With the economic downturn, more and more companies are putting their internal processes under review to identify areas to save costs and increase operational efficiencies. In many cases, this means shifting an organization's decentralized operational system to a centralized model. By adopting a centralized approach, an organization can synchronize all of its divisions and increase plant visibility, resulting in a more cost-efficient and strategic organization.
Making the transition from a decentralized to a centralized system can be an extensive and stressful process that requires a company to restructure its decision-making hierarchy. In order to make this a smooth and effective transition, all parties involved need to understand the change management required and how the transition will affect the organization. There are several important recommendations executives should keep in mind to ensure an effective and successful transition.
Select a System That Fits the Company Culture
Every company is different, so the desired system must reflect the culture of each unique organization. Identifying organizational characteristics and vision will help ensure that the selected system is aligned with company goals and the desired organizational structure. This can alleviate transitional difficulties.
There are specific cultural differences between companies who operate in a centralized manner versus a decentralized one. A centralized system is cost-driven and flexible, allowing companies to shift strategy based on changes in the market. Companies leveraging a centralized system can quickly become more lean and efficient as the decisions are being made at a corporate level that then spread throughout the organization. Decision makers within the organization can pursue strategic opportunities such as carrier management and leveraging the entire network because the communication is being done at a higher level within the company, its customers and its carrier network. This allows organizations to promptly and efficiently enact change that will positively affect their businesses.
On the other hand, a decentralized system allows decisions to be made at the plant level where these facilities work independently of each other. By working in this siloed manner, plants are responsible for making their own logistics decisions and each plant is seen as a profit level for the organization. Companies with this structure tend to maintain control of their individual operations and are resistant to change.
A company's chosen system provides very different opportunities in how it interacts with its carrier network. With a centralized system decisions are made at a corporate level, enabling companies to interact at a higher level with their carriers. Corporate decisions regarding carrier selection will then be carried out by the various plants and branches. While a decentralized system may provide more opportunities for a localized carrier mix and development of individual carrier relationships, but it does not allow for cross-plant and cross-division visibility or carrier consolidation, making it operationally less efficient.
Be Patient During the Transition
Although a quick transition is ideal, change management is not an overnight process. Such a shift requires organizational reconstruction and refinement, which includes overhauling the current freight management approach, establishing an entirely new division and developing infrastructure at the corporate level. While many companies are contemplating the system change now to save costs, this is an extensive and detailed process that can take 6 to12 months before seeing an ROI and could take two or three years before the noise from the transition subsides. The aggressiveness of the company can greatly affect how quickly a company sees the positive results.
When transitioning to a centralized system, a company must:
• Establish the new division and positions then assemble a team of experienced and capable individuals to design and launch the centralized transportation initiative
• Identify specific IT needs and build or purchase the appropriate software then implement the selected software and process and properly train the team to use them
• Develop a corporate policy on the use and analysis of the selected software and processes to ensure that all employees are on the same page
Communication is Critical
Centralization involves adaptation and adjustment by all parties involved. When decision-making authority is taken away from plant managers, corporate executives and the newly established team must communicate that they are serving as partners and not attempting to take others' jobs. Personnel may feel threatened and assume they will lose their jobs; in turn, they may try to sabotage the project. Openly communicating with and respecting the concerns of these individuals will not only help to create a team-oriented environment, but will aid in their support of the project. Additionally, asking project managers and decision makers at the plant level for their opinion will help with a smooth transition and allow them to continue to add value.
The implementation of any new technology and process encounters some problems, anticipated or otherwise, and it can be overwhelming. It is important to immediately and directly address challenges and communicate strategies for resolving issues. This will help instill confidence within the organization and can be the differentiator between successfully transitioning to a centralized system and creating avoidable problems, which could prolong the project. Bringing in representatives from plants to observe the new processes and provide feedback will allow them to better understand how the transition will benefit the company and individual plants.
Another important component of communication is between employees at the plant level. Managers within a plant must share information and plants must in turn share information with each other to obtain visibility and improve efficiency. A lack of visibility across a national network can prevent shippers from taking advantage of optimization opportunities such as milk-run routes and backhauls. Blending carriers and grabbing more capacity allow for extensive resource utilization and emulate the underlying rationale for centralization.
