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Guest Commentary: Supply Chain Direction – Strategic Plan vs. Cost Center

Guest Commentary: Supply Chain Direction – Strategic Plan vs. Cost Center

By Jason Nurmi December 17th,2013 Logisticsviewpoint.com

When companies engage with a shipper, regardless of the industry or the complexity of the supply chain, the first area to focus on is where supply chain stands in the organization.  Although supply chain management is now a generally understood function in most companies, organizations often struggle to get supply chain management on the key initiatives list for their CEO’s.  There could be a number of reasons for that omission.  We often hear that supply chain management is just too complicated or broad to take a focused approach. Either way, before an organization can begin strategizing to manage change in planning, optimization, or service improvement, it needs to determine the appropriate  controls and how to employ them.   Simply put, organizations must first determine whether it considers supply chain to be a strategic function or just a cost center, and then figure out the best way to execute based on that determination.

Supply chain as a strategy

For companies that view its supply chain as a strategic asset, the most important question becomes, “How can our supply chain be a competitive advantage?” From LeanLogistics’ diverse network of clients, I see three underlying themes that organizations use to position their supply chain as a differentiator:

  1. The organization must identify and support a champion on the leadership team.  By having the support of a VP level or above, supply chain is able to influence and develop overall business strategy. From product development to packaging to mode, someone must be controlling and managing this piece, so it is best to have someone who is “hands on” at the very top level of your organization.
  2. Supply chain initiatives must be measured by a direct link to the customer service experience. Sure, large enterprises like Amazon have achieved excellence with their supply chain initiatives, but organizations of all sizes can also implement this approach to achieve similar strategic results. By ensuring that products reach the end customer in a timely fashion, success can be measured by customer satisfaction levels, rather than delivery time. If we think about the 4Ps of marketing (Product, Price, Promotion, and Place), supply chain is the “Place” in today’s marketplace.
  3. “Transportation will continue to play its primary role as a ‘bridge’ and ‘shock absorber’ for businesses and supply chains,” said Chris Caplice, Executive Director of the MIT Center for Transportation & Logistics. As companies scale to meet business demands while supply chains expand and contract, organizations need a solution that can provide the same elasticity. Whether that is expanding into new markets or optimizing the methods used to serve existing markets.  The complexity within the transportation market drives professionals to look for alternatives to traditional on-site or hosted transportation software systems; technology that can keep pace with today’s ever changing demands. As the transportation world continues to evolve, transportation technology must adapt and continue to provide value.  That flexibility is the key to sustainable and continually improving supply chains.

Supply chain as a cost center

For organizations that continue to view supply chain as a cost center, it’s important to acknowledge that many shippers don’t have a seat at the table, but are still held accountable to contain or lower costs in the current economic environment.  When we encounter a shipper working from this corporate mindset, I’ve found that there are a few key tactics they can use to help drive success to their organization through the supply chain –

  1. With fuel fluctuations and a looming lack of carrier capacity in the market, companies concerned about the bottom line need to proactively address challenges such as carrier relationship management to maintain service levels without affecting cost. Without visibility into transportation processes, companies are forced to utilize more spot buys resulting in higher costs per mile, more empty miles, and an increase in carbon emissions.  By focusing on carrier relationships, the shipper can yield savings, but also decide on the best modes and carriers to improve service.
  2. In a world that is shifting to omni-channel distribution, it becomes increasingly challenging for organizations to manage their supply chains as a cost center. Organizations need to focus on customer purchasing and manage their supply chain distribution network accordingly. Effectively shifting the percentages  between TL, LTL, and parcel can be an effective approach to control costs. Transportation sourcing technology can provide the visibility needed to help streamline a RFP, introduce new carriers, and display cost performance across the transportation network. This type of technology can also help determine where the company should optimize customer purchasing to reduce costs. By moving away from “just in time” models to optimized purchasing models, companies can leverage full truckloads, which in turn, lowers the cost-per-mile.
  3. Moving away from manual processes can also help.  Yes, Excel has its merits, but numerous companies still use manual methods to manage freight with no way to measure service, benchmark against other shippers, or evaluate performance over time. With limited metrics and no best practices, companies struggle to control, let alone, reduce costs. These companies can realize significant savings by leveraging today’s advanced transportation management technology to deliver complete transportation planning, execution, settlement and procurement to improve supply chain processes and reduce costs. Also, when “cost is king,” shippers need to understand that omni-channel distribution is going to increase costs and is better suited for companies that view supply chain as strategic.

Many of today’s supply chain industry challenges are not new, just more complex. Whether an organization views supply chain as strategic plan or a cost center, improving service while containing costs has always been a goal for transportation and supply chain professionals. With limited capacity availability for shippers, cost increases, and the complexity of managing many moving parts of a supply chain, companies cannot afford to continue using manual processes or aged software. Not only do shippers need to have visibility to carriers, vendors, and other supply chain partners, but companies need to leverage innovative technology and work together in order to scale their business and improve their performance.  To continue this conversation, contact the author or visit Is your supply chain a strategic plan or a cost center?

Jason Nurmi, VP Technology Services at LeanLogistics, is responsible for all aspects of customer technology implementation, post-implementation tactical customer support, and client services. His leadership at LeanLogistics has enabled the Technology Service teams to develop proven processes and efficiencies.  Leveraging his 18 years of experience in the Manufacturing, Warehousing, and Transportation industries, he continues to drive best practices to efficiently implement LeanLogistics technology and drive on going value to customers with experienced professionals in the industry.

Prior to joining LeanLogistics, Jason has held roles in support, education, consulting, and management. Jason holds a Bachelor of Science degree in Industrial Management and a Master Degree in Administration from Central Michigan University

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