Logistics Viewpoints

A complete analysis of logistics trends, technologies, and services

Open Up a Whole New World of Competitive Differentiation with Transportation Optimization

Guest Commentary | By •

One thing is clear for anyone in the transportation industry: logistics and logistics technology is changing at a rapid pace. For transportation managers who are constantly seeking more efficient ways to move goods, Amazon has perhaps been the one to watch for the latest and greatest in shipping and delivery strategies. Amazon’s latest announcement in recent months, Delivery Service Partners, encourages entrepreneurs to start their own logistics companies using Amazon’s built-in customer base.

But it’s not just Amazon that is seeking new and more cost-effective delivery methods (think same-day shipping, last-mile, and parcel). More and more organizations are looking to take their transportation strategy to the next level. One strategy to bring shipping operations to that next level includes optimization. Shippers and 3PLs are being pushed to examine every aspect of their transportation processes for increased efficiencies in order to stay competitive and meet the growing expectations of consumers.

The pressures of today’s omnichannel distribution and e-commerce channels are making it progressively more difficult to develop efficient load and route plans. This is where optimization comes into play. The best optimization tools allow companies to look at freight movements holistically, analyze their shipments, rates, and constraints, and ultimately improve decision making. By optimizing every aspect of your transportation network, you can reduce transportation costs and improve efficiency. Moreover, by making this optimization dynamic and updated in real time, companies can use this as a serious competitive advantage both for delivery times and productivity.

Data-driven decision making

Those who have already implemented a transportation management system (TMS) have at least one advantage for keeping up:  they have all transportation data in one location, better arming them to take a detailed look at their shipping processes. Often, TMS users can use the TMS data and their intuition to make impactful changes. Today’s TMS offers powerful tools for decision-making and reporting, providing a solid building block for true business intelligence. By using a TMS that has business intelligence already built in, organizations have the visualization and data query tools to analyze things like freight spend and other shipping processes to make data-driven decisions.

Optimization further provides an advantage as it feeds your transportation data directly into the TMS with automated, intelligent instructions on how to best move forward. When you input data into an optimization tool, including shipments that need to be moved, available pool points for consolidation, cross-docking and deconsolidation, and any desired list of constraints, it will build an optimal plan that is then ready to be executed in the TMS. Over time, however, the assumptions and data that went into the optimization decision can change. For your transportation strategy to perform its best you must be able to quickly understand impacting changes, which can include delays from unforeseen circumstances, market demand, the actions of your competitors, and the performance of your suppliers and partners. Real-time, continuous improvement transportation optimization goes beyond standard optimization and can empower you to identify opportunities in-route for adding efficiencies and providing competitive differentiation. While all of these considerations and variables may sound complex, sophisticated tools help simplify the process of continuous optimization.

While many organizations have already replaced their manual processes with TMSs, transportation optimization has not been as widely adopted, and it is still an elusive concept for many logistics operations. Yet, transportation optimization can be crucial for analyzing shipments, rates, and constraints to produce a load plan that can address today’s rapidly-changing environments, while meeting customers service expectations and ultimately reducing freight spend. Clients have seen the cost savings from optimization range from three to 20 percent depending on many factors.

Using optimization to combat the capacity crisis

The recent capacity crisis has also played a key role in necessitating improved transportation processes and the use of optimization technologies across all modes of delivery. This crisis has been driven largely by increased freight volume, a driver shortage, and reduced hours of service.  In 2018, we saw a surge in freight volume, with an increase of 10.6 percent in freight activity according to The Cass Freight Index – its highest levels since 2007, and the sixth double-digit increase for the index in 2018. While freight volumes are starting to level off at the beginning of 2019, it’s still a crucial time for transportation managers to be more aware of optimizing your loads.

Perhaps what the latest capacity crisis revealed, more than anything, is that supply chain leaders should be elevating every aspect of their transportation operations to overcome efficiency issues.  And, while there is no silver bullet that can solve a capacity issue overnight, this is one more area where load optimization should be a key consideration. In capacity crunches, load optimization across all modes can help transportation managers fully load their trucks, which means fewer loads that need coverage and fewer drivers. On average it’s estimated that most trucks are only around 60 percent full. Worse yet, an estimated 25 percent of trucks are completely empty.

