Strategic Sourcing: Time for an integrated transportation strategy
By Robert Giacobbe, Robert J. Pitts, and Michael R. Reiss | Supply Chain Management review
The balance between shippers and carriers swings back and forth. Lately, carriers seem to have the upper hand. However, carriers have made strides in reducing excess capacity—while volumes have improved—and have benefited from generally lower fuel prices. With this shift in balance, shippers have a greater need for an integrated transportation strategy so that they can apportion resources effectively and minimize the impact of carriers’ increased pricing power.
Carriers have also become more efficient. They have tightened their operational controls, started to modernize their assets, and adopted new technologies. These initiatives, in combination with an improving business environment, have driven growth in the transportation sector.
Carriers, of course, face their own set of challenges. As part of the overall drive to achieve efficiency, carriers are accelerating their transition to a regionalized network model. While such models deliver significant operating efficiencies, they also exacerbate driver turnover, which is already high due to changing demographics—older drivers are retiring and not enough new drivers are entering the business—and competition from other industries.
In the midst of this, shippers are hardly standing still. Many are re-thinking their entire supply chain—considering how they can transform it into what we call a “digital supply network” that uses new technologies to change the way they design, source, make, move, store, and
As they evaluate their transportation networks, they seek deeper insights through the use of analytics, greater collaboration, and near-real—time responses to changing market conditions. They also see transportation as a key component of the digital supply network, one that can help companies establish competitive advantage and contribute to sustained, profitable growth.
Creating a TMC
Shippers continue to increase expectations with their transportation departments to drive productivity, lower costs, and improve service across their end-to-end networks to deliver a seamless experience to internal and external customers.
These continual and increased demands require more advanced use of technology and analytics to support the business with critical information. What companies need—but few have in place—is an integrated approach to transportation strategy.
The integrated approach is based upon a central team that uses technology to track and identify potential disruptions. Their scope is holistic and extends across the supply chain ecosystem to other internal functions as well as to suppliers, partners, and customers. An integrated solution provides visibility as data is standardized across the supply chain ecosystem.
For companies that have not made the move to an integrated transportation strategy, a key first questions are: How is the network currently structured? Is it centralized or dispersed by region? No matter what the structure, an enterprise-wide capability in the form of a transportation control tower or transportation management center (TMC) is critical. A control tower drives operational execution decisions through data analytics and can improve visibility and foster collaboration across different parts of the network.
In particular, the TMC can manage daily planning and execution operations, while also enabling more strategic initiatives such as continuous collaborative improvement, efficiency, and cost reduction to support the entire transportation procurement strategy. With the introduction of cloud, such a system becomes less capital intensive and easier to extend to carriers and suppliers.
Considering today’s complex environment, companies need a more collaborative approach to dealing with their transportation suppliers and increased visibility of shipments in the supply chain pipeline. This approach begins with data. Companies now have access to a vast amount of transactional data, such as cost per shipment, vehicle utilization, the mode selected, whether goods were shipped via parcel or in less than truckload (LTL) amounts, and the levels of service delivered by selected carriers.
By organizing this data properly and using sophisticated analytics and business intelligence tools, shippers can make better informed decisions about their entire transportation strategy, from big-picture issues such as network optimization and the location of distribution centers to more specific concerns related to pricing, cost to serve, compliance, and safety.
A second step involves evaluation of both the internal and the external factors that stand in the way of an optimized, effective digital supply network.
Internal factors, those within the company’s control, include the capabilities, tools, and other assets needed to plan, manage, and execute transportation moves; enterprise-wide efforts to rationalize sourcing and realize operational efficiencies; and the company’s ability to access information and data on a timely basis.
External factors, those outside the company’s control, include such things as shifting fuel prices; regulatory and workforce issues affecting the transportation industry; inclement weather conditions; or even an unanticipated spike in customer demand.
Tying into the digital supply network
With internal and external factors evaluated, the company can lay the building blocks of an integrated transportation strategy. To support that strategy, companies will need to strengthen their digital network in areas such as business intelligence, analytics, scenario planning, and collaborative technologies.
A stronger digital network supports internal improvements, but also enables the shipper to work more closely with suppliers to realize greater efficiency and effectiveness. In our view, the digital supply network rests on four key attributes:
Connected. Digital supply networks are connected at their foundation and interact with the full business ecosystem, including the company’s transportation management group and its ecosystem of suppliers and partners for real time information flow. Collaboration is proactive, and digital technology is utilized to actively capture customer feedback and carrier inputs as well as feedback on transportation performance. That information is processed and shared with internal teams for action.
