Guest Commentary: Transportation Optimization Requires a Holistic View That Maximizes Service Across All Orders While Minimizing Costs

Retailers, manufacturers and other shippers often operate global transportation networks composed of their own assets as well as third-party carriers, in an environment characterized by order volatility, fluctuating consumer confidence, increased competition and cost containment pressures.

Too often, shippers attempt to address these competing challenges through simplification. Orders are pre-assumed to be served by a specific mode based on characteristics, fleets operate around a predefined geography, and modes such as rail or intermodal are relegated to specific circumstances. Once established, these strategies are rarely revisited or re-examined from a broader view.

Most shippers lack the big-picture perspective to consider the long-term cost effectiveness of their transportation networks. By having fixed strategies, shippers might be delivering goods on time and simplifying decision processes, but they are missing larger opportunities to drive additional savings and still meet their service goals. So how can shippers quickly make the right choices that balance low costs with high service?

The answer lies in implementing new business processes and advanced technology to create visibility across all orders. With visibility into all trade-offs, transportation planners can consistently make choices that maximize service performance while minimizing network costs. The right tools, processes and business rules can drive these strategies on an automated basis, decreasing the amount of resources needed for day-to-day transportation network management.

What’s Limiting the Vision?
Many shippers today operate in silos, focusing on operational and tactical analysis separately. Strategies for specific transportation modes have been pre-established based on certain order characteristics such as weight, size or delivery date. However, this inefficient siloed practice overlooks the potential savings that could be achieved using different — or even multiple — transportation modes. Without the ability to examine the entire transportation network, it is difficult for shippers to quickly and accurately determine which combination of transportation mode, shipment schedule and route will yield the greatest savings and customer satisfaction.

Beyond cultural issues, many shippers also use in-house transportation management systems (TMS) that are not able to examine all shipping modes, build multi-modal shipments or understand complex parcel shipping rates to make the most cost-effective choices. The good news is that advanced transportation solutions are relatively easy to acquire and implement in a highly configured way that meets each shipper’s unique transportation challenges.

A Process of Continuous, High-Level Analysis
A holistic TMS supports new, iterative business processes focused on gathering facts about all existing orders, then making the best judgment based on that strategic investigation. Armed with real-time data and insights, shippers can ask and answer a range of critical questions. Can certain orders be delayed to match up with other deliveries in close proximity? Can the private fleet be used instead of paying third-party markups? Can warehouses and distribution centers accommodate early or late shipments? Can transportation modes be mixed?

Advanced TMS tools ensure that shippers are supporting a longer-term perspective, in addition to daily logistics decisions. Using the advanced TMS tools, shippers can expand their geographies to take advantage of lower commercial rates, and then quickly shift orders to their private or dedicated fleets when carrier rates climb too high.

Transportation planning cannot be a one-time activity based on a universal shipping mode, but instead must be a continuous process of analysis. Business rules must be flexible enough to change as shipping rates, order volumes, fuel prices and other transportation factors evolve. By studying the big picture for any given day, shippers can make intelligent transportation decisions that are in both their and their customers’ best interests.

The Bottom-Line Benefits
Adopting the cultural, process and technology changes necessary to achieve a holistic view of the transportation function drives benefits that are well worth the investment. Consider these real-world examples of companies that have realized significant cost and service improvements:

  • PepsiCo recognized an opportunity to add value and generate revenue by establishing an internal logistics and transportation division for its various business units. With a new, broader perspective, Pepsi Logistics Company, Inc. (PCLI) offers the best possible transportation solution under PepsiCo’s negotiated rates. PCLI manages more than 40,000 annual shipments, powered by a single technology solution and shared planning practices.
  • Kimberly-Clark implemented a TMS with optimization capabilities that allowed the planning staff to create real-time service constraints and save an incremental $12 to $14 million per year in freight charges. The TMS automatically assigns approximately 80 percent of shipments to the carrier that best balances cost with service, resulting in an aggregate reduction of 35 hours of manual planning every day.
  • By using advanced tools for visibility across all orders, MasterBrand Cabinets produces daily transportation plans based on real-time network costs and constraints, and then builds production loads in its factory that result in the fullest truckloads possible. This approach enables the company to balance the made-to-order nature of its custom cabinetry with real-world business constraints. Electronic communications with multimodal carriers track shipments until all customer deliveries are completed. MasterBrand continually assesses carrier performance, so that future tenders can be automatically assigned to the most cost-effective, highest-service transportation vendors.

An Ambitious, Yet Achievable Vision
By leveraging advanced transportation solutions and a new cultural focus, forward-looking shippers are using a holistic perspective to make strategic matches across all orders and available shipping modes, foster better transportation choices and achieve significant competitive advantage. If your business has not yet achieved this kind of broad, transformative perspective, there’s only one question: What are you waiting for?

Fabrizio Brasca is vice president, global logistics, JDA Software. He is responsible for developing innovative transportation and logistics strategies across all industry verticals.

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