By Adam Robinson, Director of Marketing & Digital Marketing Consultant at Cerasis
With advancing demands of consumers and the steady growth of eCommerce, shippers and carriers are working to build better relationships and optimize operations. Unfortunately, the modern supply chain remains brittle, subject to the slightest of changes that could spell its doom.
While that paints a dire picture, supply chain leaders have another option; they can turn to tactical logistics management and develop responsive, adaptive processes. Of course, tactical logistics management is difficult at best, so let’s take a closer look at its challenges and opportunities.
With that in mind, shippers need to understand the problems arising within the industry, particularly increasing demand and strained capacity, as well as why tactical management holds the answer. Throughout this white paper, we will take a closer look at tactical supply chain management, including:
- What defines tactical logistics management,
- The driving forces of changing demand for tactical logistics management,
- Trends in tactical freight processes,
- The value of partnering with a company for tactical advantages, and
- What modern tactical logistics partnerships look like.
What Is Tactical Logistics Management and How Does It Play Into 2020 Logistics Planning?
Supply chain enterprises fall victim to many fallacies in managing freight, says Steve Banker of Forbes. They assume a few small changes will bring lasting, positive results. As history teaches, change can be useful, but failure to understand and manage change effectively will lead to disaster. This is a fundamental principle of war, realized after the desolation of World War II. It is not enough to simply address today's concerns. Shippers and logistics service providers need to be forward-looking, making changes that have a continuing benefit. This is tactical logistics management—improvements that continue to drive business success.
Tactical Logistics Management Applies Data and Insights to Boost Supply Chain Responsiveness and Efficiency
Tactical logistics management also applies to much more than just processes. Shippers and carriers should leverage data and work to boost supply chain efficiency. Similarly, supply chain resiliency plays a role in enabling tactical logistics management. Since shippers turn to technology, it makes sense that others within the supply chain would follow in kind. With time, every corporation implements tactical values, working to reduce costs, even when those costs may have originally derived from a company’s billing errors.
How to Enable Tactical Management in Your Supply Chain
The path to enabling tactical management is not always clear, but it does follow similar traits in improving supply chain operations. These include:
- Benchmark your operations.
- Automate any repetitive process.
- Integrate your supply chain management systems.
- Diversify your carrier network.
- Enhance communication with drivers and third parties.
- Use metrics to track performance after changes.
- Hold vendors and business-to-business partners accountable for their actions.
- Consider all the tariffs on the table.
- Look beyond politics, focusing on customers as the driving force of profitability.
- Improve inventory management with the right set of processes, resources, and people.
- Negotiate better shipping rates.
- Use auditing services to recapture costs.
- Remember the value and need for sufficient returns management.
- Track data in real-time.
A Closer Look at the Tactical Logistics Market’s Growth Reveals Demand Drives Change
The current freight market continues to ramp up in anticipation of the most active returns season of the year. The strong demand for more freight continues to grow, and consumers have divine expectations for the performance of supply chains. There was a time when tactical logistics management referred solely to the day-to-day operations that occurred in the perseverance of short-term performance. Unfortunately, the current freight market is unresponsive to this model, and shippers that wish to stay competitive need to understand the actual state of the tactical freight market and how it will shape supply chain strategy for the coming years.
What’s Happening With the State of the Tactical Freight Market in 2019?
The tactical freight market includes domestic and international shipments across all modes and countries. While spot rates rose to record levels in 2018, today's spot rates have declined. Average van rates rose to more than $2.25/mile in June 2018, but so far, they have only peaked at $1.89 in 2019. Remember, tactical logistics management traditionally focused on managing the demand for today. Still, with the peak season around the corner, growth in the market hints at the need to redefine tactical needs as both a short-term and long-term component of logistics management strategy.
Areas of Concern Remain Top of Mind for Shippers, LSP's and Third-Party Providers
As explained by John Schultz of Logistics Management, US business logistics costs rose to 11.45 percent in 2018, representing eight percent of GDP. While warehousing and inventory carrying costs, as well as carrier support costs and administrative fees, rose enough to worry shippers, between three percent and 5.3 percent, transportation costs continue to form the majority of logistics spend. Tight capacity in 2018 created significant rate increases, and shippers were almost unable to manage spend. The strong demand for the industry led to an ultimatum for shippers, implement a dedicated fleet, or achieve "Shipper Of Choice" status.
