Re-Thinking Transportation Costs: Doing Better Regardless of the Price of Fuel

Leading companies are increasingly relying on sophisticated optimization techniques to sort through a bewildering sea of data and determine the answer to their supply chain needs.

For years, manufacturers have been able to squeeze transportation suppliers with strong-arm tactics and volume-based leverage. But these approaches are no longer sufficient in driving the transportation-cost control necessary to survive in today's marketplace. Carriers face the same pressures as their customers and are unable to squeeze any more dollars out of the same old configurations. Carriers will simply walk away from the business, or shut down operations altogether. It's time for transportation managers to re-think the way they work with carriers.

While there are many ways to tackle to the challenge, here are a few questions that reflect some of the best practices in changing the dynamic of goods from Point A to Point B -- for the better:

How Well do you Know your Carrier -- and its Business Goals?

Changing the rules of engagement starts with doing some homework to understand the capabilities and priorities that will motivate the carrier base. Figuring out what's keeping your carriers up at night, puts you in a position to take a more collaborative approach to solving the challenges you both face. What do you know about their business beyond your contract? Maybe one of your carriers is dead-heading trucks to handle a route you need, or maybe he's looking to expand in a specific region to ensure sufficient operational density. The more you know about the unique challenges your carriers face, the easier to will be to negotiate a price that's feasible for everyone.

Trucks, Trains, Ships and Planes: How Many Options?

Be prepared to introduce some flexibility into your transportation model -- if your carrier can deliver goods for a fair price via an alternative route, or on a different type of truck, that might an option worth exploring. Why not consider different modes entirely?

One of the largest chemical companies in the world garnered significant savings and an improved delivery timeline by re-examining its rail-to-truckload configurations. The result was a new model that shifted the balance away from costly intermodal networks toward a continuous-move configuration.

By taking a step back to look at the larger universe of potential options, the company achieved tens of millions of dollars in savings -- an overall reduction of 13% -- while realizing additional improvements in service levels. Over the past few years many forward-thinking companies have been taking these approaches to look for the next step and optimize their transportation networks.

Is your Network Design All it Could be?

Take a hard look at your existing transportation network. It might be time to consider re-thinking its nodes. Do your manufacturing locations make sense? What about your distribution strategies? Are there unprofitable customers? What about delivery destinations that can be cut out, or addressed with sufficient price increases? Is your off-shoring strategy costing you more in shipping costs and delays than it's saving on production?

In truth rebuilding manufacturing sites or near-shoring off-shored production is not a process to be taken lightly. To do it correctly, supply chain leaders must work with transportation managers to take transportation factors (not just price, but also feasibility and service) into account in their decisions and planning.

Finding the Answers

All of these can be painful questions to ask an organization that has invested significant amounts of time and energy into its existing transportation strategy. The good news is that discovering the answers can unlock enormous potential, allowing an organization to take its business in the right direction and get ahead of its competitors.

It requires that you closely examine an enormous amount of network data as well as dozens of alternative proposals from your carrier base. The result can yield hundreds of thousands of data points, all of which must be considered and ultimately distilled into a single answer that accommodates price, service levels, transition costs, company business requirements and more.

Luckily, this complex data analysis has come a long way, and can now be conducted more efficiently than before. Leading companies are increasingly relying on sophisticated optimization techniques to sort through a bewildering sea of data and determine the answer to their supply chain needs. The ability to dynamically consider various transportation factors is critical for companies today, particularly given the current economic situation.

It's not a simple process. You and your team must to be willing to move outside your comfort zone in order to find a new transportation solution that is consistent with your the overall needs of your company. You'll also need a high level of information on your existing network, and to work closely with your carrier base in order to make let them know you are trying to work with them to find the best solution for everyone. In the end you'll come to agree with our customers, who say that the ability to work with their carriers in a truly collaborative manner is worth the initial effort.

John H. McNeill is the General Manager of BravoSolution US. The company is a provider of global supply management solutions.

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