Posted by Albert Kraus on September 6, 2012 |
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Local freight trucking is irrevocably linked to the ebb and flow of the larger economy. For the past five years, manufacturing orders have been sluggish at best, causing a chain reaction within the local freight industry. Some of the pitfalls that affect shipping vendors are the constant fluctuations in diesel fuel prices and surcharges. When fuel prices rise, this can be perilous for a smaller freight company that doesn’t have enough day-to-day business. According to recent statistics, around 87% of shippers are small operators. When there is reduced demand for their services, some of these vendors will go out of business. However, those companies who are capable of keeping customer service standards high while running lean operations are in a better position to weather this recession.
Manufacturing companies would be smart to look into securing as many freight cost savings as possible right now. The economy is slowly beginning to recover. Experts predict steady growth in retail spending between now and 2017of about two percent. Manufacturing of goods is going to pick up and with that rates for shipping locally will also increase. Just like in any other business sector, carriers must seek out new customers while retaining their existing ones. This means that many freight operators will be willing to negotiate more favorable terms on contracts in order to either win a new account, or keep an existing client from bolting to one of their competitors.
Now is a good time to seek out the professional advice of an experienced freight consultant. Freight consulting involves analysis of current local carrier contracts, proposals and negotiations to find the best deal for obtaining low freight costs. Many procurement managers would like to get a handle on this expensive part of the budget, but lack specific knowledge when it comes to sitting down and going over the contracts with a fine-tooth comb. Meanwhile, a consultant familiar with the process can quickly provide good data on how much money is being currently wasted in this area. Even if a company chooses to stick with the same trucking firm, there are still opportunities to renegotiate for lower rates over the long-term.
Once business picks up again for local freight trucking companies they’ll be inclined to skew the rates heavily in their favor. Therefore, the best time for obtaining a great discount on moving goods to and from local destinations is now. You can gain the upper hand by having any carrier proposal analyzed for hidden cost savings. This is a win-win situation for the vendor too as they will have an opportunity to continue servicing your business into the future.
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Posted by Albert Kraus on September 5, 2012 |
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Compared to previous years, this year is shaping up to be one in which more and more manufacturers are seeking ways to reduce across the board freight costs. According to a study done by American Shipper, in 2012, price is the number one factor when it comes to budgeting shipping container freight costs, including train freight costs and ocean freight costs. A whopping 58% of respondents indicated that Price was more important than Service and Risk. More companies are looking for deals from shippers and there appears to be an ongoing trend of holding the line on paying higher rates.
For example, thirty-four percent of those surveyed have had an increase of 5% or less in shipping costs. Eleven percent experienced no increase, while thirty-eight percent saw an increase of more than 5% in costs. Clearly, there’s an advantage in understanding how to reduce freight costs by improving negotiations with shippers.
The winners of this survey are companies that learned how to become increasingly savvy during the contract process. They were able to win attractive rates on service level guarantees, delivery times and other customer service items. Survey respondents were also separated into centralized and decentralized while being analyzed for savings. The results revealed that forty-two percent of the centralized group had no rate increases, while thirty-one percent of the decentralized group saw no increase.
When taking these numbers into account, it is obvious that those companies that seek out a qualified freight cost consultant are seeing real benefits in freight cost savings. Companies that experienced rate increases unabated are not taking advantage of strategic negotiations in this area. Maybe the reason is because management is not aware that such cost savings can be achieved. In this day and age, every manufacturer should be informed on how to uncover the hidden costs of shipping, and what to do about reducing freight costs. Monies saved in shipping can boost a company’s bottom line while maintaining above average service from shippers.
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Posted by Albert Kraus on August 31, 2012 |
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Packaging a product is an important part of any manufacturing process. Packaging often serves a dual purpose. The main purpose of packaging is to protect the integrity of the product before, during and after shipping to the customer. The packaging must be durable, as well as, attractive to the end consumer in order for it to be considered a success. On the manufacturing end, however, it is always wise to consider having a packaging cost analyst take a look at areas where waste can be eliminated in order to save on packaging costs.
There is a growing need for experts in packaging consulting who can analyze current manufacturing packaging processes for total efficiency. When budgeting for this important task there are usually two main considerations: packaging development costs and packaging process costs.
Any good packaging consultant will tell you that the world of packaging continues to change and evolve. Packaging that may have worked well ten years ago, may not be so desirable in today’s ultra efficient environment. The economics of packaging come into play when looking for ways to trim the fat and increase overall profit margins. First thing to consider is what improvements have been made in packaging materials for certain products. A lot of emphasis is focused on choosing lighter weight, durable materials that provide more functionality while using less material. For instance, an item that must be protected from jostling while shipping can have packaging designed to include sturdier restraints while eliminating bulkiness. Budget-friendly recyclable materials are used in many of today’s packaging materials mix, which helps cut down on environmental waste.
Secondly, a company needs to take a look at their process regarding packaging creation and use. There are serious costs related to this as well, and therefore, should not be ignored. These costs includes research, design, development of unique molds and machines, labor, purchase of materials, testing, corrections, and shipping. There are one time costs, as well as, ongoing costs associated with packaging. Keep in mind that it is quite normal for a company to not make back initial packaging set up costs for up to two years.
In order to obtain the maximum benefits from everything associated with packaging production and shipping, it’s essential to know where every cent is being spent in relation to this important element of your manufacturing operation. By looking at ways to upgrade materials, incorporate new technology and improve overall production, real savings can be achieved by coming up with a smart packaging plan of action.
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Posted by Albert Kraus on August 28, 2012 |
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For many years the mantra for U.S. based manufacturing companies was that if you want to stay in business, you better start outsourcing from China. Out of all of the low cost countries offering incentives to American companies to relocate production overseas, China has done the most to facilitate the rapid advancement of low cost sourcing to their country.
The reason why the cost of manufacturing in China is less than it is in established industrialized countries like the U.S. is because the Chinese government was able to rig its currency, maintain unregulated factories, offer subsidies and tap into a deep well of cheap labor. It became impossible for American companies to ignore the financial benefits of moving manufacturing offshore, leaving thousands of American workers stranded without jobs. It also became common to hear about factories that had been in business for decades suddenly shuttering their doors. America, which was once known as a great industrial nation, was on the brink of losing its esteemed reputation for being producers of the best products money could buy.
