Managed well, the transportation function can deliver differentiated customer service and cost advantages, both of which are critical to success in today\'s uncertain environment. Yet companies face several challenges to deriving sustainable value from transportation, including volatile fuel costs, vendor consolidation, rising customer service demands, and increasingly complex supply networks. In this white paper, Supply Chain Edge explores these and other key challenges, as well as how outsourcing can help companies overcome them and generate greater value from their transportation operations.

1. Generating Maximum Value from
Transportation Outsourcing
By John DuBiel, CEO, Managing Partner and Founder, Supply Chain Edge
www.supplychainedge.com

2. Generating Maximum Value from
Transportation Outsourcing
• With cost and service pressures intensifying, companies are scrambling to make
changes to their transportation activities that will improve their performance in these
areas. However, both internal and external challenges often conspire to make
implementing such changes difficult.
• Given these challenges, outsourcing can be a good approach to boost the business
value of transportation while enabling a company to maintain its focus on growth and
market differentiation.
• As we detail in the following slides, to generate maximum value from transportation
outsourcing, companies must determine which type of outsourcing is the best fit,
decide which activities they should outsource, and choose the right outsourcing
partner.
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3. Transportation Management: Under Pressure from
External and Internal Forces
• Energy prices: From 2008 to 2011, oil prices rose by 175 percent.1 Most LTL carriers implemented two
rate increases of approximately 6 percent each during 2010,2 and 72 percent of logistics professionals
say their biggest challenge is rising shipping rates.3
• Consolidation: More than 3,000 trucking companies have gone out of business in the past three years.4
• Complexity: More than 85 percent of companies think their supply chains will become much more
complex by 2012,5 with greater than 75 percent serving more international customers and more than
two‐thirds providing more product variations.6
• Demanding customers: Forty‐three percent of logistics professionals say increased customer demand
for accurate delivery status and cost information is a major pressure, and 31 percent cite customer
demands for shorter cycle time.7
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4. Transportation Management: Under Pressure from
External and Internal Forces
• Outdated or inadequate technology: Only about one‐third of major companies use a transportation
management system.8
• Insufficient data: Companies often create demand forecasts based on the previous year’s data,9
compromising accuracy.
• Processes: Many companies’ transportation management processes are compromised, resulting in
inefficiency, higher costs, and sub‐optimal performance.
• Talent: Finding, attracting and developing the right talent can be difficult. In a recent survey, 90 percent
of executives described supply chain management talent acquisition and leadership development as an
important issue.10
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5. Generating Value by Outsourcing Transportation
• In light of these challenges, transportation
outsourcing allows companies to:
– Focus on the attributes and competencies that
comprise their unique value proposition
– Benefit from deep expertise and cutting‐edge
technology that often are too expensive to bring
in‐house
– Gain more complete and accurate data, and the
means to analyze that data to make better
decisions
– More readily scale up and down its resources as
requirements change
– Avoid large capital outlays and overhead costs
– Increase market power and negotiating strength
by outsourcing transportation to a third party
that aggregates volume
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6. Choosing the Right Outsourcing Approach
• Companies seeking to tap into these
benefits face many choices,
particularly in terms of the type of
outsourcing provider they select.
• They typically must decide between
a 3PL that offers immediate savings
derived from volume advantages
and technology expertise, or an
advisory firm that can provide
consulting and ongoing management
services to achieve longer‐term,
more sustainable performance
improvements.
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7. Immediate Scale and Lower Shipping Rates via 3PLs
• 3PLs allow smaller companies to gain
the benefits of scale, including more
advanced technology, more
powerful relationships with carriers,
lower administrative expenses and
optimized processes.
• For companies with little or no
existing transportation management
infrastructure or skills, 3PLs can add
value quickly.
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8. Stronger Capabilities and Lasting Value from
Advisory Firms
• More sophisticated, complex
organizations with higher demands
on transportation should consider
partnering with an advisory firm that
can understand its transportation
goals, challenges, capabilities, and
infrastructure.
• These more strategic partners can
craft individualized transportation
strategies that may include the use
of 3PLs, as well as other key changes
to business processes, assets, and
operations.
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9. Choosing the Right Outsourcing Approach
• Ultimately, the approach a company
takes toward outsourcing
transportation depends on four key
factors:
– Strategic fit
– Business model complexity
– Maturity of transportation
capabilities
– Current and desired
performance
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10. Choosing the Right Outsourcing Approach
• Strategic fit
– Companies should assess whether or
not outsourcing is right for them
from a strategic perspective. In
particular, this means considering
whether they are willing to relinquish
control over some aspects of their
operations and if, in doing so, they
can execute their strategy more
effectively.