Similar trends exist for logistics service providers and third-party services as well, representing the increased uncertainty in the U.S. and fears over the wake of a U.S.-China trade war. The caution exercised by corporations in 2018 pave the way for strong growth in 2019, and while talk of the recession continues, all indicators point to industry-wide growth. Moreover, transportation industry participants have developed new management models to reap additional capacity, such as the use of intermodal shipping, especially rail, to improve sustainability and not outsmart themselves.
What Does the Future Hold for the Freight Market in Domestic and International Transactions?
The future of the tactical freight market is shaky. All power rests in the hands of shippers and LSP's. As more companies look to invest in technology and reduce operating expenses, such as the implementation of autonomous mobile robots, shippers will need to make more tactical decisions that affect traditional areas of strategy. In a sense, strategic supply chain management revolves around making plans, and tactical logistics management is how those plans translate into action and benefits for the company.
Now, many companies, particularly shippers, will likely see higher than average inventory and warehouse costs for 2019 following the trade tensions with China. Yet, transpacific carriers have benefited from these tensions, seeing substantial increases in their rates. This fact alone means shippers must take preemptive action to secure more capacity and diversify carrier networks to stay competitive. Thus, shippers should also understand the trends pushing tactical freight to the forefront of shippers’ minds.
Trends Driving Strategic Logistics Management Affect Shipper/Carrier Decisions
Shippers have grown accustomed to the changing demands of the industry. Today’s consumers expect faster, free shipping, and they are unwilling to listen to any reason why a shipment was delayed. Combined with the uncertainty in the market and tight capacity, shippers are struggling to keep pace. As the industry moves closer to the 2019 peak season, the differences between thought leaders and those that lag will become evident. Shippers need to understand the top trends driving strategic logistics management investment decisions and how to be prepared now to ensure a successful start to 2020.
Consumers Have New Expectations for What Constitutes ”Fast" Delivery
Customers have always wanted faster shipping. That much is true. What is new is how customers define fast shipping. In general, fast shipping describes any shipment that arrives within three days of the order time, notes Morgan Forde of Supply Chain Dive.
Moreover, up to 50 percent of customers will abandon their carts at the time of checkout due to exuberant delivery fees. It is simple. If shipments are not fast and free, shippers need to up the incentive to complete a purchase. Now, here is where the tactical and strategic part of the supply chain strategy comes into play. Generation Z customers and millennials are willing to pay a premium for faster shipping. This opens the door to recapture lost opportunities and costs associated with shipments that turn a smaller profit. In other words, shippers could use the fees charged for faster shipping, assuming processes are in place to secure competitive, affordable spot rates, to effectively subsidize other parts of the supply chain. Subsidization is particularly attractive for customers that order more extensive, more expensive to ship items.
Amazon Continues to Push the Boundaries of Free Service
The Amazon effect plays another role in the way in which consumers and shippers interact in the modern world. Today’s customers have become accustomed to a seamless digital shopping experience, and this demand for an omnichannel capability and experience transitions across channels and retailers, well beyond the reaches of Amazon. Now, Amazon recently sought to change the nature of the game by offering next-day, free delivery on millions of items for Amazon Prime members, but a caveat remains. When viewing all generations as a whole, consumers still expect a free shipping option. The take away is simple; shippers that do not have a free shipping option, even if it takes a few days to complete, will alienate their customers. As a result, shippers need to carefully assess all available freight rates and modes to find the lowest cost option. This is the only way to adequately subsidize shipping costs incurred to offer free shipping through other shipping charges or fees.
Final Mile Services Are Becoming a Key Component of Strategic Logistics management
Speaking of Amazon, let's keep the e-commerce behemoth in the spotlight for a moment. Amazon customers can now take advantage of additional services that go beyond purchasing a product, including installation, removal of old products, and even manual labor needed to make full use of a product.
For example, customers purchasing new windows can hire and pay for a contractor to install the window upon delivery within the same platform. This capability demands integration and the ability to offer more than just a product. These are the invaluable final mile services that are starting to reshape the entire way shippers approach logistics management. Value-added services within the final mile can make or break a successful interaction. It may not be possible to offer all available final mile and white glove services at once, but shippers need to implement the systems that can integrate well with third-party platforms to make this a reality in 2020.
