Shippers and logistics providers in the food and beverage industry continue to adopt more advanced transportation management software, but many are not taking full advantage of optimization tools. Companies rightly start the first leg of their TMS journey focusing on execution to enable process automation. Optimization is typically a second leg in the journey and often gets left out.
The traditional deployment model of TMS is partly to blame. When the software is hosted on premise, optimization may require a separate module with significant up-front and ongoing capital investment. Perception is also a barrier to adoption, especially among small companies that believe a large volume of shipments is prerequisite for a return on investment.
The cloud computing model has removed these and other obstacles. Companies of all sizes can now access high performance software with optimization tools that are integral to the planning and execution process. The “optimization on demand” trend of cloud-based TMS is giving companies in the food and beverage industry a second chance to make improvements in the following areas, regardless of size or previous experience with the technology.
Private fleet and carrier selection
Shippers and logistics providers with their own assets have traditionally used different TMS solutions for two distinct purposes. One, is to maximize the utilization of private fleets and minimize total distance and fuel costs; the second is to select common carriers by identifying the lowest rate in each lane.
Companies can now simultaneously optimize their networks for both private fleet and common carrier capacity. The optimization is not a one-time event and the selection between private fleet and carriers can be done dynamically based on capacity, fuel and other cost considerations. “What-if” simulations can be run at any time to determine the impact of changes to the network from increased fuel costs and other variables.
Simultaneous optimization of inbound and outbound with additional opportunities for leveraging backhauls and minimizing deadhead miles makes the ROI even more attractive for organizations. Optimization also can add tremendous value with the direct-to-store delivery model. The ability to immediately plan and execute consolidated shipments to save costs while maintaining a high service level is a differentiator for many small and medium-size businesses that are emerging in fast-growth markets like health foods.
Transportation management extends beyond the walls of a single enterprise, and cloud-based TMS platforms have an inherent advantage for exchanging information between trading partners.
As the number of shippers and logistics providers using a common TMS platform increase, so do the number of carriers that interact with them in a single cloud-based logistics network. Onboarding new partners — carriers, suppliers, freight forwarders, 3PLs, banks and more — into this network becomes faster and more efficient since the connections already exist through a one-to-many approach. In the food and beverage sector where there is a need for carriers with specialized equipment for refrigeration, leveraging a carrier community with industry specific expertise is a great value add.
Another advantage of cloud-based TMS platforms is the use of web-services for capturing accurate, real-time information directly from carriers. Rates by weight and volume, accessorial charges, fixed costs, fuel charges and more are all examples of inputs that can be fed automatically into the optimization tools. The better the quality of data, the better the results.
A major selling point in the food and beverage industry is sustainability. Companies can help reduce their carbon footprint and document the results using optimization tools.
One approach is to use a carbon tax as an accessorial charge. The optimization engine consider this with other variables to minimize transportation cost. Another approach is to use distinct factors by mode of transit (LTL, rail, ocean, air, etc.).
For example, a typical factor for LTL could be 80 percent. This means that an LTL movement will emit a factor of 20 percent more CO2, on average, than a truckload of the same distance and weight. LTL movements typically have more miles due to other stops on the route and do not reach 100 percent cargo capacity. The optimization engine considers this factor when selecting transport modes.
The bottom line
Companies of all sizes can benefit from leveraging optimization technology and with the advent of latest technologies, this is becoming more and more affordable and attractive from a ROI perspective
Companies that are looking to implement, or more fully utilize, on demand optimization technology in a cloud-based TMS system can start by evaluating vendors not just based on technology but also have the expertise in helping clients with the process.
As good as the technology is, optimization is a process. As such, the vendor’s expertise and guidance will be beneficial in tuning the engine to achieve the desired output. Another factor to consider is if the vendor provides managed optimization services. These services may be necessary until you, as a company, are able to develop your own competency.
For most situations, optimization is not a “big bang” approach but rather consists of taking small steps and then expanding your stride as you reap the benefits.
Vikram Balasubramanian has more than 18 years of experience in the supply chain space. He currently serves as Sr. Vice President, Strategic Product Development for MercuryGate International and is responsible for go to market strategy and product commercialization. Prior to MercuryGate, Vikram was VP of Product Management and R&D at E2open. Before E2open, Vikram held leadership positions in IBM, PepsiCo and i2 Technologies across various roles in product management, pre-sales and consulting.