P R E S E N T E D B Y :

W E S B A N K , L P C

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REGIONAL CARRIERS

”AN INSIDE LOOK”

TODAY’S PRESENTATION

1. Overview: Regional Carriers, “An Inside Look”

2. Employee Misclassification

3. ISCPO Carrier Audit Committee

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WHAT IS A REGIONAL CARRIER?

• A.K.A. Last Mile, 3PL, Carrier, Courier, etc…

• Specializes in a local distribution model

• Annual Revenue: Few Mil $ to several hundred Mil $

• Provides various services:

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• On-demand • Scheduled Delivery

• Sortation • Store Replenishment

• Warehousing • Cross-docking

STRAW HUTS TO BRICK MANSIONS …and everything in between

• Typically 5,000 - 20,000 Sqr Ft facility

• 2-10 dock doors; 1-2 drive-in doors

• Mostly inside loading; Some dock loading

• Some customer docks

• Rarely automated

• Economically located

• A few to several dozen locations

• Jockeying Real-Estate

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WHY USE REGIONAL CARRIERS?

Businesses need to find ways to reduce their

transportation costs and the shipping costs passed

onto their customers.

Additionally, companies strive to keep pace with

large eCommerce players like Amazon and Wal-Mart

who continue to shorten the delivery window while

cutting consumer shipping costs.

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1) Basic Distribution 2) On Demand 3) Hub & Spoke

Customer D.C. Customer

Business

Customer D.C.

Customer

Business

Regional Carrier

Hub

Regional Carrier

Hub

Spoke #2

Spoke #1

End Users

End Users

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4) Postal Insertion Customer

D.C.

Carrier Hub

Spoke #2 Spoke #1

End Users

Shipper(s)

THE PEOPLE

Warehouse

• Mostly Agency Labor

• Some Employees

Drivers

• Mostly Independent Contractors

Driver Qualification (DQ) File

Contracts

Settlement Models

Driver owned vehicles

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DON’T ACT SURPRISED

You get what you paid for

• Expertise moving freight, not securing freight

• Lack of training resources and initiatives

• Typically, no internal auditors or investigators

We don’t plan to fail…We fail to plan

• Loss Prevention controls usually an after thought

• Security Requirements should be contractual

• Limited resources shouldn’t cause complacency

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DATA FLOW

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Customer Carrier

2. Receives ASN

3. Scans Tendered Units

against ASN

4. Sends OS&D

6. Sends scan file

1. Sends ASN

5. Receives OS&D

7. Receives scans

8. Review for non-

delivery and request

POD

WHERE’S MY STUFF?

1. Receive Scan • ASN

• OS&D

2. Load Scan • Require data is sent with scan file

• Good investigative resource

3. Delivery Scan • “Keyed” Scans

• Concealed Shortages

• Consolidated Units (sack, tote, pallet, gaylord)

4. POD Capture • POD falsification

A strong chain-of-custody minimizes loss/theft.

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Scan Data = Chain of Custody

“KEYED SCAN”

Defined: Keyed Scans a.k.a. over-ride, manual,

forced, etc…any tracking record created by some

means other than an actual scan of the bar code.

• Keyed Scan exception reporting is rare

• Driver settlement is often tied to scan delivery records, encouraging

reconciliation clerks to close all stops/routes (keyed scan) so drivers

can get paid. In turn, failing to challenge missing or falsified PODs.

• Settlement models that pay based off route or day don’t encourage

keyed scans, thus eliminates much noise from your investigation.