Document the Process Completely and Correctly
Individual plants within a company may be operating differently, which can be a major pitfall in linking sites and optimizing processes. Understanding and communicating each plant's location, people, processes and carrier base is critical in order to achieve efficient operations. While corporate policy may dictate what a plant must do, each plant may have its own processes in place, creating a decentralized system within the plant. Each plant might use different ERP systems in inconsistent ways. For example, one plant might use its ERP system for transportation management and another for data accuracy. Implementing consistent processes and procedures throughout an organization ensures that companies are running lean. Additionally, transitioning roles from individual plants to a corporate team allows employees to be relocated within the organization and used in another valuable capacity.
Focusing on thorough documentation of the process will aid in the organization becoming leaner and more efficient. Decentralization keeps carrier records and data separate from the rest of the network, whereas a centralized process captures inbound and outbound capacity and how they fit together. This network visibility allows carriers to better track safety, insurance and compliance issues and allows corporate visibility to more key performance indicators (KPIs). Centralization of carrier information can drive down costs as the network blends together, making the daily operations more productive.
Some sites will be less willing to adapt to change and harder to convince than others. But being prepared with carefully documented processes and success stories can be excellent resources when resistance or reluctance is encountered. Compiling these testimonials and having them readily available is crucial in getting more sites on board and will accelerate the progress and completion of the centralization transition.
Transitioning from a decentralized to a centralized system can be a significant undertaking that requires a lot of change management and patience by everyone involved. When done correctly, this switch can result in cost savings, improved visibility and increased operational efficiencies. Whether making the transition in stages or all at once, companies need to make sure they are selecting the appropriate operational system in order to help achieve its business goals and understand the time and processes for each step along the way.
How a Ga. Manufacturer Optimized Its Transportation Spend
A Georgia-based manufacturer of packaging products recognized it had been spending more than $100m annually in transportation costs due to the fact that each of the company's 80+ plants and converting sites independently handled their own freight - from carrier and mode selection to scheduling and billing. The company's decentralized approach compromised its ability to identify and capitalize on cost savings and optimization opportunities. The lack of freight visibility across the national network prevented the company from recognizing and taking advantage of milk-run routes, backhauls and similar optimization opportunities. Adjusting the structure of the transportation management process would increase visibility, improve operational efficiency and boost the company's bottom line.
When the manufacturer decided to adapt a centralized system, it identified the requirements and found it needed to migrate from a "Daily Shipment" model to a "Transportation Optimization" model. Utilizing a transportation management system-enabled Load Control Center (LCC), the company was able to automate its planning, scheduling, optimization, execution and reporting as well as gain national network visibility and robust computerized decision support. This transition would enable the manufacturer to leverage its total freight spend, facilitate adoption of best practices and drive strategic cost savings initiatives.
The next steps in adopting a centralized model were to standardize the manufacturer's policies and procedures. Each of the 80+ plants operated independently; some of the sites had employees managing freight full-time, while in others customer service representatives or other staff handled transportation in addition to their primary responsibilities. No standardized transportation management practices were followed, and no regular carrier performance or KPI monitoring was required. Becoming centralized allowed the company to adopt a model that established standardized practices and technology.
The company decided to roll out the TMS in phases to generate positive momentum for change and strengthen credibility. The transition began at a few selected sites that represented 80 percent of the company's freight spend. With attentiveness to communication and documentation, the team was able to take the employee's positive feedback and turn it into a collection of success stories for the remaining sites. The company also involved its workforce by encouraging them to undertake the additional planning and structure that the TMS required on the front end of the carrier selection process, and executives also reassured employees that customer service would not suffer under the new automated system.
The company can now track on-time delivery and pick up as well as monitor and improve performance and customer satisfaction levels. Pre-TMS, the company had to rely on anecdotal rather than statistical evidence to identify poorly performing carriers. The decision to move forward with centralization allowed the company to become more integrated, cost-efficient and strategic by transforming its system from daily shipping to true transportation management.
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