Rediscovering The Classics, Volume IV: Inbound Routing Guides
All the supply chain's a stage so why not command top billing? When businesses actively enforce inbound routing guides and dictate shipment instructions, efficiencies fall into place and economies run wild.
Ensuring vendors comply with your transportation requirements is as simple as putting instructions in writing. That's why a routing guide is an essential tool for businesses seeking greater control over transportation decision-making upstream and downstream in the supply chain—and why failing to use one is a fundamental mistake.
With so many external factors beyond the control of consignees and their extended supply chains, making vendors responsible for using (or not using) preferred transportation carriers or shipment instructions is a basic practice that yields tremendous value.
An inbound routing guide is a standard operating procedure for how supply chain partners transact business. From broadly outlining transportation preferences between origin and destination to dictating specific routings and carriers, documenting preferred rules of engagement can uncover measurable supply chain economies and efficiencies.
"If we think of the routing guide in terms of a document that explains 'how to do business with me,' it becomes the tactical expression of policies and instructions that might be considered minutiae in a business contract," says Kerry Loudenback, vice president of sales for TransportGistics.
The Bohemia, N.Y.-based supply chain application services provider works with manufacturers, retailers, and distributors to hone the finer points of transportation decision-making. Its proprietary solution, RoutingGuides.com, is a Web-based Software-as-a-Service (SaaS) application that aggregates and distributes transportation guides among trading partners and internal constituents.
An inbound routing guide plays a practical, rudimentary role in transportation planning and management. Companies that negotiate carrier contracts in specific lanes and areas of origin, or for specialized shipments, can leverage these favored partnerships and rates to dictate "who's moving what, when, where, and how."
From a financial perspective, aggressively negotiating competitive rates among carriers is important; holding suppliers to these rates is essential.
"When policies and instructions are published through a routing guide, the transport team has the means to drive traffic to their preferred low-cost carriers, reducing overall cost," says Loudenback.
Making vendors and service providers accountable for selecting pre-determined mode options can reap low-hanging value with little effort. In this regard, a routing guide presents a passive means for reducing transportation spend and increasing efficiency.
"The mere fact that a company gives thought and publishes a routing guide that incorporates a non-compliance policy will typically influence the suppliers' behavior," he adds.
The threat of incurring financial sanctions is usually enough incentive to comply with customer instructions.
Additionally, "routing guide compliance can reduce many hidden costs in the supply chain," observes Jeff Johnson, vice president, logistics and transportation, Ingram Micro. The Santa Ana, Calif., wholesale computer products distributor has been using TransportGistics' Web-based routing guide solution since 2001 to publish its transportation policies and instructions.
"The rework on shipment damage is one great example," Johnson adds. "A vendor ships product believing it will get to market and be sold quickly. Many suppliers are surprised, however, to discover that more than one percent of product is cosmetically or physically damaged before it ever gets to market.
"Compliance eliminates the cost to process damaged product returns back to the vendor, the transportation cost back to the vendor, the rework at the vendor, and the reshipping to market," he continues.
Vendors benefit as well. Building specific instructions into routing guides eliminates issues such as pallet overhang, lack of corner borders, and improper mode utilization—all of which may lead to product damage during shipment.
"It's a win-win for the vendor and the distributor," says Johnson. "More product is sold because it is available to be sold, and rework costs are eliminated. Additionally, vendor compliance creates transportation density in lanes. This can lead to mode shift as well as incremental leverage with transportation service providers."
As supply chain complexity grows, routing guides have evolved into comprehensive documents that go well beyond simply dictating carrier and routing preferences, steering supply chain strategy in countless ways.
Loudenback broadly sees the routing guide as representing operational requirements that have an impact on inbound material movement. This may include palletization, documentation, packaging, hazardous materials, non-compliant materials, and delivery appointment times.
Without proper instruction, suppliers act according to their own needs, forcing customers to "normalize" receipts upon delivery, he says. Instead of letting demand dictate action, consignees react to upstream suppliers. Therein lies a major disconnect.
By contrast, Ingram Micro values the consistency of holding supply chain partners in check at different interchanges within the supply chain—in a warehouse, for example.
"Following a routing guide streamlines distribution center processes, including appointments for carriers, receipt, and stocking," says Johnson.
Not following routing guide instructions creates a cascading negative impact downstream in the supply chain and far beyond the transportation component.
"When materials arrive in a manner that impinges their efficient receipt, putaway, storage, order processing, and shipping, the operations team must expend additional labor hours and resources to correct the deficiency," explains Loudenback.
Alternatively, routing guide compliance favorably impacts upstream processes such as procurement, reinforcing organizational requirements to suppliers and trading partners.
"The procurement organization is often so focused on forecasting and tactically executing orders that they miss opportunities to enhance efficiency by ensuring suppliers understand its instructions," Loudenback adds.
Failure to meet any and all of these shipment specifications can leave consignees with myriad inconsistencies that ultimately impact freight payment auditing.
