Transportation Management White Paper


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Managed transportation programs leverage technology and knowledge to bring greater savings, while allowing clients to focus on their core competencies. With minimal start-up expense, no licensing fees and quick and easy implementation it is no wonder why so many organizations are choosing the managed transportation route for dramatic cost and process improvements within their supply chain.

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Transportation Management White Paper

  1. 1. IDS Transportation Services | 3100 Reeves Rd. Plainfield, IN 46168 |
  2. 2. Transportation Management Programs – A Game ChangerYear-after-year companies send out RFP’s looking to find reductions in transportation cost needed for thecoming year. While many companies go through this annual RFP process, an Aberdeen Group study foundothers have taken a more holistic approach for bigger savings and better operational results. The Aberdeenstudy found 83% of companies interviewed have become keenly aware of the cost and service impacttransportation has on the overall supply chain performance of their company and see transportation as morethan just an isolated budget line item to be monitored, but a critical component of overall supply chainexcellence that can be leveraged for a strategic advantage. So, while rising freight rates, higher fuel costsand constrained capacity may be the more obvious drivers of why executives are concerned with theirtransportation spend there are larger issues at hand.The competitive need to contain transportation costs, while managing uncertainty in today’s volatileeconomic and carrier market is providing reason for the C-level of organizations to re-examine varioussupply chain options and push transportation buyers to contemplate the use of logistics services providers(LSP’s). More aggressive carrier rate negotiations no longer yield double digit savings and have no effect incontrolling supply chain needs, yet all are possible under LSP solutions.Those companies that have taken the leap and left behind the view that the transportation buy is just likepurchasing other business services can attest to significant cost savings, improved transit times, lessoverhead, better processes, etc. as is represented in the below exhibit. (Exhibit 1)With a LSP, companies have the opportunity to not only impact direct transportation costs, but also gainimproved transit times, less damage, an improved CO2 footprint and significant improvements ininformation that drive better real-time decisions throughout the supply chain for better execution andstrategic decisions throughout the sales, purchasing, manufacturing, logistics and finance areas. Examplesof indirect associated costs associated with transportation a reduction in safety stock, better inventorypositioning in the channel, reduced lead time variation and better utilization of assets and human capital.All true and measurable costs involved in the order-to-cash cycle.Outsourcing versus Insourcing ModelThere are a number of transportation LSP’s that have proven track records of excellence, so the debate oftaking the outsourced route or internally growing the transportation competencies is an individual decisioneach company needs to consider, not one that is automatically driven to be insourced out of necessity. IDS Transportation Services | 3100 Reeves Rd. Plainfield, IN 46168 |
  3. 3. One of the simplest approaches when trying to decide whether tooutsource versus insource comes through defining core competencies.In-house core competencies are those a company would assemble astrategic team around and want to constantly see forward progression,while all other activities would be a candidate for outsourcing.The thinking used to be that once a company outsourced, they nevertook the activity back in house. This thinking is undeniably not the casein today’s business environment. As companies grow and mature, andmanagement teams come and go, there is always an evaluation at theC-level as to what the company’s core competencies are or should be.At the same time, an outsourced partner will grow and adapt to marketchanges and what they are doing with their client in five years will likely be different than what they aredoing today. Companies might bring some functions back in house because they now believe they should beinternal core competencies, and they might outsource other functions that were once managed in-house.Also, outsourcing was traditionally considered an all or nothing approach, meaning companies either handedover the keys to the operation or they kept it all in-house. Until recently a middle-of-the-road option wasnot available. Today the LSP market offers a hybrid solution, such as managed transportation serviceswhere companies typically keep procurement and carrier management in-house, while outsourcing dailyexecution tasks to a LSP that is more suited to efficiently and effectively manage the vast number oftransactions through its technology and industry connections.Below is a list of additional reasons why many companies choose the outsourced model with a LSP: Financial and strategic benefits  Minimal capital investment  Rapid implementation, which provides a quicker ROI realization  Scalable solution for the future  Low cost pay-as-you go variable cost operations model  Collaborative environment for multiple users in various disciplines to communicate  Through the business intelligence tools move transportation from cost center to strategic advantage  Reduce resources required to maintain  Reduce resources needed to implement  Outsource non-core competencies Industry benefits  Full access to dedicated experts in the industry  Standardize the handling of goods  Leverage best practices in 3PL transportation industry  Leverage carrier base and rates for significant cost reductions, while improving service IDS Transportation Services | 3100 Reeves Rd. Plainfield, IN 46168 |
  4. 4. Software benefits  System is already tied in with key trading partners  Automate manual processes  Tier one open architecture web platform that quickly and easily links with various platforms  Software platform could be moved in-house, as a company’s needs changedThe Cloud Based Technology of Today’s LSP’sCloud based transportation management systems connectreal-time with supply chain partners. The new breed of cloud-based TMS systems leverage the internet’s collaborativepower and eliminate the exhaustive and expensiveintegrations associated with their ERP counterpart solutions.Streamlined communications through the cloud brings acollaborative execution model that drives unforeseenimprovements within the overall supply chain. In the cloudbased TMS systems, supply chain partners collaborate real-time to resolve their issues through web portals that are configured to each user’s needs. This real-timebusiness intelligence expands awareness and provides for better decision making. Supply chain managersconnect to arrange and track shipments, optimize both the inbound and outbound daily transportationneeds, identify delays for quick resolution. Users can instantly look at metrics from many sources, whichcan then be extracted from any web hosted device.Capacity, mode selection, consolidations, pooling and specialty niches each carrier excels in contribute to theoverall KPI’s of a company’s transportation strategy. Today’s technology utilizes all of these considerationsto assemble daily transportation plans that come up with the best routed cost to meet the deliveryschedules