Automation Within the Industry Approaches a Breaking Point with Legacy Systems
Automation is another trend in the industry that will push the boundaries of existing systems. As automation continues to advance, it relies on newer, more updated systems. It is not enough to integrate with a traditional platform through older coding mechanisms. While EDI's were great, they fall short of the extensive capabilities of modern APIs.
Meanwhile, new ways to automate systems, including automating the automated through the use of artificial intelligence and machine learning, open the door to new possibilities and managing day-to-day operations and supply chain and preparing for long-term demand forecasts. It is impossible to determine precisely how the market will respond, but the supply chain abhors a vacuum. As technology grows, consumer demands will only continue to increase, and more technology will be needed to meet such requirements.
New Shipping Strategies in Order Fulfillment Models Must Evolve to Move More Product
Shippers are also faced with prospects of SKU proliferation as more vendors arise, and new products come onto the market. SKU proliferation is a crucial problem for the modern shipper, especially retailers. Instead of trying to handle everything in-house, more shippers are turning to new fulfillment strategies, including cross-docking and drop shipping, to eliminate the need to ever have the product physically within their warehouses. This will effectively reduce the stress in managing logistics. Still, it comes at the cost and the need to understand and gain end-to-end visibility throughout the entire supply chain up to the manufacturer. At the same time, shippers will need to build the business case for partnerships, highlighting how partnerships can add value and increase capacity.
How A Transportation Management Company Increases Available Freight Capacity
Take a moment to think about what a transportation management solutions company does. Transportation management companies oversee through the use of a TMS the tendering of shipments, invoicing, negotiations with carriers, and much more. Their roles are almost immune to the changing expectations of the industry. By definition, transportation management companies are third parties, so they must roll with the proverbial punches and give their clients, shippers like your company, the ability to deliver a better product at a faster pace and without any delay or added cost. Let's take a closer look at some of the top ways a transportation management company increases available freight capacity to benefit shippers and supply chain partners.
Why Are Shippers Struggling to Secure Available Capacity?
Shippers continue to struggle in securing available capacity across all modes. While freight consolidation and deconsolidation programs have helped shippers tap into the value of additional modes beyond their mode of preference, capacity remains tight. Meanwhile, expectations for increased demand in e-commerce will only push the boundaries of the system further from its current state. Besides, other shippers expanded their private fleets to handle increased demand, but guess what happened?
Demand continued to grow. Increasing the number of trucks on the road was great for last year, but it still will not meet the needs for this year. Thus shippers that did invest in their private fleets will face the same decision, partner with a transportation management solutions company, or continue investing in buying more trucks. It is also important to note that while the crunch of today may not be as severe as 2018, it still represents a need to increase capacity further in the future.
Partnering with a Transportation Management Company Expands Available Vendor Selections
Establishing a partnership with a third-party, such as a transportation management company that offers both services and technology, is nothing new. In 2013, Bridget McCrea of Logistics Management noted that the increased demand for TMS platforms was growing at double-digit rates. The rationale is simple. Implementing TMS lowered freight rates.
Meanwhile, implementation also offered significant advantages, such as improvements and efficiencies of order tendering and more. Now, shippers in need of more capacity could turn to their TMS to secure more capacity, but a problem has started to form. With the proliferation of TMS platforms, carriers grew wise to the fact that they were losing money.
Since shippers were no longer working directly with carriers, carriers were effectively stuck with paying the middleman, and that was unacceptable. Over the last two years, carriers have increased their rates by at least four percent annually, and 2019 is shaping up to set records for growth in eCommerce once again. At the current pace, a much stronger spike in carrier rates will arise within the next three years. This looming fact will force many shippers to reevaluate their existing TMS partnerships. They face the prospect of throwing out older, outdated systems. They will look to take advantage of robust platforms that add more than just a simple TMS, such as value-added services, including freight invoice auditing, after-hours scheduling, inbound logistics management, and more.
Additional Benefits of a Transportation Management Company Partnership in Securing and Managing Freight Capacity
The benefits of working with a transportation management company are simple and include:
- Access to more capacity.
- Increased vendor base.
- Improved recordkeeping process—and, therefore, better compliance with regulations.
- Less hassle than handling operations manually.
- Lower freight spend.
- Easily tender shipments, reducing errors.
- Empower you with analytics to improve.
- Make your freight more attractive.
- Better service and rates through corporate/volume buying power of third parties.