"When shipments arrive with poor or missing documentation, the operations staff must shift into 'detective' mode and discern which purchase order the shipment should be applied against," he continues. "This sets the stage for an account reconciliation dance between the supplier and customer."
Routing guide conformity eliminates these types of service variations, which helps consignees reconcile freight claims, returns, and spend.
Seemingly, an inbound routing guide should be the foundation for transportation management. Surprisingly, often it's not.
"In the normal course and evolution of business development, organizations naturally gravitate to the downstream or customer-facing aspect of their supply chain," says Loudenback. "It is common to see a disproportionate level of resources lacking in the inbound or upstream material flow."
If demand-centric processes take precedence over back-end, supply-oriented functions, but businesses fail to connect the two, they don't see the supply chain in its entirety. This detachment breeds bad behavior and inefficiency, and greatly diminishes visibility and communication from the point of sale back to the point of origin.
At a higher, more macro level, "the failure of a business to compile a routing guide means it has not given thought to policies and instructions that, if followed, would dramatically reduce the costs of operations and transportation," observes Loudenback.
Another reason for such dereliction, suggests Johnson, is that businesses have become so enamored with outsourcing logistics, they sometimes lose internal control or fail to convey the importance of inbound logistics to their third-party logistics providers (3PLs).
"With the growth of 3PLs, many firms have outsourced their supply chain management talent," he says. "The functional expertise within a company's transportation, logistics, and supply chain management may be diminished, resulting in less focus on inbound logistics," he says.
Where businesses ultimately seize ownership of product, and therefore assume shipment liability and cost, depends on the consignee's supply chain sophistication and timing of revenue recognition.
"Who assumes risk of loss in transit and who pays the freight are considerations that two companies must negotiate toward a mutually satisfactory arrangement," explains Loudenback. "Once determined, the routing guide is the vehicle to provide instruction on the activities and tactics that yield the most efficient movement of the product within those agreed upon terms."
Suppliers are generally prepared and willing to route shipments according to consignee preference, especially when they recognize the potential value of divesting transportation liability and cost. Occasionally conflict arises, often as a result of poor communication between the buyer and supplier.
"If the vendor sees transportation as a profit center with the goal of collecting penalties rather than driving true supply chain efficiency, then there is resistance," says Johnson.
Inertia may also set in if a vendor perceives routing guide compliance in conflict with its own processes, and the cost of supporting those customer requirements.
"The key is getting those discussions on the table and working through them," says Johnson. "In most cases, Ingram Micro has been able to find common ground with the vendor and/or its 3PL providers."
The onus falls on the consignee to instruct suppliers and service providers on a course of action that is amenable to all parties involved. Consequently, providing vendors with empirical data that shows the financial and service implications of non-compliance can serve as justification for holding them accountable to meeting routing guide specifications.
Pushing compliance in a pull-oriented way is a simple strategy for building collaborative and innovative supply chain partnerships. An inbound routing guide stimulates and sustains communication among consignees, vendors, and third-party intermediaries.
"Establishing a routing guide opens dialogue between partners on issues and opportunities," says Johnson. "On the issues side, it brings to light where alignment is lacking in the existing supply chain. Once those issues are addressed, partners can move on to opportunities, many of which are discovered during the conversations that begin with routing guide compliance."
When businesses and supply chain partners operate in silos, inefficiencies and costs run rampant. Without a firm line of demarcation between acceptable and unacceptable rules of engagement, parties tow their own lines, creating unnecessary division.
"This behavior typically sets up friction between organizations and, if not addressed properly, the businesses end up circling the drain in a non-productive cycle of cause and effect," says Loudenback.
When vendors violate agreed-upon arrangements, it brings a customer's purchasing, operations, and transportation functions into the picture.
Such engagement breaks down siloed walls inside and outside the enterprise, helping consignees elicit more actionable information from different functional areas while giving vendors deeper insight into their customers' needs.
"This begins to build a more strategic relationship versus a simple transactional one," suggests Loudenback.
A routing guide can also give businesses a constructive anchor for measuring performance. Shippers can use this leverage to incent performance and create internal competition within their supply chain, therefore increasing service and driving economy.
For example, Ingram Micro can juxtapose where a vendor ranks against competitors in terms of routing guide attributes and compliance.
"As we collaborate with our partners on issues related to the routing guide, it's not uncommon to discuss how to re-engineer the supply chain all the way back to the original design manufacturer or original equipment manufacturer, and how we can collaborate to drive cost out and market share up," says Johnson. "The seemingly tactical discussions about compliance that start at lower levels quickly shift to partnership and problem-solving on a much larger scale."
As a fundamental part of transportation management, today's routing guide can serve as a catalyst for more penetrating business process improvements. Web-based routing guides are what Loudenback describes as bi-directional portals—"because the Web changes everything relative to the way content and information is embedded in the document."
Organizations are typically stratified in three phases of routing guide and vendor compliance sophistication, explains Loudenback. These include:
- Phase 1: The company has not developed and published a routing guide. Its internal staff and external trading partners ship at their own discretion. This company is at the highest exposure for unnecessary logistics costs.
