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PRODUCTS & SERVICES


disguised as savings opportunities, according to Andre T. Davis Sr., MBA-HCM, Marketing Manager, TRIOSE Inc. “One of the most common red flags are stipula-


Andre T. Davis Sr.


tions placed on how your organization can obtain free freight,” Davis told HPN. “We see vendors offering free freight only if certain dollar thresh- olds are reached, only if certain item amounts on


specific item lines are reached, and only on specific days — some even have these stipulations combined with one another! Perhaps most troubling, we’ve seen contracts stipulate that punitive fees be charged if many of these same terms aren’t reached.” Davis indicated that one term gaining in popularity is “flat free freight.” “A flat charge for shipping, no matter the amount ordered, is


only beneficial if it fits your procurement practices,” Davis said. “Spending a flat rate of $35 for a shipment that would normally cost $7 can add up quickly. The good news for supply chain profession- als is that with greater visibility, they can impact, avoid and even affect change on many of these stipulations. Finding a partner to help you along the way is paramount to a healthy supply chain for your healthcare organization.” During the contract negotiation phase with suppliers, Supply


Chain pros often forget to delineate and differentiate between product and freight fees, allowing medical product suppliers to count freight fees as a tidy profit center, noted Marc Mullen, Vice President and General Manager, OptiFreight, Cardinal Health. “These direct shipments, especially overnight deliveries, typically come at a hefty freight ex- pense that’s higher than the market average,” he said. But Mullen acknowledged that it can be easy for Supply Chain pros to overlook these costs. “These freight fees may be hidden in the customer invoice due


Marc Mullen


to the practice of combining shipping and handling costs into one line — making it difficult for supply chain professionals to identify true freight spend,” he said. “This is a critical step in negotiations to not only realize true shipping costs, but also to identify potential savings opportunities.” Jake Crampton, Founder and CEO, MedSpeed LLC, pointed to cost-per-stop or cost-per-mile pricing structure and transactional add-on fees as red flags. “While unit costs such as these are simple to


Jake Crampton


grasp, they incentivize providers to increase the number of miles driven, stops made and fuel con- sumed — adding unnecessary costs and time,” he said. “A global approach that puts healthcare organizations and intra-company logistics pro- viders in lock step to create more efficiency and


eliminate redundancy is more aligned with the future of healthcare and the need for healthcare organizations to be agile.” Don Carroll, Vice President, Business Development, Vantage


Point Logistics Inc., however, warned about “non-approved handling fees,” advising Supply Chain pros to include a contract clause that pre- vents the suppliers from assessing them. “A growing number of suppliers use ran-


dom non-freight handling fees to make up for shortfalls in other areas,” Carroll cautioned. “VPL has identified over 1,000 unique fees that


Don Carroll 42 July 2017 • HEALTHCARE PURCHASING NEWS • hpnonline.com


suppliers are adding to their customer invoices. A competent freight program can identify these fees for their customers, and it makes it that much easier to address them if the contracts state they can’t add them in the first place.”


Spot the liability liability As Supply Chain pros examine freight and shipping agreements, they should play close attention to the contractual language ad- dressing cargo liability and insurance requirements, emphasized James Hancock, Director, Sales, Veritiv Logistics Solutions, a division of Veritiv Operating Co. “Most agreements have limits for cargo li- ability that are set around industry standards, Hancock said. “However, be aware that some agreements may try to impose liability for the full amount of the loss as well as consequential damages such as loss of business profits, or liq-


James Hancock


uidated damages for delays. It is important to understand what actual liability you have agreed to take on. Based on the liability language you agree to in a contract, additional product loss insurance may be necessary to cover any gaps in coverage.” Supply Chain also should review indemnity. “Most agree-


ments will cover in detail when carriers, brokers and shippers can each be held liable for potential incidents. This liability language in a contract is usually in addition to the liability a party already has under the law,” he noted. “Indemnity pro- visions should be reviewed carefully to ensure that the risk a party is assuming is in line with its risk profile.” Kevin Clonch, Director of Global Transportation Service Pro- vider Development, Ryder, agreed that Supply Chain pros should watch for indemnification and ultimate liability language, as well as insur- ance level changes, accessorial charges, early out clauses for termination of the contract or rates and price change clauses, which typically involve increases. Maintaining a “solid baseline understanding


Kevin Clonch


of an organization’s freight needs, costs and ordering trends” represents the “cornerstone” of freight and shipping agreements, insisted Sophie Rutherford, Vice President, Business Develop- ment, Jump Technologies Inc. “If you’ve not been working with a third party logistics or- ganization, it can be difficult to assemble this data, but it’s essential to any freight agreements you will negotiate,” she said. “First, look at all incoming packages over the last 12- or 24-month period. How did freight arrive? Who ordered it and what were the actual incoming supplies? What vendors and levels of service were used most often? And most importantly, what was the cost associated with your inbound freight? Why


Sophie Rutherford


was the order shipped in the service that was chosen? In other words, did it really need to be priority overnight?” Rutherford recognized how hard it can be to obtain data on incoming packages because “most ERP systems do not capture freight cost information.” With this data, however, you then can determine the organization’s current cost per package. “Take your inbound freight charges for one month and divide it by the number of packages you received that month to get a starting point for cost per package. The lower the number the better, so use this as a benchmark as you build metrics for


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