No pain, more gain

By Paul Brent
Illustration: Mike Constable

In the past, companies would simply ax staff to pare expenses. With “easy” cost cutting squeezed out, trimming now requires the corporate courage to experiment and take risks

At the start of the decade, electrical products manufacturer Hubbell Canada LP knew it had to address its long-neglected transportation operation. While the lifeblood of its business was delivering its products to clients across Canada, the company did not have a full-time traffic and transportation manager, and it wasn’t sure it could justify the cost of hiring one. After much planning and research, Hubbell concluded it could in fact get the job done with-out affecting the bottom line and even save money at the same time.

The solution was to outsource the work. Although this decision was not something the Pickering, Ont.-based company took lightly, as a result of it, Hubbell ultimately saved $273,000 on its shipping costs in the first year.

The artless days of corporate cost cutting are pretty much over; simply taking an ax to payroll when employees are already working flat out is not an option. What is necessary today is the corporate courage to experiment and take risks. With all the “easy” cost savings squeezed out, companies are looking at outsourcing key functions such as logistics, capitalizing on purchasing savings, downloading costs on vendors, enhancing website and search performance, designing office spaces to boost productivity and even making the paperless office more reality than promise.

Thanks to the geographic fortune that comes with being situated alongside of the world’s largest economy, Canadian companies are energetic exporters. But these are tough times to profitably supply US customers. Fuel costs have soared, border traffic is routinely snarled and the high-flying Canadian dollar has further crimped profit.

But all this has led to busy times for third-party logistics firms, which typically run an analysis of a company’s transportation system and craft a plan to save a certain percentage of a company’s transportation budget, which can eat up between 3% and 10% of a company’s revenue.

“If you can save $1 million at a company that enjoys a 10% net margin, that is the same as a $10-million sale,” says Brian Bertrand, president and CEO of C&S Logistics Solutions Ltd. in Markham, Ont., which acts as Hubbell’s logistics specialist. “The president would go nuts if he had a $10-million new client. You can often save $1 million at the shipping door.” Shaving a mil-lion off a manufacturer’s shipping bill sounds like a savings achievable only by the biggest of companies, but Bertrand says such savings are routinely obtained by his firm.

Third-party logistics outfits “look at clients’ transportation networks, how they operate, who they are using for trucking, create transportation systems that are more efficient, more consistent with their requirements, and renegotiate with the best of breed and for the current market conditions,” Bertrand says.

As experts on the up-and-down cycles of the estimated $800-billion North American trucking industry, logistics specialists can save clients money by getting bargain transportation on half-empty trucks or rail cars. “There is no carrier that is always perfectly balanced in terms of the load factors northbound and southbound,” Bertrand says.

Cost savings are the major reason a company will outsource, but it’s not the only one. “There are several reasons: logistics may not be their core competency or international companies may not have a large enough base here to warrant a stand-alone operation with the buildings, transportation assets and staff to get their products distributed to their customers,” says Charlie Meilach, director of transportation with Montreal-based Metro Canada Logistics. “A good number of clients rely on us to provide door-to-door logistics services.”

Besides US-Canadian dollar fluctuations and economic ebb and flows, shipping rates can vary widely based on seasonal conditions. Something as innocuous as the melon harvest in the US south can spike rates out of Florida and Georgia by 30% to 40% as trucking is dominated by melon shipments.

Hubbell has reaped considerable savings as a result of its decision to outsource. Its Canadian operation is sizable. Its 150,000-sq.-ft. warehouse, head-office and manufacturing facility in Pickering acts as the distribution hub for Canada and it handles 7,500 products, ranging from small electrical components to 50-ft. lighting poles. In addition, the company has a Montreal-area manufacturing facility that ships product to the Ontario facility and across Canada to customers.

C&S projected it could shave $150,000 from Hubbell’s transportation costs with such initiatives as consolidating shipments, getting better deals from trucking companies and switching the company’s small-parcel shipping firm. Initially Hubbell was reluctant to make such a switch. “It was the unknown,” says Debbie Drozda, Hubbell’s director of operations. “You are asking someone to manage your business for you, your freight business, and ensure that your customers are going to be happy. But the savings were significant and I couldn’t ignore it.”

In the end, Hubbell saw savings of 82% more than was originally projected. The third-party logistics firm continues to de-liver same-sized annual transportation savings for the electrical company. It also provided unexpected benefits. “By going to C&S, we have been able to focus on our internal processes to improve the efficiency of our distribution centre,” Drozda says.

While service is what keeps Hubbell with C&S, it is the prospect of cost savings that is attractive to potential clients in the first place. Most manufacturers are geared to winning new business and landing new clients, but major cost savings can be relatively easy to achieve, and those dollars flow right to the bottom line.

