Nobody spends your money as wisely and as frugally as you do. At least it must seem that way to Schlumberger, a world leader in providing services, technology and solutions to the oil and gas industry. Where suppliers used to have control over the way it paid its freight bills, once Schlumberger reasserted control over those inbound shipments, it saved about $4m in just one year.
Before Schlumberger instituted its highly successful Ready-to-Ship program, suppliers would simply ship goods when the purchase order was ready, says Jay Kleinheinz, North American logistics manager. "They could do a pre-pay and add, where they could select the carrier, pay the freight bill, then add that on their material invoice. Or they also could charge the freight on our account." That involved giving suppliers Schlumberger's account numbers either for parcel or LTL carriers.
Shipments initiated by suppliers have certain in-built problems, not least of which is that external parties are not likely to be as concerned with cost savings as the purchaser. "These methods didn't meet the new requirement for a match-pay where we would actually be able to validate that the freight charges were legitimate because they were of outside-the-company origin. We couldn't be sure that they were in alignment with the contract we had for those freight rates," Kleinheinz says.
So the Ready-to-Ship program, or RTS, came about. Basically, the system sweeps all existing purchase orders that are due within a certain on-time delivery window. Fourteen days prior to due date, suppliers enter a web portal provided by Exel, which manages Schlumberger's inbound shipments. There they select the quantity and other components of the purchase order, all of which is now automatically validated. "If there are going to be any errors in the shipment, we now find them before they ever leave the origin rather than after they have arrived at the warehouse," Kleinheinz says. He characterizes that as a tremendous benefit, and it's not difficult to see why it's so valuable to catch problems on the front end. "The suppliers have a lot more interest in getting things fixed when the materials haven't left yet. If they've left their place and they can invoice, the priority isn't necessarily on them to react as quickly as when they want to bill, ship and get paid. So in that sense it's really helped."
The RTS process enables the validation because there is no manual data entry. All information is imported directly from a supplier into Schlumberger's system. "They don't have to type anything, they're not retyping part numbers, not retyping descriptions, there are no keypunch errors. We have their origin defaulted to their location, we have them choose the destination, so it's all very automated without any typing whatsoever. The only thing they have to do is tell us the quantity. We default to the number ordered. They can ship less but they can't ship more. So it's process-driven by the software to eliminate human errors."
Typically, shipment modes are either parcel or less-than-truckload. Schlumberger manufactures some very complex tools and equipment, but many of those items are either small or contain small parts and pieces, Kleinheinz says. Easily 60 percent of Schlumberger's inbound materials come by parcel. Nevertheless, they still go through the RTS validation process.
"Then we simply send suppliers FedEx shipping labels and schedule the truck to pick those parts up," he says.
Of course, there is quite a bit of LTL, palletized material to deal with as well. Occasionally, flat beds have to be scheduled. Items may require "tarping" or some other kind of special treatment, such as cranes for lifting, may be called for. As long as the supplier has provided the weights and dims, any mode can be handled, says Kleinheinz.
Nevertheless, Schlumberger doesn't find rail to be one of its needs, and airfreight is so rare that the company doesn't really have the contracts for it, so such a shipment wouldn't be managed with RTS.
A quick run through the numbers shows why Schlumberger is so pleased with the RTS program. Kleinheinz says that through the first three quarters of 2012 the company reduced its inbound spend about 23 percent, which amounted to $3m. Based on that percentage of savings, it was estimated that for the whole year Schlumberger would save $4m of a total $17m outlay for transportation.
Consolidation is largely responsible for those cost savings, he notes. "We actually make fewer shipments, we don't get multiple shipments from the same supplier in the same day, and we use our contracted rates rather than a pre-pay and add where we don't get the optimal rates."
You would think that every supplier would be compelled to accord with the RTS program, and most are. But there are some situations that call for a different approach. One case in point involves shipments in the Houston area, where raw materials suppliers ship to Schlumberger directly from the source using the suppliers' own trucks. Or the shipments may involve copper wire or parts so delicate that Schlumberger has elected not to bring in common carriers.
Are there advantages or benefits beyond the obvious in saving money on transportation spend? There are, and they have been pleasant surprises, says Kleinheinz. "We didn't expect to see some of the change we got." He likens the benefits to NASA's space program. "The value is not so much in the moon rock as in what you learned going to get it. So while there's a lot of value in the RTS, we've also learned a lot along the way. For instance, by using the RTS and having the bills of lading issued before the pickup is made, we've been able to send those to the consignee, so now we have advance shipping notice, they know exactly what's coming in, who's bringing what, and we can match our warehouse to the inbound loads. So now we can optimize our labor force. We can make better purchase orders and we understand the difference between the need date and the due date when you have FCA Incoterms or when we take possession at the supplier's door."
Perhaps employee resistance was less surprising, since people fear the unknown and the different, but it was easily the biggest challenge encountered during implementation of the RTS program, Kleinheinz says. "But I knew they would see how simple it is, and they have seen how much they benefit from it."
Keywords: transportation management, Exel, 3PL, third party logistics, logistics services, logistics management, inbound transportation, freight audit, transportation spend
Enjoy curated articles directly to your inbox.