August 2004 | Commentary | IT Matters

Achieving Optimization with Closed-Loop Transportation Management

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Today's transportation managers face conflicting challenges and pressures. Regulatory mandates and security compliance create productivity and capacity issues. Companies are moving toward smaller and more frequent orders. Globalization continues to expand.

While all these factors drive up logistics costs, a competitive economic climate puts downward pressure on pricing, even as shareholders seek improved profit margins.

Two factors make transportation a more strategic business function than in the past: transportation costs account for a larger percentage of the cost of goods sold, and there's a growing realization of the strong correlation between customer service levels and transportation performance.

Closed-loop transportation management (CLTM) is a solution approach that allows companies to manage all critical transportation processes in a synchronized way to achieve optimal cost and service performance. Based on industry best practices, it bridges the traditional gap between transportation planning and execution to enable companies to procure, plan, execute and monitor freight movements.

How far has your company evolved toward achieving best-practice CLTM? The evolution of key transportation management processes uses a three-tiered approach. Level one is the lowest level, level two signifies intermediary adoption of CLTM, and level three is the best- practice benchmark.

At level one, procurement and planning are decentralized and disconnected, so efforts may be duplicated or inefficient across the network. This stage is characterized by traditional "silo" planning, where business units and/or DCs work in isolation. Execution and monitoring rely on manual processes, and there is limited visibility into the shipment lifecycle.

Level two begins to add automation and improve communication among previously independent units. Rate negotiations are more centralized; planning is more robust.

When a company achieves level three in multiple business functions, synergies result in greater efficiency, improved customer service, and reduced costs.

Best-practice solutions are not just software solutions; they are a combination of processes, technologies, and people.

Here are tips for successful CLTM initiatives:

Avoid the big-bang. Instead of doing one intergalactic big-bang implementation, take a phased approach that is prioritized based on business needs, desired ROI, and other factors. A phased approach reduces risk and makes the accompanying change management more palatable. It can also create a self-funding mechanism, where savings gained from the first phase fund the second phase.

Remember processes and people in addition to technology. It's important to get the right underlying processes in place and to motivate and educate key stakeholders so they buy into the CLTM approach. Otherwise, you won't get the benefit. Change management challenges can be substantial, and it is important to spend enough time overcoming them.

Involve industry experts. Consult with industry peers and benefit from their experience. Look at best practices in your specific space and in other industries, then try to apply those approaches in context. As you plan a CLTM phase-in, involve people who have experienced this kind of transformation cycle.

Develop a collaborative mindset. Collaboration needs to occur not only between the technology vendor and implementation team, but also at an internal (between various business functions and groups) and external (between carriers, shippers, customers) level.

Beating up on carriers to get the best rates is the old way of doing business. You need to factor in performance, service, capacity, and other non-price-based attributes of a carrier's performance, because when shipments are late or damaged, you can lose business.

A collaborative mindset lets you institute processes and technologies that enable you to work closely and effectively with carriers, suppliers, and customers.

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