By Adam Robinson, Director of Marketing & Digital Marketing Consultant at Cerasis
To avoid incidents of mismatch between supply and demand, establish more efficient manufacturing and lower costs, it is necessary to establish an environment of consistent supply chain visibility. To implement this visibility, it is crucial that companies take into consideration many elements. Everything from sourcing raw materials, manufacturing, to the sales channels which feed supply for a finished product are essential factors. One of the often-missing links, however, in supply chain visibility, is transportation management. Basically, the act of getting the needed finished goods from start location to destination. We call this the transportation supply chain.
What is the Transportation Supply Chain?
Transportation refers to the movement of product from one location to another as it makes its way from the beginning of a supply chain to the customer’s handle. This requires a new broad look at the business of transportation supply chain, including supply chain management, logistics, and procurement. Freight transportation costs in the United States amount to about six percent of the GDP, which means that a large portion of a company's supply chain costs come from transportation. As we have stated in blogs posts about understanding how transportation costs fit into the business, the more you think more holistically as a logistics or transportation manager about the role of transportation in the overall supply chain and business, and less about the tactics of transportation (technology now is the business process enablement tool), you can strategically work with other players in the supply chain in order to more effectively reach the corporate and business vision your organization has set out to reach.
Many manufacturers and retailers have found that they can use state-of-the-art supply chain management to reduce inventory and warehousing costs while speeding up delivery to the end customer.
Any supply chain’s success is closely linked to the appropriate use of transportation. Walmart has effectively used a responsive transportation system to lower its overall costs. At distribution centers, Walmart uses cross-docking, a process in which products are exchanged between trucks so that each truck going to a retail store has products from different suppliers.
Managers should ensure that a firm’s transportation strategy supports its competitive strategy. Firms should evaluate the transportation function based on a combination of transportation costs, other costs such as inventory affected by transportation decisions, and the level of responsiveness achieved with customers.
Managers should consider an appropriate combination of company-owned and outsourced transportation to meet their needs.
The Adverse Effect of Not Understanding the Transportation Supply Chain's Role
When freight costs are high, even seemingly small, oversights can result in unneeded expenses that could have been avoided and thus cut into overall profit margins. Product write-offs can occur when sales channels are oversupplied. Undersupplied sales channels can also have negative results in the form of missed sale opportunities. Failure to monitor raw material prices can also result in above average costs across multiple sources. In addition to this, and probably more detrimental to budgeting, is the hidden cost of transportation in a poor supply chain. When getting goods from one point to another is a crucial aspect of business, then ensuring that this process is most efficient becomes a huge economic concern.
This is especially true in large enterprises and the obvious connection between visibility of freight and the transportation economics become easy to see. Even in smaller businesses where the margins are rather low, transportation costs are still a crucial element of creating profitability.
The Transportation Supply Chain is Driven By Properly Integrated Technology Systems
Most businesses would identify transportation supply chain visibility as a primary goal; however, it is sometimes used little more than a marketing term that gets used to simply impress those invested in the company. This is especially true in larger enterprises. That is because many enterprises have never really figured out ways to implement real transportation and supply chain visibility. One of the reasons that transportation supply chain visibility does not get the attention it deserves is because as a process, supply chain visibility requires true system integration operating between many elements. Some of these elements have different master data that must be used. This data must be not only present, but also running in harmony over all systems. These can include warehouse management systems, multiple ERPs, ordering systems, and transportation management systems.
When these sources are made up across many geographies, special attention is required in order to keep them all cohesively glued together. The glue is getting the materials from starting point to destination. The goal is to get this done efficiently and cost effectively. Without transportation, supply chain visibility there will be time delays, expenses, and even backlogs. These events can throw off production schedules even creating idle labor or eventual lost sales. So, as the costs add up, you can see the importance of focusing on understanding transportation's role in the supply chain.
