Automating
and optimizing transportation management has become essential for companies in
today’s more fluid, global, omni-channel world. Reducing freight costs
continues to be a primary motivation for investing in Transportation Management
Systems (TMS), but securing capacity and improving overall transportation
operating efficiency are becoming strong motivators, too.
TMS
suites often extend to include optimizing across multiple modes of
transportation, paperless execution, freight accounting with auditing or
self-pay functionality, tactical modeling, strategic planning and sourcing, and
procurement. With supply chains becoming increasingly global, transportation
management solutions must grow to include global logistics capabilities, which
are important factors in understanding your cost-to-serve metrics.
The
ability to think strategically while exploiting tactical opportunities has become
a crucial challenge for all companies with products to deliver.
This
article reviews the latest business challenges that are driving initiatives in
transportation. It outlines five key factors in achieving transportation
success, controlling costs, taking charge of the transportation process, and
ensuring outstanding customer service.
Challenges Driving Transportation
Optimization Initiatives
Today
companies must solve an ever more complex transportation puzzle within the
global supply chain context and global economic environment. Transportation
management systems have become an essential basis for best-in-class companies,
suppliers, and customers to plan, automate, optimize, and collaborate on
challenges such as:
Controlling Cost
When
inbound and outbound transportation costs are bundled, they often represent the
single largest costs that supply chain teams face. Inbound costs are frequently
overlooked, but best-in-class companies know they can compete more effectively
by reducing these costs while maintaining service levels.
Embracing
Omni-Channel
Service
levels are tougher to optimize in an omni-channel age. Logistics flows now
extend to the residence, requiring a more granular look at transportation
flows. In some markets Same Day and Next Day delivery capabilities with varying
levels of service are required in order to compete with leading brands who have
launched these capabilities in the marketplace. This new type of service and
the associated cost must be understood and incorporated into transportation
management strategies.
Meeting
Multi-enterprise requirements
The
need for robust internal and external collaboration has become a commonly
accepted requirement across the enterprise, for both inbound and outbound
flows, spanning carriers, vendors, 3PLs and customers.
Utilizing data to
improve operations
It’s
one thing to have a general “awareness of events” as items move from overseas
onto the ocean, and from ocean to rail, fleet, TL and LTL, and on to
distribution points, and in some cases to the customer. But it has become
crucially important to have real visibility into these events and their costs.
Best-in-class organizations know visibility and proactive planning provide
maximum flexibility.
Five Keys to Transportation Optimization
Success
Transportation
management systems uniquely address and overcome the challenges outlined above,
allowing supply chain teams to be more responsive and plan strategically to
stay cost-efficient. Here are five key areas in which an advanced
transportation management solution can reshape an organization’s
competitiveness and profitability.
1 - Contract and
Rates Management
What to do: Work with partners
to establish rates, anticipated volumes, and capacity requirements. With rates
for all modes and carriers and their service levels in a centralized database,
the rating engine of the TMS will automatically calculate costs and provide
cost/service/transit time information for qualifying carriers.
How to do it: Capture costs as items
move through supply chain and verify that they comply with contracted rates. A
sophisticated rating engine must analyze all rate types and options to
calculate optimal-cost shipping solutions incorporating both inbound and
outbound shipments.
Result: Systemic
improvements in supply chain efficiency from automatically planning least-cost,
most efficient shipments across multiple modes and carriers, spanning rail,
truck, LTL, parcel, and intermodal alternatives. Ability to clearly evaluate
cost to serve.
2 - Routing and
Service Level Agreement (SLA) Compliance
What to do: Base contracted
rates on a correlated set of volumes by lane and mode.
How to do it: Ensure fulfillment
at the desired level of service at the targeted cost.
Result: Actual shipping execution
complies with the plan as intended while taking all constraints into account.
Validates selection of the lowest cost carrier resources that meet extended
cost and transit time goals. If necessary, alternate modes or carriers can be
identified.
3 - Mode Shift,
Rate/Lane Aggregation and Consolidation
What to do: Periodically assess
the ability to shift modes, and perform rate and lane aggregation and
consolidation.
How to do it: Aggregate,
consolidate, and streamline the supplier mix to take advantage of available
volume/discount/service level opportunities as conditions ebb and flow.
Result: Systematic approach
to planning, executing and analyzing shipping activities to gain continuous
improvements. System recommends potential mode shifts, sourcing changes and
channel and lane shifts.
