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  • 1. Transportation Benchmarking Survey A Study by: Sponsored by: & Supply Chain Systems Laboratory 3367 TAMU, Texas A&M University, College Station TX 77843-3367 of Distribution Advancing the Science 1 Visit: Supply Chain Systems Laboratory, Industrial Distribution Program, Texas A&M University, College Station, TX Phone: 979-458-4389 Fax: 979-458-3597
  • 2. Transportation Benchmarking Survey Overview Executive Summary Companies in industrial supply share similar This transportation report for industrial suppliers highlights the goals related to transportation: manage key findings of the survey conducted for ISA by FedEx and costs and improve customer service. They Texas A&M University. The study focused on cost, haul do this efficiently and effectively. characteristics and modes, metrics and concerns, and issues Transportation has major implications to facing transportation personnel in industrial suppliers. industrial suppliers both as a cost and service component of their business. As an There were four key findings from the study: operating expense, transportation is typically one of the largest expense items 1) Transportation cost is of paramount importance. on the income statement. As a part of the Cost is the top concern of the transportation business, transportation is the first and last function now and for the next three years, link in the supply chain ensuring that the superseding customer service and reliable delivery right product is received and then delivered times. Cost is also the most important factor in to the right place at the right time. choosing a transportation provider. FedEx, the Industrial Supply Association, and 2) Outbound delivery haul characteristics will remain the Supply Chain Systems Laboratory at comparable to today’s levels. Texas A&M University recently conducted a According to our survey participants, today short transportation benchmarking survey deliveries (less than 50 miles) are the largest share of targeting companies that move product outbound deliveries and are expected to be the through the industrial distribution supply largest share in 2008. chain. The survey targeted companies that had a definite understanding of the 3) Technology investment should be leveraged. transportation function. While the survey Technology has finally come to transportation as was available to anyone willing to many are now on some sort of shipping system. participate, the first page of the survey However, the majority of respondents do little more requested answers to technical questions than process orders or pass along invoices and related to transportation, thereby MSDS sheets. Far fewer use IT for any other function eliminating many without the data including tracking carrier performance. necessary to analyze their transportation function. The survey was taken from both 4) Companies with a formal strategic plan for the phone interviews and an online survey. transportation function outperform. [Please note: The survey findings are not The data from the survey was analyzed, and one statistically significant. Therefore, analysis variable was a key indicator of both a low and comments implied in the report are for transportation cost and a high customer service the participating companies and not for level: a plan for the transportation function. Those the industrial supply community as a whole.] survey participants with a transportation plan reported lower transportation costs as a percentage The survey goals were to: of revenue and a higher on-time delivery rate than • Understand current transportation those companies not having a plan. Compounding issues and concerns in industrial these findings is the fact that companies with a supply transportation plan had on average more • Benchmark the transportation movements of product from supplier to customer performance of industrial suppliers than those companies without a plan, which should • Highlight key traits among leading have resulted in higher transportation costs. industrial suppliers Advancing the Science of Distribution 2 Visit: Supply Chain Systems Laboratory, Industrial Distribution Program, Texas A&M University, College Station, TX
