That self-help author who told readers not to sweat the small stuff obviously never had to manage a supply chain. It's precisely the everyday details - missed delivery dates, improperly loaded containers, incomplete orders - which can bring a company to its knees.
Transportation management, one could argue, is made up entirely of small stuff. Companies spend millions on aligning high-level strategy with actual sales, yet the mundane process of getting product to market can scuttle the best-laid plans. That's one reason why execution software - primarily for transportation and warehouse management - has sold better than most planning systems in recent years.
Supply-chain managers got a fresh jolt on Jan. 4 of this year, when new federal hours-of-service rules took effect for truckers. The impact on driver productivity has been substantial, shippers say, and can be felt in areas that companies might not have anticipated. It's a theme that runs through several of the following 10 best practices for transportation management.
1. Get going on TMS. This might come as a surprise to observers who believe that, given the recent spike in sales of transportation management systems (TMS), everybody has one. On the contrary, says Gregg Gabriel, product manager of HighJump Software, a 3M company based in Eden Prairie, Minn. "It is amazing," he says, "the number of companies out there where you find very little automation in transportation systems." Many are still relying on multiple legacy systems that address pieces of a transportation program. Or they're falling back on that old management stand-by, the spreadsheet. Whatever the situation, only about 30 percent of HighJump's new customers are replacing an existing TMS. The rest are coming from "a greenfield scenario," Gabriel says.
A modern-day TMS gives managers the ability to optimize their choices of route, mode and carrier on a real-time basis, says Gabriel. And they can more easily adapt to inevitable changes in demand. Before, he says, a company might spend hours re-planning its transportation, based on actual buying patterns.
It's vital to automate outdated manual systems, says Michael Jakab, senior vice president of Descartes Systems Group. Larger companies have long seen the need for it, he says, but smaller ones are also beginning to realize the "tremendous opportunities" that a TMS provides. Bobs Candies Inc., one of the nation's leading makers of candy canes, installed a new TMS just prior to its peak Christmas selling season. The cost of the system, which replaced spreadsheets, was recouped in a single season, Jakab says.
2. Don't go for the "Big Bang." Companies that purchase TMS software might be tempted to tackle everything at once. But even a focused, execution-oriented system contains many pieces. They should be phased in according to a company's needs, says Mark Johnson, vice president of marketing with Shelton, Conn.-based Global Logistics Technologies Inc. (G-Log). This rational approach should begin at the purchasing stage, he says. Frito-Lay Inc., a unit of PepsiCo, approached the TMS acquisition process with three questions: Is there value in the system? What is the risk of implementation? And is the system easily ramped up to handle additional processes or locations?
G-Log customers begin with an all-encompassing vision, yet roll out distribution channels and business units sequentially, Johnson says. With a phased approach, the project can be self-funding, each step generating enough savings to justify the next. Rohm & Haas, the big specialty chemical company, first applied its TMS to the domestic U.S., then moved it into Europe and other international locations. "If you do it right," says Johnson, "you start throwing off cash."
Some companies, lured by the long-term return on investment promised by TMS vendors, make the mistake of attempting to optimize both inbound and outbound transportation at the same time. "They try to take too broad a swipe at solving the problem," says HighJump president Chris Heim. The long reach of TMS software helps to explain why its market penetration is still less than that of more internally oriented warehouse management systems (WMS), he says.
3. Centralize command and control of transportation. The new rules on hours of service virtually require that companies have one place where they can collect data and monitor driver performance, says Pete Stiles, vice president of strategy and business development with Holland, Mich.-based LeanLogistics Inc. But many still approach the process in a fragmented manner, undercutting the benefits of good transportation and procurement processes.
"Planning is better if you centralize it," says Stiles. Managers can identify opportunities for continuous moves, and make optimal use of the total transport network. Companies can also do a better job of communicating with carriers, and auditing their payment processes.
Centralization should extend all the way back to the contracting stage, Gabriel says. Shippers can take full advantage of total volumes, securing the best possible rates and utilization of equipment. Not everything can be centralized, he notes - real-time optimization depends on having distribution personnel in the field - but transportation expenditures should be controlled from a single location.
One HighJump client, a consumer packaged goods supplier, built a central repository of all carrier contracts, along with a strategic layer dictating where and when volumes would be allocated down to the individual lane. The final choice of carrier was made at the local level, based on criteria established by corporate headquarters.