4 - Route and stop
optimization
What to do: Optimize and track
all modes (e.g. multi-stop trucks, inter-modal, rail) to carry loads on both
inbound and outbound routes.
How to do it: Apply sophisticated
transportation management technology to drive a “continuous move” approach,
which is a more complex optimization opportunity than one-way scheduling.
Understand and track shipments in motion, marry shipments in route with planned
shipments opportunistically to maximize carrier efficiency.
Result: Comprehensive
visibility to transportation in motion that tracks all shipments in transit.
Proactive rather than reactive problem solving.
5 - Settlements and
Financial Payments
What to do: Capture and verify
actual freight cost of every shipment, and allocate cost to the channel,
customer, and product. Create a feedback loop that links results back to
strategy and tactics.
How to do it: Take a look at
actuals, evaluate how your locations and carriers are performing, and implement
key performance indicators that support your whole business. This often
overlooked functional area is essential for tying the actual transportation
cost to the shipment and thus the allocation of that freight cost to the orders
that were shipped, the channel, and their products.
Result: Discover of how well
the organization has done against contract rates, understand costs by channel
and customer, ascertain the level of compliance achieved by location and mode.
Leads to continuous improvement and year-over-year benefits.
The Case for Transportation Management
Solutions
Research
conducted by the Aberdeen Group confirms a direct link between the degree of
automation best-in-class companies have in place and excellence in attaining
complete and on-time deliveries and orders, as well as controlling per-unit
landed cost and cutting the number of out-of-stock occurrences. (See Figure 1.)
Figure
1. Automation gives leaders the edge
As
Figure 2 shows, best-in-class companies are almost twice as likely to segment
the supply chain based on customer profile data, and are three and a half times
more able to do cost-to-serve modeling at the item, product, and customer
level. Leaders are almost five times more likely to do trade and transport lane
rate analysis. Given that transport cost is the single largest cost in total
cost-to-serve, it is paramount to measure rates and analyze them against your
competition, other lanes and modes of transport, as well as by customer and
segment.
Figure
2. Key capabilities that distinguish leaders from followers
How Best-in-Class Companies Benefit from TMS
Optimization
Best-in-class
companies reap rewards by achieving increased visibility, collecting granular
shipment-by-shipment and item-by-item information for both shipment events and
costs, and proactively leveraging optimization tools to take advantage of
opportunities. Figure 3 Highlights several benefits.
Spot bid capability.
Automation
tools allow transportation teams to place a load out for bid or respond to a
request by way of an electronic exchange. The exchange allows companies to take
advantage of price breaks as well as expanding their options beyond the group
of carriers they typically work with.
Dynamic hub
optimization.
Allows
time-sensitive shipments comprising multiple products to be broken apart so
some items can be directed through a 3PL to flow directly to the consumer
label. This requires a degree of in-depth visibility, cost awareness,
collaboration, and real-time control that can only be provided by a
transportation management system.
Figure
3. Sample benefits best-in-class companies derive from automated transportation
management solutions
Conclusion: Transportation Management
Solutions Drive Performance
Transportation
management systems have become an essential platform for best-in-class
companies, suppliers, and customers to plan, automate, optimize, and
collaborate. Leading supply chain teams exploit their transportation management
systems to control costs, take charge of the transportation process, and ensure
outstanding customer service. They focus on addressing both outbound and
inbound costs, while adopting omni-channel capabilities, meeting
multi-enterprise requirements, and utilizing data to improve operations. For
them, it is crucial to think strategically while exploiting tactical
opportunities.
Transportation
management solutions can create game-changing improvements that differentiate
the company’s service capability and generate benefits that go straight to the
bottom line. Best-in-class companies exploit their TMS tools to optimize five
key transportation areas:
• Contract and rates management
• Routing and SLA compliance
• Mode shift, rate/lane aggregation and
consolidation
• Route and stop optimization
• Settlements and Financial Payments
Best-in-class
companies handle the “big data” created by shipments, customers, items, and
products that flow day-in and day-out, and measure performance over time. They
understand how transportation’s interconnected costs ebb and flow with the
other costs in the supply chain (e.g. fulfillment), particularly as the
organization steps up to support straight-to-the-home shipments and parcel
transport in an omni-channel environment.
As
the transportation component of supply chain operations - and cost to serve -
becomes more and more dynamic, it is paramount to stay on top of - or ahead of
- its ever-accelerating evolution. This makes adopting the right transportation
management solution the biggest key of all.
Contributed by: Jonathan Jackman, EMEA Sales Director, Logility Supply Chain Solutions
