Author: By THOMAS CRAIG, resident LTD Management
Article Dated: April 1997
Transportation is a very key element of the logistics process and the supply chain which runs from vendors through to you to your customers. It involves the movement of product, service/speed and cost which are three of the five key issues of effective logistics. It also impacts with the other two logistics– movement of information and integration within and among suppliers, customers and carriers.
A transportation strategy, to be effective in supply chain management, is not playing one carrier off against another. It is not beating down rates. Rather it is a way to respond to the dynamics of your business, its customers, suppliers and operation.
The strategy, regardless of whether you are involved with domestic or international, is much more and should recognize–
Customer requirements. The supply chain involves continuous and efficient movement of product from vendor to manufacturer to customer. Therefore the transportation program must reflect and meet the customers needs. The time and service aspects of transportation are vital.
Shipments must move timely. Customers demand their shipments be delivered as they require–on the date needed, by the carrier preferred, in the proper shipping packaging method and complete, both shipped complete and delivered complete and in good order. Being able to have a transportation program with can do this provides customer satisfaction and can give your company a competitive advantage.
Mode selection. How will you move your product, by air versus surface? What roles do transit time play in your supply chain? How will the inventory and service impacts be measured as compared to the freight charges?
Carrier relationships. Volume creates carrier/forwarder attention. Even if you have no strategy, the number of carriers trying to meet with you will make you develop one. Infrequent shipping dictates another approach.
The carrier attention with volume creates a competitive interest in your business. But there is another side to this attention, you cannot divide your business among many carriers. You cannot do this for two reasons. First, as you fracture your business, you fracture your negotiating or leverage position. Second, you will not be able to develop carrier alliances which you need to meet the supply chain service requirements. Developing supply chain responsive programs requires effort by both the carriers and you. Transportation must be responsive and can create a competitive advantage. Doing this means a focus with a carrier–a relationship.
Measuring/benchmarking. You need to know how well your strategy and your carriers are performing. This takes two approaches. One is measuring. Measuring means comparing performance versus standards. What is the actual delivery to customer performance, on a macro basis, carrier and customer by customer basis? A macro measure can hide a problem even if the overall measure is good. And, with supply chain management, you are focusing on each customer and delivery location he has. You should measure your costs to make sure they are controlled. Where are you spending your transport dollars and how well? Freight cost data tied with sales and shipping data makes a great data base for budgeting and managing costs. It provides data for negotiations, developing good freight costs for sales and accounting, for studies and other purposes.
Benchmarking means learning what other companies do–the best practices. Very often benchmarking is not done with a company in your industry. Competitors are not likely to share information. And best practices are not the exclusive of one industry or company.
Regulatory impact. Regulatory changes can change, for better or worse, your strategy. The recent demise of the Interstate Commerce Commission eliminated a safety net for shippers, especially for small shippers. Shippers now need to work with carriers with whom they can develop contractual relationships which reflect the new transport world as to liability, freight class, rate changes, accessorials and other needs.
Potential regulatory changes with the Federal Maritime Commission can also change your strategy. For example, if there is real maritime deregulation, then steamship line conferences will lose their antitrust protection with setting rates and capacity. Shippers will not deal through or with conferences. Instead they will deal directly with steamship lines for service contracts and other needs.
Carrier mergers and alliances and closings. This is an important and difficult issue. In the fifteen years or so since motor carrier deregulation, there have been significant changes. Many carriers went out of business. Others changed their focus from truckload to LTL. New truckload carriers came into being. Maritime has its issues. Large steamship lines in the trans-Pacific and trans-Atlantic trade formed alliances. Now with the recent merger of P&O and Nedlloyd, mergers are beginning to occur.
You have analyze what is happening within each mode and align your strategy with carriers who will still be viable in five years. A great strategy with a carrier who is taken over or goes out of business is suddenly not a good strategy. Now you have to develop one with another carrier, and that takes time.
Flexibility. Change is happening. It is not a question of whether or not it happens. The only question is how quickly it occurs. Your strategy has to be ready to change. New customers. New products. New businesses. New suppliers. New corporate emphasis. Each of these can dramatically change your strategy. Recognize that change will occur. Keep an open ear and mind to other modes and carriers. The times they are a changing–and so will your strategy.
Conclusion. Transportation is critical to logistics and supply chain effectiveness. It impacts throughout the key issues of logistics effectiveness and the global supply chain. To meet the dynamic requirements of the supply chain, you must have a dynamic strategy. It must be responsive, both as to service and cost demands of your customers and your company.