Analyst Insight

Companies are shifting their technology focus from outbound transportation management to actively routing and scheduling their inbound freight. This is one of the most significant strategic differentiators between best-in-class companies and average and laggard companies.
-Ian Hobkirk, senior analyst, Supply Chain Execution, The AberdeenGroup

Effective transportation management involves overcoming a host of real challenges-volatile fuel costs, capacity levels that shift like the wind, and ever-increasing customer expectations for shorter and more frequent delivery times. Top performance is traditionally determined by the ability of a company to weather all of these pressures and still manage to reduce their transportation spend while meeting their customers' needs. Aberdeen research shows that companies that take greater control of inbound freight are realizing a number of benefits, including:

• Reduced freight spend, since suppliers often have no incentive to shop for the best rate, and frequently apply a markup under "pre-pay-and-add" arrangements.

• Improved visibility of inbound goods

Companies are using three basic methods to practice routing and scheduling of inbound freight:

• Static routing instructions to a supplier: While requiring the least amount of work to administer, this scenario is often ineffective as routing guides become outdated, and cost and transit times may begin to creep up.

• Dynamic routing instructions to a supplier: This involves having a "ready-to-ship" dialog with the supplier. Modern transportation management systems can enable this dialog by means of EDI or web-portal technology. The buyer can make a case-by-case decision as to how each load should be shipped. The supplier then tenders the load to the carrier.

• Full routing and tendering: The supplier sends a ready-to-ship message to the buyer-and the buyer then routes and tenders the load directly to the carrier. The carrier then contacts the supplier to schedule a pickup.

The same technology used to communicate with suppliers (EDI and web portals) is also being used more frequently to communicate with carriers to receive periodic updates as to the status of a shipment. In this manner, an up-to-date picture of the status of inbound goods is available in real-time.

Companies are using this visibility as a powerful tool to achieve some of the following objectives:

• Improved lead-time reliability

• Reduced inventory levels as less safety stock needs to be maintained

• Improved utilization of warehouse labor

• Improved ability to proactively communicate delays to customers

The Outlook

Full integration of Warehouse, Transportation, and Order Management. Consider the following scenario: a customer places an order for product that is available for shipment on Tuesday. However, customer service sees that there is a very high workload in the warehouse for Tuesday, so a representative considers shipping the product out a day later, on Wednesday. After some further analysis, he sees that if the customer is willing to wait until Thursday, the load can be combined with other orders and can ship via a full truckload instead of an LTL. Customer service offers to split the freight savings with the customer in exchange for taking a later delivery, and the customer agrees.

Sound far-fetched? Perhaps. Frequently, in operations where delivery time is the most critical element to order fulfillment, warehouse labor and freight cost considerations have to take a back seat in order to make the delivery on-time. However, for situations where distribution centers have a wider delivery window available, making some combination of the above decisions will become a real tool for improving operational profitability.