• Business model complexity
• Maturity of transportation
capabilities
• Current and desired performance
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11. Choosing the Right Outsourcing Approach
• Strategic fit
• Business model complexity
– Larger companies with highly
complex supply chains are likelier to
be good candidates for
transportation outsourcing, since
managing transportation themselves
is a distraction from the core
business. Complexity also makes
quality improvement and cost
reduction more difficult and time
consuming.
• Maturity of transportation
capabilities
• Current and desired performance
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12. Choosing the Right Outsourcing Approach
• Strategic fit
• Business model complexity
• Maturity of transportation
capabilities
– If a company’s existing transportation
function is not up to the task and
making it so would be cost‐
prohibitive, outsourcing is a good
alternative. A thorough assessment
of all facets of the function, including
talent, technology, data, and business
processes can be helpful in making
such a determination.
• Current and desired performance
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13. Choosing the Right Outsourcing Approach
• Strategic fit
• Business model complexity
• Maturity of transportation
capabilities
• Current and desired performance
– For companies already at high levels
of transportation management
performance, little may be gained by
outsourcing, especially when working
with 3PLs. The approach has the
most potential for companies lagging
the competition and in need of
performance improvement.
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14. Three Considerations for Finding the Right
Outsourcing Partner
• Qualifications
– Companies considering 3PLs should have a formal, rigorous process that includes a
detailed request for proposal, in‐depth interviews with candidate providers, and
extensive site visits by finalist 3PLs.
• Flexibility
– An outsourcing provider should be willing to address individual challenges or
opportunities on a case‐by‐case basis. By thus gradually shifting responsibility for
transportation management to the provider, companies can assess their true readiness
to outsource this important function, and can “test‐drive” the provider’s ability to
generate value.
• Value generation
– Companies must consider how the outsourcing provider generates economic value for
itself. While 3PLs generally do so by buying freight services in bulk and marking them up,
more strategic advisory firms usually are compensated for long‐term, process‐related
cost savings. Which model is right depends upon the company’s own goals and
capabilities.
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15. Conclusion
• For many companies, outsourcing transportation can help them achieve greater
value. However, they must choose the right approach and partners:
– 3PLs can bring fast, substantial savings to smaller companies with simpler supply chains,
which readily benefit from these providers’ market power, economies of scale, superior
technology, and seasoned talent.
– For larger, more complex organizations, an advisory firm that assumes responsibility for
the entire transportation function can deliver more value over the long term by
implementing important changes to a company’s transportation infrastructure,
capabilities and processes.
• Ultimately, the decision requires companies to assess their goals, capabilities, and
limitations carefully. By taking into account the variables and guidelines explored
in this presentation, companies can choose the right outsourcing approach to
maximize the performance and value of transportation.
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16. Download White Paper
• This presentation is a summary of the comprehensive white paper, “Generating
Maximum Value from Transportation Outsourcing”
• To download the full complementary white paper PDF, click this link:
http://www.supplychainedge.com/assets/documents/SCE_generating‐value‐from‐
transportation‐outsourcing‐white‐paper.pdf
• To view additional SCE insights, please visit our website at:
http://www.supplychainedge.com/insights/index.shtml
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Contact Information
Joe Brady
Senior Partner
Joe.Brady@supplychainedge.com
p. 440.937.5151
www.supplychainedge.com
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Cited Sources
• 1: Two Directions for the Prices of Natural Gas and Oil, The New York Times, February 25, 2011.
• 2: A Smoother Road for Less‐Than‐Truckload?, Morningstar Inc., June 24, 2011
• 3: http://letstalkshipping.wordpress.com/2009/02/23/top‐challenges‐facing‐transportation‐managers/
• 4: State of the Logistics Union 2011, Supply Chain Digest, June 16, 2011.
• 5: Supply Chain Comment: Can Your Internal Value Chain Economically Handle Growth Opportunities?, Supply Chain Digest,
June 22, 2011.
• 6:ibid
• 7: http://letstalkshipping.wordpress.com/2009/02/23/top‐challenges‐facing‐transportation‐managers/
• 8: http://www.logisticsmgmt.com/article/tms_the_key_enabler/
• 9: Ibid.
• 10: http://www.prnewswire.com/news‐releases/scm‐world‐2011‐chief‐supply‐chain‐officer‐report‐highlights‐critical‐
concerns‐of‐over‐750‐globalsupply‐chain‐leaders‐122508783.html