The Delicate Balance of Transportation Supply Chain Management
Usually supply chain management simply becomes a balancing act of time versus cost. This is seen most easily in the transportation element. There are many ways available to ship goods from one place to another, but with foresight, the cost of shipping can be balanced through different practices and compared against relative shipping times. When manufacturers plan ahead to make sure the materials are arriving in the most time efficient way, they can then achieve the lowest freight costs.
Many like to think of an enterprise supply chain as a living thing. Living things are always changing. Some suppliers like to challenge incumbents with what seems to be better prices or services, raw materials may fluctuate in price, or foreign exchange rates could change. Any of these changes can affect the transportation supply chain as well. This basically means that the supply chain is not static, and if the supply chain is not static then the distribution requirements are not static either and will change. Transportation systems must change in response and it's up to the shipper putting in place systems either in-house or through a transportation management 3PL who can supply that expertise immediately to be prepared for the constant of change.
Many problems in transportation supply chain can be addressed through the availability of analytics provided through a transportation management system. Needing such insights to allow companies to make smarter business decisions is especially true when supply chains become larger and begin operating on a larger scale. Recent advancements in technology also help promise a better integration between physical product movement and visibility. One good example is the surge of interconnected devices to connect pallets, trailers and containers systems in order to provide greater visibility. Of course, proper implementation is essential in order for these great technologies to succeed.
Companies of all sizes must approach the transportation supply chain by implementing more harmonious systems in order to achieve greater visibility and a lower occurrence of supply chain errors. In the end, this will result in lower total costs for the organization even beyond transportation costs.
Well executed transportation management systems always lead to the greatest supply chain visibility. When transportation systems feed into a predictive analytics scheme performance will be improved across the board. In fact, once the inventory is loaded into a channel it is the predictive analytics responsibility to plan for efficient transportation.
Supply chain management ultimately has many moving parts, the starting point must always be transportation, however, as it is anywhere from forty to sixty percent of your supply chain costs.
With Transportation Taking Up a Large Part of the Supply Chain Budget, It’s Vital You have a Strategic Approach to Transportation Management
Transportation management is no longer a tactical approach to simply moving freight and doing it at the lowest possible cost. There are several factors that exist today that are forcing shippers to use even more resources, which distract from their core competencies, to have a strategic and much more nuanced, complex transportation management practice. Those savvy shippers who either find those resources internally or are doing what a lot of shippers are now doing, outsourcing to a transportation management service provider, are using a more strategic and effective transportation management approach as a competitive advantage tool, in the ever-challenging economic and commercial landscape.
A strategic or proactive approach to transportation and logistics management allows a shipper to create a competitive advantage as the paradigm and practical shift to strategic away from tactical lends more time and resources for a shipper to focus on their own core practice. A manufacturer or distributor, is not in the business of transportation management, so any way to get more value out of these two business functions provides a competitive advantage over competitors who are not as efficient and strategic with transportation and logistics management. Here are ten practical ideas to stay strategic in transportation management:
1. Controlling Inventory Flow and Driving Warehouse Efficiency
Effective transportation and logistics management strategy considers the availability of materials and order fulfillment requirements, ensuring that those resources are optimally utilized. Attempting to "normalize” flow through a distribution center or inbound to manufacturing is a critical aspect to controlling overall logistics and transportation costs. Additionally, some level of predictability helps in the carrier sourcing aspect of the business too.
2. Gaining "Shipper of Choice" Status
With mindfulness towards a strategy in effective transportation management that drive capacity commitments with a myriad of select carrier partners per lane, easy pay terms and rewarding performance, shippers are making it easier for carriers to do business with them. Gaining "Shipper of Choice" status empowers the shipper to gain an awareness and understanding, which in turn aids your partner carriers in tight capacity marketing. Working with carriers and all the freight creating continuous movement strategies is a win-win approach.
3. Using Technology to Provide Visibility to Shipments and Communicating in Route Disruptions
The ability to proactively identify service disruptions is critical in today's fast-moving communication world. One of the most overlooked success factors to shipment tracking is simply defining what the expectation is between your own company, the receiver of the goods, a 3PL, and your carrier partners. Too often the 3PL and shipper are not aligned on the expectation of shipment tracking. Does the 3PL have technology for effective transportation management allowing for the ease of communication? Additionally having a robust process, and authority to act when shipments do not go as planned, is important to effectively manage distressed shipments.
