Executive Briefings

Don't Fall Into the Trap of Thinking of Capacity as a Commodity

Imagine you're a buyer at Walmart, and decide to take sample purchase of a new brand of TVs. You're at the distribution center when the carrier arrives two hours overdue; he neglected to let the receiver know he was going to be late. Yet the driver insists on being unloaded immediately. He berates the receiving manager - and he is calling his boss - because there are only 10 bays at the center, all of them filled.

You wonder if the shipment will be unloaded in time for the TVs to be distributed to the region's four area stores. After all, you placed an ad in the newspapers saying this brand will be on sale in area Walmarts in three days.

Feeling uneasy about carrying this brand of TVs now? You are not alone.

We often think of branding as something related to creating and marketing a product only. But there's more to branding than a slogan or guarantee on a box. How your product is made, packaged, promoted - and delivered - to a customer are all parts of the branding process.  If you have an emerging beverage brand, for example, you need to be a brand people can work with. You have to make sure your carriers represent your brand well.

If we think of the term "commodity" generally in regards to logistics, we may feel it refers only to an economic good being shipped. For our purposes, "commodity" is going to be discussed in relation to a couple of select definitions: a good or service whose wide availability typically diminishes the importance of factors other than price; and a mass-produced, unspecialized product.

With these definitions in mind, do you define your capacity as a commodity? And for transportation buyers, should your product be transported as a commodity? For many companies, the answer may be yes. There are a myriad of products and raw materials moving globally that have such a narrow profit margin associated with them that price among competing logistics companies is the only defining factor in transporting them.

If you broker carbon black, for example, price may be the only deciding factor in how you transport. Your product is a commodity and should probably move as a commodity.

There are a large number of fleets of varying sizes that cut corners on safety, fleet maintenance, driver management and customer service because they run purely transactional businesses in which the highest bidder gets their equipment. Carriers such as these companies may not have a single consistent customer. These companies aren't concerned about building partnerships, opting instead to focus on playing the supply/demand markets to optimize transactional profits. Yet many, if not most shippers/producers of consumer goods and end-of-supply-chain raw materials rely on amicable relationships with their distribution networks to expand their reach and market share.

And many carriers of differing sizes do not cut the corners mentioned above. For these carriers (service carriers) and shippers/producers who care about quality and service in transportation (service buyers), the million-dollar question is, "What does a single source solution really offer?"

Are You Just Another Truck?

In the case of service carriers (which number in the tens of thousands in the United States; if you are reading this, you are probably one), the big-box solution to unused capacity removes your great customer service, your quality equipment, your well-trained driver and your brand in order to compare your "apples to apples" with every other truck that could potentially compete in that market. The best rate you can hope to receive is the equivalent of the lowest bid that could potentially fit a given load. Your truck has been commoditized, and each truck's value is re-evaluated with each transaction.

Allowing your capacity to be commoditized is an easy trap to fall into, especially when you have a great quantity of assets. The important thing to remember is that you really do differentiate yourself by making the investments in service and quality that you have made. Putting in the effort to rebuild your network of clients and brokers with priority toward freight providers that are in the market for your service is a work load you can't afford to put on the back burner. Take the time to build mutually-beneficial relationships based on loyalty and an appreciation for the service that you provide. After all, there is no reason to make investments in equipment and customer service if you aren't going to be compensated for them.

Are You Just Another Load?

With the catch-all 3PL solution, shippers/producers/service buyers get to push all transportation needs off their desks and onto one point of contact - but at what real cost? Transportation managers should be asking themselves, is the person you are tendering freight to (who knows your needs and no doubt values your business) the same person who has the final say on the carrier selected? Is this the same person communicating with the actual driver, too? Is this person you've trusted with your brand reputation the person who is contacting your vendors and customers to arrange appointments? Who IS choosing the carrier that hauls your freight? What is their motivation? How much qualification research went into this carrier?

If you don't know the answers to the above questions, what you are truly engaging in is a commoditized solution to transportation, with no defining factor beyond price. If you are engaged in this type of transportation selection, what motivation have you provided the vendors you rely on to behave as true partners that will be there for you when the going gets tough?

