Managed Inbound Transportation 4 th Annual Government Transportation

Managed Inbound Transportation 4 th Annual Government Transportation Forum April 24, 2014 – Presented by Richard Langer, Quetica, LLC consulting & technology financial services | payments | government | transportation | healthcare

Agenda 2 Objectives Inbound Management Methodologies � Unmanaged Prepaid and Allow � Unmanaged Prepaid and Add � Managed Collect � Managed Optimized Moving Toward an Optimized Inbound Management Model quèt ica © 2014 Quetica, LLC

Objectives 3 Discuss differences in current inbound freight processes Identify opportunity to reach an optimized inbound method Realize cost savings through a managed inbound transportation strategy quèt ica © 2014 Quetica, LLC

Opportunity For Managed Inbound 4 Government non-managed inbound cost is > 50% of fully landed cost as % of total transportation spend Based on cross-agency sample, federal government pays 25% to 50% higher transportation costs vs. GSA transportation rates Managing inbound transportation with outbound allows agency to create savings via network optimization GSA estimates federal agencies spent about $4 billion on managed inbound in 2011 quèt ica Outbound Transportation Spending in 2011 ($B) DHS; 0. 165; $0. 005 State; 0. 601; $0. 017 NASA; 0. 879; $0. 025 Other Agencies; 0. 54; $0. 016 USPS; 6. 981; $0. 202 DOD; 25. 306; $0. 732 USDA; 0. 0960000 1; $0. 003 Source: Office of Government-wide Policy, Office of Asset and Transportation Management © 2014 Quetica, LLC

Methodologies 5 Unmanaged Prepaid and Allow Unmanaged Prepaid and Add Managed Collect Managed Optimized

Unmanaged Inbound Prepaid & Allow 6 Freight cost absorbed into cost of goods negotiated

Unmanaged Inbound Prepaid & Allow 7 Supplier Contract Supplier DC quèt ica © 2014

Unmanaged Inbound Prepaid & Allow 8 Contract Supplier quèt ica Contract Supplier DC ©

Unmanaged Inbound Prepaid & Allow 9 Supplier Contract Purchase order quèt ica Supplier DC

Unmanaged Inbound Prepaid & Allow 10 Contract Supplier Contract Purchase order quèt ica AS

Unmanaged Inbound Prepaid & Allow 11 Contract Supplier AS N Supplier DC Tender Contract

Unmanaged Inbound Prepaid & Allow 12 Contract Supplier Purchase order AS 4 N Supplier

Unmanaged Inbound Prepaid & Allow 13 Contract Supplier Purchase order Invoice for Fully Landed

Unmanaged Inbound Prepaid & Allow 14 Contract Supplier Purchase order Invoice for Fully Landed

Unmanaged Inbound Prepaid & Allow 15 Contract Supplier Purchase order Invoice for Fully Landed

Unmanaged Inbound Prepaid & Allow 16 Contract Supplier Purchase order Invoice for Fully Landed

Unmanaged Inbound Prepaid & Allow 17 Pros No management of � Trade documents � Invoices Compatible with varied purchasing environment Cons quèt ica Supplier ability to negotiate Supplier markup to account for future years (20 to 50%) Vendor traffic management dependency No say in TSPs used No cross vendor load optimization © 2014 Quetica, LLC

Unmanaged Inbound Prepaid & Add 18 Supplier is responsible for: � � � Contracting TSP Managing delivery Paying TSP Actual freight cost is visible in agency’s invoice as a line item � Prepaid & Add quèt ica © 2014 Quetica, LLC

Unmanaged Inbound Prepaid & Add 19 Contract Supplier Purchase order quèt ica Payment 214

Unmanaged Inbound Prepaid & Add 20 Contract Supplier Purchase order Invoice with Actual Freight

Unmanaged Inbound Prepaid & Add 21 Contract Supplier Purchase order Invoice with Actual Freight Cost quèt ica Payment 214 Tender Contract 21 AS 4 N Supplier DC © 2014 Quetica, LLC Agency Audit for standard

Unmanaged Inbound Prepaid & Add 22 Contract Supplier Purchase order Invoice with Actual Freight Cost quèt ica Payment 214 Tender Contract 21 AS 4 N Supplier DC © 2014 Quetica, LLC Agency Audit for standard Accounting Distribution

