Last summer, I wrote a posting highlighting the “white spaces” of transportation management—i.e., existing opportunities for companies and software vendors to innovate the way transportation is planned and executed. In many cases, these opportunities are not new, but either the technology hasn’t existed to enable them very well or companies have simply chosen to focus on other priorities.

One positive effect of the recession is that it has forced many companies to challenge the status quo. They are using the economic downturn as a “catalyst for change” to transform their business processes and find new avenues for cost reductions, productivity improvements, and service level enhancements.

I’ve long argued, especially when trucking capacity was severely constrained a few years ago, that companies can no longer treat transportation as an “infinite resource” in their planning processes. Other than investing in a private fleet, you can’t build up transportation capacity like you can inventory; you have to plan for it like other constrained resources. Many companies have collaborative planning and forecasting processes with suppliers and manufacturing partners, but very few companies translate demand and production forecasts into transportation capacity (or warehouse labor) requirements.

And this is one of those white spaces of transportation management, which is also the focus of a new solution Terra Technology announced today called Transportation Forecasting (you can read the press release here for more details).

I received an advanced briefing and demo a few weeks ago, and considering my viewpoints on this topic, I believe there’s a real customer need for this type of solution. Terra reports that a large CPG manufacturer has conducted pilot tests and other customers are in the queue to test it. I hope to speak with these customers down the road to learn how the solution performs in practice.

Transportation Forecasting Overview (Source: Terra Technology; click to enlarge)

Based on past case studies that I’ve come across, there are at least two key areas where this solution can provide cost savings and other benefits in transportation: (1) fewer “last minute” procurement of transportation capacity to support trade promotions and (2) converting more truck shipments into intermodal or rail.

For example, a few years ago, I interviewed the Director of Transportation Services at Unilever at the time. One of his biggest challenges was finding out about trade promotions at the last minute. And to make matters worse, none of the product groups would talk with each other, so multiple promotions might run the same week. Simply put, he would always have to scramble and pay above market rates to find enough trucking capacity to meet demand. He solved the problem by gaining access to the systems used by product managers to plan promotions. He could see planned promotions across product lines, their dates of execution and expected uplifts, and then he would convert this info into transportation capacity requirements. This process was more manual than technology-driven, but it worked nonetheless. In one case, five simultaneous promotions in a month created a 20 percent spike in volume, but since the transportation group had forward visibility to these promotional campaigns and shared the anticipated capacity requirements with carriers, they were able to secure capacity four weeks in advance.

Another example is Canadian Tire. Based on a presentation given at an industry conference several years ago, I was impressed by how “ahead of the curve” the company was on this topic. Like many companies, Canadian Tire creates a 26-week demand forecast (per stock keeping unit) that it shares with suppliers; firm requirements are communicated three weeks out. This forward visibility allows suppliers to plan effectively for manufacturing capacity, resources, and other factors. Canadian Tire also translates this demand data into logistics capacity and resource requirements, both warehousing and transportation, and shares the information with its distribution centers and carriers. The company’s goal is to lock-in and pre-pay for capacity as much as three weeks in advance. At the time, Canadian Tire acknowledged that most carriers did not know how to use this forward visibility very well. The only exceptions were a few ferry and barge operators, where Canadian Tire was able to secure capacity, based on its logistics forecast, many weeks in advance. Nonetheless, Canadian Tire’s ability to calculate logistics capacity and resource requirements from a demand forecast is a notable achievement; it’s also a pre-requisite to enabling collaborative processes between shippers, carriers, and consignees.

As I’ve written about in the past, many shippers are looking to get away from “one-way” truck freight, knowing that capacity will get extremely tight again when the economy recovers, so they are working with customers to convert more shipments to rail and intermodal (see what I wrote about Wausau Paper and Staples in “Transportation Procurement is ‘Hot’ Right Now”). Having forward visibility to transportation capacity requirements and shipments will further facilitate this effort.

The bottom line: if you have already captured the low-hanging fruit benefits of a TMS and WMS and are looking to capture additional value, focus on the white spaces these solutions and your current business processes aren’t addressing. Converting demand forecasts and signals into logistics capacity and resource requirements is a good place to start.

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