Also known as “the 80/20 rule,” the Pareto Principle states that, for many events, roughly 80% of the effects come from 20% of the causes. Management consultant Joseph M. Juran suggested the principle and named it after Italian economist Vilfredo Pareto, who noted the 80/20 connection while at the University of Lausanne in 1896, as published in his first paper, “Cours d’économie politique.”
The same 80/20 principle can be applied in the supply chain, where bringing products to market remains a central focus for everyone involved in that end-to-end chain. Independent research from leading analysts tells us that an average trailer shipment takes three days to move from one facility to the next with only eight hours on the road. Simply put, for 80% of the shipment time, the trailer is idling at a facility.
Now, because of the costs involved in transporting freight, companies have a tendency to focus their attention and capital around the actual movement of goods. Forgotten in transshipment – and lost on the balance sheet – is the time and money surrendered as trailers and drivers sit idly by.
In most cases, this idle time takes place in the yard, where a reefer has been sitting for two weeks and needs to be pre-cooled before any food can be loaded onto it for delivery. A broken-down yard jockey was parked in the corner of the yard, waiting for someone to notice it and repair it. Two dock doors aren’t operating properly and, as a result, the inflow of goods into the DC is slower than usual.
These are just three of the scenarios that unfold in distribution yards nationwide on a daily basis, and that most companies are tackling through a combination of manual processes, spreadsheets, phone calls, and emails. But to gain complete visibility and effectively manage the gate, dock, assets, yard, shipments, and network operations, companies need scalable, cloud-based YMS solutions that effectively conquer challenges like lengthy gate check-in processes, multiple or redundant moves, time-consuming yard checks, delays, and excessive detention or demurrage charges.
Advantages of a Digital Yard
Here are a four ways the digital yard helps companies save time, money, and effort:
- Reel-in intangible supply chain expenses: At any given time, there are approximately 5.5 million trailers in the United States, which on average make 500 million moves a year. A trailer ships every three days and the average shipment distance is 200 miles at a cost of $400 per move, according to data from the U.S. Department of Transportation and the American Trucking Associations. While the per-mile cost of transportation is easy to calculate, the time and money that is spent as trailers and drivers sit in yards is less tangible.
- Remove the “hidden costs” of warehousing and transportation. When a shipper or consignee negotiates with private carriers and puts out bids for certain lanes, their primary objective is to evaluate the cost per mile between specific locations. As part of that negotiation there may be specific parameters – for example, the amount of time before delays trigger demurrage detention charges. Carriers inevitably build the dwell time that trailers spend inside a yard as well as the idle time of drivers between pickup and drop off into the rate. That cost invariably becomes fixed regardless of whether or not a yard becomes more efficient. In effect, the expense is no longer visible within the operation. So, for example, a warehouse manager – whose job it is to load and unload trailers – wants to have as many empties in the yard as possible “just in case.” But the warehouse is not paying for that availability. It’s hidden in the transportation costs.
- Shorten the order fulfillment cycle. Yard and trailer mismanagement inevitably create additional costs that may not directly appear on the facility’s balance sheet. Companies may write off spoiled perishables or misplaced inventory as lost product. Insurance premiums increase. And the CFO mistakenly sees these losses as a necessary cost of doing business. The objective of any business is to shorten the order fulfillment cycle. Everyone wants that advanced forecast so they can react to the market, then capitalize on it. And yard management has everything to do with making this happen.
- Eliminate slack at different touch points and thereby optimize operations. For example, shippers and consignees often run into problems when EDI transmissions run behind actual shipments – especially if transportation distances are relatively short. With a cloud-based YMS that information exists in the system. Real-time is reduced to seconds and information is immediate. A DC can react to a late-arriving inbound shipment and immediately cross-dock it to a waiting trailer if it has this level of visibility. Or, if a shipper can shave dwell times here and there at facilities across a network it may ultimately shrink that order fulfillment cycle – which allows forecasters a little more flexibility to accurately judge demand and for production to respond in kind.
Companies looking to get on the “right side” of the 80/20 rule and make better use of their supply chain assets while also keeping customer service levels as high as possible should consider a cloud-based YMS that can provide real-time information and automation tools. By integrating this solution with an existing WMS or TMS (or both)—or utilizing it as a standalone solution—shippers can avoid these problems and effectively implement their own “digital yards.” In return, they gain access to real-time information in an automated environment that’s not only data-driven, but also integrates seamlessly with existing solutions and platforms.
Matt Yearling is CEO of PINC Solutions. He joined PINC as chief executive officer in March 2013 and is responsible for the overall strategic and operational management of the company. Matt’s past roles include vice president and general manager of Encryption Products at Symantec Corporation, senior vice president of Global CRM Product Development at Sage Inc., Chief Technology Officer for Embarcadero Systems Corp (a Ports America company). As vice president of Oracle On Demand, Matt played a pivotal role in making it Oracle’s fastest growing line-of-business.