Logistics Viewpoints

A complete analysis of logistics trends, technologies, and services

Guest Commentary: 7 Building Blocks to Prepare for Implementing a Global TMS

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Your supply chain is global, yet you lack global visibility, process, and expertise to effectively manage it. This challenge is not uncommon among shippers around the world. With projected increases in global trade volumes, the pull of developing economy growth engines, and rising middle class consumer spending, the need for global TMS technology and expertise is growing.

The global arena is a demanding environment for freight managers, and shippers must be equipped to deal with these challenges. Managing global transportation in a complicated web of varying best practices, cultures, systems, geographies, languages and regulations can be very difficult. Risk profiles vary from region to region as do trade and tax compliance issues.

The key to global supply chain management success is developing the right blend of supply chain expertise and global TMS technology. On one hand, TMS power users possess the expertise in both the technology and the markets covered to wring every last competitive advantage out of the system. At the same time, the system’s analytical horsepower gives these experts the tools they need to manage freight transportation internationally.

Obviously, developing these capabilities requires investments in time, resources, and money. But a robust foundation – whether the TMS is an in-house or outsourced solution – greatly increases the chances of a successful outcome.

But sourcing a global TMS combined with personnel and deploying the solution globally is much easier said than done, right? In broad terms this is true, but the transition is a lot smoother if you lay a solid foundation first.

There is often a temptation, for example, to develop a hybrid solution; a TMS platform for the core region, leaving other regions to cope as best they can. This is far from an ideal option. Also, avoid becoming fearful that the problems you have experienced with a domestic-level TMS will be compounded when you graduate to the global stage. Yes, managing freight movements on a worldwide scale is more exacting in many ways, but with the right preparation the challenge is less daunting than you imagine.

Here is a checklist of 7 building blocks to prepare for a global TMS and managed service solution.

  1. Translate your organization’s objectives into a global logistics strategy that encompasses deliverables, efficiency targets, and expectations.

  2. Develop a blueprint of human and technical capabilities for each region and identify gaps.

  3. Based on this blueprint, collaborate with local markets to define what their success criteria are, and what solutions they need.

  4. Document the logistics and process expertise that is available in each region.

  5. Create future state requirements and capabilities that map the enterprise’s business strategy.

  6. Build a consensus on what processes are used centrally and at the local management level. Drive the right solution for your organization, whether it is a centralized or localized management system.

  7. Establish a governance process that can fully exploit global solution advantages such as end-to-end visibility and integrated decision making.

These building blocks will help prepare your organization to determine the right combination of expertise and global TMS technology and source a provider that meets those needs. As you build towards globally empowered TMS, draw encouragement from the fact that the technology continues to develop quickly, and you will almost certainly benefit from an even wider range of capabilities in the future.

But perhaps the best motivation of all is that these solutions are fast becoming a competitive necessity, and by taking steps to become a global player now, you are ahead of the game.

Jordan Kass is Vice President of Management Services for C.H. Robinson. In his role, Jordan has global responsibility for Managed TMS®, offered through TMC, a division of C.H. Robinson, and all C.H. Robinson management services. Prior to his current role, Jordan was Executive Director for TMC, a division of C.H. Robinson. Jordan has a B.A from Indiana University.

Guest Commentary: Superstorm Sandy – A Grim Reminder That Supply Chain Resiliency is a Top Priority

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Last week, I was fortunate enough to speak at the Evergreen Packaging Carrier Conference – a world class event with great people, I might add. One of the topics we talked about was risk management and scenario planning. I endeavored to make the point that all too often risk management was overly focused on legal or compliance scenarios. How do I ensure we don’t get sued? How do I make sure we are compliant? These are very important questions, but the definition for risk management is much broader. I like the way APICS approaches the definition:

“In the context of supply chain management, risk management involves dealing with uncertainty in supply, transformations, delivery, and customer demand. The uncertainties can be the result of such forces as yields, timing, pricing, and catastrophic events.”