required by the customer. Taking Transportation to a Higher Level There is a tremendous value LSP’s deliver beyond controlling a single cost line on a P&L. Analyzing transportation activities from a strategic, tactical and operational level helps in the analysis of the overall value of transportation management program. Strategic Sourcing: The vast industry experience of a LSP, allows them to bring in the right combination of current carriers and niche players to maximize performance and cost. KPI’s are then instituted into the program to ensure the performance of each carrier in the mix is working throughout the year. Another component of sourcing isnetwork design, which is the analysis of deciding the strategic distribution points for the best service andprice. The last component in the sourcing area includes contract management, which ensures contracts arein compliance and carriers are current with their insurance.Tactical: Capacity Management and Resource Management are critical in today’s ever changingtransportation marketplace. LSP’s are in the market every day buying and selling logistics services, whichprovides them a constant barometer of the ever changing price and balance issues. A key tactical IDS Transportation Services | 3100 Reeves Rd. Plainfield, IN 46168 |
  5. 5. component also includes rate and tariff management, which requires careful review and updating for properrouting and rating. Monitoring insurance and key safety ratings of the carriers, within the client’s portfolio,are extremely important in order to avoid liability issues.Operations: Planning, execution, monitoring, auditing and payment are the critical final pieces to anoptimized transportation solution. Indispensable to planning is the rating engine that optimizes rate androute decisions for the best price and service available. EDI is a key component to automating much of thetransactions with carriers from tender to payment, which then allows the operations team to monitor forexceptions around on-time delivery and cost. An additional value of a LSP is that these EDI connections areavailable out of the box making for a much quicker and less costly implementation.The last piece of a LSP solution is an automated and accurate freight bill processing. EDI files are passed forauditing to allow for quick and easy three way matching for accuracy. Costs are then allocated basedaccount code, sku, etc. The customer is in complete control as to how they want the costs to be allocatedwithin their business.Evaluation: Measurements and real time information power overall improvement. As the saying goes, if it’smeasured it will improve. With a LSP, beginning day one, companies have information available throughweb portals, reports, which can be pushed to them or run ad-hoc and cover the key components within theirsupply chain. This data also brings power to negotiations. Many times carriers play the tariff game ofproviding savings on some zones and breaks, then offset those against other zones and breaks with the netbeing zero. All the information within the LSP’s TMS allows for what-if scenarios to be run against newideas, new rates and new processes. so the real impact can be analyzed for a particular change versustaking averages of averages on a spreadsheet to theorize what may be a suboptimal improvement.Below is a summary of the flow of documents through the entire life of a shipment.Inbound Transportation – The Next FrontierWhile a great deal of importance is placed on outbound shipments, an even greater opportunity exists tooptimize a companys performance through better inbound shipment management. Procurement, orderoptimization, visibility, improved KPI’s, controlled process and compliance are drivers to a smooth inboundprocess that: decreases safety stock that also lessens warehouse requirements; lowers transportation costs IDS Transportation Services | 3100 Reeves Rd. Plainfield, IN 46168 |
  6. 6. through a dynamic inbound compliance routing guide; reduces transportation expense from volumediscounts, consolidation and pooling opportunities; increases revenue and customer satisfaction with lessstock outs; decreases overhead; and increases productivity.No one would consider driving a car with a blindfold, but that is exactly what manycompanies do today with their inbound process. It is much easier to measure andcontrol the outbound process, which is simple in comparison to the numerous movingparts, players, compliance and synchronization challenges involvedwith the inbound movement of freight. Inbound product is thelifeblood of any organization and vendors try to make it easy byproviding a landed cost for their products, which typically means theyare adding a substantial profit margin for freight and burying it in thetotal cost of the product. Some companies try to address their inboundchallenges through routing guides, but these static guides are not well followed bythe vendor community. A LSPs inbound management provides a dynamicplatform where vendors call directly into the team, which books andoptimizes the freight movements for the day based on lane volumes and themost current carrier agreements. Through the optimization process,consolidation opportunities are found to further improve cost and transit.Through a LSP’s inbound solution, all stakeholders have the information at their fingertips via a singleplatform and can communicate in a collaborative environment. Purchasing, Vendors, Carriers, Accounting,Receiving and Traffic can exchange information collaboratively to optimize how product enters into youroperation and is transferred into a saleable state to quickly improve the order to cash cycle.ImplementationUnless there are significant issues around a client’s carrier base, the suggested path of implementationwould be to start with the client’s current carrier base. As shown previously in Exhibit 1, the greatestsavings come through consolidations, private bid boards, better visibility and control, not through squeezingthe carriers a little tighter, so why introduce more complexity coming out of the gate. Additional savings inrates will come later, once the LSP has collected enough actual information so that the LSP and the clientcan be armed with critical data as they enter negotiations. Good carrier relationships are invaluable, in that,their institutional knowledge cannot be communicated through a spreadsheet. The incumbent carriers knowtheir client’s business inside and out, which should not be discounted in a full start-up. Using the incumbentcarriers for the first 60 days, not only provides for a smooth transition but it also allows time to capture thedata that will be used to build a strong bid package that the what-if analysis will be run off of to evaluateactual savings, not averages of averages through spreadsheet analysis.With that in mind, the implementation strategy is focused on executing the business for the first 60 daysunder the client’s carrier base, while bringing in a few new carrier relationships that address immediateneeds brought on by consolidations, pools or modal switches from OTR to intermodal. After the first 60days, the LSP then takes the business out for a full bid using the actual data captured duringimplementation.After the new bids are awarded, an internal private bid board for qualified carriers will be assembled fordaily operation spot bid opportunities that may exist on any given day. This approach helps to drive pricesdown further, as carriers work to better balance their fleets on a daily basis. IDS Transportation Services | 3100 Reeves Rd. Plainfield, IN 46168 |