September 2006 | Commentary | Checking In

Rising Costs? Lateral Thinking May Help

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There are two sides to the rising trucking costs issue—the carriers' and the shippers'.

Carriers say the confluence of rising diesel prices; the driver shortage; government mandates reducing gas mileage on new equipment and driver productivity; higher taxes, insurance, and compliance costs; and increased security costs for better background checks creates a "perfect storm" for continuing higher transportation costs.

Those directly responsible for managing transport costs see it somewhat differently.

The bottom line tells the tale, shippers say. Carrier profits are up significantly, leading some shippers to claim that carriers are recapturing more than just higher diesel costs through their aggressive fuel surcharge programs.

While shippers understand the economic realities carriers face, they face harsh realities of their own. Corporate management is hammering many line logistics managers: "For years you've been reducing logistics costs and now you are not managing these costs effectively. Your failure to continue doing a good job in this area is hurting overall company profitability. Fix it."

Carriers can do more to cut costs, shippers say, adding that carriers should optimize operations to better match capacity to demand, thereby creating more capacity and reducing costs.

Carriers claim they are doing that, but it still doesn't offset their other costs. Besides, don't shippers get what they can for their products?

And haven't carriers been riding on the ragged edge of profitability for years? Why shouldn't they salt it away for the coming lean times?

Spare me the history lessons, say shippers, it's the here and now we're dealing with.

Sounds insoluble, doesn't it?

Line logistics and supply chain managers are caught between the hammer of upper management's "unreasonable expectations" and the anvil of transportation costs that will keep rising.

How about some lateral thinking here? The inventor of the concept, Edward DeBono, uses this maxim to explain lateral thinking: you cannot dig a hole in a different place by digging the one you are in, deeper.

By that he means trying harder in the same direction may not always be as useful as changing direction.

If you've challenged your carriers to the max, and truly have done all you can to reduce carrier costs, making sure you share in those savings, and you still can't move that anvil, then go after the hammer.

Go another way.

How many of you have an inbound transportation or logistics program? If you do, how many of you are doing all you can to best align demand to supply?

Take away the hammer of corporate management's "unreasonable expectations" by sharing the carriers' economic realities. Then ramp up that inbound program and you'll replace missing company profitability with some great lateral moves.


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