Bringing Freight Management in House to Generate Sustainable Cost Savings at a Major Medical Products Company
A medical products company had outsourced responsibility for outbound freight to a third-party logistics provider for several years. As SCE evaluated the company’s freight operations, it became clear that in-house management of freight was the more profitable option.
SCE managed the entire process, from scoping the role of the new in-house freight management function to choosing and implementing a new transportation management system (TMS), and, ultimately, negotiating contracts with freight carriers.
At the conclusion of the six-month project, the company was on track to achieve $3.3 million of savings in the first year—a 10X return on the total investment in the project.
A U.S.-based $200 million manufacturer of adult disposable medical products was experiencing escalating costs to transport its products to the hospitals, long-term care facilities, medical supply companies and retailers it served. The company had made some initial attempts to increase efficiencies and reduce freight costs, including outsourcing responsibility for outbound freight to a third-party logistics provider. However, given the significant percentage of sales freight costs represented, the company’s chief executive officer wanted to know how much additional improvement could be made, and engaged SCE to find out.
SCE conducted an in-depth assessment of the company’s freight operations and identified a number of issues that were contributing to the company’s high shipping costs, concluding that the company could generate significant improvements by “in-sourcing” its freight operations—saving $1.7-$2.3 million annually, even after accounting for the costs associated with creating and launching a new in-house freight management function. Buoyed by this strong business case, the company’s CEO expressed strong support for SCE’s recommendation and asked SCE to help make this new department a reality.
SCE managed the entire process, from scoping the role of the new function and determining what types of roles would be required, to creating job descriptions, recruiting new employees, choosing and implementing a new transportation management system (TMS) and, ultimately, negotiating contracts with freight carriers. SCE also conducted an initial risk assessment of bringing freight management back in house to identify and minimize potential disruptions to the business.
SCE also helped the company develop supply chain disaster recovery plans, understand how reducing its pipeline inventory accelerates the cash-to-cash cycle, and adopt a more advanced understanding of variable cost drivers. Perhaps most importantly, SCE worked with the company to help it become a better, more proactive customer of transportation services, working collaboratively with vendors to drive down their costs, and hence, their pricing.
SCE was confident that the company could reach or even exceed the cost savings estimates emerging from SCE’s analysis. And exceed the company did: At the conclusion of the six-month project, the company’s new freight management function was on track to achieve $3.3 million of savings in the first year—nearly double SCE’s estimate and a 10X return on the total investment in the project. Importantly, the vast majority of these savings are of the sustainable kind because they are the results of structural changes in process that permanently eliminate inefficiencies and redundancies.
Reflecting the success of the project are the comments from the company’s CEO, who is understandably pleased with the return on his investment in SCE. "We always felt that we could do a better job managing transportation, but were never really sure where to begin," he said. "SCE was incredibly valuable, not only in pointing us in the right direction, but also in working hand-in-hand with us to make the transition from outsourcing to in-sourcing as smooth as possible. Their efforts have had a significant and measurable positive impact on our bottom line."