January 2010 | Sponsored | Knowledge Base

Immediate Steps Toward Supply Chain And Transportation Integration

Tags: Transportation Management

Geoff Comrie is CEO, Transite Technology, 919-862-1900

Finally! Now, there is much more action toward integrating the transportation function into the Supply Chain. For years, there has been the realization of the high volume of money being wasted associated with transportation expenses—inbound, outbound and "plant-to-plant."

Let's look at some industry numbers:

  • Overall inbound, production-related and outbound transportation is often the 3rd highest expense on a company's P & L
  • While logistics can comprise 15% of product total cost, money spent on transportation is 50% of a company's logistic costs
  • U.S. companies spend over $750 billion on transportation & logistics
  • Most companies overspend by 20% due to poor transportation decisions

To optimize transportation management into the supply chain, it's critical to integrate transportation management best practices, process management and people across the entire supply chain. These interdependencies and challenges can intimidate companies and deter them from fully committing to transportation integration. Once a company has decided to make the commitment, here are some tips to help make this transition a successful one:

  • Take it step by step. Instead of taking one giant leap to implement an entire plan, take it one step at a time. Prioritize steps based on business needs and other factors. If done correctly, it can even pay for itself when the savings acquired in the first step can pay for the second step, and so on.
  • Combine processes and people with technology. Technology can only take you so far. It is crucial that you implement the correct processes and have key employees and functions onboard with the approach.
  • Create Team Thinking and embrace change. "Psychology" is as important as getting the right tools and processes. Create a project environment where everyone is working toward the common goal. It's also important to bring in external (different parts of your supply chain) sectors of your business.
  • Don't reinvent the wheel. Talk with people, companies, and industry experts etc. who have experiences. This step can save time, energy and money.

Integrating transportation into your supply chain may seem like a daunting task. By taking advantage of modern transportation management solutions significant step-by-step approaches can be initiated to take on the challenge.

Look at taking these immediate steps:

  1. Save on Inbound Freight: When working with suppliers, work with them to separate the cost of goods from freight. This provides visibility of the actual cost of freight so transportation management practices can be applied to reduce inbound shipping costs. Ultimately, companies achieve this reduction by not paying the up-charged shipping costs and directing suppliers to use the least cost transportation method as determined by your own company's carrier agreements—not the vendor's.
  2. Make Money on Outbound Freight: First, get rid of the static routing guide and use actual cost instead of simple parameters such as weight & mode. You will be greatly surprised at the savings, not only within the LTL mode, but also between modes. Secondly, look for ways to optimize your transportation practices to lower transportation costs. Such practices offer the ability to make more money in "prepay and add" applications where transportation costs to the customer should consistently be viewed as a profit center.
  3. Generate and Surface Quality Data to See Financial Impact of Inbound and Outbound Freight: Data is critical in the generation of meaningful financial reports. This puts emphasis into detailed electronic transactions, the appropriate technologies, and smooth integration into the financial reporting system. Immediately, a company will be able to view: the financial impact of cost of transportation (inbound and outbound) into cost of goods sold, ability to meet customer-driven service levels, and more.
  4. Empower Customer Service: Enable customer services to see accurate transportation price information. This delivers real-time accuracy while eliminating guesses, estimates or call-backs. The transaction can be closed faster and shipping profitability is maintained at a desired margin.

In closing, constantly negotiating with and between carriers to get the lowest prices does not offer a sustainable competitive advantage particularly if competitors can get the same deals. Optimized transportation management integration into the supply chain requires not only optimized rates, but optimized inbound and outbound transportation management practices across the organization.