Optimization can help identify where it makes sense to take shipments from multiple sources and consolidate them into the lowest possible number of vehicles and shipments, using mode shifting to yield benefits across the supply chain. A real-time, continuous optimization is employed by some shippers who optimize to start building loads on their docks early in the day, but then keep re-optimizing to add new shipments to the right loads as they come in throughout the day. Shippers may also want to consider pairing truck options for continuous truck utilization, versus having one “inbound” carrier and another “outbound” carrier. Logistics service providers (LSPs) even have greater means of consolidation and collaboration looking across their many customers.

Leverage opportunities from across the entire transportation network and beyond

Just as the transportation industry is constantly evolving, so should your transportation processes and technology. Powerful, real-time optimization tools can help shippers and LSPs compare detailed results from different parameters and even determine actual costs by customer, carrier, or business division. An optimization tool helps balance service and cost tradeoffs and handles the complexities that are too hard to consider by simple intuition. An optimization tool also enables shippers and LSPs to easily quantify savings from optimization and use this data to establish best practice guidelines, while also continuing to build upon and refine these processes.

Change is inevitable in the transportation industry. We are continuing at the forefront of innovation in the area of optimization. It’s the companies who successfully adapt to change, or even embrace change, and align themselves with an innovator that will move to the top. Having the right tools in your arsenal could be the key in elevating your transportation strategy from “good enough” today to industry leader of tomorrow.

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Karen Sage is MercuryGate’s Chief Marketing Officer (CMO) responsible for the company’s global marketing, communications, sales enablement, and go-to-market efforts. She is a veteran with 20+ years of experience in business-to-business marketing and communications helping several industry leaders launch disruptive new categories, accelerate revenue growth, build leadership brands, and establish marketing organizations that scale globally. She comes to MercuryGate most recently from spend management solution provider, SciQuest. Prior to SciQuest, she was at CA Technologies where she served as vice president of marketing leading rapid growth initiatives. Her experiences leading growth also include multiple leadership roles during a 15-year stint at Cisco. Karen started her career having invented the NETSYS Performance tools at NETSYS Technologies, Inc., which was acquired by Cisco in 1996.

Creating a More Stable Environment for Navigating Demand and Rate Changes Using Transportation Optimization

Guest Commentary | By •

There’s certainly no shortage of articles attempting to answer the question, “Will rates go up or down next year?” Depending on who is asked, the answers are yes, no or maybe. Is it any wonder? Some of the variables include:

  • According to the Cass Truckload Linehaul Index, which looks at where rates have been and where they’re going, the industry has experienced eight consecutive months of price declines. This is credited to “softer demand.”
  • Retailer earnings and same-store sales are flat or falling, but e-commerce sales, as a proportion of all retail sales, continue to rise.
  • Carriers are reducing fleet sizes and ordering fewer trucks, according to this Wall Street Journal article. In fact, orders have not fallen this low since the post-recession numbers of 2009 and 2010.
  • On the regulatory front, parts of the 34-hour-restart rule have been suspended. The suspension was a goal of the American Trucking Association (ATA).
  • Key provisions of the Electronic Logging Devices (ELD) mandate go into effect next year. In a Logistics Management article, Brad Delco, an analyst with the investment bank Stephens, Inc., adds that, “The ELD mandate [is] expected to reduce capacity by up to 10% in utilization and will have a positive impact on supply/demand dynamics for the entire TL industry, which could be in addition to supply correction that is occurring with weak equipment orders.”

As one can see, some of the above items will place upward pressure on rates, while others have the potential to cause rates to remain stable or to fall. With transportation being one of the highest supply chain costs—this study pegs it as 42% of total logistics costs, on average—the transportation decisions a company makes can impact all aspects of its business, from customer satisfaction to product availability to general profitability.

Creating an Environment to Evaluate Options in Uncertain Times
A sophisticated transportation management system (TMS) can help companies overcome the challenges of modern shipping. Transportation modeling technology can help shippers evaluate the effects of uncertainty and variability in their networks. In this way, they can effectively manage logistics across an entire, dispersed ecosystem. Modeling helps users to understand and prepare for the impact of any potential changes before they are operationalized. These changes can range from expanding networks to carrier flux or even to growing businesses, all of which require adjustments to logistics.

Test Assumptions
Essentially, shippers can model what their network might look like, allowing them to prepare and deploy resources as needed. An additional benefit of transportation modeling technology is that it enables companies to modify approaches to account for different shipping scenarios. Companies can then create models and review results through a user interface that includes maps and other graphical reporting. Additionally, various scenarios can be managed all at once, in order to quantify both results and the impact of change.