- Phase 2: The company has developed and published a static routing guide that can be mailed or e-mailed. Confirming routing guide receipt is still a challenge. Additionally, making changes, edits, or updates to the document is problematic. This makes it difficult to effectively execute a compliance strategy.
- Phase 3: The company has developed its routing guide, determined its audience, and published the document on the Web. It confirms receipt and effects updates and changes to a document as well as republishes when necessary. It is prepared to measure and administer a compliance strategy.
Most businesses fall into the first two phases and are not capable of executing more complex demand-driven strategies. This is where Ingram Micro found itself in 2001 when it first sought TransportGistics' assistance.
The company was e-mailing a paper-based routing guide to more than 2,000 vendor contacts with a high frequency of non-deliveries. It also lacked the means for updating instructions and guaranteeing supply chain partners received them.
Working with TransportGistics to automate its routing guide has helped Ingram Micro realize the hidden costs associated with inefficient movement of inbound material—harnessing compliance to master inbound logistics.
"From packaging, to damage, to documentation, and certainly transportation, Ingram Micro took a holistic view of communicating policies and instructions, as well as correcting bad behavior with its suppliers," says Loudenback. "This approach has enabled it to cut significant costs from its operations and transportation budgets."
Such integration is paramount as businesses build the foundation for true demand-centric supply chains. A static inbound routing guide is a step in the right direction; a dynamic, Web-based interface is a leap with boundless potential.
But, "most companies need to walk before they can run," Loudenback suggests. "By working through these progressive steps, organizations can determine the effort and resources they are willing to allocate to achieve their desired performance level."
Johnson shares a similar perspective. "The routing guide is not a magic tool that instantly changes a supply chain network. Rather than effecting radical change, a routing guide can foster evolutionary change," he says. "It aligns discussions that lead to low-level collaboration, which can then blossom to strategic development."
Efficiencies may begin with greater vendor compliance and control over freight spend, then incrementally build as companies negotiate transportation rates, pare down core carriers, identify areas for shipment consolidation, and mirror these changes in their routing instructions.
"Visibility to suppliers' orders in advance of shipment offers the ability to route and consolidate dynamically," adds Loudenback. "Combined with the carrier's in-transit status message, a company now has mastered visibility and control over its inbound supply chain."
From addressing obvious tactical problems to driving latent strategic designs, bridling inbound material movement opens up new vistas for business process improvement. Some businesses need look no further than literally documenting and communicating what they want. That's the value of an inbound routing guide.
Getting Back to Basics: Developing an Inbound Routing Guide
An inbound routing guide is a reflection of a company's needs and its expectations for vendors and supply chain providers. As such, it should be clear and concise, adaptable and accessible. Specifying transportation instructions only works if businesses regularly measure conformance and communicate non-compliance issues with vendors when problems arise. Here's some advice for creating a successful inbound routing guide.
- Use the Web. Shippers can be choosers, and using online routing guide services should be a preferred choice over print versions. Internet-based routing guides give users the flexibility to update and change instructions at a moment's notice, then easily convey this information to vendors and supply chain partners, and confirm receipt.
- Define your routing guide requirements. Today's routing guides can include an array of instructions detailing modal and carrier preferences, loading and packaging requirements, non-compliance rules, and hazmat handling, among other considerations. Specifically, consignees can drill down favored carriers by lanes and origins, by state or ZIP code, speed-to-market requirements (LTL, TL, next-day), or by shipment characteristics: weight, special handling, and temperature sensitivities.
- Include provisions for handling special shipments and for authorizing contingency options when exceptions occur. They may also look to identify consolidation opportunities to leverage volume discounts per specific shipment types and weights. Keeping it simple and clearly defining relevant directions helps eliminate confusion and ensure compliance.
- Build routing guides around your core carriers. Having a roster of core carriers, by mode, dovetails with developing an inbound routing guide. Businesses can specify primary and secondary carriers in specific lanes or for certain shipment types and align these routing preferences and instructions with vendors.
- Communicate. Beyond enforcing compliance, talk with carriers and vendors to identify problems and share ideas for improvement. Keeping supply chain partners in the loop, through an internal routing guide and with external communication, helps build strong partnerships and mindshare.
- Evaluate compliance and performance. Consignees should regularly keep vendors apprised of non-compliance issues. When problems recur, they should seek plans for corrective action. Make sure non-compliance policies and penalties are well-documented.
Benchmarking service performance and freight rates can similarly breed healthy competition among carriers and vendors. Businesses can audit this information against routing guide specifications to discern carrier, rate, and mode use and explore opportunities for improvement. With so much cost and capacity fluctuation in the market, businesses need to reflect these changes in their routing guides.
- Confirm receipt. Technology has helped mediate security concerns over circulating print guides with confidential information. But companies should always confirm receipt of new routing instruction to ensure vendors are complying with up-to-date instructions.