Freight Issues are a Senior Management Issue
I have been in this industry for over a decade, while my colleagues and partners have been in it for over 30 years, bless their hearts. The one notion that has never changed is when I say the word “Freight,” or any variation, Senior Level Management says, “that’s not my department.” I have been in meetings where the Upper Management leaves, visibly upset because they believe what I am about to discuss has nothing to do with them. I’m going to share a quick story of the time I became unhinged during a meeting and why it matters:
I am sitting in a meeting room with the President of a Manufacturing Company that I was able to get a meeting with thanks to a referral. Initially, he mentioned through email that he is not the right person for the Job and John (not his real name) handled the freight. I suggested that they both sit in on the meeting as my proposal would involve more than just the freight department. He agreed. After the introductions and small talk, I go right into what opportunities I often see when working with similar clients. As soon as I mention Freight, the President says, “I had mentioned this in the email, but I don’t deal with the freight at all. John can answer all of your questions.”
Keep in mind that I am not a salesman. I will make sales occasionally if feel like it. I am a managing partner of Corporate Management Group, the CEO and Founder of ClinicalAthlete, an international Healthcare Organization for Athletes, and I help manage several small businesses that I invest in. My day-to-day role is to make executive decisions. It may have been the quick dismissal from the President or maybe I shouldn’t be attempting sales, ever, but I turned to John almost annoyed and asked him some freight-related questions that I needed answers to. John was sharp and very confident in his responses, and we had a great conversation while the President was checking or playing on his phone.
Then I asked John, “Have you ever lost any clients due to freight-related issues?” He explained that they had lost clients, but it wasn’t because of service, it was probably because the cost of freight was causing them to increase what they charged to the West Coast.” He said “probably”, and I asked him if he was sure? He asked the President who graciously looked up from his phone for a few seconds to explain that they couldn’t justify maintaining prices for that client because their margins were decreasing. I asked John if they had taken on any new clients recently? He told me they had brought on two new clients. I asked him if the sales people were allowed to offer discounts to help close new clients and he asked the President, and the President said: “they are allowed to do tier discounts, 5-10%.”
Before I drag on too long, let me paraphrase how the rest of this meeting went; Both John and the President were involved in the rest of the meeting. The client they recently lost due to high freight cost was never offered a discount. However, the two new clients they brought on were both offered 10% discounts because those discounts did not cut into the commission of the sales team, the company had simply added it as a way to ensure deals get closed. As it turns out, their freight as a percent of sales, was higher with the two new clients than it would have been offering a discount to the existing client, and the margins would have been almost the same. You might say, well if it all worked out almost the same, then it’s par for the course. Well, not exactly. The customer they lost on the West Coast was bundled with another customer in a pool distribution program John had created, and it was a great program, but when they lost that customer, they lost the bundle pricing, and the cost went up increasing their freight as a percent of sales. After the meeting they allowed me to take a good look at their company’s freight expenses. Buried deep in the data we found several issues that wouldn’t have been found unless you know what to look for. We created a program that helped them reduce expenses by 20% the first year, and The President worked to fix the gap in communication between departments. They also decreased the discounts allowed to new clients.
I see and hear of similar situations like this, often enough that I decided to write about it. The prospect of working with a Freight Management Company has been ruined by low-level salesmen, masquerading around as Professionals, and I understand why Senior Management may be reluctant to talk. However, buried deep in the data is a story and to get the full story, I need to talk to the leader.
I will close this with a cold hard truth: When defining Customer Requirements (discounts, Freight Cost, delivery window) and how they affect your bottom-line, you can base it on History, Gut feeling, Perception, or you can base it on Market Reality and Objective Evaluation. You can only measure the latter.
Feel free to shoot me an email Derek@cmg.ms if you have any questions at all—professional, business or casual.