An intriguing trend is happening that promises to turn things around completely. U.S. companies that had heeded the call to reduce the cost of procurement drastically by moving production to China are now doing what’s called reverse offshoring. It turns out that as China matures as a growing industrialized nation, the cost and benefit of outsourcing there have gradually begun to shift. The three major concerns that are causing companies to reevaluate their true outsourcing cost savings are: government-sponsored IP theft, lags in product delivery time and rising wages. For instance, in 2000 the average Chinese worker was making just $0.58 per hour. Today they make around $4, and by 2015, estimates show that they’ll be making between $6 and $7 per hour on average. If a company’s main reason for relocating to China was to reduce labor costs, this savings is quickly becoming less of a factor.
For these reasons, many companies, including such stalwarts as GE, Caterpillar, Dow Chemicals, Ford, Google and Apple have taken steps to move some or all of their production back to U.S. shores. Apparently, offshore manufacturing in China has already seen its heyday. With new manufacturing technologies like 3D printers coming into play, the cost of outsourcing overseas will no longer provide the type of savings as seen in the past. Instead, companies will reap more benefits by having their factories closer to home, where production can be closely monitored for quality control. Delivery times will also be much faster. American workers can be trained for new skills, continuing to earn a decent wage, while companies enjoy healthy profit margins. Made in the USA is once again being stamped on products with pride.
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Posted by Albert Kraus on August 24, 2012 |
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The concept of using a clingy clear plastic wrap to protect food items started way back in the 1930s and quickly became a household staple. It wasn’t until the late 1970s that another form of plastic film, called hand stretch wrap or film, was developed for industrial use. Although, there were skeptics that didn’t think that this type of material could actually secure heavy pallet loads, they were proven wrong. After many years, more and more companies jumped on board and began using hand wrap effectively to secure and protect packages. Nowadays it is very common to see shipments leaving the warehouse with shiny bands of plastic stretched around them. As with most industrial products that have stood the test of time, stretch wrapping has evolved. There are new varieties of film, as well as, tools that can result in packaging cost savings.
There are three basic kinds of hand wrappers:
Extended Core – The core of the film wrap is extended outward and provides a built-in handle to aid in wrapping. These are the least cost effective because they tend to be difficult to control and uncomfortable to work with.
Mechanical Brake – The film sits on a mechanical structure with a brake system that creates adequate resistance and more stretching. This is very good for getting more use out of less film.
Pole Wrappers – An ergonomic design that places the roll and brake at the end of an extended pole. Creates less strain from bending to reach low or high places. Same cost effectiveness as the mechanical brake.
A national study on the use of hand wrap in manufacturing concluded that films need to be stretched to 100 – 150% capacity in order to hold a load that is prone to shifting. This means you’ll want to evaluate how much benefit your company is getting from current wrapping practices.
As any packaging cost consultant will tell you, many companies are spending money needlessly by not getting the most efficiency out of each roll of hand stretch wrap. In most cases, manual application of stretch wrap results in a stretch capacity of between 25 – 40%. In some cases the wrap is only stretched about 15% to capacity. A simple way to get more packaging cost control from this item is to invest in pre-stretch attachments that can be added onto standard wrap brake machines. This change can increase stretching efficiency of each roll of wrap to 100%.
Consider reviewing the type of stretch wrap your company is currently using. Maybe it no longer meets your requirements. If your company is going through numerous rolls within a short period of time, you should think about switching brands or upgrading to a higher performing material. Manufacturers have come up with new varieties that have increased strength and flexibility. You may find that one great way to save on packaging is to invest in pre-stretched film. Your current brand may be obsolete when it comes to performance. Take a look at newer options that provides you with optimal strength, safer operational use and easier savings.
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Posted by Albert Kraus on August 23, 2012 |
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Ten years ago, U.S. manufacturers were following the winds of change by closing down U.S. based factories and moving operations to China, India and Mexico. China, by far became the country of choice for outsourcing due, in large part, to its low cost workforce. Many jobs that had been done for decades by skilled American workers were no longer economically viable for manufacturers competing in a global economy. Years later, the once insurmountable advantage that China has in keeping production costs the lowest in the world is beginning to lose ground.
Small manufacturers, such as Seesmart Inc. and large manufacturers like General Electric (GE), have come to the conclusion that it is now cheaper for them to build certain products in the U.S. than overseas. While American wages are still higher compared to workers in China, the plain fact of the matter is that Chinese wages are slowly rising. In addition to wages, manufacturers are facing a steady rise in shipping container freight costs. When looking at the overall cost to produce a product, international freight cost is becoming a crucial factor for manufacturers.
For a small company like Seesmart that makes LED lighting devices, having everything made in China began to cut into their profit margins. They have a very short delivery window, and cost of sea freight, and slow shipping times were causing them to lose business. Desiring to get a handle on ocean freight cost while maintaining more control over manufacturing, Seesmart made the decision to transfer manufacturing to Simi Valley, California and Crystal Lake, Illinois.
Likewise, GE took a look at the cost gap between manufacturing a battery product in China versus the U.S. After factoring in the cost of wages, which because of improved technology are not as prohibitive as they once were, they decided to locate their new battery factory in Schenectady, New York. Freight cost management also played a big part in helping them make the best decision for the company’s bottom line. Now there are 450 additional jobs in upstate NY that will boost that region economically.
Any U.S. based company that is currently outsourcing manufacturing to China and other countries, may want to have an expert in freight consulting go over their operations with a fine tooth comb. The amount of money being spent on international shipping could be wiping out any cost savings had from paying lower wages. On the other hand, realistic freight cost reduction could significantly close the cost gap, allowing products to once again be produced in America.
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Posted by Albert Kraus on August 16, 2012 |
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An essential element in making any product consumer friendly these days is the selection of packaging design and materials. It’s not enough just to have a good product, it must also have the kind of shelf appeal that catches the eye and elicits a positive emotional response within the consumer. This is no easy task because the competition for shelf space is stiff. Taking a look at current packaging analyst reports, there are four key trends that are having a big impact on a company’s bottom line when it comes to packaging: Convenience, Green Friendly, Age Neutral, Variety.
Convenience
People are busier today than ever before. There is very little patience for spending precious minutes going through tedious preparatory steps. This is true whether the product is food, personal grooming, household or other type of goods. People want to gain fast access to whatever it is they have bought. Food is the leading trendsetter in this area. Companies are pre-cutting vegetables, placing single servings into easy-to-eat containers and designing tops that pull or twist off easily without the need for a tool.