Unmanaged Inbound Prepaid & Add 23 Pros Visibility to transportation vs. material charges Can be managed in Procurement No need to manage trade documents Cons quèt ica Audit and reconciliation of supplemental invoices Supplier ability to negotiate Supplier markup No say in carriers used No cross vendor load optimization Vendor traffic management No visibility to audit © 2014 Quetica, LLC

Managed Inbound Collect 24 Costs for transportation are entirely born by agency with no activity supported by the supplier � Collect Agency responsible for identifying, negotiating, and contracting a base of TSPs Agency communicates approved TSP list to suppliers quèt ica © 2014 Quetica, LLC

Managed Inbound Collect 25 Contract Supplier Agency Purchase order 21 AS Supplier DC quèt

Managed Inbound Collect 26 Contract Supplier Agency Purchase order AS Supplier DC quèt ica

Managed Inbound Collect 27 Contract Supplier Agency Purchase order Agency Routing Guide quèt ica

Managed Inbound Collect 28 Pros Agency negotiates rates without markup Agency determines TSPs Managed via routing guide Agency visibility to cost Ability to audit invoice Savings opportunity with agency or GSA contract rates quèt ica Cons No visibility to cross vendor Dependent on routing guide utilization � Spreadsheet Load into supplier TMS � Leverage agency TMS � Supplier determines timing of shipments Not 100% solution; Low ROI for varied procurement © 2014 Quetica, LLC

Optimized Managed Inbound Collect 29 All inbound freight centralized Ability to optimize traffic decisions & supply chain network across all shipping activity Supply Chain Network is established for all suppliers to participate � � Agency performs traffic management or Supplier performs traffic management on agency TMS quèt ica © 2014 Quetica, LLC

Optimized Managed Inbound Collect 30 Contracts Purchase orders inst ruct ions Agency Cross Dock ing ns ctio ru nst i data ASN Routing instructions t Rou hase Purc er ord Agency TMS quèt ica © 2014 Quetica, LLC Payment ting 214 Rou Agency Contract Suppliers

Optimized Collect 31 Pros Network Design Optimization Traffic Management Optimization Complete visibility Audit of supply chain, as well as vendor Significant savings quèt ica Cons Not all inbound is 100% optimized © 2014 Quetica, LLC

Path Forward 32 Understanding inbound management potential starts with knowing where you are in your maturity Setting goal for managed and optimized inbound freight management is a simple step forward quèt ica © 2014 Quetica, LLC

Discovery 33 Materials contracts analysis for transportation spend Materials purchase order and invoice analysis to determine vendor shipment frequency, size, equipment and lane Break data sample of shipping charges from fully landed cost Identify existing TSP contract lanes gaps Get industry benchmark data for all lanes in data sample Benchmark shipping charges against contract rates and industry rate Analyze existing infrastructure and processes to determine feasibility and required investment Develop project ROI and business case quèt ica © 2014 Quetica, LLC

Design 34 Identify target materials vendors: � � � For inbound network For optimized inbound network For unmanaged inbound networks Run inbound network optimization simulation to determine quantitative network design Establish quantitative and qualitative weighted factor decision model to finalize network design Source transportation lanes for inbound Establish operations and systems infrastructure Create materials vendor & TSP communications & training quèt ica © 2014 Quetica, LLC

Execution 35 Pilot managed inbound and optimized inbound networks with sample vendors and lanes Analyze results and validate against business case Establish supply chain, systems and business process infrastructure Develop rollout strategy Communicate and train vendors and TSPs Migrate to optimized managed inbound network quèt ica © 2014 Quetica, LLC

Summary 36 $1 Billion inbound materials spend Average of $100 million in transportation cost imbedded in fully landed cost Creates $35 million in managed inbound opportunity by eliminating risk premium and leveraging lower cost contract rates In addition optimized inbound can yield another $10 to $15 million in cross materials vendor shipment optimization Total Savings Opportunity: $35 to $50 million for every billion in materials purchasing… quèt ica © 2014 Quetica, LLC

consulting Questions & Answers 37 Thank you for participating in today’s session. For more information, you can contact today’s speaker at: Richard Langer 651 -964 -4646 x 800 richard. langer@quetica. com You can access a copy of the Inbound Management white paper at: http: //www. quetica. com/download-request financial services | payments | government | transportation | healthcare 37