Shippers Need Strategic Planning

Shippers Need Strategic Planning

Copyright 2004, Traffic World, Inc.

A mentor of mine once told me: "If you can move goods from origin to destination at the right time, undamaged, for a lower overall cost, it is one of the very few budget line items that quickly and at 100 percent, improves a company''s profit margin."

Although transportation is one of the largest controllable costs in the supply chain, it is often one of the most overlooked areas. Frequently there is no uniform specification for which transportation services to source and there is little "science" applied to it. As a result, significant opportunities to lower costs are lost due to inefficient transportation processes that are not integrated into a shipper''s supply chain.

I believe that companies must step back and take a strategic and holistic approach that ties all of the transportation processes to a common goal and integrates them intimately into the overarching supply chain process.

Technology is part of this. By leveraging supply chain execution performance management and robust reporting technology, companies can gain valuable business intelligence to make better decisions on the most cost-effective, service-minded way to move products. A strategic approach will help companies improve the consistency of delivery, including their ability to select the most cost-effective mode to meet specific customer transit requirements. This translates into improved overall transportation service and reliability within the supply chain.

The first step is to repair broken strategies. Many companies are trapped in a cycle of inefficiencies that incur additional costs and repeated poor performance. Some companies make the strategic mistake of separating transportation procurement from the transportation operations decision-making process. When these two areas are disconnected, there is little accountability for what is contracted versus what is actually consumed.

One of the first steps in facilitating a strategic approach to transportation management would be to develop an organizational structure that closely links transportation procurement and transportation operations. Ideally, these two processes should be aligned under one executive.

For example, a transportation procurement manager may source capacity from a carrier that offers an extremely competitive rate to meet a goal of reducing transportation expense. If this manager is not responsible for transportation execution, then he or she may be unconcerned with execution issues such as capacity availability from a particular carrier.

Yet low-cost but historically unreliable capacity will harm transportation execution and its goal of on-time delivery to customers. When the specification doesn''t represent the best choice realistically for the overall transportation process, the purchased plan quickly degrades in value.

Transportation services procurement and the transportation operations group must work with each other.

A critical part of a transportation management strategy is the initial planning.

Transportation procurement can be quite complicated so companies need to define the requirements and build a strategic framework of their business. Involved parties need to collaborate with their purchasing, inventory and manufacturing departments to determine the requirements and constraints involved in the specification. Companies need to understand where the demand and service levels are and map them globally across all modes of transport to be used.

Once they complete the specification, shippers need to consider which carriers should participate and what the selection process will entail. Part of the analysis should focus on the risk, or potential changes, and the flexibility of adjusting the plan as needed.

With a holistic approach, companies can then procure transportation based on requirements and demands that will assist them in selecting the appropriate carriers within any given mode. Companies also should have technology that will enable them to manage their needs and service performance and to determine compliance to constantly improve the service relationship and reduce cost.

Such technology could include transportation modeling, contract sourcing, and optimization-powered shipment management systems. The shipper also must determine how these typically sourced solutions will interact with other native applications such as materials management, order management, advanced supply chain planning and optimization and customer relationship management.

Lastly, process reengineering - adapting processes to solutions to drive conformity or adapting solutions through configuration and code modifications to meet unique business process requirements - are imperative to gain true, lasting value from technology.

However, even with the best planning in the world, companies can''t improve performance if they can''t monitor and measure against transportation execution. The final award to carriers to lanes within the shipper''s operations needs to be loaded into a system that can be managed, monitored and measured every day.

Every "link" in the supply chain matters and cumulatively contributes to overall enterprise performance. Strategic transportation management improves performance in key areas such as consistency of product delivery and service reliability.

By better managing and integrating transportation, companies can better procure, plan and execute enterprise-wide transportation activities. By taking a strategic approach to transportation management, companies can achieve the competitive advantage of having an efficient and adaptive supply chain that continually improves itself to increase business performance and customer satisfaction.

-- Menner is director of sales, transportation, at supply chain software provider Manhattan Associates, Atlanta.