Now, we could sit here and list at least 5,000 benefits, but those are the most significant and most essential ways partnerships build competitive advantage and enable business continuity. Yet, it is still imperative for shippers to understand how to recognize a successful, ready-to-partner logistics partner.
What Does a Modern Day Logistics Provider Look Like?
A modern logistics provider must have the technologies and processes in place to enable faster, more affordable shipping. They must continuously evolve capabilities to meet rising demand, and they must avoid all forms of supply chain disruption. To stay competitive, shippers need to understand the value of a new provider of logistics partnership and how it will add value to the supply chain.
What’s Wrong with Your Grandpa’s Provider of Logistics Processes?
A traditional provider of logistics focused on connecting shippers with carriers. This principle was relatively simple, involving a handful of carriers and maybe a few hundred shippers. With the rising complexity of global supply chains and the ongoing demands of eCommerce, traditional supply chain management functions within providers of logistics are ineffective. At the same time, the biggest providers of logistics built dedicated platforms and advanced features, and these functions came at a cost. Unfortunately, small and midsize businesses (SMBs) lack the resources to tap the value of traditional service providers. Moreover, supply chain management is no longer a manual, who-you-know process; it has evolved into a how-you-connect industry. That ability to connect is what sets the modern providers apart from those of the old age.
Modern Day Providers of Logistics Rely on Technology and Advanced Analytics to Optimize Operations
A modern-day provider of logistics relies heavily upon technology. Modern providers rely on advanced analytics to understand what is happening, what may happen, what will happen if circumstances remained unchanged, and what needs to happen to achieve the desired result. The ongoing evolution of technology means modern logistics providers must always remain forward-thinking, which enables responsiveness to new tensions, including the U.S.-China trade war, uncertainty with eCommerce growth, preparation for peak season planning, and much more.
This is especially true for modern providers that need to keep costs under control and still reap a profit. For example, the demand for capacity in 2019 was less than demand in 2018. Even so, more third-parties are working on expanding fleets and securing more capacity for their clients. This ensures available capacity and as a result, scalability. It's an ever-changing aspect of the modern supply chain, understanding what is happening and maximize performance through all scenarios.
Use Cases of Modern Day Logistics Providers in Action
Modern-day logistics providers have common characteristics, including:
- The use of the cloud to test, launch, and manage operations. Cloud-based processes enable ongoing process improvement and reduce the risk of disruptions.
- Avoidance of disruptions within the supply chain. The modern supply chain is always "on," and advanced providers must enable around-the-clock management. This is most easily achieved through readily available TMS and associated platforms, ranging from warehouse management through procurement as well.
- Utilization of third-party services. While logistics providers are still third-party entities, they often outsource core functions to enable better competition and offer more value to customers. For example, third-parties may outsource auditing and accounting services or even white glove services to expand service offerings and meet client demand.
Of course, modern providers will also play to the needs of clients, offering access to more shipping options, such as drop shipping, managing the dock, handling requests for white-glove services, and more. As technology and consumer demands grow, the functions and services available through logistics providers will continue to grow in tandem.
Conclusion: The State of the Tactical Freight Market Represents a Grand Opportunity for All Supply Chain Participants
Tactical freight and supply chain management have a common thread. They both work to reduce inefficiencies, identify risks and weaknesses, assess outcomes, and apply information to choose, as well as guide, operations forward, and achieve the desired result.
Does that sound familiar? It should. Iit is the paragon of modern big data analytics, knowing what happened (descriptive analytics), what may happen (predictive analytics), how it can be recognized earlier based on current findings (preventive analytics), and what can be accomplished to achieve a better result (prescriptive analytics). Today’s supply chain leaders need responsiveness and unwavering commitment to answer customers’ calls for better, faster service. Tactical logistics management, including the deployment of a TMS, makes this possible for both the upcoming peak season and 2020 logistics planning as well.
Shippers are already in the process of overhauling their supply chain management strategies for 2020. As the next U.S. presidential election looms, uncertainty over the future of U.S. trade will grow more severe. While the market is uncertain, growth is a certainty. Shippers need to start thinking about how to reshape current operations to save every minute and reduce the costs associated with transportation management. Above all else, tactical logistics management is the only way to look beyond the limits of planning and into proactive measures that make a difference in the day-to-day operations of your organization.
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.