To centralize or not to centralize? That is the question – or at least it is a major discussion point for many large, global companies considering how best to manage transportation across today’s vast supply and distribution networks. The argument to centralize usually includes the advantages of economies of scale when dealing with carriers and opportunities for better utilization through back-hauls and continuous moves. The argument for decentralization often involves strong relationships with local carriers, faster handling of the inevitable hiccups in execution, and long histories of successful delivery.
So which is the right answer? Fortunately for everyone involved, the right answer might be both. No, I’m not equivocating in an attempt to keep everyone happy. The truth is that there are advantages to both approaches. The problem is that people have assumed it is an either/or decision. It is not.
The Control Tower
Often the either/or decision comes about when companies feel it is time to replace less efficient, multi-site manual transportation functions with a transportation management system (TMS). Logic dictates that the new system should be run from what is typically called a load control center, or more recently, a control tower. The thinking is that the control tower has visibility to the transportation needs of all sites as well as to the carrier resources available to complete the moves. The control tower can more effectively negotiate carrier rates through a centralized bid procurement process and more efficiently match loads to the least expensive carriers using the TMS.
If your distribution sites are in Pittsburgh, Youngstown, and Cleveland, for example, this centralized control tower approach makes sense, especially if you are shipping similar products. The shipping profiles and carrier resources will be familiar and well-known, so matching loads to carriers will be straightforward.
But what if your business is something like this: you ship electronics from China, component assemblies from Thailand, fabrics from South America, manufactured parts from Mexico, apparel from Europe and finished goods from the United States? Suddenly the centralized control tower approach seems less certain. There are real advantages to local resources in each country making transportation decisions.
The Transportation Management Center
A different approach, and one that I am a particular fan of, is the concept of the Transportation Management Center (TMC). A TMC is an evolutionary step beyond just centralization. It is a merging of technology, organization and processes that establishes a set of services leveraging the scale and efficiency of consolidated network planning, procurement and unified metrics with the agility of localized execution.
The concept of the TMC is to provide a set of services that leverage the visibility afforded by a centralized view of all business activities. The TMC enables the business to think holistically about its transportation needs across all functions and locations, and to plan accordingly. It also allows the business to go beyond traditional transportation planning activities to include value-add services such as network modeling, centralized procurement and a wide range of analytics. This helps companies to better utilize all transportation assets, be more agile in adapting to changing requirements, be more resilient in responding to disruptions, and improve contract and governmental compliance.
Just as important is what the TMC doesn’t do. It doesn’t ignore local relationships or customs. It doesn’t handcuff local transport operations when last-minute changes need to be made. Yes, the TMS will still plan and execute 85-95 percent of all loads, but local resources can manage the exceptions and peculiarities.
Of course, the key to making a TMC successful is having the right technology supporting it. The technology must be comprehensive enough to cover the myriad of transportation modes and methods across all locations while also being flexible enough to support local execution deviations. It must offer global visibility with built-in analytics. And it must offer a simple, yet powerful user interface that cuts across organizational silos so all appropriate parties can use it.
The Next Stage
As the TMC is the next evolution of the control tower, I think there is an additional iteration on the horizon. Current TMC-type logistics operations tend to be regionally focused. This makes a lot of sense considering the value of creating geographic centric scale for such processes as procurement and network route consolidation. As the consumer-driven supply chain continues to grow, however, the need for new definitions of network agility will grow as well. This will force organizations to extend the notion of the TMC beyond continental boundaries and to provide capabilities beyond visibility, creating a more dynamic environment where previously existed segmented rigidity.
To centralize or not to centralize? Maybe it’s not the question at all.
As Vice President of Global Logistics at JDA Software, Fabrizio Brasca (@FabBrasca) is responsible for developing innovative transportation and logistics strategies across all industry verticals, strengthening executive-level relationships with JDA’s key customers and prospects, and advising companies on best practices to become more profitable. He holds an Honours Bachelor of Mathematics co-op degree with a specialization in business and information systems from the University of Waterloo, Waterloo, Ontario.
