American Identity and the fine art of listening
By Michael A. Levans, Chief Editor -- Logistics Management, 6/1/2006
If you had bumped into Chet Brown at the end of 2004 and asked him how things were going, you would have gotten an earful. That was about the time Brown, vice president of IT and inventory operations at American Identity (AI), realized that his company was fighting an uphill battle on two fronts.
For one thing, AI, a privately held company that helps corporations create and extend brand awareness through promotional products, does a considerable amount of direct shipping to customers from its vendors, which do much of its customizing. Without a firm grip on those direct-ship costs, AI was flat-out losing money on outbound freight, yet it was consistently being questioned by clients concerning excessive freight costs.
As customers' complaints mounted, AI's customer-service team felt compelled to discount freight charges—or even drop them altogether—just to keep clients happy. And while customer service was digging into the trenches, Brown and Jon Strombom, then senior vice president of operations, were getting the feeling that they were losing control of inbound freight costs. "We knew this was happening," says Strombom, "but we couldn't raise our margin to cover the costs, because we didn't know what our freight costs were by product when the price was established."
With the battle fronts clearly defined and freight costs putting a wrinkle in the company's P&L, American Identity made controlling transportation one its top priorities during 2005.
The logistics team went to work, collecting customer feedback and crunching data. Based on that information, Brown, Strombom, and a group of computer programmers developed decision-makingtools that would help AI's customers, vendors, and transportation staff gain control of outbound and inbound costs and eventually help the company improve overall planning.
As Brown and his team have rolled out their improvements over the course of 2005, AI has realized benefits worthy of this year's Logistics Management Best Practices Gold Medal. During that time, the company used its proprietary freight-quoting module to help its customers cut their expedited freight usage by 50 percent, leading to a 92 percent reduction in freight-related complaints. The team used a similar module to specify carriers and calculate costs for each of its shipping lanes to improve inbound decision-making. Overall, the new system has knocked out more than $500,000 in accessorial fees—and customers, along with the CFO, are smiling again.
The key to this success, according to Brown, is something that every logistics professional is capable of doing, and it doesn't cost one dime: "We simply listened to the customer."
Customers Set the Course
The listening began in earnest in early 2005, when Brown and his team began to collect customers' complaints from many sources: comments heard by AI's sales force, feedback cards placed in outgoing orders, conversations logged by the customer-service team, and survey calls asking end users about AI's delivery practices. "At the time, freight complaints ranked either one or two [among all complaints] over any given quarter," says Brown.
The team identified four concerns: Customers distrusted the freight-rate charts; they were upset that AI could not tell them what expedited shipping would cost; they thought freight costs as a percentage of the value of the merchandise were too high; and AI was not providing timely tracking and billing information for direct ships.
"What we heard set the course for three distinct projects," says Brown. "We needed to improve outbound quoting, gain control of inbound, and develop a freight-audit system to help us plan, track, and bill appropriately."
Team members had no illusions about the challenge ahead of them. "We realized we were at the beginning of a major process-improvement project, so we needed to know where we stood and where each customer stood," says Strombom. To get that baseline information, the team pulled customer data together so it could analyze each client's freight bills and made it available on an internal website.
"When that was done, customer service could easily pull up the data to tell each client's freight history and how much came from back orders, regular orders, and how many packages were sent, along with their cost for expedited, ground, or LTL," says Brown.
The team then set out to weigh and measure all of its products—close to 70,000 items—and store that information in the Web database. "When we're building up our purchase orders internally or a customer is building an order, we needed to know how much the order weighs and the appropriate point at which it switches from parcel to LTL," Brown explains.
Next, the team entered all negotiated freight tables into the system, a step that made it possible for AI and its customers to access accurate, up-to-date rate information. "In the past, when you got a freight chart, you'd agree on it and you'd publish it in a catalogue. It was an administrative nightmare," says Brown. "You couldn't change it, but you can on the Web. … Now, when there's a [rate] increase or a new fuel surcharge, we can automatically throw it across our entire customer base in two seconds and maintain appropriate charges."
Tools for Smart Decisions
Once historical freight data for each customer was available, product weight and dimensions were logged in, and negotiated rates were being continually updated—and all were available to staff and customers through the Web interface—AI had the foundation for executing its core projects.
On the outbound side, the team developed a freight-quoting module that gives customers a dynamic, online decision-making tool. "As customers add product," says Strombom, "the system is looking to see if it's cheaper to send it UPS Ground, UPS Hundredweight, or LTL. The quote includes insurance and provides dimensional weight for expedited freight."
The system also checks the shipping address against three databases: residential/commercial addresses, address validation, and delivery-surcharges. It then adds the correct freight charges, a feature that has helped AI save more than $500,000 in accessorial costs.
"There's a lot of event usage for the product we're managing, and there's a lot of last-minute shipping," Brown says. For example, a customer might order shirts or golf balls for a company-sponsored golf tournament. "They may think they need it there tomorrow, but 'tomorrow' is 30 to 40 percent more than two-day [service]. Before, they didn't have enough information to judge the impact of expedited," he says. "Now they do, and they're able to make a smarter decision."
That feature has proved to be very popular indeed. "The first customer we rolled this out for ran the numbers and reduced his freight tab by 20 percent," says Strombom. "The cost-savings element, in essence, is the carrot to push the customer to make better planning decisions."
The team then turned its attention to the inbound side, which had challenges of its own. "Most of the product we order is custom, so our ordering practice is pretty much on an order-by-order basis," says Brown. "It's tough for us to plan and manage inbound routes, since orders change time after time."
To help get inbound freight under control, the team built another module based on the data that had made its outbound system a success. Using its product weight and measurement data, AI now knows what each order will weigh and at which point it should switch from parcel to LTL shipping. As a result, the team can tell vendors, for example, when to use its third-party number for UPS or call in a freight broker to get a better deal on LTL. "If a shipment is coming from Portland, Oregon, to AI's distribution center in Iowa, the vendor now knows that's Lane 3," says Brown. "We can then tell the vendor what that's going to cost and what carrier they're going to call to make the delivery."
AI is putting all that newly available data to good use. "The system can take large volumes of freight data that we get from UPS or our freight broker on a daily basis, and it allows us to analyze it, break it down, and then interface it with our accounts payable, general ledger, and automated billing," says Brown. "It's really allowed us to do the analysis we were lacking and helps us make sure we're targeting the problems," Strombon adds.
Change for the Better
When asked to pinpoint the single greatest benefit of American Identity's Herculean effort, Brown and Strombom need a moment to think. "There have been so many we're not sure where to start," Brown responds.
Strombon mentions the fact that the new system helped AI control its freight costs across the board. "Things like accessorial charges, undeliverable addresses—those are issues that were bearing on our overall freight costs because we were never in control of them in the past. But that's all changed."
Adds Brown: "The most satisfying benefit by far has been the customer-service element. We put decision-making tools into our customers' hands, and helped them make better decisions that, in turn, cut their expedited usage in half and reduced complaints by 92 percent. We feel pretty good about that."
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