4. Understanding and Visibility into the Data in Transportation for Continuous Improvement
Continuous improvement in effective transportation management is now often realized by strategic shippers, thanks to the increased use of technology and integrated systems providing the ability to data mine transportation reports for substantive business intelligence. This large movement towards more use of the data to glean insights created by processes within technology is known as "Big Data." The ability to analyze the freight spend down to a single customer, at an order or even at a product level, can be a key input to developing competitive product pricing and identifying opportunities for change.
5. Improved Flexibility Creates Higher Customer Satisfaction and Ability to Service Different Size Orders
Highly-sophisticated order optimization capabilities is a direct result of effective transportation management. This increased flexibility from not having to get down in the weeds of process allows a shipper to not compromise delivery requirements and freight spend budget. Technology and historical analysis of transportation data allows load planners to determine the optimal modes of transportation as well as the preferred carriers who are consistently performing.
6. Creating an Effective Transportation Management Program Run by Metrics
Speaking of metrics... utilizing the right metrics to monitor the health of your transportation footprint and network are critical. Transportation management systems provide a wealth of information, but it can be overwhelming finding the right metrics to manage your business. Identification of key process indicators will help focus your search for the right data. It’s also important to have flexibility in generating metrics. As your business changes, so will your metrics requirements. Having the ability to transform data into usable knowledge is the goal.
7. Allows for Scalable Business Operations Across all Departments
As your organization expands through growth and acquisitions will your transportation management strategy and technology meet the increased demand and complexity? Having a scalable solution is critical to meeting today’s rapidly-changing business environment. Integrating all your separate supply chain systems together will allow you to manage your business through a single lens. Additionally, when you have more access to your transportation spend due to housing all of your supply chain data within technology, the leaders of the business can better understand how transportation affects other parts of the business such as customer service, marketing, and sales.
8. Sustainability to Lower Carbon Footprint and Increase Customer Affinity to Your Brand
A smaller carbon footprint can be had in nearly any operation via consistently and continuously seeking shipment planning options, consolidation opportunities and mode shift capabilities. Millennials care a lot about the future of the environment. Those shippers who build an effective transportation management strategy to include sustainability initiatives, will beat out the competition who does not.
9. Properly Engaging and Managing a Relationship with an Effective Transportation Management 3PL
When selecting a 3PL to aid you in a robust and effective transportation management strategy, defining the rules of engagement is critical to success. Do you even first understand your own needs? We've built a deep checklist to understand first before you go about engaging with a 3PL. When you do engage, and hire a 3PL for effective transportation management, it is vital that you look at this relationship as a partnership and not a commodity. Empowering people to make decisions and holding them accountable for the outcome is a foundational aspect for any program. Understanding the client’s business environment and aligning the right resources to the program is a must and an onus on the 3PL you hire. There may be occasions when the relationship is challenged. Having a strong relationship and project sponsorship on both sides will ensure a successful outcome.
10. Pivoting to a Strategic Look at Transportation Management Requires Change Management
Does your company embrace or challenge change? Having the mindset to accept changes is critical for any 3PL to deliver value. Engaging with a 3PL or TMS software and asking them to do what we do today and expecting a different outcome will lead to disappointment. Being able to accept change is critical for the success of any program.
If you are a shipper who seems to always feel in the weeds of tactics, most likely you are not eliminating all the wastes, such as unnecessary costs or time used to manage transportation, that you could be by looking at an effective transportation management strategy driven even further using a 3PL.
BIO: Adam Robinson oversees the overall marketing strategy for Cerasis including website development, social media and content marketing, trade show marketing, email campaigns, and webinar marketing. Mr. Robinson works with the business development department to create messaging that attracts the right decision makers, gaining inbound leads and increasing brand awareness - all while shortening sales cycles, the time it takes to gain sales appointments and set proper sales and execution expectations.