Green Friendly
While there is a debate going on about the merits of global warming and what this means for our planet, there is no debate as to how consumers feel about green friendly packaging – they want more of it. Environmental responsibility is no longer an option for many companies as their customers expect them to produce packaging that is both practical and does not harm the environment. This can be a real challenge as green packaging can be more expensive to produce depending on materials used and the process to create it. However, there is ongoing research and development into how to make packaging attractive to consumers, keep it’s green appeal while implementing packaging cost control measures. The good news is that there are financial rewards for companies who seek out ways to creatively use green packaging.
Age Neutral
There are millions of aging baby boomers that refuse to be treated as if they are ready for the nursing home. Toda’s packaging is more likely to reflect a person’s lifestyle than their particular age. The reality is that there are 70-year olds who are still quite active and 30-year olds who are lethargic or handicapped. Both can have youthful personalities and expect to be marketed to in a way that respects their view of who they are and what they want out of life. Trends are to create functional packaging using ergonomic, easy open/close design and easy to read graphics.
Variety
Packaging designers must be a lot more flexible today than in the past due to the sheer variety of consumer product choices offered on the shelves. Packaging of a product may be periodically reviewed for current appeal. There might be limited editions of certain products, along with limited edition packaging that could be sold as a collector’s item. Some companies are seeing more packaging savings by bringing partial package decoration tasks in-house.
A lot of effort goes into designing packaging that meets customer expectations while leading to growth in brand loyalty. Expect to see more global expansion of both convenience and environmentally friendly packaging.
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Posted by Albert Kraus on August 14, 2012 |
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According to a recent survey released by PWC, the majority of industrial manufacturers in the U.S. remain optimistic amidst a world economy that remains weak. Yet, these same manufacturers are also experiencing a tightening on gross margins. This slowed growth is mainly due to three issues that are causing companies to feel the profit squeeze: regulatory pressures, increased energy costs and a lack of demand for certain goods. Procurement managers must constantly perform a juggling act when it comes to finding ways to tackle their current manufacturing overhead while reducing overall manufacturing costs.
Instead of sticking their heads in the sand and trying to wish the problem away, many manufacturers are seeking solutions for how to reduce production cost. During downward swings it is easy to sit back and take a wait and see attitude, however, this type of thinking could actually cost companies money. Slow periods are the perfect time to amp up efforts in learning more about cost control in manufacturing - including what can be done to beef up profits. A renewed focus on this issue is important because a reduction in profitability is seen by many to be a major barrier to continued growth.
Industrial managers who are taking a proactive approach are finding that they are able to easily implement at least one or two factory cost saving ideas into their business. For companies that wish to save time on research and planning, a qualified procurement specialist can do a manufacturing cost estimate and analysis reports. Due to the uncertainty of the global economy, and it’s far reaching effects on U.S. economic viability, each manufacturer must put some thought into discovering which cost reduction strategies in manufacturing is best for their business.
To spur growth during such cautious times, manufacturers are still planning to make investments in product development and technology. These are wise investments that can pay off over the long haul. The flip side of the coin is to find areas where money is being wasted and eliminate those money leaks quickly. Most experienced procurement consultants can provide a business with numerous manufacturing cost savings tips that can contribute to an additional growth in profits. This is a proven strategy that works and doesn’t require increased investment.
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Posted by Albert Kraus on July 31, 2012 |
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The ultimate goal of any procurement planning strategy is to achieve cost savings across the entire supply spectrum. It can be said that a good procurement management definition is to take a hard look at everything a company purchases, look for opportunities to improve the system, streamline purchasing decisions and the buying process, improve relationships with vendors and continuously monitor vendor performance. As you can see, this requires a purchasing manager who is capable of implementing a long-term procurement management plan.
Today’s purchasing manager must be familiar with all of the basics of procurement best practices in order to develop a total vision of how to implement a successful strategy. This may require developing strong relationships with leaders in other divisions such as marketing, finance, IT, warehouse operations and upper management. The manager should also work on developing a procurement management cost analysis so that this can be presented to others in the decision making chain. Often, these ideas need to be thoroughly explained to others so that they too can see the wisdom of creating a cross-functional team buying strategy.
Total cost management or TCM cannot be obtained by simply focusing efforts on buying items that have a cheaper price tag. Discount pricing only works out well when you know that you’re getting something of high quality. It does a company no good to go for a great deal on those cheap widgets when they break apart after light use. A cheap widget can end up costing you a lot of money when it has to constantly be repaired or replaced. Therefore, it’s much better to follow a sensible plan that takes a look at which vendors are capable of producing quality, quantity, and great customer service while providing you with a fantastic deal.
Company savings can also be the result of developing strong vendor relations in which you both share responsibility for meeting mutual objectives and goals. Basically, the procurement plan should include options for creating strong incentives for vendors to help you save more money. For example, let the vendor know that you’ll order more quantity and sign a longer contract if they take measures to reduce their internal processing costs on your items. This is a win win for both parties. Total cost management can easily be achieved by incorporating a company-wide strategy that manages and monitors the purchasing process.
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Posted by Albert Kraus on July 26, 2012 |
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An important part of the procurement management process is to establish a good working relationship with your vendors. Many leading companies have set an excellent procurement management plan example by focusing on improving relations and training in procurement. This makes good business sense whether your company is large, mid-sized or small. It is human nature to want to do a good job for someone that you know and like. The vendors you do business with should not be considered as simple product providers. Instead, they can become powerful partners who can help to advance your business goals. Best practices in procurement should include training that accomplishes better communications, mechanisms for quick problem solving, performance objectives and monitoring, and ongoing improvements.
Better Communications
Can anyone at your company simply pick up the phone and place an order? If so, this practice should be stopped immediately. It is difficult for your company and the vendor to figure out who is who and keep track of orders when purchasing becomes a free for all. Creating better communications between your company and the vendor should be a top priority. Get started by creating a procurement management training program for only select employees. These should be people who you know you can trust to order services and supplies responsibly. Implement a formal internal process where all other employees must give their request to the designated purchasing person. In turn, these persons are authorized to place orders into a purchasing software system, write purchase orders and contact vendors. See if the vendor can arrange to have a specific contact person on their end.