Another aspect of supply-chain management often overlooked by organizations is in the area of purchasing efficiencies. Purchasers have an academic designation (Certified Professional Purchaser) and their own trade group (Purchasing Management Association of Canada), with40,000 members across the country working in the retail, manufacturing, transportation, government and service sectors. Yet professional purchasers often get a bad rap because they are overworked, used ineffectively by companies or have the professional credentials but lack the necessary experience, says Kevin Taylor, senior project buyer with medical device maker MDS Analytical Technologies of Concord, Ont.

“From an efficiency standpoint, having buyers who understand the process, understand the company, understand what they are doing and have the education to back it up is invaluable,” says Taylor.“Buyers can reduce your inventory, reduce your cycle times and increase your inventory turns, and the big thing would be cost savings. Going out there and finding the right vendor for the job.”

According to Taylor, companies would be wise to involve professional purchasers earlier in the design of products or services. “Let’s face it, most companies over-engineer their products.” In his case, Taylor works on the design of his company’s line of medical devices with engineers and equipment vendors to ensure his company’s products are designed with costs in mind.

“You can probably get a lot of costs out of product designs up front, but engineers are not going to sit down with a vendor to cut design and production costs,” Taylor says.

He has also found that organizations often rely on sophisticated software solutions to solve all their problems. “These super systems, the Oracles and SAPs of the world, a lot of them do not gear well to helping your supply chain department,” he says. “They are upper-level reporting tools. I have heard that a lot of companies are going out and getting specific supply-chain software to report into Oracle or SAP or any of the other big software systems.”

Increasingly, companies are also turning to the Internet to reduce costs and speed communication. US-based Armor-Tile, which makes and markets detectable warning strips for ramps, curbs and other places, uses the Web to update dealers’ marketing and product information kits from a secure portion of the company website. “The company used to physically mail all the posters, DVDs and interactive training to dealers across the US. The shipping and production costs were high,” says Scott Wilson, president of eMotion Picture Studios Inc. of Burlington, Ont., an online video and search engine optimization company (see page 36). “Now a rep can buy his or her own CDs at Staples, burn them and print posters and booklets at a local color printer. For the rep it is not that big a deal, but Armor-Tile eliminated the shipping costs and passed the printing costs off on its distributors.”

While the digital revolution — and the computer revolution before that — has been promising a paperless office, the reality is that most businesses are still drowning in paper. The typical office worker prolifically creates and retains mounds of paper documents that can negatively affect productivity. They can also be a minefield of confidential data, as well as use up valuable office real estate. Documents and records management firm TAB Canada, which was behind the largest corporate move in Canadian history when it oversaw Imperial Oil’s relocation from Toronto to Calgary, finds that the majority of paper crammed into the average workstation can be shredded and that little should stay with a worker or find its way into storage.

The documents firm, which goes into large organizations in an effort to shovel away the drifts of paper covering offices one workstation at a time, is in the midst of clearing the paper debris from a Winnipeg-based Crown corporation employing 1,700. “We’re averaging 25 cubic feet of junk per person, and 80% of that is being shredded,” says Bob Duncan, vice-president of consulting and outsourcing solutions with TAB’s Calgary office.

Generally TAB delivers its paper audit and shredding system to organizations as part of an office relocation, when the cost savings are most obvious to management. “Imagine that you have 25 standard record storage boxes per person,” says Duncan. “If you were going to give those to your movers, provide storage space in a work environment for that, what would you need to provide? And if you were going to buy new office furniture to accommodate that, what would the cost be?”

Keeping paper pollution down is more important than ever, given the average workspace in Canada has shrunk from eight feet by eight feet to approximately six feet by eight feet. “That’s freed up millions of square feet of real estate [often] at $50 or $60 a square foot,” says Jim Sweeney, president of Sweeney Dale Interior Design Inc., which is contracted to design the new headquarters for Sears Canada in the former Eaton’s flagship store in downtown Toronto.

Never-die paper records are also proving to be big business for document specialists. “Generally 90% of what we find in [companies’] off-site storage facilities can legally be destroyed,” Duncan says. “It’s ex-pensive to have somebody pull that stuff out, have somebody look through it and determine what should be done. But what are the options? Storing it for all time?” It costs between $4 and $8 a year per box to keep files in storage and that has made record storage a lucrative business. “I have a friend in California who opened a record centre in 1988,” Duncan says. “He has never taken a box out for any company that has stored with him. Boxes have only gone in. He’s on his fourth building.”

Paul Brent is a Toronto-based writer