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NON-DELIVERY TRENDS

Missing Scan(s) Investigate Look For

Receive, Load &

Deliver

• DC Accountability • Line Haul • Carrier warehouse

• Proof of DC loading • Seal Control • Delays from unload to scan

Load & Deliver • Driver • Warehouse

• Misroutes, missing label • Delays from Receive scan to load

Deliver • Driver • Carrier warehouse

• Load Scan possession • Keyed (load) scan • Scanner Sign-on

*No missing scans* • Driver • Final Destination

Receiver

• Keyed scan • Untimely Scan • Falsified POD • GPS on deliver scan

• Scanner sign-on

POD Signature • Driver • Untimely Scan • Keyed entry

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AUDITING & COMPLIANCE

• Carriers don’t audit themselves unless you make them

• Require Self Audits and Action Plans

• Assess each hub prior to start-up; Then routinely audit

• Establish penalties for repeat failures (i.e. fines, pull business)

• Don’t over demand; Use Industry Standards

• Communicate with colleagues in other companies to help

monitor

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PHYSICAL SECURITY

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PROFESSIONAL STANDARDS

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ACCESS CONTROL

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OUTSIDE LOADING

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CONGESTION

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HOUSEKEEPING & SAFETY

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PRODUCT HANDLING

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DELIVERY VEHICLE SECURITY

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OUR CHALLENGE

1. How do we ensure the integrity of our Supply Chain

once we tender our goods for delivery?

2. How much can we demand from these low cost/low

overhead providers? How much is too much?

3. How do we ensure the Carrier adheres to our requirements? Are our requirements reasonably

obtainable and sustainable?

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WHAT CAN I DO?

1. Contractual Security Requirements

• Audits & Self-Audits

• Investigation Standards

• Controls and Physical Security Standards

2. Weekly carrier calls & QBRs

3. Sell the Loss Prevention role

4. Join the ISCPO

5. Audit Committee Participation

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EMPLOYEE MIS-CLASSIFICATION

Section 2

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EMPLOYEE MIS-CLASSIFICATION

1. What is Employee Mis-Classification?

2. What impact might it have on Supply Chain integrity?

3. Who is behind the Regulatory oversight?

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EMPLOYEE MISCLASSIFICATION

Carriers must not train, direct or treat Independent

Contractors like employees.

This means no control or limited Influence over the

driver’s behavior relative to handling and securing the

customer’s freight.

How will this impact our Loss Prevention programs

including auditing and investigations?

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UBER HEADS TO COURT OVER HOW IT CLASSIFIES ITS DRIVERS

Uber, which is a ride-hailing service that pairs passengers with drivers via a smartphone app, is one of the

world's most valuable startups. Since the company launched in 2009, it's grown to operate in more than 250

cities in 58 countries. Uber is also one of the highest-valued venture-backed companies in the world with a

valuation of more than $50 billion by some estimates.

Uber's current classification of drivers as contractors means it's not responsible for all sorts of costs, including

Social Security, health insurance, paid sick days and overtime. Drivers also supply and maintain their own

cars, so Uber doesn't pay for gas, repairs and other related expenses.

If Chen decides to grant class status in this case, Uber will have to contend with more than 160,000 Uber

drivers in California, rather than just the three drivers listed on the complaint now. That means if Uber loses

the case, it would have to pay damages to all of those drivers.

"If Uber's motion succeeds, it could potentially save the company hundreds of millions of dollars," said

Roberto Cruz, the legal and compliance counsel for workforce management company ICon Professional

Services. "The costs associated with its defense would shrink from defending against 160,000 Uber drivers to

defending against just the three named plaintiffs."

Tech Industry

By Dara Kerr

9/9/2015

Multiple federal and state regulatory initiatives are underway to identify

employee Mis-Classification across all industries.

US Department of Labor, funded by Congress, embarked on a multi-

faceted approach.

o Each State Workforce Agency receives funding to identify mis-

classification opportunities.

o Implemented a “Mis-Classification Initiative” MOU with 21 States

as of the end of May 2015, to coordinate enforcement efforts

and share information.

IRS launched an effort in 2014 to promote the S8 program. Focuses

on reviewing IC status and provides an avenue for ICs to request

expedited review.

IRS and DOL have MOU to cooperate on mis-classification issues. 21

States have task forces dedicated to the effort.