Quick Problem Solving
From time to time problems will pop up with certain orders and this requires that you communicate the problem to the vendor so they can resolve it. When you have already established a good working relationship with a vendor partner, it is much easier to have mechanisms in place that can allow the vendor to help resolve issues faster. Also, work with the vendor to set up this system so that they know you expect top customer service on their end.
Performance Objectives and Monitoring
Train your employees to monitor vendor reliability in meeting deliveries, providing product to your exact specifications and overall customer service. Let vendors know what your standards are and if anything needs improving, work closely with them to get their performance up to speed. This may even include a jointly created vendor training program.
Ongoing Improvements
Training can take place on both ends to ensure that the business goals of both buyer and seller are continuously being met.
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Posted by Albert Kraus on July 24, 2012 |
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Every business needs to have a good strategy for incorporating the latest advances in technology into their working environment. When utilizing a procurement management plan the goal is to research a list of qualified vendors and make a purchasing decision based on need, cost savings and ongoing maintenance factors. Technology has the ability to streamline operations and make things run smoother in the organization. Some companies hand over technology purchasing to the IT department, but it is wise to include this function into the overall procurement strategy so that contract clauses, customer service and delivery dates can be more closely monitored.
A procurement management information system team can be set up to handle all facets of buying technology for the company. In addition to the IT department, team members can come from other departments as well. This cross-functional approach allows for more back and forth discussion about what exactly is needed by those who are directly involved in using specific technologies. The team might even use procurement management software to help them evaluate current uses, reliability and what problems must be resolved.
Getting Prospective Vendors to Respond Quicker
It is common for the purchasing team to prepare either an RFP or a series of questions to give to vendors outlining how their technology fits in with the company’s current needs. Vendors can sometimes drag their feet in responding to these requests, which can annoyingly slow down the final selection process. Reasons vary, but a vendor may be at the end of their sales quarter or view a small order as a backburner item. Either way, you want to get the ball rolling. Think about ways you can cut down on the size of your proposal by giving vendors no more than 50 straight to the point questions to answer. Also, set a strict deadline for responses. This lets vendors know that you’re serious about expediting the buying process. If they snooze they lose.
Use Seasoned Negotiators
Something that really bogs down buying decisions is having too many people involved in the negotiation process. Your negotiation team should have no more than five members. It should also include people who are seasoned in doing business negotiations. Sure, your IT guy knows his stuff, but he’s not qualified to understand how to get the best deal on the best terms. The negotiation process can begin as soon as you have your short list of preferred vendors. This will also save time.
Set Your Own Standards
It is smart to begin the buying process by having vendors agree to your contract conditions. Be upfront in stating your terms and let them know which ones are non-negotiable. Avoid working strictly from the vendor’s contract. Setting contract standards allows you to gain the advantage and get quicker responses on your desired technology needs faster.
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Posted by Albert Kraus on July 19, 2012 |
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Many companies have found out that creative solutions to various problems can be solved by utilizing a cross-functional team approach. This type of team is normally created to address a specific business task or outcome that requires knowledgeable input from a cross-section of departments. The procurement management team can easily create a special task force group to handle purchasing decisions for a particular project. Individual teams from each division or unit can be set up and then come together when needed to work together on a common goal. A continuous team may also be created to tackle ongoing issues on a regular basis.
In addition to purchasing, team members can come from areas such as distribution, marketing, manufacturing, sales, R&D, administration and technology. For instance, let’s assume that a company wishes to set up and implement a procurement management training program for employees and vendors. Since this is a company wide effort that requires cooperation among each department, a special cross-functional team or CFT is required to make sure it serves the needs of all departments. The procurement manager may also act as the team leader. Whoever the team leader is, they should carefully select one person from each area to serve as a representative. Keep in mind that team member selection is not an exact science. The hope is that the group will come together and work harmoniously to achieve the overall team goal.
Some common items that a cross-functional team may consider:
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Market Research
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Product Design
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Product Performance
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Product Delivery
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Supplier Selection
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Supplier Training
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Contracts and Warranties
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Quality Assurance
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Technology Upgrades
Each CFT should work under a written charter that details to its members the overall team objective. This should include a mission statement, stated goals, the role of each team member, what type of authority the team holds regarding purchasing decisions and performance expectations. A timeline is optional depending on circumstances.
Ideally, you want team members who have proven functional skills, technical expertise in their field, creativity, an innate ability to communicate with others and share ideas, a willingness to listen to other points of view, and those who are not adverse to some risk taking. Stay away from selecting team members based on office politics as this isn’t going to produce the best team results.
Cross-functional teams can only achieve their desired goals if they are given enough decision making power and company resources to make things happen. Upper management must be open to making changes according to team recommendations. A company can benefit in many ways by tapping into the power of individuals from various divisions working together to create a more agile, and financially beneficial, procurement process that can lead to a solid procurement managment plan.
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Procurement Best Practices 2: Top Management Support Key to Success
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Posted by Albert Kraus on July 17, 2012 |
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A company that is fully engaged in procurement management best practices knows that their management team cannot become complacent after putting a systematic purchasing plan into place. You don’t want your company to just be good enough at purchasing adaptability – you want to be the best you can be. The procurement manager must constantly be on the lookout for ways in which to improve the efficiency of how the purchase of goods and services are integrated into the entire company environment. Continuous monitoring of your supply chain, vendor relations and learning about innovations is all part of a well-balanced plan.
Are you simply collecting data and allowing it to gather dust?
Many companies are good about keeping records on purchase requests, purchase orders, purchase receipts, items purchased over time, delivery dates, inventory levels, etc. However, there’s no point in having all of this information if it’s going to just sit in a physical or computer file with no one bothering to read and analyze it to help make procurement decisions. The procurement manager, or another qualified employee, must be designated to access this data, review it and see if there are any gold nuggets to be had. You may think that you have all of your procurement solutions settled, but what if there are still a few delivery or pricing issues? You’ll never know it unless you stay on top of the supply chain data.
Are you networking with vendors to see what’s new?
A great way to find out about any new innovations and trends happening in your industry is to stay connected to vendors who offer products and services you use on a regular basis. Begin networking with vendors at conferences, business groups and industry gatherings. The best vendors are going to have current information about any exciting advances in technology or processes that may help your company stay on the cutting edge. Networking is also a good way to meet vendors who share your business model vision and are open to a mutually satisfying purchasing arrangement.
