacturer direct and distributors):

How do I know that you will use my preferred freight management (PFM) account when freight is applicable?

A supplier's system should recognize where your order is "freight included" vs. where it would typically be set up as pre-pay and add. Your PFM account should only be used where freight would typically apply.

When should myfreight management partner call my PFM providerfor routing instructions?

All orders over 150 pounds or other bulk/ palletized orders should trigger a call to an organization's PFM.

How do you consolidate my orders to ensure that I am minimizing my overall freight costs?

Orders should be filled in batch throughout the day based on your ordering patterns.

How do you identify and research transactions that should have utilized my preferred freight management account?

A supplier should work with your PFM provider to identify these transactions and research them for PFM account usage moving forward.

How do I know you will not bill me directly forfreight on orders that utilized my preferred freight management account?

A supplier7s system should be set up for one or the other and incapable of billing freight in more than one way.

Where will my purchase order number be visible on the carrier label?

Modifications can be made to a shipping suite to have your purchase order number visible in the appropriate reference field.

For third-party freight management services:

Will my discounts be based on how much I spend with you or can I earn higher discounts based on my package volume alone?

Discounts based on greater package volume help drive the lowest cost per package over time. Providers shouldn't have to pay for a higher priced service (like Priority Overnight) just to earn better discounts - essentially, spending more to save more. Consider working with a freight management provider that offers discounts based on the number of packages shipped, not the dollar volume spent.

Do you have a team focused on growing vendor participation?

Yes. If you want to achieve the lowest overall freight cost over time, you need a freight management provider that can impact the greatest percentage of your overall freight spend. This means shipping more types of packages through more suppliers. Your third-party freight management provider should be continuously working on your behalf to add the suppliers that ship packages to you.

Beyond rates and vendor participation, what can my team do to save even more?

There's always room for improvement so an optimal third-party freight management sendee will have the tools to continuously help you find ways to ship smarter, better, and more cost-effectively.

These tools should include:

* Reports that give you detailed summaries of your program performance and how you're performing in comparison to your peers. Benchmarking vs. other similar healthcare providers is valuable but then you should expect to see actionable opportunities and value drivers to help you improve performance. These reports also should give you visibility into your shipping processes and total freight spend, as well as access to monitoring of shipping behavior, vendor participation, and hidden fees.

* Technology that offers proactive shipping advice on outbound shipments, allowing your shippers to choose the best sendee level for their shipment based on delivery dates and cost.

- Marc Mullen, Cardinal Health

If I need to order a shipment of vital medical product at the last minute, how quickly can you make that happen and what types of risk mitigation and intervention capabilities do you have?

We have the capabilities to have those products out as early as the next flight with end-of-runway service. In addition, both our general and expedited shipping solutions are augmented with control tower visibility and intervention which can be combined with financial risk protection in an integrated transportation solution.

Is our packaging adequately protecting our temperature-sensitive products coming in?

We profile our transportation network for extremes in temperature. We also can test packages through our package design and testing lab, and partner to develop appropriate packaging as needed. We also have a variety of sendees that can monitor temperature and allow us to intervene if needed.

Does your company have holistic insurance for high-value timeand temperature-sensitive shipments?

We have insurance that will cover up to the retail value of the product and covers unexpected events like weather.

Tell me more about visibility when shipping. Are you able to intervene if a shipment's temperature is compromised?

Yes. We are not only able to monitor your high-value and/or time-sensitive at every step of the way, but if the temperature is in danger of being compromised, we are able to proactively intervene.

What can we do to find efficiencies in our ordering, transportation and inventory management processes?

Let7s take a look and see. We will schedule a white-boarding session with our team of logistics experts and partner with you to identify efficiencies and other suggestions for improvement.

- Robin Hooker, UPS

What are some of the key benefits on conducting a forensic analysis, and audit, of an organization's freight management expenses, including inbound and outbound shipping?

PARRETT: Forensic analysis or an in-depth audit of an organization's freight management expenses provides a boon of information. It allows an organization to see true cost to the organization, as well as many overlooked or hidden charges. OMG has worked diligently with several clients to identify savings in this area. For one client we have saved almost $750,000 in a single year simply by auditing the expenses for all outgoing shipments. This has allowed OMG to provide recommendations to the client to make significant changes in the organization to curtail these costs in the future as well as allow us to work with the shipping vendor to reverse unnecessary charges or adjust final pricing if the agreed upon shipping Service Level Agreement (SLA) was missed.

Auditing inbound shipping provides the same benefits by allowing an organization to see differences in pricing based upon size, weight, location, etc. Suppliers which use the same shipping vendors can then be analyzed to ensure they are competitive for the shipping rates and not overly inflating the rates through profit markup.

PECK: When TRIOSE performs a forensic analysis or any type of in-depth audit for a client, we are looking to bring visibility of the health systems total freight cost and identify opportunities for cost savings. This analysis helps supply chain build a roadmap to success, which is individually defined by each health system. Some of the key outcomes of this analysis are to bring visibility to the existing freight expense and where savings opportunities may present themselves, what vendors may be billing excessive prepay and add charges, and puts a focus on capital expense using a 3PL for large cargo freight routing.

Optimization opportunities can be uncovered by looking at service levels and ensuring that overuse of air shipments are minimized, looking at different modes used for shipping such as mail or courier, and courier optimization by reducing STAT calls. The forensic analysis will create the baseline for measuring success and help the system achieve their overall freight management goals.

MULLEN: Healthcare organizations learn, which provides greater insight into package volume, including the types of packages shipped in to and out of the organization, current mode or service level being used and where packages are being received or shipped out. This also allows buyers and shippers to plan effectively and train targeted individuals on a better way to ship or order product, which empowers them to make smart shipping decisions that save the organization money. Finally, they save the organization money while supporting and enabling optimal patient care.

HOOKER: At UPS, we call these whiteboarding sessions and they are highly customized for individual organizations. We have a dedicated healthcare solutions group which brings engineering, IT and healthcare logistics expertise to the table and has experience with the full breadth of the industry - from hospital systems to large pharmaceutical companies to fast-growing start-ups. Benefits vary depending on the individual organization but can include realizing new efficiencies, decreasing transportation and inventory management costs, improving supply chain visibility, better managing suppliers, identifying new customer bases and improving the customer or patient experience. HPN

Visit www.hpnonline.corn/inside/2014-07/1407PS-Quiz.html for HPN's 2nd Annual Great Freight Debate Pop Quiz