February 2003 | Commentary | 3PL Line

Contingency Planning: Get Ahead of the Game NOW

Tags: 3PL

It comes with the territory. Those of us who make our living in the fiercely competitive world of transportation, logistics, and supply chain management have developed an intense focus on consistently meeting and exceeding customer needs. Although most of us already operate under the credo "we need to do our work better tomorrow than we did it today," several watershed events over the past two years raised the bar for our industry and heightened expectations for contingency planning and execution.

The horrific events of Sept. 11 presented complex challenges caused by a shutdown on key roadways and in the air, as well as border closings. Consolidated Freightways' abrupt bankruptcy left many of us scrambling to get freight off its trucks and onto others. And labor issues involving 29 U.S. West Coast ports left automobile manufacturers without critical parts and retailers with holes on their shelves as the holiday season approached.

Importantly, all these events occurred during a time in which the prevailing mindset in business and among the general public is that technology is available to do just about anything we need it to do.

It's true. Technological advances and the ability to attain information in real time is improving, just as lean material flows and tighter margins have created an environment in which shippers have the right to expect that their carriers have effective processes and contingency plans in place to ensure delivery of their goods, when and where they are needed.

Disruptions in the supply chain can and will occur. You can help strengthen your efficiencies and better manage customer expectations in the current environment by taking the following simple steps. The basic blocking and tackling of transportation management will provide a solid foundation of operational and financial controls for your transportation network. This foundation is crucial when contingency plans must be executed as a result of major supply chain disruptions. Now is the time to get ahead of the game.

In terms of quick fixes, here are some tactical strategies to get you started:

  • Audit freight bills to ensure all the carrier's charges match the rates originally agreed upon.
  • Make sure your service providers comply with your corporate routing guide and use agreed-upon contract carriers.
  • Provide inventory and communication visibility among players in the supply chain to reduce the need for unplanned LTL shipments.
  • Plan shipping requirements to avoid unnecessary expedited and small shipments, which ultimately result in higher costs.

Strategically, you can achieve savings of up to 10 percent by planning and maintaining control over procurement processes, and by making sure your 3PLs utilize bidding strategies to secure the best transportation discounts. This includes knowing the carrier base in key markets and lanes, and using sophisticated bidding tools to provide dynamic, multi-round, conditional bidding so carriers can maximize available capacity on lanes where they can derive the most benefit and provide the greatest cost efficiency.

You should also maintain a back-up list of secondary contracted providers on all modes to mitigate potential threats such as carrier closings or strikes. This keeps the number of carriers at a manageable level and gives your carriers a vested interest in servicing any business tendered within their contracted service area.

Keep in mind that contractual agreements with all your providers should adequately define business requirements, payment schedules, and expected volumes. This shows the provider that the opportunity is viable, and servicing of their awarded business is not optional.

Analyze your current LTL shipments with the goal of optimizing shipping costs and service levels, which could result in savings of up to 12 percent. Strategies could include using other modes, such as truckload, to a greater extent or consolidating loads before they are shipped. Significant rate increases may mean you have to rebalance optimal shipping patterns and modes. This can be secured through:

Order Management: managing supplier and end-customer orders to optimize load building and load consolidation.

Mode Conversion: the ability to consolidate small shipments into larger shipments, or converting them to the most cost-effective mode—for instance, changing LTL loads to truckload multistops.

Pool Distribution: the ability to turn long-haul LTL movements into truckload line hauls with short LTL movements at the end.

Optimization models can quickly be manipulated to simulate changes within the distribution network. Their impact helps managers make better-informed decisions that affect cost and service.

Simulation models can look at several different strategies simultaneously on a level playing field to help identify the best solution. If your transportation network is disrupted or changed for some reason, simulating that change through product flow changes and possible node movements allows for impact measuring and helps determine alternative solutions and contingency plans.

Network optimization or reconfirming your distribution logistics strategy to ensure it remains the lowest-cost, best-service option should be your long-term strategic focus. Network optimization studies weigh the differences between cost and service across several strategies, and help make informed decisions. These studies can squeeze out transportation costs by deploying inventory through the network to meet demand at the lowest total cost. This alone could result in savings of up to 15 percent in total supply chain costs.

The journey continues. Sometimes you may hit rough and rugged highways, or unexpected twists and turns along the way. Other times, it's smooth sailing. Whatever the current climate may be, get prepared now with a solid foundation to ensure your freight keeps moving, even when the unexpected happens.