TRANSPORTATION AND LOGISTICS PURCHASING:

1. TRANSPORTATIONAND LOGISTICSPURCHASING: Part Two – NOW What Do We Do? ISM New York/New Jersey Forum George Yarusavage October 15, 2005

2. Words of Wisdom “No matter where you go, there you are!” – Anonymous

3. Where Were We Last Year? • FOB Terms (domestic) • Carrier Selection • Carrier Contracts • Partnership • “What Dumb Things…” • Carrier Types

4. “FOB” is a Fork • The FOB fork has MANY paths: • FOB Origin • FOB Destination • Collect • Prepaid • Allowed • Charged Back • Equalized

5. Where Were We Last Year? • International Issues • Hazardous Materials • Security Concerns • Hours of Service

6. Part Two • Where are we today? • Who’s in charge? • Are we using the correct carriers? • Are we using carriers correctly?

7. Using Carriers Correctly • Truckload via LTL? • LTL vs. Small Package • Air vs. Ground • Deferred • Packaging changes

8. Using Correct Carriers • Air Express or Forwarder • Broker or Direct • LTL vs. Small Package

9. Who Are We Using? And For What? • TMS info • A/P Records – Carrier Names • A/P Records – Supplier Charges • P-Card Records • Contracts File! • Pre-Auditor • Post-Auditor

10. Opportunities • Savings on vendor-controlled inbound • Loss & Damage reduction • Pre-Audit savings • Post-Audit recovery

11. Challenges - Internal • Common Transportation Myths • My inbound transportation costs should be X% of purchase $ • My outbound transportation cost should be X% of sales $

12. Challenges - Internal • Upper management doesn’t know squat about freight • But they still demand metrics

13. Big Metrics Mistakes(& Why They Are Mistakes) • Freight as a % of Sales • Sales pricing is not controlled by freight managers • Delivery requirements are not controlled by freight managers • Sales growth & decline can both distort results • Costs vary by both shipping origin and destination

14. Big Metrics Mistakes(& Why They Are Mistakes) • Average LTL Cost per Hundredweight • Costs vary with product sales mix • Costs vary with shipment composition • Costs vary with shipment size • Costs vary with distance

15. Good Cost Metrics • Air Express & Air Freight – Flat Pricing • *Total cost/shipment @ Letter, 1#, 5#, 10#, 25#, etc. • Key accessorial charges • Loss & Damage as percentages of carrier revenue • Percent of spend under contract • Average actual weight per shipment • Average billed weight per shipment

16. Good Cost Metrics • Air Express & Air Freight – Distance Pricing • *Total cost/shipment @ Letter, 1#, 5#, 10#, 25#, etc. • For EVERY weight at 50, 100, 500, 750, 1,000, 1,500, 2,000, 2,500, 3,000 miles • Key accessorial charges • Loss & Damage as percentages of carrier revenue • Percent of spend under contract • Average actual weight per shipment

17. Good Cost Metrics • LTL • *Discount from identical tariff base (vs. similar shipper & cargo mix) • *Adjusted discount from different tariff base (vs. similar shipper & cargo mix) • *Absolute minimum charge • Inside delivery charge • Other key accessorial charges

18. Good Cost Metrics • LTL (continued) • Loss & Damage as percentages of carrier revenue • Percent of spend under contract • Total cost/cwt. @ 50#, 100#, 500#, 1000#, 2,000#, 5,000#, 10,000# • For EVERY weight at 50, 100, 500, 750, 1000, 1500, 2000, 2500, & 3000 miles • For EVERY major productclassification

19. Good Cost Metrics • Truckload • *Total cost/mile at 100, 500, 750, 1,000 miles, etc. • Detention charges • Other accessorial charges • Loss & Damage as percentages of carrier revenue • Percent of spend under contract

20. Good Cost Metrics • Small Package • *Total cost/shipment @ 1#, 5#, 10#, etc., within zone-to-zone matrices • Loss & Damage as percentages of carrier revenue • Average actual weight per shipment • Average billed weight per shipment weight per shipment • Percent of spend under contract

21. Basic Rules Metrics Must Be • Uniform across carriers & forwarders in same mode • Compared against similar shippers (volume, shipment profile, etc.) • Independent of sales volume • Unaffected by product mix

22. Basic Rules(continued) Metrics Must Be • Supported by regular, not special, data management processes • Managed by a neutral 3rd party (perhaps a pre- or post-auditor) to: • Protect confidentiality • Avoid anti-trust, anti-competitive issues • Assure “apples to apples” results

23. Basic Rules(continued) Metrics Must • Separate your performance from users’ behavior

24. Measures of Success • Lower costs per unit measured • Higher % of freight under contract • Higher % of inbound under contract • Reduced loss & damage

25. Challenges - External • Driver Shortage • Capacity Issues • Is UPS the #1 rail customer? • Fuel Surcharges • Weather Effects • Labor Unrest • Cleaner ’07 Diesel Engines

26. Help - External • carriername.com • expeditors.com • con-way.com • ups.com • fedex.com • etc.

27. Help - External • firstgov.gov • dhs.gov • customs.gov • bice.immigration.gov • tsa.dot.gov • iccwbo.org

28. Help - External • inboundlogistics.com • totalsupplychain.com • glscs.com • mmh.com • americanshipper.com • logisticsmanagement.com • scs-mag.com • psdmag.com • trafficworld.com

29. Help - External • ism.org • cscmp.org • nasstrac.org • astl.org • apics.org

30. Questions? Thank You!