The bottom line is that while it’s a good idea to have a top-notch procurement strategy in place for your business, in order for this plan to stay effective and cost efficient, you should make an effort to continuously keep searching for procurement solutions that will add additional benefits to your supply chain management structure.
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Posted by Albert Kraus on July 12, 2012 |
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An essential part of creating and implementing a good procurement management plan is to nurture a true partnership with suppliers. Successful companies realize that suppliers are integral to company growth and directly affect the bottom line. Please note that creating a strategic partnership means that your company isn’t just focused on your own success, but is also actively involved in contributing to the success of the supplier as well. This requires that the global procurement manager view each supplier as more than just a place to purchase goods and services.
A partnership means that you will look out for the supplier as much as the supplier will look out for your best interests. Studies have shown that companies that have developed strong relationships with suppliers get good or above average customer service than those who only see vendors as commodity providers. Therefore, it is a smart move to work to build bridges with vendors so that they understand your company goals and objectives intimately.
The first step is to seek out vendors that are a good fit for your organization. Selecting a vendor just because they are popular with other companies, or have the lowest price, is not going to be in your best interest. If a vendor shows little interest in your company’s success, or doesn’t prioritize top rate service, it is best to look elsewhere. Find a core group of suppliers who share in your vision and who are willing to do whatever it takes to help you achieve cost efficient purchasing goals.
An experienced procurement specialist can be enlisted to help you sort through various suppliers and evaluate their desirability. Your procurement plan should also list how well you are able to meet supplier goals. Vendors will be more willing to meet your needs if you focus on the following: increasing sales, reducing payment cycle, reducing complexity and long-term contracts.
Increasing Sales – Provide your supplier with a testimonial that helps to boost their sales.
Reducing Payment Cycle – Commit to paying your vendors quickly, which helps to increase their cash flow.
Reducing Complexity – Eliminate tasks that cause your supplier to waste too much time and money. If you have unique requirements, discuss how both parties can make the processing of your order flow smoother.
Long-Term Contracts – As part of a mutual partnership, it is a good idea to commit to a multi-year contract so that the vendor has more incentive to be fully invested.
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Posted by Albert Kraus on July 10, 2012 |
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The purchasing department carries a huge responsibility on its shoulders. It must find goods and services that fulfill the company needs, are reasonably high in quality and at a price point that stays within budget. In order for purchasing to perform at optimum levels there must be a way to monitor the specifics of how each dollar is being spent. Today’s busy global procurement manager needs to have a basic understanding of cost drivers and how they impact each step of the supply chain. The best measurement by far is the procurement management KPI or Key Performance Index.
There are several key indicators that can help management get an idea of the overall purchasing habits along the chain. There are specific things to watch out for in the procurement cost management process that allows you to see where the process may be weak and leaking money.
Supply Quality
It is of vital importance to understand how much you are spending on good quality products, and how many defective items are wasting you money. Identify the amount of defects per order so that changes can be made to improve quality and reduce errors.
Order Quantity
Keep track of order quantity levels. You should know whether or not a supplier is delivering too many or too little of what was ordered. If there are mistakes in quantity, is it rare or does it happen frequently? If the latter is true, you should investigate why the supplier keeps messing up your orders.
Delivery Time
Evaluate how often vendors are meeting your delivery times. If there are consistent slow downs or problems with delivery, these need to be identified quickly. Failure to meet scheduled delivery times can cost money and create customer service problems for your business. Are delivery times slower because the vendor has a problem on their end? Or is the problem created because your organization is not giving the vendor adequate notice to fulfill orders?
These and other key indicators can help you figure out what the main cost drivers are in your purchasing process. By consistently evaluating procurement management KPI you’ll be able to pinpoint where there are specific problems that can be resolved.
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Procurement Best Practices 4: Strategic Partnerships With Suppliers
Procurement Best Practices 5: Nurture a Culture of Improvement
Procurement Best Practices 6: Implement a Cross-Functional Approach
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Posted by Albert Kraus on July 4, 2012 |
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It is a fact that the key reason for the success or failure of a procurement strategy is the top management of the company. If you are going to implement a plan to improve the way your company buys supplies and manages them, this cannot be something that is approached in a half-baked manner. If top managers do not care about weeding out old worn out operating procedures, redundant ordering processes and wasteful spending, eventually the plan will peter out for lack of support. A well-oiled procurement management plan definition means that everyone in the company organization – from top to bottom – is on the same page when it comes to streamlining and improving purchase supply chain goals.
A key tenant of procurement management best practices is that upper management shows its full support of any changes taking place in the supply chain. Why does this matter? Well, the simple reason is that all companies tend to get bogged down in red tape of some sort or another. For instance, the procurement team has identified a huge cost savings that can be had by switching to another vendor. Unfortunately, they cannot implement this change because they have to wait for approval from someone from upper management. This particular manager doesn’t like the idea of changing vendors because the company has been using said vendor for many years. Therefore, the request goes nowhere. This particular manager values vendor loyalty over making a change that would save the company money. This manager simply doesn’t get it.
Therefore, it is important to the success of the plan that all top managers are informed and brought into the procurement cost management process from the very beginning. Some companies even create a procurement council that oversees the entire procurement strategy. This way, there are no misunderstandings about why changes need to be made or how they happen. The best way to utilize your procurement manager and/or team is to let them know that they have full company support from all segments of management. Make a commitment to create a well thought out plan that includes clear goals and action steps that can be approved fairly quickly. When top management is actively involved, that is when the most benefits and cost savings can be achieved.
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Procurement Best Practices 4: Strategic Partnerships With Suppliers
Procurement Best Practices 5: Nurture a Culture of Improvement
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Posted by Albert Kraus on June 21, 2012 |
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Recently, Gary Connery, a movie stuntman, jumped out of a helicopter and soared high in the sky like an action hero towards a pile of 18,699 cardboard boxes. Gary was making a daring world record attempt to be the first skydiver to make a parachute-free jump from a moving helicopter. As onlookers held their collective breath, Gary was propelled by gravity as the wind rippled through his unique winged suit. At a speed of 80 to 100 mph he landed into the specially constructed landing strip of boxes. Everyone breathed a sigh of relief when Gary walked out of the pile a few moments later a happy world record holder. Well, that’s one way to show off multiple uses for cardboard boxes.
