Commentary | 3PL Line

Redefining the Race to Profitability Through Innovation

Tags: 3PL, Partnership

John Paugh is President & CEO, Carter Logistics, LLC, 800-738-7705

Every manufacturer, supplier, and U.S. business is feeling the effects of today’s tough economic conditions. It has never been more important to control costs and operate efficiently. The pressure is on for manufacturers to reduce waste, and operate in a truly lean manner. These facts are even more prevalent in the automotive sector, where profitability depends on efficiency. Proper management of the supply chain and the costs incurred during transportation can have significant impact on these manufacturers’ bottom lines.

“Lean management” and “just-in-time” are no longer just industry buzzwords; they are now deciding factors in the race to profitability. To be Lean in today’s world, companies must drive all waste out of their processes. Reducing or eliminating on-hand inventory is one way automotive manufacturers rid themselves of unnecessary overhead. The old saying “Time is Money” can easily be replaced with “Inventory is Money.”

Inventory costs equal more than just the cost of the parts being stored. Labor costs, warehouse overhead, insurance, and the risk of damage are all expenses that must be considered. Also, as innovation continues to occur at unprecedented levels, the risk inventory obsolescence also increases.

The solution to these costs is just-in-time deliveries. Not all companies have the scale to order full truckloads daily or even weekly, however. Less-than-truckload (LTL) shipments have traditionally been the answer to this issue, but there is a better way.

Some logistics providers are going beyond LTL to operate a “milk-run” system. By combining customers with common suppliers, they can offer an “every part, everyday” commitment. The milk-run system takes its name from the dairy industry practice where one tanker collects milk from various dairy farms and delivers it to a single milk-processing firm. The same solution works for collecting parts from various suppliers, delivering it to crossdock locations, consolidating the parts into customized loads, then shipping them directly to customers in frequent and timely shipments.

Analysts can create optimal routes, pick-up and delivery schedules, and consolidation plans, and re-evaluate the routes continually to ensure customers receive the most efficient shipping solutions possible.

Billing processes for these consolidated shipments present another opportunity for improvement. Conventional wisdom leads logistics providers to bill by skid count. All parts and products are not equal, however. For example, hauling light plastic bumpers costs much less than shipping dense steel stampings. But what if the customer pays for their percentage of weight on the trailer? All shipping cost components—such as miles, stop charges, fuel surcharges and crossdocking fees—are combined for a total cost of the specific shipping lane.

The customer then pays only the percentage of that lane price that corresponds directly with percentage of total weight of freight that belongs to them. This unique billing system makes shipping only the parts needed for a day or shift cost-effective for customers who may have been receiving truckloads of inventory weekly or even monthly before. This provides economies of scale without the cost of holding the inventory on hand.

This is only one example of how logistics providers can reposition themselves as solution-focused partners who anticipate and respond to the challenges manufacturers face. As manufacturers strive to strike the perfect balance between parts delivered and parts consumed in production, innovations in technology allow logistics providers to ensure they receive only the parts they need when they need them. Logistics providers are not only reducing inventory costs for manufacturers, but also enabling them to optimize their scheduling. Innovation is the mindset that will allows logistics suppliers to create solutions that help their customers achieve more with less inventory, just-in-time.