Shipment visibility is another process that is best handled at a higher level of the organization, says Glynn Spangenberg, vice president and general manager of Qualcomm Inc. In particular, he cites the necessity of tracking assets through mobile communications technology, to maximize the use of capital-intensive equipment. "It's about more than knowing where your assets are," he says. Georgia-Pacific Corp. uses Qualcomm equipment to monitor the various steps of a trip, including inspections, departures, arrivals, fueling and route stops. The information can be used to re-optimize a transportation plan throughout the day, Spangenberg says.
4. Put the right people in charge. Technology alone won't guarantee a smooth-running transportation program. Johnson says experienced personnel must be in place, whether internally or in outsourced operations. Given the nation's current employment situation, there is no shortage of such talent today, he says.
Equally important is knowing who will take the place of current management and supervisory staff. Mike Deegan, director of operations with Oakland, Calif.-based APL Logistics, says succession planning will become a pressing need in the coming decade, as the baby-boomers of the 1950s and early '60s begin to retire. There aren't as many people coming up to fill their shoes, he says. And those younger workers who are available tend to lack general management skills.
Deegan says younger workers don't have a deep understanding of pricing issues, especially on the intermodal side. They lack the knowledge acquired by their older counterparts in the days prior to transport deregulation. Since then, of course, the situation has grown even more complex, with many rates determined through confidential contracting and the relative clout of each partner.
Schneider National, the big truckload carrier, addresses the issue of expertise through an annual offsite meeting, during which it determines who is ready to move up in the organization. Schneider believes in promoting from within, while offering substantial training to demystify the world of multimodal transportation, Deegan says.
Where the skilled people actually come from - either in-house or via third-party providers - is an individual decision. While at Frito-Lay, G-Log's Johnson managed $20m of freight a year with just three additional dedicated employees. And when consumer-goods giant Unilever wanted to increase on-time deliveries and lower transport costs in Australia, it called on a large team of experts employed by the third-party Toll Logistics.
5. Focus on measurement. One advantage of transportation over many other business processes is that it's relatively easy to measure. The modern-day concept of vendor scorecards saw its earliest incarnation in programs to manage carriers. Jakab says companies should be able to view all transportation activities in real time. Carriers are scored and ranked according to their adherence to customer expectations. Again, data obtained at the execution level can be relayed up the supply chain to create a coherent picture of supplier performance, and drive future decisions on choice of carriers.
It doesn't even matter who's paying the bills. According to Jakab, the CVS/pharmacy chain keeps close tabs on its inbound carriers, including shipment location and arrival dates, even though freight costs are mostly paid by suppliers. Each carrier is expected to provide CVS with relevant information, creating a single view that permits the retailer to manage about 80 percent of its transportation activity. Other companies are closer to 60 percent, Jakab says, but such programs can still reduce needless safety stock. And order lead times can be cut drastically.
Gabriel says a good TMS can be an important means of gathering key performance metrics, guiding both tactical and strategic decisions at various levels of the organization.
6. Integrate your systems. Call it a best practice for just about any business process. But it's especially crucial to link transportation with other aspects of the supply chain.
The most obvious integration is between TMS and WMS. "To just plan with TMS and throw it over the wall [to a WMS] is not taking full advantage of the power of one plus one equals three," said Gabriel. In fact, companies that plan with one system and ignore the other are setting themselves up for an imbalanced, sub-optimized distribution network. What's more, he says, close integration of WMS and TMS is needed in order to adhere to hours-of-service regulations. Warehouse delays can affect the transportation side, adding wasted hours to a driver's time on duty.
It's getting easier to find linked systems these days; execution vendors are increasingly offering both WMS and TMS in their efforts to address larger portions of the supply chain. And while Heim recommends getting both packages from the same vendor, he says separate systems could be combined with the proper integration framework.
Russ McGregor, director of product management with Atlanta-based Manhattan Associates Inc., says transportation should be viewed as one part of an integrated logistics strategy, which also embraces yard management, order management and warehousing. Two clients of Manhattan, a food services company and grocery retailer, are treating those functions as a single process. In the case of the latter, store orders and purchase orders are communicated seamlessly to applicable vendors.
McGregor also urges the use of a strategic routing guide, to serve as the foundation for multiple execution processes. It can also help companies to integrate transportation procurement and execution, linking shipment planning, order taking, booking, load planning, tracking and tracing, and freight auditing and payment.
7. Get control of inbound. For various reasons, companies might prefer their suppliers to go on paying for inbound freight. Perhaps they lack the volume on any given lane to justify the time and trouble. But McGregor says more companies should consider taking over this critical link of the chain. In many instances, the shift from prepaid to collect can greatly reduce transportation costs, he says.
