From a product cost perspective, transportation represents a relatively large percentage of the total landed cost due to the low value and high density nature of many office products (i.e., file folders). Another issue that exacerbates the relatively high transportation costs of BlueStar products is fuel prices. In the current environment where fuel surcharges from carriers must be accepted, the percentage of product costs associated with transportation expenditures continues to rise. In fact, transportation costs now account for over 30% of product costs at BlueStar. If transportation costs are not significantly reduced, then BlueStar products will not remain price competitive in the marketplace and sales will decline. Therefore, transportation cost reduction is a key priority for the company.

Given the increased corporate scrutiny on transportation costs, the BlueStar

transportation group attempted to reduce costs over the past year. The transportation group

decided to move away from established core carrier relationships and long term contracts.

Instead, BlueStar placed every single load on every single lane up for bid. This change was

designed to ensure carriers were offering the best price possible on every shipment.

Unfortunately, this open bidding process did not have the desired effects and it caused several

additional problems. By moving away from utilizing their traditional core carriers and placing

all loads up for bid, BlueStar awarded some business to new carriers that did not understand the service requirements for key customers. This lack of understanding and customer focus resulted in late shipments, extended delivery times, and dissatisfied customers. The problem was made worse because customers sometimes received loads from different carriers on each shipment. Therefore, the opportunity to collaborate and develop a good working relationship was limited.

As these service issues continued, BlueStar sales began to stagnate and key customers began to

evaluate other office products suppliers. In addition to the customer service problems, last year's change to an open bidding process also resulted in price increases from most of the old core carriers. Apparently, the carriers were unable to plan for demand on established lanes and unable to efficiently stage equipment as needed. In order to pick up BlueStar loads, some carriers had to dramatically increase their empty miles and incur additional costs. Plus, by spreading loads around to numerous carriers, economies of scale were lost. Without sufficient volume, the traditional core carriers were simply unable to offer their normal prices.

QUESTIONS

What do I need to know about the transportation issues?

What needs to be done to rectify these problems?

How can the company reduce costs and improve service?

What tangible, data driven recommendations could be offered?