When a shipper is looking to purchase a transportation management system, one feature that can have a very robust ROI is the ability to optimize shipments of the private fleet and the for hire fleet at the same time. In other words, a shipper can maximize freight savings by using company owned trucks where they make the most sense, and using common carriers on those lanes where they make the most sense.
This functionality is used far less often than you would think. It is hard to locate and talk to shippers that are doing this. But JDA, an ARC client, pointed me to one of their customers in the consumer goods industry that is doing this. I was able to talk to this shipper’s senior logistics executive about this.
Even at this company, only a subset of their truckload (TL) freight qualifies for this type of optimization. They use this joint optimization for a set of products where they have good visibility to orders that are due to be delivered in 5-10 days. Further, these orders all start at a company owned plant and are delivered in full truck load amounts to either another plant/commixing center or a company owned distribution center (DC).
When goods are destined for a customer site, customer service concerns trump freight cost savings, and these destinations are not even considered for joint optimization. And when goods are destined for a rural warehouse that is often unmanned, security issues dictate those goods be carried by the private fleet.
The way the dual optimization works is that all the transportation orders to be delivered several days out are dropped into the optimization engine. The engine understands the costs associated with carrier moves and compares those costs to “company fleet tariffs.” These private fleet tariffs include a fixed cost component – there is a depreciation cost associated with a truck whether that truck is fully utilized or not. There are also variable costs that include driver pay, truck maintenance, fuel and other costs that can be calculated on a per mile traveled basis.
In general, the engine returns continuous moves for the private fleet where the company owned truck always returns home at the end of the round trip. For example, the truck might start at a plant in Houston; drops its load in Kansas City; then dead head to Topeka where it picks up a new load; that is then brought back to the Houston plant. Carrier moves, in contrast, are always point to point.
Operationally, the planning is done centrally, but each private fleet location has a traffic department. The traffic department is sent the proposed moves involving company owned trucks. The TMS does not always understand what is occurring on the ground at a remote location. The traffic department, thus, chooses the continuous moves that it can execute, and passes on those it can’t. Then the optimization engine is run again the next day and the process starts over.
There were cultural hurdles that needed to be overcome to make this program successful. Traffic centers have a scorecard that looks at the potential savings per day they were presented with and the actual savings they achieved by taking continuous move routes suggested by the TMS.
Continuous moves mean longer round trips, and there was initially driver push back. Drivers were educated to the fact that every year when this shipper went through an exercise to determine how big the private fleet should be, the private fleet was compared to carriers on the savings that could be generated. Continuous moves helped to keep the private fleet cost competitive and helped to insure job security.
The senior director I spoke to also believed very few TMS solutions could really do this form of optimization; the JDA solution can flexibly model private fleet mileage based tariffs so that these moves can be compared to common carrier moves on an apples to apples basis. Fab Brasca, the VP of Global Logistics at JDA, adds that to enable this form of optimization a TMS also needs to be able to model home bases (for round trip moves), trucks vs. trailers (for drop trailer programs), and hours of service.
What is the payback from these types of programs? This shipper is saving millions of dollars a year on a set of moves that apply to a relatively small portion of their fleet. But clearly getting to those savings involves selecting the right technology, properly modeling private fleet costs, and patient change management.