Relationships with third-party logistics providers and freight forwarders have the potential to deliver value beyond the primary scope of work through data-driven optimization insights. But many enterprises have little to no formal mechanism or governance process in place to engage their freight and logistics partners to deliver maximum value.
Without these formal governance processes in place, enterprises are likely missing opportunities to leverage nuanced market data, expertise and insights of their suppliers to optimize individual programs. Understanding the value that logistics partners can provide, and establishing a solid governance framework for encouraging and driving them to deliver analytics and insights to highlight that value, can ensure that such relationships are optimized to support business needs.
Today’s commerce marketplace is awash in a sea of data. Companies from all industries and of all sizes are taking steps to capture as much data as possible, in what has rapidly become a veritable race to digital. However, more energy and investment are typically spent on capturing data than on the ability to catalogue, parse, analyze and evaluate that data to generate meaningful insights. Companies that have identified effective ways to combine this analysis with data-collection efforts are able to elevate their competitive position and provide a differentiated offering to their clients.
Logistics partners are no different. By nature of the services they provide, they have access to valuable historical information relating to the classes, lanes and modes of the freight they oversee and move on behalf of clients. While they typically mask proprietary or confidential information, forward-looking logistics providers supplement this data with additional input. It can include historical weather, tide and traffic data from a number of outside sources. This enables logistics providers to begin identifying patterns and making correlations between data sets. The emerging patterns and correlations allow them to provide a differentiated service to their clients — namely, predictive analytics to drive freight optimization suggestions and recommendations based on real-world information.
Analytics can drive efficiencies, cost reductions, and reduce supply-chain risk. Imagine engaging a logistics partner that can tell you, based on your shipment attributes (e.g., configuration, timeframe, and lane), which modes have the lowest risk of damage, and which lanes have the highest (or lowest) probability of on-time delivery. Such insights can help buyers to make more informed decisions, leading to more efficient freight movement. With access to these types of data sets, combined with the analytical engine necessary to make such insights, a savvy logistics provider supplier should be able to solidify relationships with its shipping clients.
Perhaps not surprisingly, extracting these insights out of existing logistics providers might not be as easy as buyers would like. While they’re already part of the race to digital, that race is often more of a marathon than a sprint, with some companies lagging behind. While buyers can’t control how far along their logistics partners are in the race, they can negotiate commitments to deliver data-driven insights via the implementation of a robust supplier-governance methodology.
The first step is for the parties to agree to develop a mutually understood governance structure. Such a structure typically consists of specific, named individuals at the operational, managerial and executive levels of both the buying organization and the logistics provider. Individuals in these roles will need to clearly understand their responsibilities and boundaries, all of which typically are defined and agreed upon at the outset of a commercial relationship.
Next, the parties will need to agree on the metrics to be collected and used to determine whether obligations are being met. Within this area, the buyer should lay out expectations relating to things such as the logistics provider’s data collection, analysis and insight capabilities. The parties can define and agree to the cadence for the measurement, reporting and ongoing management of the metrics that are used to ensure that value is being delivered.
Regardless of the specific roles, metrics and measurements, the most important part of governance is the consistent process of buyer and logistics provider coming together frequently to discuss what’s working well and what may need improvement, and to agree on the best ways to ensure that improvements are implemented and additional benefit is realized.
Today’s business environment grows more competitive each day, as companies look for opportunities to increase speed, improve efficiency and lower cost — all critical components in a total value equation. Companies with significant freight and logistics requirements can better position themselves in that value equation by engaging their logistics partners to meet their needs and deliver analytics-driven insights and recommendations. Framing those expectations within the context of an overarching supplier-governance program can go a long way toward helping to continuously elevate the company’s marketplace position.
Adam Cummins is a director at Pace Harmon, a business-transformation and outsourcing advisory services firm.