In our view, risk management should focus on holistic challenges that could disrupt the supply chain. Since the 1970s, Shell, a global group of energy and petrochemicals companies, has been developing scenarios to explore the future. Overall, these scenarios provide a view of what the future world could look like to help leaders of business, governments and academia to make better business decisions and develop risk management strategies. Some might think this seems impractical; why would you plan for something that may never come to be?

Superstorm Sandy, that’s why. Maybe you are saying, “That is only a storm that comes along every 100 years. How can I plan for that?” You aren’t wrong, but here is another list of recent events to think about:

The fact is catastrophes occur. In my talk at the Evergreen Carrier Conference, I polled the carriers asking, “How many of your customers involve you in contingency planning or supply chain risk planning discussions?” The overwhelming majority said they were not involved in these discussions. While I am willing to bet that many shippers are developing proper contingency plans, I don’t believe it is a standard practice in the industry yet. However, my instincts are that if you have been burned by a supply chain disruption, you’ve probably adopted more robust practices.

So, what is the right balance between profitability and resiliency?

The Lean supply chain teaches reduce inventory, minimize suppliers, and ensure on time. The Resilient supply chain teaches redundancy of manufacturing lines, inventory, and capacity. I would argue neither in isolation is correct and each shipper should find the right balance between profitability and resiliency.

I’ll leave you with a story the Wall Street Journal ran December 13, 2011: Intel Cuts Its Outlook, Giant Blames Thai Flood for $1 Billion Drop in Sales Goal.

The article mentions that Intel claimed months of heavy rains in Thailand have dismantled a large chunk of the world’s hard-drive manufacturing operations. Now, I obviously do not work for Intel nor do I have much knowledge about their business. This is pure speculation. Having said that, do you think they performed any supply chain scenario planning with relation to this part of their supply chain? Think about it. If they had performed a failure modes analysis, would they have identified an over dependency on a single geography? Maybe they had other choices. Maybe, they didn’t. Maybe with proper scenario planning, they would only have lost $250 million instead of $1 billion. We’ll never know.

My point is this: Look at your own supply chain. Have you done any scenario planning? Is your supply chain resilient? I am willing to bet some of the people in last week’s conference probably didn’t think too much about it. I can’t say that I blame them. It seems lots of people haven’t. Having said that, how many shippers are now taking greater stock in this best practice today, given Superstorm Sandy’s grim reminder?

Jordan Kass serves as the Executive Director for TMC, C.H. Robinson’s Managed TMS service that includes Six Sigma-based process engineering, TMS technology, and power users to ensure maximum software ROI. Jordan is a recognized industry leader, with over seventeen years of industry experience. TMC is a global division of C.H. Robinson Worldwide, Inc.

Guest Commentary: Have You Discovered Rate Curves Yet?

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What is a rate curve? If you do not know the answer to this question or only have a vague notion of what the term means, then you are missing out on a relatively simple, but powerful freight management tool. Don’t feel bad if you are nonplussed; in our experience many practitioners are unfamiliar with the concept.

When used in conjunction with the analytics of a good transportation management system, rate curves consistently drive cost savings and network efficiencies by improving the performance of route guides. This graphic representation of shipments provides a snapshot of how cost effective your freight operations are in a specific lane. By delving a little deeper into the data, you can develop strategies for lowering freight costs without compromising customer service.

Rate curves come in many shapes and sizes, but are typically right skewed with the lower bound being the minimum rate that carriers will accept for that lane and the tail to the right being the higher rates paid. For the purposes of this explanation let’s consider two examples: the Long Tail and Short Tail Above Benchmark rate curves depicted in Figure 1 and Figure 2 respectively.

Figure 1: Long Tail Rate Curve (Source: CHRW; click to enlarge)
Figure 2: Short Tail Above Benchmark Rate Curve (Source: CHRW; click to enlarge)

Both curves plot freight rate per mile versus number of loads in a lane. Each bar represents the number of loads transported at that particular rate over a certain time period, in this case one year. For example, in Figure 2 there were 225 moves at a rate of $1.20 per mile over the period represented. The user can consult the route guide to identify which carriers are matched with each of the bars on the charts. The overall aim is to keep the degree of variation between the rates to a minimum.

