When companies want to reduce their transportation costs, while maintaining or even improving customer service, they have two main choices: implement a transportation management system (TMS) or outsource transportation to a managed transportation services firm.
What is Managed Transportation?
Managed transportation services providers have planners in a control tower using TMS technology, who plan and execute loads on behalf of their customers. ARC has been doing market studies, ROI studies, and supplier selection guides on managed transportation services for many years. My colleague Chris Cunnane is kicking off a new survey-based study on the ROI from MTS. The freight savings can be significant. Further, the trend is that the savings have been improving in recent years.
Managed Transportation Arrangements Can Drive Significant Freight Savings
There are different ways that managed transportation providers seek to drive freight savings for their shipper clients. One of the main ways is through a strategic procurement engagement where the managed trans supplier provides carriers a forecast on how many loads they expect to move on different lanes. Various carriers than bid on those lanes. The carrier that wins a lane typically becomes the lead carrier for those loads for a year or more. But the key to a carrier giving a good price is having a lane that fits well into the carrier’s network and the promise of predictable loads on a regular schedule.
A Managed Transportation Case Study
I recently had a conversation with a company that went into a managed transportation arrangement with GlobalTranz. GlobalTranz, in addition to providing managed transportation services and supply chain consulting, is a leading North American, multimodal freight broker. This shipper is American Freight Furniture. This retailer’s tagline is “discount furniture stores & mattress deals.” The company operates 170 furniture stores. American Freight Furniture has highly unpredictable inbound freight shipments. In short, working with a MTS surrounding strategic procurement was not going to drive value for them.
The retailer’s goal was to work with a partner that could help them with the chaotic nature of the inbound shipments from suppliers to their stores. This would allow them to achieve better in-stock positions in the stores, and in this way contribute to higher sales.
I interviewed Jason Conley, a Transportation Manager at American Freight Furniture. Mr. Conley began his career at the retailer at the end of 2018 after 20 years in logistics. The company has highly seasonal sales with many of the sales occurring in tax season. “Our customers live paycheck to paycheck.” Following the tax rebates, it is the one time during the year these consumers have extra income. Many of these customers walk in the store and walk out having purchased something as long as the type of furniture they are looking for is in stock.
But from a supply chain perspective, store storage is an issue. The retailer’s supply chain network has no warehouses to store furniture; shipments go direct from manufacturers to the stores. The stores are 20,000 – 30,000 square feet, but “in peak season, we could use 60,000 square feet to support sales.”
The furniture manufacturers are getting large orders months before peak and looking to ship goods out quickly rather than store goods in large warehouses. “We need to pre-buy early, we are not the only game in town,” Mr. Conley explained. “December, January – every furniture supplier is at maximum capacity.” If you don’t order early, you won’t have product when it is needed. In short, this is also not a supply chain where you can create highly reliable long-range forecasts and then have suppliers do time phased shipments based upon store-level forecasts.
The company does ship some high velocity sales items in shipping containers. These containers sit in the store’s parking lot, if that store’s lot is big enough. This provides on-site storage. This helps but does not solve the demand surge issue.
In 2019, American Freight Furniture was working with several brokers. “It became clear,” Mr. Conley said, “that more is not better.” Prior to the 2019 tax season, the retailer began their relationship with GlobalTranz. The relationship started small, with the understanding that if they performed well on their lanes the relationship could grow. The rates were “where they needed to be,” GlobalTranz had good technology, something the other brokers they had been working with lacked, and GlobalTranz performed well.
It was decided GlobalTranz would become their managed transportation partner for the 2020 tax refund season. All inbound freight, except for prepaid freight from big manufacturers, was planned and executed by GlobalTranz.
When this furniture retailer came out of peak season 2019, they realized they needed to look at their supply chain network. “From a replenishment perspective,” Mr. Conley said, “we needed a more scalable approach.”
GlobalTranz helped American Freight Furniture work with asset-based carriers, carriers that own trucks. These carriers shipped product from the suppliers into their yards. The trailers were staged there and served as a form of warehousing that could store products until needed by the stores. The carrier’s yards were all located within a 200-mile radius of the stores they served.
This took a lot of pressure off the stores. Goods did not have to be forced into the stores based on the needs of the furniture suppliers. The TMS technology GlobalTranz developed gave visibility to where yard inventory was staged, and store managers could pick up the phone have the goods delivered in 24 to 48 hours. This meant store employees were not frantically trying to unload trucks and cram the furniture in the stores. Deliveries could occur when product was needed and store labor was available to unload the trucks.
Mr. Conley exclaimed, “This was a game changer.” Even though the freight costs were higher, the total landed costs needed to support the higher sales were lower; to support the increased sales the store would have needed to grow their footprint. Further, the stores would only need the extra room 6-8 weeks a year. Additionally, their suppliers were happier. The asset-based carriers had better on time performance at the pickup locations than the brokers had achieved.
“The response from the field has been great.” Mr. Conley said. “Our regional sales vice presidents and the COO loved it.”
But there is more to do. In March, the company acquired 115 outlets that sell and fix appliances. The appliance stores do use replenishment warehouses. The two supply chain networks need to be integrated. GlobalTranz is helping with the analysis and will now have more stores to support with their managed transportation services.