When freight hovers behind the 8-ball

Christopher DiBernardi, Director, Business & Product Development Healthcare, Ryder

“The omni-channel revolution and modernization of healthcare distribution are both huge disruptors in the supply chain area. On the omni-channel side, while supply chains had to scramble to meet consumer demands, the supply chains that were already efficient didn’t have as many major issues with the omni-channel revolution.

“The modernization of healthcare distribution, on the other hand, is much more complex in that hospital systems and manufacturers do not have mature supply chains. In fact, more than 50 percent of integrated delivery networks and manufacturers in the healthcare industry have classified their supply chains as immature.

“Similar to omni-channel, customers — in this case, patients — demand immediate care. The type of care is also changing as more healthcare is being done at home or at clinics outside of hospitals and traditional doctor’s offices. This exacerbates the challenge of creating a mature and efficient supply chain. Patient demands are increasing, similarly to consumer demands with omni-channel. However, with healthcare distribution more is at stake — patients’ lives. An inefficient supply chain can delay the delivery of medical equipment and drugs patients rely on. That is why partnering with a third-party provider can be beneficial to healthcare systems modernizing their supply chain. A partner such as Ryder has the experience needed to turn an immature supply chain into a mature one — ensuring the life-saving medical supplies patients need arrives on time.”

Marc Mullen, Vice President and General Manager of OptiFreight Logistics, a Cardinal Health company.

“Getting people educated on the cost of freight, as well as ways they can address costs and drive savings is key to a successful freight management program. From supply chain, to the buyers, to the dock — everyone needs to understand and participate in managing the freight. The hospital can set up processes, but the program should be reinforced with training and compliance, so everyone participates and the maximum amount of freight is actively managed.”

Jake Crampton, Founder and CEO, MedSpeed LLC

“Hospital leadership has a lot to manage. Shipping, freight and intra-company logistics are everywhere within a hospital and health system. They touch every department. The price is often buried within other costs and budgets and not transparent. This makes it nearly impossible to effectively evaluate and manage.”

Brandin Parrett, Vice President of Operations, Onsite Management Group LLC

“Hospitals most often come up short in tracking and processes when managing freight and shipping costs. The problem is shipping doesn’t typically get separately coded, and it gets buried in a hospital’s general ledger. This makes it very difficult to get a good idea of how much you’re spending on in and outbound delivery.

“Instituting a freight management program typically covers ‘prepay and add,’ or more specifically items you can see in the invoice, and products that are delivered next-day or managed. Typically excluded are same-day deliveries, suppliers’ own trunk stock and freight costs that are bundled into the cost of the product. Begin your freight management program by looking at how you account for inbound and outbound freight in your general ledger. Many hospital organizations lump mail, same-day deliveries, truck stock deliveries, and inbound and outbound freight costs into one freight general ledger account. This practice makes it very difficult to identify where the highest freight costs are and how to manage them.

“In order to develop an effective freight management process, you must clearly define what you are trying to achieve. For instance, if you just want to reduce freight cost, you may not need to develop a new freight process at all. Perhaps you can simply do a better job of negotiating rates with a freight carrier. The disadvantage of this strategy is that you will never be able to track the effectiveness of the process. But if your goal is sustained cost reduction by improving reporting, vendor compliance, appropriate utilization and complete visibility into inbound and outbound product movement, your goal statement will need to be far more detailed and well thought out. The resulting process should be clear, simple and efficient.

“You should begin by developing some freight accounting guidelines so that you can accurately monitor cost. There are many different types of freight and distribution costs, and each must be separately accounted for. After developing accounting guidelines, you should identify how to go about reducing freight costs. This can be done by standardizing to one freight carrier, optimizing your modes of shipment or increasing the number of suppliers using the freight program.

“One of the important decisions you’ll need to make is whether to go it alone or contract with a third-party logistics company to handle your program. Some points to consider when making your decision:

• Knowledge of the industry.

• Number of vendors taking part in the program.

• The process for adding vendors to the participation list.

• Level of compliance by manufacturers.

• Startup and ongoing cost of the program.”

Michelle Robbins, Vice President of Product Management, Life Sciences & Healthcare, DHL Supply Chain

“Understanding freight costs and how changing processes to properly account for freight impacts your cost of goods but also how it can impact your contracting opportunities to control of your entire spend. How does ‘prepay and add’ get accounted for? Do you understand your overnight freight costs? Are these items added into the cost of the product or is it separated out? Are you using a freight management company to  control your freight spend and have you ever reconciled it to your contract to see if its aligned or misaligned? What about other departments outside of the traditional supply chain managed areas, are they managing their freight and shipping costs.

“When a health system has developed a sophisticated freight program and is directly managing and or procuring transportation, hospitals often neglect to develop a core carrier program, including a carriers scorecard, relationship reviews, etc., coupled with an automated transportation tendering process.”

Mitch Blau, Regional Director, The Audit Group Inc.

“There are two ways to classify shortcomings in the management of freight and shipping costs: Missed opportunities and avoidable losses. Missed opportunities can occur when there are overlaps in services, such as couriers and shuttles between facilities. Because of disparate ordering, hospitals are frequently ordering multiple shipments from the same vendor on the same day; better coordination within the supply chain could find savings in combining orders into one shipment.

“Many Purchasing departments may struggle with avoidable losses, but a thorough review of processes can help identify opportunities for improvement. For example, a daily count of overnight shipments will identify unnecessary overnight shipping costs. Also, reviewing returned goods logs could reveal repeated ordering errors that could be addressed at the end-user level and avoided in the future. Often, these kinds of metrics can identify trends or problem-areas. Assign tracking and reporting responsibilities to a department or individual who can review items such as overnight shipments and returned goods to immediately identify and combat the root causes.”

Tracy Leatherman, Vice President, Sales, TRIOSE Inc.

“One of the biggest challenges and most common complaints from Materials Managers is auditing their contracted freight terms. Product pricing audits are easier with the right systems in place. However, freight terms are different. There is no good way for someone in accounting to know as they are paying the invoice if they are getting their contracted terms. There are too many variables in what constitutes free or reduced freight cost.

“Another area is data analytics. Supply chain technology solutions do not make it easy to track or capture important metrics needed to measure the success of reducing freight expense.”