  • 3. Transportation cost is the primary issue and concern When participants in the survey were asked to rank the importance of Figure 1 – Factors in Choosing a Carrier factors used when choosing a transportation provider, cost was the Factors in Choosing a Carrier highest ranking response. When participants were asked to rank the top concerns of the transportation Cost function over the next three years, On-time Delivery again cost was the top response. Damage Rate Figure 1 and Figure 2 illustrates the Pick-up Times responses of the survey. These are not surprising results, especially in a time of Geographic Coverage rising costs like fuel prices and Carrier Flexibility healthcare. Shipment Tracking Shipment Security After cost, participants ranked the Invoice Processing importance of factors used when choosing a transportation provider in Financial Condition the following order: on-time delivery, Technical Capabilities damage rate, pick-up times, 0.00 0.02 0.04 0.06 0.08 0.10 0.12 0.14 0.16 geographic coverage, carrier flexibility, Relative Rank shipment tracking, shipment security, invoice processing, carrier financial condition, and carrier technical Figure 2 – Top Concerns over Next Three Years capability. After cost, participants ranked the top Factors in Choosing a Carrier concerns of the transportation function over the next three years in the following order: customer service, Cost reliable delivery times, information On-time Delivery technology, monitoring carrier Damage Rate performance, shipment tracking, fleet Pick-up Times and driver management, and Geographic Coverage automated invoicing. Carrier Flexibility Cost ranked the highest in the two sets Shipment Tracking of responses, but customer service and Shipment Security related issues were important as well. Invoice Processing In other words, in the struggle between Financial Condition cost and service level, survey participants believed their customer Technical Capabilities service level is good, and they need to 0.00 0.02 0.04 0.06 0.08 0.10 0.12 0.14 0.16 focus on bringing costs down to either Relative Rank increase their value proposition and win new business or to increase their own profitability. Advancing the Science of Distribution 3 Visit: Supply Chain Systems Laboratory, Industrial Distribution Program, Texas A&M University, College Station, TX
  • 4. Haul Duration expected to stay constant Figure 3 – Haul Characteristics Some of the participants in the phone surveys Haul Characteristics addressed a concern of a possible increase in haul durations. Therefore, participants were asked to indicate the percentage of current 50% outbound deliveries in three haul durations; 45% less than 50 miles, 50 to 200 miles, and greater 40% than 200 miles. Participants were then asked to indicate how these percentages might be 35% different in two years. Although some 30% concern about increases in haul duration 25% were addressed, on average participants in 20% the survey believed virtually no change in haul duration would take place over the next 15% two years. See Figure 3. 10% 5% 0% Technology in transportation is underutilized 2006 2008 Less than 50 Miles 50 to 200 Miles More than 200 Miles Although many companies use information technology in their transportation function, Figure 4: Use of Information Technology many are using it for only basic functionality. Seventy-one (71%) reported Use of Information Technology the use of the internet to share documents, this is little, if any more than email. Only 29% 80% of participants indicated the use of 70% information technology in load plan optimization, 26% in routing and scheduling, 60% 24% in in-transit tracking, 21% in use of EDI, and 6% in fleet maintenance systems. See 50% Figure 4. 40% Another indication of a low use of 30% technology is the small use of various metrics to track carrier performance. 20% Although 74% of participants use customer 10% complaints as a metric of performance, only 65% use invoice accuracy, 47% use 0% late deliveries, 36% do not track Internet to Share Documents Plan Optimization Routing Intransit Tracking EDI Fleet Maintenance performance, 26% use pick-ups as scheduled, and 18% use other metrics. See Figure 5. Advancing the Science of Distribution 4 Visit: Supply Chain Systems Laboratory, Industrial Distribution Program, Texas A&M University, College Station, TX
  • 5. Figure 5: Metrics Used to Track Carrier Cost is a top factor in choosing a carrier, and Performance carrier costs are a large component of Metrics Used to Track Carrier Performance transportation cost, but surprisingly, carrier performance is not monitored or tracked. 80.00% According to the survey, 52% indicated costs associated with carriers represented between 70.00% 76% and 100% of the total transportation cost. With technology, these metrics can be 60.00% automated, giving companies a better 50.00% picture of customer service delivered compared to price paid. An increase in the 40.00% use of technology can increase efficiencies throughout the transportation function. 