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EMPLOYEE MIS-CLASSIFICATION

EMPLOYEE MIS-CLASSIFICATION

Carriers risk severe financial damage:

1. Unpaid federal/state/local income tax withholdings and social security

and Medicare contributions

2. Unpaid employment insurance taxes

3. Unpaid workers compensation premiums

4. Unpaid overtime compensation

5. Unpaid work-related expenses

6. Unpaid vacation and sick time

7. Additional Interest/Penalties for non-compliance

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EMPLOYEE MIS-CLASSIFICATION

General Rule: If a company has the legal right to control or direct only

the result of the work the operator is an independent contractor. If a

company has the legal right to direct and control the individual

performing the activities including the details and means by which it is

accomplished the operator is an employee.

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Three

Categories

Behavioral

Financial

Type of

Relationship

Source: irs.gov/Business/Small-Business-&-Self-Employed/Independent-Contractor-Self-Employed-or-Employee

Factors Defining Degree of Control and Independence

The key is to evaluate the entire

relationship and consider the

degree or extent of the right to

direct and control. Then document

each of the factors used in coming

up with the determination.

ISCPO CARRIER AUDIT COMMITTEE

Section 3

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ISCPO CARRIER AUDIT COMMITTEE

Purpose: To elevate the integrity of our goods

tendered for the “final-mile” delivery by improving

Carrier compliance.

1. Document Industry Standards

2. Develop an Industry Carrier Audit

3. Share audit results among ISCPO members

4. Endorse Carriers who embrace the program

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COMMITTEE MEMBERS

Name Company Committee Role

Glenn Master Newgistics ISCPO Board Oversight

Wes Bank DHL eCommerce Chairman

Christopher Coffey Sephora Membership Coordinator

Paul Kadane DHL eCommerce Data Coordinator

Phillip Lawrence Tech Data Participant

Melanie Thompson Fossil Participant

Joseph Nowicki Sears Holdings, Inc. Participant

Bruce Gundy Amerisource Bergen Participant

Patrick Burns Bob’s Discount Furniture Participant

John Tabor AllStates Supply Chain Security Participant

Bret Thibodeau Exchange Participant

Shelly Hard ITS Participant

Andre Harris Barnes & Noble Participant

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AUDIT GOALS

The ISCPO Carrier Security Audit will differentiate itself from other industry audits.

1. Focus on reducing our daily loss issues

2. Emphasis on scanning (chain of custody)

3. Adopt Carrier Security Requirements document

4. Require Carrier self-audits & action plans

5. Share audit data

6. ISCPO Carrier Endorsement

7. 1-2 hour maximum completion time

8. Annual updates to the Security Requirements & audit

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SECURITY REQUIREMENTS

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I. Introduction

II. Audits

III. Investigation Protocol

IV. Access Control & Systems

V. Onboarding People

VI. Badging & Sign-in

VII. Securing Deliverables

VIII.Policy & Awareness Programs

IX. Scanning & PODs

X. Contacts

XI. Acknowledgement Page

AUDIT QUALIFIER QUESTIONS

1. Reasonably achievable by the Carrier (not cost prohibited) or…

2. Necessary to directly impact our loss issues (Cases to support)

and…

3. Easily auditable

• Observe/review something to get the results

• Several independent auditors would come to the same

conclusion.

4. Propriety/Customer specific questions not included

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PROJECT TIME-LINE

• Inception: 10/2014

• Meetings: 1st Wednesday of each month

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Stage Start Anticipated

Completion

Percent

Completed

ISCPO Follower Survey 7/15 12/15 80%

Security Requirements Document

content

10/15 1/16 0

Distribution 3/16 TBD 0

Endorsement Program TBD TBD 0

Security Audit Document 1/15 3/16 90%

Distribution 3/16 TBD 0

Data Host 6/15 TBD 5%

JOIN THE TEAM

1. ISCPO Membership

2. Committee Participation – We need your

participation and support. Please call us and get

involved.

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THANK YOU!

Wes Bank, LPC

Director of Security

DHL eCommerce

wes.bank@DHL.com

(847) 736-2910 cell

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