Ask the Hard Questions About What You're Shipping

Commoditization takes all the intangibles away, even when those "extras" are highly valued. In this era of demand planning, thin inventory and the imminent progression toward visibility through the entire value chain, service buyers should have their eyes on segmenting transportation needs on a spectrum between commodities and brand/organization representations.

There is a temptation to commoditize service because it allows us to put a hard valuation on something that can have a multitude of intangible values. But is the service you receive on your inbound raw material good enough to represent your finished product to your distributor? Service buyers need to take into account production planning, distribution channels, inventory management and forecasted demand when selecting a service provider for transportation of goods that are going to represent their brand. With all these pieces in motion (not to mention the overhauls in safety and insurance regulation changes raising the hurdles), is a discount service really worthy of your painstakingly-branded product?

Adding transportation providers that focus on eliminating commoditized capacity and make the commitments necessary to build and properly maintain a network of service carriers to fulfill specific customer needs can pay off in trusted relationships and increased business. Not to mention the time and energy you will save when you have reliable transportation partners who take pride in allowing you to focus on things that can actually improve your organization.

3PLs Have the Wrong Target in Sight

The same trap seems to snare third-party logistics providers as well. As if there were a race to become the next single-source provides that turns over customers and vendors like a pizza delivery. But that is the wrong target. A mentor once told me that a vendor has three defining attributes: Service, Quality and Price. If a potential vendor delivers you one of these every time, they're good. If they deliver two all the time, keep them forever. If a vendor promises you all three, hang up the phone.

If you are lowest in price, it's simply impossible to provide the best service and quality. 3PLs would be wiser to focus on a particular niche, such as service or price, and do what's valued for that market niche. A Lexus dealer, for example, is not going to try to sell you a car for $12,000.

As business owners and managers we make sacrifices every day to establish good relationships with customers and vendors. All of us in logistics need to do the same thing all along the supply chain. Making shipping decisions based only on "who's cheapest today?" is basically asking meticulous, motivated and reliable carriers and brokers to work for free.

Surrounding yourself throughout the supply chain with distributors and shippers who share your company values not only makes working relationships easier, it improves company and customer brands and builds trusted partnerships - not just transactional repeat business.

Source: Zipline Logistics

Imagine you're a buyer at Walmart, and decide to take sample purchase of a new brand of TVs. You're at the distribution center when the carrier arrives two hours overdue; he neglected to let the receiver know he was going to be late. Yet the driver insists on being unloaded immediately. He berates the receiving manager - and he is calling his boss - because there are only 10 bays at the center, all of them filled.

You wonder if the shipment will be unloaded in time for the TVs to be distributed to the region's four area stores. After all, you placed an ad in the newspapers saying this brand will be on sale in area Walmarts in three days.

Feeling uneasy about carrying this brand of TVs now? You are not alone.

We often think of branding as something related to creating and marketing a product only. But there's more to branding than a slogan or guarantee on a box. How your product is made, packaged, promoted - and delivered - to a customer are all parts of the branding process.  If you have an emerging beverage brand, for example, you need to be a brand people can work with. You have to make sure your carriers represent your brand well.

If we think of the term "commodity" generally in regards to logistics, we may feel it refers only to an economic good being shipped. For our purposes, "commodity" is going to be discussed in relation to a couple of select definitions: a good or service whose wide availability typically diminishes the importance of factors other than price; and a mass-produced, unspecialized product.

With these definitions in mind, do you define your capacity as a commodity? And for transportation buyers, should your product be transported as a commodity? For many companies, the answer may be yes. There are a myriad of products and raw materials moving globally that have such a narrow profit margin associated with them that price among competing logistics companies is the only defining factor in transporting them.

If you broker carbon black, for example, price may be the only deciding factor in how you transport. Your product is a commodity and should probably move as a commodity.

There are a large number of fleets of varying sizes that cut corners on safety, fleet maintenance, driver management and customer service because they run purely transactional businesses in which the highest bidder gets their equipment. Carriers such as these companies may not have a single consistent customer. These companies aren't concerned about building partnerships, opting instead to focus on playing the supply/demand markets to optimize transactional profits. Yet many, if not most shippers/producers of consumer goods and end-of-supply-chain raw materials rely on amicable relationships with their distribution networks to expand their reach and market share.