As innovative as this skydiving stunt was, cardboard containers are still primarily used for packaging and storing all sorts of goods. But because we’re now living in the 21st century, even this beloved standard of the packaging world is getting a makeover. Many companies are looking for innovative ways to update their old packaging while keeping an eye on packaging cost reduction.
Today’s packaging is often designed to be environmentally friendly while also allowing companies to get more bang for the buck per each piece manufactured. The trend in packaging cost management is to see where waste in package production can be cut, but at the same time, adding lots of value to the end user.
The cardboard picnic cooler developed by Cascades is a great example of this concept. The rectangular shaped cooler is made from 70% recyclable materials. It’s mainly for outdoor use, keeps food cold and can easily be recycled. It is constructed from NorShield water-repellent cardboard, and insulated with a metallic-like film that helps keep foods at a colder temperature.
Another bold idea is the cardboard can that holds carbonated beverages like beer and soft drinks. Everybody is used to seeing the same old round metal cans. Imagine coming across a can of your favorite soda in a cardboard container? That’s what the Germany-based Keienburg Company has developed. They’ve managed to come up with a cardboard can that is green-friendly, safe for consumers and cheaper to produce.
The strong desire to address packaging costs and find better ways to use inexpensive cardboard material is driving this new boom in design. While you are considering making changes to achieve cost reduction in packaging, remember to include ideas for innovative ways to make use of popular packaging materials.
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Posted by Albert Kraus on June 20, 2012 |
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An increasing number of manufactures across the industry spectrum see the addition of technology to be crucial to their operations. In the aftermath of the recent economic downturn there has been a marked increase in the amount spent on automation systems. A recent study done by the American Machine Tool Distributors Association shows that orders for manufacturing technology rose 108% between 2010 and 2011. This interest in advanced technological solutions coincides with a similar trend in seeking advice from procurement consulting companies.
Manufacturers express a real desire to upgrade part, or even all, of their operational facilities with a myriad of technologies including robotics. This positive trend is a result of huge advances in specific systems that help provide needed cost containment solutions. Mostly, company management is looking to reduce the amount of human work that involves overly monotonous tasks or hard physical labor. Often, a machine can perform a particular task in a fraction of the time it would take for a human to do so manually. It’s amazing how quickly things have changed since the 1980s. When robotics were first introduced in the workplace, 90% were used in the auto industry. Today, that industry accounts for only 50% of advanced technology use.
These days, you’re likely to find some form of high-performance technology in manufacturing operations of all types and sizes. The reason for this drastic turn to automation mainly comes down to cost savings in all areas of productivity, energy and warehouse space savings. However, there are some companies that are still hesitant to make the switch to more efficient technology models because of concerns about cost or flexibility. In spite of the very real benefits of reduced labor costs, increases in speed and accuracy of order fulfillment, there are legitimate issues that need to be addressed.
A company needs to consider how much of an upgrade is desired and how much they can afford to spend to get the maximum benefit the fastest. New technology requires a significant investment and should be considered carefully. You don’t want to invest in robotics only to discover they’re not the right fit for your company. Also, some companies really need to keep their operations flexible. Outfitting the whole warehouse with one type of processing hardware may leave you in the lurch if you cannot switch to another method of order fulfillment when needed.
A cost management consultant from a reputable cost management consulting company can sit down and work out the details of what exactly your company needs. Today’s technology for warehouse operations is pretty impressive. It’s fast, sleek and highly effective. However, you’ve got to think through exactly how it can be applied in the best possible manner. This smart planning is what makes it a wise investment.
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Posted by Albert Kraus on June 14, 2012 |
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A challenging problem for many manufacturers is what to do with the significant amount of hazardous waste produced on a regular basis? Industrial waste can be in the form of solid materials, gas or liquid. Disposing of such toxic materials can’t be treated as an afterthought as they can pose a health risk to the surrounding community, as well as, the natural environment.
For decades, business waste removal was considered to be fairly straightforward. Simply stuff the material into a large metal drum container, haul it away and then bury it either around the business property, dump it into the nearby river or throw it away in some remote location that hasn’t yet been developed into livable neighborhoods.
Of course, years later when these drums leaked due to erosion, or the rivers became too toxic for citizens to enjoy using their beautiful lakes for recreation, the ramifications of mistreating industrial waste disposal became quite clear. State, federal and local governments have since cracked down on such careless practices and these days, most forward thinking companies are seeking more environmentally friendly solutions for waste disposal. Two solutions that are popular involve burning and recycling.
Incineration of solid waste is still used as a quick way to get rid of unwanted material. Because these materials can release pollution into the air, this process is usually tightly monitored and controlled. Often the energy produced from this burning is reused by the same facility. Some waste is placed in an area where oxygen is greatly reduced. It then decomposes into various gases.
Modern waste management for manufacturing is increasingly turning to hazardous material recycling as the best solution. Any material that can be reused in some way is separated out and sent for further recycling. There is also movement towards creating more environmentally friendly chemicals to replace those commonly used in manufacturing.
An important rule of thumb for companies to remember is that regardless of what type of waste is being disposed, it is still illegal to dump or store it somewhere just to avoid paying the cost of proper removal. There are several companies that specialize in industrial waste removal and understand how it should be treated. It is easy to contact these firms and negotiate good rates for disposal of a hazardous material container, toxic chemicals or the removal of contaminated soil from your property. While industrial waste is unavoidable, the responsible handling of this waste can be done in a way that neither harms people or the environment.
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Posted by Albert Kraus on June 12, 2012 |
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A recent study of the manufacturing sector suggests that manufacturers are looking into ways to improve the effectiveness of the telecommunications services they are currently using. Due to the speed of technological innovation and change, it makes sense to upgrade all telecom manufacturing systems to a better functioning model. Many companies want to begin taking advantage of new wireless data networks that offers access to more speed and security while, in turn, allowing the business to reduce telecom expenses significantly.
In order to get the best deal from carriers, you will need to implement a strategic plan that allows for the ongoing management of this necessary expense. Here are four tips to follow when researching carriers and plans to reduce the cost of telecom in your manufacturing operation:
Look at Several Options
Even though you may like your current telecom carrier, you should still check out what services their competitors are offering. The telecom industry is notorious for changing rates overnight and that great deal you got a few years ago may not be so good anymore. At any given time a carrier could be offering a special promotion that can save your company big bucks. Remember that cost cutting measures must put your company’s needs first over loyalty to one particular carrier.