For connected companies, the digital supply network provides real-time visibility throughout the network, using supplier data, shipment execution data, and market intelligence. Mobile technologies enhance its connectivity as it allows shippers to work with carriers, thereby enabling dynamic routing and delivery assurance.
Intelligent. Once fully networked, transportation becomes part of an integrated network, where analytics fuel transportation management decisions. Data is analyzed and insights are derived from the entire ecosystem of internal functions, as well as key suppliers and customers. As a result, the company benefits from dynamic reporting capabilities and a store of carrier performance information such as cost, service, capacity, safety, quality, and reliability.
That information can be used to conduct supply chain network analysis, transportation modeling, and business intelligence analytics to maximize value and minimize system-wide costs while meeting service level requirements.
Scalable. In addition to being smarter, digital supply networks also make it easier to scale a company’s transportation services up or down as market volatility and circumstances dictate, with the plug and play capabilities afforded by these networks. As such, the connected, intelligent shipper finds it easier to maintain flexible resources and to add and/or reduce partners as needed. With a well-integrated, digital supply network, companies find it easier to enter niche markets and achieve a significant reduction of the time to market of new products.
Indeed, 51 percent of C-level operations and supply chain executives say that supply chains characterized by a multitude of partners and numerous geographies are their biggest challenge. Transportation is no small part of that equation. However, as companies leverage analytics, cloud, 3D printing, and social media to make their supply chains scalable from end to end, they can contribute significantly to growth as digital technologies reduce time to market and enable swifter, cost-effective delivery schedules.
Rapid. Recognizing that speed may be the currency of the future, digital supply networks enable flexibility in operations across the entire supply chain ecosystem by taking key suppliers and customers into consideration. This lets the company react quickly to demand and supply volatility, adjusting their shipping plans accordingly.
Vital data can be stored in as close to real time as possible, and in a format that makes it accessible and easy to use. Just upgrading from PDF to Excel formats for reports can provide significant benefits on this front.
Building an integrated transportation strategy
With an integrated transportation strategy in place as part of a digital supply network, companies can strategically source transportation events more efficiently. The company begins with an assessment of its own network and internal organization.
During the assessment, the company should align its transportation decisions with its overall growth strategy. To achieve alignment, transportation management will want to conduct a market assessment, evaluate products in the pipeline, consider how they could affect future shipping activities, and they should engage with their stakeholders—including customers and suppliers—to better understand current levels of service and satisfaction.
With the big picture strategy established, the company can make more informed choices about its modal strategy and then align with the right planning and execution strategy. Information will also be needed to manage the carrier request for proposals process. Using an optimization-based scenario approach allows shippers to balance critical business constraints with carrier capacity, thus putting the right freight with the right carriers.
Management of complex compliance issues should also be factored into the integrated transportation strategy. Better information and more sophisticated analytics, which they can leverage through their digital supply network, can help companies comply with routing guides, track supplier safety metrics, and compare actual safety, fuel, and emissions performance against RFP and budget forecast numbers.
Additionally, if designed, sourced, and executed correctly, the strategy can help companies track suppliers’ pricing and volume trends; the frequency with which they transport goods to and from different destinations and origins; as well as their operational performance in terms of reliability, timeliness, and safety.
Another way to build momentum and accelerate positive change and potentially help fund longer-term investments is through the identification of “quick wins” in areas such as local routing and delivery, load consolidation, freight contract management, and freight sourcing. These less complex, easier-to-implement initiatives also reduce costs and free up cash that can be used to fund strategic investments.
Benefits of an integrated approach
A holistic, integrated approach to transportation—undertaken as part of the move to a digital supply network—can deliver significant benefits to shippers. With the carrier base re-shaped, optimized, and rationalized, shippers can implement tighter cost controls, improve reliability, and record higher customer satisfaction scores.
Transportation services are aligned with the needs of internal and external stakeholders, so it’s easier to develop transport strategies to support product development, to reach underserved markets, or to customize products for specific markets. And, when unforeseen events occur, the company is in a better position to respond quickly and effectively—minimizing the risk of disruptive events in the supply chain.
Implementing an integrated transportation strategy as part of a digital supply network is clearly beneficial. However, a digital supply network represents more than just the broad application of technology. The supply chain is evolving from a function concerned with the movement of materials to an inter-enterprise discipline intended to optimize materials, talent, information, and finances.
For both shippers and carriers, these are exciting times for the transportation sector. As a core element of the digital supply network, transportation has become central to a company’s growth strategies. By integrating transportation within a digital supply network, companies can gain an edge over competitors who still see transportation as a series of disconnected components rather than a vital