In the Long Tail chart (Figure 1) rates are quite widely distributed from $1.15 to $2.30 with a cluster at the lower end, hence the “long tail” designation. The mode (the rate with the most occurrences) is $1.30, the median (half the occurrences are above and half are below this number) is $1.34, and the mean (mathematical average) is $ 1.46.

This data combined with information on freight flows in that lane can reveal much about how the route guide is operating. For instance, the extended tail could be a function of unplanned shipments. In a typical scenario the shipper needed capacity at short notice at 5 pm on Friday and had to go deep into the route guide to find an available carrier. In order to move this freight it paid an above-market rate of $2.30 for almost 200 loads.

In the Short Tail Above Benchmark curve (Figure 2) the rates are more clustered at the lower end of the distribution. A possible explanation is that the shipper provided backhaul opportunities that fit into the networks of these carriers, and since they valued the business, offered favorable rates. Looking into the structure of the curve in more detail might reveal that the $2.00 per mile provider could afford to take the freight when it was the last-option carrier because it had already built a sizeable premium into its rate. At the other end of the scale the $1.11 carrier provided back up capacity and might have accepted only one in 10 tenders.

After analyzing the rate curve perhaps a better strategy – one that will reduce the variation and shorten the tail – is to propose shifting the cheaper carriers further up the route guide with more generous freight payments in return for higher load acceptance rates. Another way to compress the curve is to approach the expensive carriers and offer more consistent business if they agree to bring their rates in line with the rest of the market. Too often, rate negotiations are focused on obtaining a rate lower then their current lower bound (lowest rate). This may work for the short term, but carriers will quickly replace that lane with one that is closer to the market price.

The overriding theme is trying to achieve alignment with your carriers to reduce the variation in rates. Increasing rates to secure more capacity or renegotiating to achieve a lower rate in return for offering more business, are strategies you can deploy to smooth out the rate curve by adjusting your route guide.

A compressed curve where the rates are clustered indicates that you are buying capacity at satisfactory rates and the carriers are accepting high volumes because the business complements their network needs. The curve outlines a win-win situation where respective networks are in equilibrium.

Generating rate curves on a regular basis enables you to monitor the performance of your route guide and take corrective action when it goes awry. This is almost inevitable, because networks are changing constantly. The rate curve analysis provides a quick and easy measure of performance that alerts you to problems before the cost penalties become alarming.

Another, less tangible, payback is that by actively managing the route guide in this way, you develop a discipline and rigor that makes your network more competitive.

Given these returns, rate curves could be one of the freight industry’s best kept secrets.

Jordan Kass serves as the Executive Director for TMC, C.H. Robinson’s Managed TMS service that includes Six Sigma-based process engineering, TMS technology, and power users to ensure maximum software ROI. Jordan is a recognized industry leader, with over seventeen years of industry experience. TMC is a global division of C.H. Robinson Worldwide, Inc.

Guest Commentary: Transportation’s Next Iteration of Software-as-a-Service (SaaS)

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Software-as-a-Service (SaaS) is an integral part of advanced transportation management systems (TMS) and is largely viewed as providing the greatest time to value (see recent posting by Adrian Gonzalez of ARC Advisory Group titled, “Time-to-Value: Developing a SaaS Equivalent for 3PLs”). But as often happens when an innovative technology becomes widely adopted, users’ expectations rise a notch, opening the way for further refinements (see diagram below). In this case, the next step forward is software plus services; a combination of SaaS and dedicated support teams that is designed to meet the changing needs of transportation managers.

Source: CH Robinson (Click to enlarge)

There are two main drivers behind the emergence of software plus services. First, a number of companies have discovered that after investing in SaaS-based TMS and reaping initial savings, ongoing returns have proved elusive. Adding services to this core functionality has enabled these organizations to unlock an ROI beyond this honeymoon period.