Transportation Modeling Informs Business Strategy
There are a number of benefits that can be realized by incorporating transportation modeling into a TMS strategy.

  • Determine which distribution centers should service which stores for which specific products, especially in large networks, in order to optimize time, fuel and resources.
  • Create the most productive delivery schedule for fleets, taking into account factors such as opened and closed stores, route disruptions and seasonal issues.
  • Factor in delivery window optimization, determining the best time for product delivery based on store hours, traffic and other variables.

These examples represent only a few of the benefits of transportation modeling. The challenges of managing an international transportation system that spans continents, cultures, languages and laws are daunting and require the assistance of advanced technology.

The Long View
Driver shortages, changing regulations, fuel costs, global security concerns and the logistics challenges that a geographically dispersed transportation network faces can create complications. In turn, managers must be prepared to address them. The insight provided by TMS enables managers to handle the challenges that await drivers on the open road. Managers prepared and equipped by a TMS strategy elude the risk of significant service disruptions, missed deliveries and unhappy customers as a result.

Omni-channel Last Mile Logistics

Transportation Management Systems | By •

The top two guys at FreshStart Logistics, Allen and Bill Ho, came to visit me. Their company sells an optimization engine for TMS.

I have a geeky fascination with optimization. I’m don’t have a Ph.D in Operations Research, but I’ve seen the way a number of TMS solutions approach optimization. There were several things I liked about FreshStart’s real-time engine, including the way it can use GPS and traffic data for dynamic routing. But the thing I  appreciated the most about our meeting was our conversation about the last mile omni-channel logistics delivery problem.

Bill and Allen’s last company provided a dynamic routing solution for paratransit. Paratransit is passenger transportation that does not follow fixed routes. In the U.S., the Rehabilitation Act of 1973 said that public transit systems, if they received federal assistance, needed to be handicapped accessible. Most cities opted for a flexible system of small paratransit vehicles where users could schedule pickups, often in a half-hour pickup window. In big cities, this becomes a massive routing problem.

One of the capabilities of their previous company’s solution, which their current optimization engine still supports, is the ability to preposition vehicles for the next day’s routes. The way this would work in practice is that at the end of the day, a driver would drop the vehicle at an optimally located city-owned lot, then another paratransit vehicle would come by and pick the driver up and take him back to the terminal where his car was parked.

Let’s take that capability and think about last mile omni-channel logistics. Omni-channel is an initiative by brick and mortar retailers to better integrate their stores and e-commerce channels. So a retailer might support buy online, pick-up at store; or order online, deliver to home from a store; several other fulfillment paths are also possible.

Amazon has been stealing market share from traditional retailers for years. Amazon is experimenting with same-day shipping, but mostly it offers two-day and longer shipping. In an article published earlier this year I pointed out that large traditional retailers, with all their stores in metropolitan areas, could potentially compete on speedy fulfillment. Stores can be thought of as forward inventory deployment locations. Retailers could move to not just same-day deliveries, but potentially deliveries within 90 minutes of an order being placed. Or customers might sign up for deliveries during the day during a specified 30-minute delivery window.

When I had thought about deliveries from stores, I had visualized it as a delivery person leaving a store, making his deliveries, and then returning to the home base store. But it strikes me that the paratransit model could be much better. Delivery people would interleave moves between different stores and customers based upon the outputs from a dynamic routing engine. At the end of their shift, they would leave the store delivery vehicles in the most optimal store locations based upon known next day orders.

Just as imitation is the best form of flattery, so is stealing ideas from a different industry and applying them to yours.

Guest Commentary: Transportation Optimization Requires a Holistic View That Maximizes Service Across All Orders While Minimizing Costs

Guest Commentary | By •

Retailers, manufacturers and other shippers often operate global transportation networks composed of their own assets as well as third-party carriers, in an environment characterized by order volatility, fluctuating consumer confidence, increased competition and cost containment pressures.

Too often, shippers attempt to address these competing challenges through simplification. Orders are pre-assumed to be served by a specific mode based on characteristics, fleets operate around a predefined geography, and modes such as rail or intermodal are relegated to specific circumstances. Once established, these strategies are rarely revisited or re-examined from a broader view.