30.00% 20.00% 10.00% 0.00% Customer Invoice Accuracy Late Deliveries Don’t Track Pick Ups As Other Complaints Scheduled Figure 6: Cost as percent of Revenue A Formal Strategic transportation Plan is Cost as a Percent of Revenue With a Transportation Plan associated with better performance 9% As noted cost is of paramount concern to industrial supply companies, but all 9% companies have that concern and focus on being as efficient as possible. However, one objective of the survey was to find the one or two things that industrial companies do to give them a competitive advantage. The answer was not a practice or policy, but a plan. Those companies (82%) that had a transportation plan reported lower cost as a percent of revenues than those that did not 82% (62%). See figure 6. These costs included carrier and all third-party logistics costs, 1 - 5% 6 - 10% 11%+ transportation labor costs, and other costs related to the owned or leased fleet of the Cost as a Percent of Revenue Without a Transportation Plan surveyed companies. In addition, 82% of 13% participants with a transportation plan reported on-time delivery service in the 76% to 100% range, versus 71% of those without a plan. (see figure 8) Although not dramatic, combined with the cost statistic above, it 25% does show that service is not sacrificed for lower transportation cost in these companies. 62% 1 - 5% 6 - 10% 11%+ Advancing the Science of Distribution 5 Visit: Supply Chain Systems Laboratory, Industrial Distribution Program, Texas A&M University, College Station, TX
  • 6. Please note, the survey only indicates a Figure 8: Percentage of On-time Delivery correlation between low cost/high service level and a plan. The data is not Percentage of On-time Delivery conclusive on a cause-and-effect 90% relationship. The survey results do not determine if having a plan leads to lower 80% cost and higher service levels or if having 70% low costs and high service levels leads 60% companies to create a plan as they try to 50% look for that next level of improvement. 40% 30% Some other attributes of companies with a plan versus those without were that 20% they tracked carrier performance (See 10% figure 9), they held more meetings with 0% 1 - 25% 26 - 50% 51 - 75% 76 - 100% their carriers (see figure 10), they used IT more (see figure 11), and the With Plan Without Plan transportation function managers had more input into other areas in the Figure 9: Carrier Performance Tracking organization (see figure 12). Carrier Performance Tracking The conclusion is that more transportation personnel in companies with a plan are becoming more involved than “just 90% shipping”. They are being tasked with 80% strategic issues as it relates to the supply 70% chain, monitoring and getting results, 60% which are lowered costs and increased 50% service levels. 40% 30% 20% 10% 0% Yes No With a Plan Without a Plan Figure 10: Number of Carrier Meetings Number of Carrier Meetings 80% 70% 60% 50% 40% 30% 20% 10% 0% 1- 5 6 - 10 11 - 20 20+ With a Transportation Plan Without a Transportation Plan Advancing the Science of Distribution 6 Visit: Supply Chain Systems Laboratory, Industrial Distribution Program, Texas A&M University, College Station, TX
  • 7. Conclusion Figure 11: Use of Information Technology The survey reported some interesting facts about transportation management in the Use of Information Technology industrial supply chain. All of the companies participating in the survey are leaders in their field, some are world class. Internet to share documents No matter how you slice the data, companies share similar concerns and Plan Optimization issues about the transportation function. Cost is the top concern, followed by Routing customer service issues, then by additional value added aspects of the Intransit Tracking transportation function. Haul characteristics are expected to stay the EDI same on average over the next two years. The majority of the companies in Fleet Maintenance the survey are not using technology to the extent possible. Some distinctions can 0% 10% 20% 30% 40% 50% 60% 70% 80% be drawn between companies in the industrial supply chain as related to With a Transportation Plan Without a Transportation Plan transportation. Companies indicating the existence of a transportation plan for the transportation function have a better cost Figure 12: Transportation Management involvement in structure, have better customer service, Other Functions and participate in more value added aspects related to the transportation Transportation Manager Involvement in Other Functions function as well as other facets of the organization. A formal transportation strategy should be a part of the business strategy for any company in this channel. Warehouse Management Inventory Management Purchasing Initiative Manager Design Packaging Manager Design Transportability 0% 10% 20% 30% 40% 50% 60% 70% 80% With a Transportation Plan Without a Transportation Plan © 2006, Supply Chain Systems Laboratory For more information please contact: Dr. F. Barry Lawrence Drew Satherlie Harvey Hubbell Professor in Industrial Distribution, Durable Distribution Industry Director, Supply Chain Systems Laboratory, FedEx Program Coordinator, Industrial Distribution Program. 30 FedEx Parkway, 2nd Floor Vertical Phone : 979-845-1463 Collierville, TN 38017 Mobile : 979-574-4178 Work: 901-263-8403 Fax : 979-845-4980 Fax: 901-263-6740 Email : E-mail: Advancing the Science of Distribution 7 Visit: Supply Chain Systems Laboratory, Industrial Distribution Program, Texas A&M University, College Station, TX