An interview with Michael Salih, the Domestic Freight & Couriers specialist of the Expense Reduction Analysts – Asia Pacific team. Michael has over 25 years international work experience across a variety of general management roles, predominantly within the logistics, retail and information technology industry.
He has worked with some significant retailers in Australia and Asia, in regional director roles with responsibility for procurement, business development, human resources and information technology services. Michael’s experience includes financial analysis, strategic planning, project management, and business improvement. With broad management experience, he works with clients across a range of industries and expense areas, including initial identification of cost categories, supplier negotiation, and management of the change process and the development of innovative solutions to build long-term client relationship.
Q1. Michael – what are your thoughts regarding freight costs and how it can be reduced?
Freight is often seen as a core expense in medium-large organisations. However, many organisations do not have the internal expertise to review their expenditure in detail, and therefore continue using the incumbent supplier without benchmarking against market prices.
Organisations can find savings by working more efficiently with suppliers, organisations can dramatically cut suppliers’ costs – and these savings go straight to the bottom line. For example, based on an eight percent gross profit margin, you would have to increase sales by $625,000 to match the same impact on the bottom line of $50,000 savings on costs.
Q2. On average how much do organisations spend in freight and courier services?
Our experience suggests that around 90% of businesses are overspending on day-to-day expenses, in some cases by as much as 70 %! Organisations should look to protect themselves by reducing the wasteful spending in freight and courier expenses and invest that money in other projects or upgrading their business processes.
Q3. What steps should organisations take to reduce their freight costs?
The first step to reducing freight and courier expenses is to understand your needs. There are many different methods of moving goods, parcels, items from one location to another. These methods will depend on the time frame, urgency and needs that will be determined by the customer. Customer needs and demands are paramount to future dealings with them and the service provided to match their needs will be vital. Matching the right supplier with the proper service levels required by customers with the right costs is not an easy task. When determining which supplier to appoint in a review, these factors need to be taken into consideration.
Q4. Can you give me an example?
For example; parcels, pallets, cartons etc. can be moved same day, same day by the end of the day, the same day within one hour two hours, four hours, overnight, overnight express, VIP Express, slow mail, linehaul, full truckloads, partial loads, road, air, the sea. Each method has a different cost base and warehouse managers, receptionists, despatch clerks or any employee authorised to act on behalf of the organisation, needs to ensure the right options are chosen to match the customer’s needs as well as provide the organisation is not selecting an unnecessary method that will add costs.
Q5. Why is it important to do price reviews?
Rarely will a supplier volunteer a price review. Let your suppliers know that you are undertaking a review of all your overhead costs. In addition to reviewing prices, look at establishing key supplier performance indicators that are appropriate for your business. Never assume that you know the market as well as your suppliers – and never imagine that they’re providing you with the best deal possible.
Do you know what your competitors are paying for the same products? Compare your cost-management performance to others. “Gather the data from outside agencies, consultants or benchmarking services where necessary.”
Q6. Does reducing costs disrupt the quality of service?
Reducing costs is not just about going to a cheaper supplier. You can in the majority of cases generate savings without affecting or disrupting standards of service through changing suppliers. Good relationships in any line of business are fundamental, and the one with your supplier is no exception.