And many carriers of differing sizes do not cut the corners mentioned above. For these carriers (service carriers) and shippers/producers who care about quality and service in transportation (service buyers), the million-dollar question is, "What does a single source solution really offer?"

Are You Just Another Truck?

In the case of service carriers (which number in the tens of thousands in the United States; if you are reading this, you are probably one), the big-box solution to unused capacity removes your great customer service, your quality equipment, your well-trained driver and your brand in order to compare your "apples to apples" with every other truck that could potentially compete in that market. The best rate you can hope to receive is the equivalent of the lowest bid that could potentially fit a given load. Your truck has been commoditized, and each truck's value is re-evaluated with each transaction.

Allowing your capacity to be commoditized is an easy trap to fall into, especially when you have a great quantity of assets. The important thing to remember is that you really do differentiate yourself by making the investments in service and quality that you have made. Putting in the effort to rebuild your network of clients and brokers with priority toward freight providers that are in the market for your service is a work load you can't afford to put on the back burner. Take the time to build mutually-beneficial relationships based on loyalty and an appreciation for the service that you provide. After all, there is no reason to make investments in equipment and customer service if you aren't going to be compensated for them.

Are You Just Another Load?

With the catch-all 3PL solution, shippers/producers/service buyers get to push all transportation needs off their desks and onto one point of contact - but at what real cost? Transportation managers should be asking themselves, is the person you are tendering freight to (who knows your needs and no doubt values your business) the same person who has the final say on the carrier selected? Is this the same person communicating with the actual driver, too? Is this person you've trusted with your brand reputation the person who is contacting your vendors and customers to arrange appointments? Who IS choosing the carrier that hauls your freight? What is their motivation? How much qualification research went into this carrier?

If you don't know the answers to the above questions, what you are truly engaging in is a commoditized solution to transportation, with no defining factor beyond price. If you are engaged in this type of transportation selection, what motivation have you provided the vendors you rely on to behave as true partners that will be there for you when the going gets tough?

Ask the Hard Questions About What You're Shipping

Commoditization takes all the intangibles away, even when those "extras" are highly valued. In this era of demand planning, thin inventory and the imminent progression toward visibility through the entire value chain, service buyers should have their eyes on segmenting transportation needs on a spectrum between commodities and brand/organization representations.

There is a temptation to commoditize service because it allows us to put a hard valuation on something that can have a multitude of intangible values. But is the service you receive on your inbound raw material good enough to represent your finished product to your distributor? Service buyers need to take into account production planning, distribution channels, inventory management and forecasted demand when selecting a service provider for transportation of goods that are going to represent their brand. With all these pieces in motion (not to mention the overhauls in safety and insurance regulation changes raising the hurdles), is a discount service really worthy of your painstakingly-branded product?

Adding transportation providers that focus on eliminating commoditized capacity and make the commitments necessary to build and properly maintain a network of service carriers to fulfill specific customer needs can pay off in trusted relationships and increased business. Not to mention the time and energy you will save when you have reliable transportation partners who take pride in allowing you to focus on things that can actually improve your organization.

3PLs Have the Wrong Target in Sight

The same trap seems to snare third-party logistics providers as well. As if there were a race to become the next single-source provides that turns over customers and vendors like a pizza delivery. But that is the wrong target. A mentor once told me that a vendor has three defining attributes: Service, Quality and Price. If a potential vendor delivers you one of these every time, they're good. If they deliver two all the time, keep them forever. If a vendor promises you all three, hang up the phone.

If you are lowest in price, it's simply impossible to provide the best service and quality. 3PLs would be wiser to focus on a particular niche, such as service or price, and do what's valued for that market niche. A Lexus dealer, for example, is not going to try to sell you a car for $12,000.

As business owners and managers we make sacrifices every day to establish good relationships with customers and vendors. All of us in logistics need to do the same thing all along the supply chain. Making shipping decisions based only on "who's cheapest today?" is basically asking meticulous, motivated and reliable carriers and brokers to work for free.

Surrounding yourself throughout the supply chain with distributors and shippers who share your company values not only makes working relationships easier, it improves company and customer brands and builds trusted partnerships - not just transactional repeat business.

Source: Zipline Logistics