Most shippers lack the big-picture perspective to consider the long-term cost effectiveness of their transportation networks. By having fixed strategies, shippers might be delivering goods on time and simplifying decision processes, but they are missing larger opportunities to drive additional savings and still meet their service goals. So how can shippers quickly make the right choices that balance low costs with high service?

The answer lies in implementing new business processes and advanced technology to create visibility across all orders. With visibility into all trade-offs, transportation planners can consistently make choices that maximize service performance while minimizing network costs. The right tools, processes and business rules can drive these strategies on an automated basis, decreasing the amount of resources needed for day-to-day transportation network management.

What’s Limiting the Vision?
Many shippers today operate in silos, focusing on operational and tactical analysis separately. Strategies for specific transportation modes have been pre-established based on certain order characteristics such as weight, size or delivery date. However, this inefficient siloed practice overlooks the potential savings that could be achieved using different — or even multiple — transportation modes. Without the ability to examine the entire transportation network, it is difficult for shippers to quickly and accurately determine which combination of transportation mode, shipment schedule and route will yield the greatest savings and customer satisfaction.

Beyond cultural issues, many shippers also use in-house transportation management systems (TMS) that are not able to examine all shipping modes, build multi-modal shipments or understand complex parcel shipping rates to make the most cost-effective choices. The good news is that advanced transportation solutions are relatively easy to acquire and implement in a highly configured way that meets each shipper’s unique transportation challenges.

A Process of Continuous, High-Level Analysis
A holistic TMS supports new, iterative business processes focused on gathering facts about all existing orders, then making the best judgment based on that strategic investigation. Armed with real-time data and insights, shippers can ask and answer a range of critical questions. Can certain orders be delayed to match up with other deliveries in close proximity? Can the private fleet be used instead of paying third-party markups? Can warehouses and distribution centers accommodate early or late shipments? Can transportation modes be mixed?

Advanced TMS tools ensure that shippers are supporting a longer-term perspective, in addition to daily logistics decisions. Using the advanced TMS tools, shippers can expand their geographies to take advantage of lower commercial rates, and then quickly shift orders to their private or dedicated fleets when carrier rates climb too high.

Transportation planning cannot be a one-time activity based on a universal shipping mode, but instead must be a continuous process of analysis. Business rules must be flexible enough to change as shipping rates, order volumes, fuel prices and other transportation factors evolve. By studying the big picture for any given day, shippers can make intelligent transportation decisions that are in both their and their customers’ best interests.

The Bottom-Line Benefits
Adopting the cultural, process and technology changes necessary to achieve a holistic view of the transportation function drives benefits that are well worth the investment. Consider these real-world examples of companies that have realized significant cost and service improvements:

  • PepsiCo recognized an opportunity to add value and generate revenue by establishing an internal logistics and transportation division for its various business units. With a new, broader perspective, Pepsi Logistics Company, Inc. (PCLI) offers the best possible transportation solution under PepsiCo’s negotiated rates. PCLI manages more than 40,000 annual shipments, powered by a single technology solution and shared planning practices.
  • Kimberly-Clark implemented a TMS with optimization capabilities that allowed the planning staff to create real-time service constraints and save an incremental $12 to $14 million per year in freight charges. The TMS automatically assigns approximately 80 percent of shipments to the carrier that best balances cost with service, resulting in an aggregate reduction of 35 hours of manual planning every day.
  • By using advanced tools for visibility across all orders, MasterBrand Cabinets produces daily transportation plans based on real-time network costs and constraints, and then builds production loads in its factory that result in the fullest truckloads possible. This approach enables the company to balance the made-to-order nature of its custom cabinetry with real-world business constraints. Electronic communications with multimodal carriers track shipments until all customer deliveries are completed. MasterBrand continually assesses carrier performance, so that future tenders can be automatically assigned to the most cost-effective, highest-service transportation vendors.

An Ambitious, Yet Achievable Vision
By leveraging advanced transportation solutions and a new cultural focus, forward-looking shippers are using a holistic perspective to make strategic matches across all orders and available shipping modes, foster better transportation choices and achieve significant competitive advantage. If your business has not yet achieved this kind of broad, transformative perspective, there’s only one question: What are you waiting for?

Fabrizio Brasca is vice president, global logistics, JDA Software. He is responsible for developing innovative transportation and logistics strategies across all industry verticals.

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