The key lies in close communications with suppliers. Through electronic data interchange or the internet, they need to inform the receiver of what has been shipped and when. The company can then deploy its TMS to perform shipment planning, carrier selection, tracking and tracing and other processes.
The decision on converting freight terms is rarely a straightforward one. A drugstore chain and client of Manhattan underwent a rigorous routine of deciding exactly which vendors, freight and purchase orders to manage directly. For international sourcing, companies must determine whether they have sufficient visibility to control the process.
The drugstore chain ended up saving money, but it didn't convert all of its freight, says McGregor. Decisions were made based on freight cost and order frequency, among other things. "You can't look at transportation in isolation," he says.
Jakab says more companies are moving toward controlling inbound freight - a kind of insourcing - even as they increase reliance on outsourcing for other aspects of transportation. One food company customer of Descartes boosted its control from 12 percent to 40 percent of inbound.
8. Take a look at self-invoicing. Over the years, an entire industry has sprung up to provide companies with outsourced freight auditing and payment services. In fact, this was one of the first discrete business processes to be entrusted to outsiders. Now, technology is allowing companies to shed their freight-payment services and conduct self-invoicing. Carriers and shippers can eliminate traditional documents - in particular, the freight bill - and complete the payment process more rapidly.
"The idea is, if we both have a copy of the contract, there's no reason for you to send me an invoice," says Stiles. The process can save companies between $12 and $14 per freight bill, he says. And, with generation of an "audit-quality" rate, the laborious process of freight-bill auditing becomes unnecessary. As a result, the theory goes, shipper and carrier become better partners.
A lack of technology has prevented such systems from functioning up to now. Few shippers had the ability to pre-compute rates and store tariffs electronically. With a push from the internet and accompanying communications standards, the self-invoicing option should grow in popularity, Stiles says. And third-parties are likely to lose a substantial chunk of their business.
About half of Manhattan's customers are already on a self-invoicing system or interested in pursuing it, McGregor notes.
9. Take a holistic approach to optimizing transportation. Just as systems can't function properly on a standalone basis, transportation planning and optimization must take into account the entire supply chain. Companies should aim for greater lane density in their routing decisions, Jakab says. Leading retailers are conducting frequency analyses, by which they determine when and how often individual stores are replenished. Plans can be altered according to store location, leading to the more efficient use of carriers and equipment.
One retailer with some 2,000 outlets has moved away from the maintenance of separate profit-and-loss accounting for each store, toward a high-level view of the whole distribution network. The company can react faster to changes in demand during seasonal sales peaks. "Millions are on the table in reduced transportation cost," Jakab says. The challenge, he adds, lies in getting stores and distribution facilities to depart from their traditional habits and work schedules.
A broader view of the network allows companies to plot alternative strategies and reduce transport bottlenecks, says Deegan. For example, importers moving goods from Asia through U.S. West Coast ports, particularly in Southern California, face serious delays in the offloading and domestic movement of containers during peak seasons. "We're at fourth-quarter type peaks already, and we're only in the second quarter," Deegan said in late May. The situation is expected to grow worse with the arrival of even larger containerships. He urges companies to adopt more flexible transportation strategies in order to get products to market without costly delays.
New carrier-shipper partnerships are essential. Stiles says the best companies are pursuing collaborative transportation management, seeking the greatest number of continuous movements and competitive alternatives. Meijer, the food and general merchandise retailer, informs its carriers in advance of the need for additional trucks in various lanes during peak seasons. In the process, it avoids paying premium freight rates. Electronic marketplaces are yet another means of linking shippers and carriers on a real-time basis.
Again, says Stiles, the hours-of-service rules become a critical factor. Better communications among sales, marketing and transportation within a company, so that upcoming promotions are relayed promptly to all parties, can cut down on unneeded driver hours.
10. Market yourself to your carrier. Most shippers view this as a one-way street. Carriers should be marketing to them, they say, not the other way around. But Stiles says companies can take steps to become more desirable trading partners. They benefit by forging more stable relationships with carriers, and getting better access to equipment when supply is tight.
Pepsi Americas, the soft-drink maker's bottling group, recently launched a program to advertise its desirability to carriers. The company touted its clean freight, timely and expeditious loading and unloading procedures, self-billing program and rapid, accurate payment process. Such efforts anticipate the crunch of peak seasons, Stiles says, and nudge the shipper toward the front of the line when it comes time to allocate capacity. "A few people have anticipated the fourth quarter," he says, "but a lot will be surprised."
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