Negotiate for the Best Deal
Here is an area that many businesses fail to even attempt negotiating on price. Never assume that all costs are set in stone. Telecom services won’t always voluntarily give you information on their current promotions and discounts. You must take the initiative and ask them if they can give you a better deal than that first quote.
In addition to discounts and promotions, you can negotiate a current contract, technology upgrades and even terminating services without incurring any draconian penalties. This should all be thought out ahead of time so that you can go into negotiations knowing exactly what you want.
Submit a Quote Request
If you are really serious about getting the best deal possible, you can submit what is called a Request for Quote (RFQ) or a Request for Proposal (RFP) to several carriers. These documents outline all of the services you need. This puts each carrier on notice that you are seeking competitive quotes from many sources, which means they have to really offer you a great deal to win your business.
Proactively Manage Services
Once you have decided on a telecommunications solution for your manufacturing operations, don’t just take a set it and forget it attitude. It is smart to stay on top of the data and voice plans that you have by implementing an ongoing review process. Make sure the installation goes smoothly, that all communications systems are running at top efficiency and that needed repairs are made quickly. Also, remember to check your bills for any inaccuracies that are costing you money. Constant vigilance will ensure that you are getting the most benefits from reducing telecom costs.
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Posted by Albert Kraus on June 8, 2012 |
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It’s been a rough few years as the U.S. economy sputtered out under the weight of the banking crisis, experiencing hits to many top sectors that are responsible for economic growth. Many companies had to make drastic cuts just to stay afloat. The times are changing, though, and there is a renewed sense of optimism among U.S. manufacturers. The Q1 2012 Manufacturing Barometer shows that industrial manufacturers are seeing signs of growth in the economy and expect that to continue throughout 2012.
Unlike the manufacturing of old, companies have learned that in order to stay afloat, and be profitable, the whole process of manufacturing goods must adopt advanced techniques. The trend today is to figure out sustainable cost containment solutions that analyze every nook and cranny of a business. Global procurement consulting or cost management consulting is a big part of this trend. These firms help companies find hidden cost savings in various parts of their operations including packaging, shipping, telecommunications and energy.
Management teams are realizing that they need to get leaner and smarter in how facilities are managed and run. Companies that have survived and thrived during tough economic times recognize that procurement consulting firms make their job a lot easier. Procurement consulting involves working closely with an experienced cost management consultant to identify and pinpoint specific areas in vendor contracts and processes where changes can be made quickly. Companies that are weighted down with burdensome vendor contracts often realize that they can renegotiate for increased savings.
Two areas where there are big changes in American manufacturing are skilled workforce and digital technology. While unskilled manufacturing jobs have mostly migrated to China and other low labor cost countries, there is ample opportunity to use highly skilled American workers for specialized assembly work that can only be done here at home. Since there are not enough of these highly trained workers to fill all positions needed, the trend is to partner with colleges and technical schools to train future employees for these jobs. This model is proving to be quite successful.
Looking towards the future, the other cause for optimism is the area of technology. Manufacturers are seeking to upgrade their supply chain systems with the latest in digital innovation. This is something that procurement consulting companies can help to initiate. There is an increasing desire among customers and manufacturers to see more data networking solutions. Making investments to include more sophisticated technologies like mobile networking and cloud computing are essential in today’s competitive environment. The road to profitability is truly bright in 2012 and beyond for businesses that include cost reduction consulting as part of their growth strategy.
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Posted by Albert Kraus on June 5, 2012 |
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Manufacturing companies ship a lot of goods throughout the country and abroad. In this new era of environmental and economic responsibility, every aspect of the shipping process is being examined. When it comes to the cost of pallets there are several factors to consider such as what type and size of pallets does your business normally use. The number of pallets you use on a consistent basis is also another consideration.
Currently, there is an on-going debate over which pallet type is more efficient, environmentally friendly and, most importantly, offers an opportunity to realize some good cost savings to your business. So far there is no clear cut answer to which is best. The kind of pallet you use is going to come down to what works well for your individual needs in shipping specific goods.
There are certain trends emerging in the world of pallet creation. You should be aware of what is happening so that you can decide if you wish to make changes or stick with your current pallet situation. Wooden pallets are still predominant but there are alternatives such as plastic and cardboard. You may also want to take a look at buying recycled pallets over new, or joining a pallet pool.
What is the Standard Pallet Size?
In the U.S. there are many standard size of pallets available. Normally, pallet sizes depend on the height, weight and dimensions of the specific product being shipped. It’s important to get the sizing right so that you make full use of every inch of space.
The most common North American pallet sizes are:
48x40 – Commonly used for groceries and perishable items – very popular
42x42 – Commonly used for communications equipment and paint
40x48 – Commonly used for cement and military items
36x36 – Commonly used for beverages
48x36 – Commonly used for roofing materials
48x48 and 44x44 – Commonly used for drums
Wood Pallets
Pallets made from softwood (stringer pallets) or hardwood (block pallets) is still the most common found in manufacturing circles. Wood is an abundant resource that is readily available and relatively cheap to produce. There are many wooden pallet manufacturers online where you can buy wood pallets in bulk. Most companies are sticking with wood pallets because they are extremely sturdy and can be reused numerous times until they wear out.
Plastic Pallets
The plastic pallet is gaining in popularity as a main alternative to wood. Proponents of plastic pallets tout their positive benefits such as: longevity of use, immunity to contamination, ability to save space and that they are 100% recyclable. If you are looking to buy plastic pallets outright, consider that they tend to be more expensive than their wooden counterpart.
Cardboard Pallets
Most manufacturers shy away from using cardboard pallets because they are not considered as reliable as plastic or wood. In general this is true, however, some companies are experimenting with cardboard and finding ways to make it work.
For instance, IKEA is currently using a cardboard pallet they designed especially to ship their type of goods. These paper pallets are assembled by their local suppliers and are 90% lighter than normal wood ones. Their pallet can hold up to 1,650 pounds. The drawback is that it is only good for one use. Time will tell if this design is truly more cost effective.
Recycled Pallets
The good thing about pallets is that they can often be repaired, reconditioned or completely recycled into new ones. To save money it may be more cost efficient for you to look for suppliers of recycled pallets. Recycling means that they are not wasting away in a landfill, but finding new life in the chain of shipping goods.