Second, managers are under considerable pressure to do more with less, particularly when it comes to departmental headcount. They must find ways to use staff resources more effectively while maintaining a competitive edge. SaaS technology helps in that it brings more flexibility both in overall cost and operational terms than traditional software solutions. However, running these powerful TMS packages require skilled personnel, individuals that might be better deployed on more strategic functions. The solution a number of companies have developed is to outsource much of the tactical TMS work to specialist service teams, while reserving strategic responsibilities, such as large-scale or strategic project management and supplier or relationship management, for their own personnel.

It is important to note that the “service” element of the software plus services model is far removed from traditional outsourcing to a 3PL. In the new model, companies need a high level of external expertise that is readily accessible and can be deployed to fit the specific demands of the transportation function. These needs are being met by dedicated teams employed by a TMS provider often stationed permanently on-site, acting as an extension of the client’s staff. Moreover, as with the traditional SaaS mode, both the dedicated personnel and the technology are positioned in a pay-as-you-go model. This allows a shipper to free up working capital and move a traditional fixed personnel cost to a variable that flexes up and down with the overall performance of the business. The concept differs from traditional consulting because these individuals do not walk away when the job is done; they are, in effect, quasi-employees of the client firm that act as an extension of the shipper’s staff. Neither are they temp staff because the relationship is ongoing and team members represent the client firm in various capacities. For example, they provide routine analyses and expert advice in customer meetings.

Take the experience of canned and bottled juice maker Ocean Spray. A transportation services provider managed the manufacturer’s carrier relationships. The provider worked remotely from its home office location and had little face-to-face interaction with Ocean Spray’s operations, customer service or supply chain teams. Service quality suffered by allowing the provider to choose carriers, negotiate contracts and monitor scorecards, because the manufacturer was a step away from its customer base.

Ocean Spray also piloted an in-house TMS solution. Although this proved to be an effective tool for managing transportation, there were too many drawbacks. The initial purchase price was considerable, and when Ocean Spray added up the ongoing maintenance fees the company simply could not make the ROI model work.

Now the company has a dedicated TMS team based permanently in its corporate offices. The unit consists of a strategic account manager, an operations manager, four operations and logistics analysts, and two dedicated schedulers/customer service representatives. Team members report directly to both the manager and director of transportation at Ocean Spray.  In addition to providing ad hoc analytical information and regular network performance reports, the team is available for impromptu meetings to discuss transportation strategy and tactics, and address specific issues. However, Ocean Spray’s transportation managers retain oversight of carrier selection and management, and have full control of the strategic levers.

Having an on-site team at the shipper’s disposal is only one variant of the software plus services model. Other companies have opted for different formats. Here are some examples.

  • A manufacturer of heavy equipment with an extensive network of factories and dealer sites has a dedicated TMS team that resides in the provider’s HQ. A team member is based in the manufacturer’s office location as a project manager.
  • A medium-sized manufacturer of food products decided on a hybrid model where a TMS project manager is rotated through the launch phases of products. For example, the manager was embedded at a plant level during the early stages of a launch to help oversee activities such as carrier integration.
  • A medium-sized packaging firm has opted for a single specialist embedded in its organization. The person rotates between the firm’s corporate offices, plants and warehouses.

Software plus services is not for every organization. Companies that need to micro-manage transportation or are committed to a sophisticated in-house TMS are among those that might not be comfortable with a dedicated team from a service provider.

Still, the demands that spawned this solution –clear returns on IT investments over the long term and improved staff utilization – will, if anything, intensify over the next few years, and more companies are likely to take this next step in SaaS-based TMS.

Jordan Kass serves as the Executive Director for TMC, C.H. Robinson’s Managed TMS service that includes Six Sigma-based process engineering, TMS technology, and power users to ensure maximum software ROI. Jordan is a recognized thought leader, with sixteen years of industry experience. TMC is a global division of C.H. Robinson Worldwide, Inc.

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