Pallet Pools
Many manufacturers rely on pallet pools instead of purchasing their own. Pallet pools are an ideal solution because you only have to deal with one company. Simply order the number of pallets you need, the pool operator delivers them, you ship out your products and the receiving customer can have the pallets sent back to the pool operator for reuse.
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Posted by Albert Kraus on May 31, 2012 |
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Manufacturing operations need constant upkeep in order to maintain a safe working environment for employees, as well as, to meet local, state and federal regulations. Unlike traditional office spaces, industrial spaces often include various heavy-duty equipment, chemicals and tools that require special attention. Factory cleaning should never be left to inexperienced employees or untrained office cleaning companies, instead, professionals should be brought in that are specially trained to handle cleanup duties in these types of environments.
Manufacturers may decide to use an industrial cleaning service to take care of daily disposal of waste material. There are a variety of hazardous chemicals that are used on a regular basis that cannot simply be thrown away in a dumpster. This would pose a serious health and safety risk to customers, employees and the surrounding community. Therefore, your company would contact one or more industrial cleaning services to assist in the proper disposal of waste materials.
If you have a monthly or semi-annual factory cleaning schedule, a professional cleaning company can be brought in to blast away accumulated dirt, debris and toxic chemicals. Workers in these firms go through extensive on-the-job training before they are allowed to participate in real world job assignments. This means that when you hire an industrial cleaning service, you are going to get people who understand exactly what they are doing every step of the way. Most of these services include advanced industrial power wash, deep cleaning, disinfecting surfaces and vacuuming.
There are times, however, when your company may experience a hazardous spill that happens either inside or outside of the facility. This is considered an emergency situation, and fortunately, the best environmental cleaning services are completely prepared for such incidents.
Common types of services provided by industrial cleaning companies include:
1. Confined Space Rescue
A confined space rescue team is sent in with rescue equipment to rescue those trapped in tight, hard to reach spaces.
2. Emergency Response
A highly trained and certified response team is sent in to handle fires, chemical spills, leaks and overflows, biological materials, tank truck rollovers, etc.
3. Hazardous Material Handling
When a hazardous spill occurs it needs to be cleaned up quickly and safely. A team trained to OSHA standards is sent in to handle this dangerous operation.
4. Site Remediation
A team is sent in to help with soil contamination, demolition debris, unwanted slab rock and other needed site clean ups.
5. Tank Cleaning
Tank cleaning involves a very specific type of cleaning equipment and an expert team will remove all forms of dirt, oil and residue from inside of an industrial tank.
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Posted by Albert Kraus on May 29, 2012 |
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Getting goods from point A to point B is the main reason that you use a freight forwarding service. The shipping manager relies on the freight forwarder to arrive on schedule, pick up the goods indicated on the order and ship them safely to their destination. The manager’s job is also to periodically review the cost of freight services and determine if there is any need for freight cost control. With the way that freight fuel surcharges are rising these days, many manufacturers have cause for concern.
Surcharges have a way of sneaking up on a company if those in charge of monitoring shipping expenses are not vigilant. Many companies feel they are hostages to the ups and downs of the energy sector. The fuel surcharge rate you are paying is directly tied to fluctuating fuel costs. If you ship goods within the U.S., those road freight costs will go up depending on the price of gas in your specific region. If you ship internationally, you’ll pay higher ocean freight costs as well.
High gas prices often hit shippers heavily when there is a sudden change in what they have to pay to keep their trucks, planes and ships moving. If they cannot cover their fuel costs they are dead in the water. Those costs are passed on to their customers. Manufacturers often understand this predicament and give shippers the benefit of the doubt when signing an agreement. However, when you are told that you are stuck with the rate of surcharge that appears on your invoice, don’t believe it. When it comes to freight cost reduction there is always room for negotiation.
When a company is seeking to reduce overall costs in operations and wants to squeeze every possible financial advantage from vendors, it makes sense to immediately implement a freight cost management strategy. What you may not know about freight surcharges is that the largest companies always receive great discounts on these fees. They have lots of leverage due to their size. You, on the other hand, are never going to get a break from paying higher than necessary surcharges unless you become proactive.
If you are not sure of how to begin the process of reviewing your current shipping agreements, it may be time to bring in an experienced freight consultant who is familiar with this area. A consultant will conduct a freight cost analysis to see how you can save on freight surcharges that are sapping your budget.
While the shipper does have a reason to pass on these costs to their customers, they should also be doing this in a fair and equitable manner. Currently, smaller manufacturers bare the brunt of excessive surcharges. By pinpointing how much of this surcharge is necessary and how much is padding, a manufacturer can negotiate for reasonably low freight costs. These long-term savings is what makes freight consulting a worthwhile investment.
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Posted by Albert Kraus on May 24, 2012 |
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There is a healthy debate going on right now in the U.S. over the environmental impact of traditional energy sources like coal. The current administration is backing tougher EPA regulations on power plant carbon dioxide emissions, which is seen as an air pollutant. Under the New Source Performance Standards (NSPS) and Utility MCAT rule, all power plants must meet new emissions levels in order to operate. This has resulted in several plants having to shut down or make expensive upgrades to their existing operational systems in order to comply with the new rules.
What is clear is that the cost of utilities for manufacturers is going to be heavily impacted by these new regulations. As certain power plants go offline, the demand for energy will continue to increase. The intent of the government is to boost the output of alternative energy sources such as electric, solar and wind. However, much of the country still gets a lot of its energy from gas and coal. Gas utilities are not affected negatively by these new regulations because they already meet emissions standards, however, coal pants are taking a real hit. Therefore, prepare for the possibility of a steep increase in manufacturing utilities costs.
What these changes mean for companies going forward is that there is a real need to take action in finding ways to save money in this area. Many manufacturers are uneasy about these new EPA regulations and are seeking out information on how to save on utilities. Others are bringing in an experienced utilities consultant that can advise them on the various ways to find utilities savings.
Utilities consulting is a growing trend because every business depends on their local power plant to keep the lights on and machines running. The good news is that deregulation in the energy industry allows for more competition for your energy dollars. The first thing that a utilities consultant will do is to find alternative options in supply to see where the best savings can be found. It is not unusual for consultants to help businesses save between 15% and 20% on their current usage.
Energy costs will continue to rise as the industry adapts to the new regulations and alternative energy sources gain more traction. Instead of fearing these changes, manufacturers can stay on top of the curve by instituting a proactive utilities cost reduction plan.
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