| Companies Redefine the Basics Of Freight Management |
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Capacity is stretched thin and costs for fuel and drivers are accelerating, and that’s not likely to change in the near term. It’s time that businesses become more strategic in their transportation decisions.
Freight management has entered a new era. Gone are the declining transportation rates and the readily available, steadily improving services that marked a decades-long buyers market. That market, which began with deregulation and was for years sustained by productivity gains and advancing technology, has been replaced with its opposite: an environment defined by capacity constraints, productivity declines, soaring fuel/driver costs and rising rates.
This shift is not merely cyclical. Much of the transportation capacity problem is due to a systemic truck driver shortage and to aging, inadequate infrastructure that fosters congestion.
The price of oil is unlikely to drop much below current levels and demand can only increase. By 2020, freight volume is expected to rise by 70 percent, requiring a near doubling of truck miles. Demand for rail, air and ocean transport also is expected to outpace supply for at least the next two years.
To succeed in this environment, shippers and carriers need to get more creative about the way they do business and be more strategic about their transportation decisions. While many basics of freight management still apply—and need to be reinforced—new ideas and approaches also are required. This article will identify several best practices in freight management that leading edge companies are adopting to improve carrier relationships, manage capacity and ensure that their logistics operations remain competitive.
1. Centralize Command and Control
Leading companies are increasingly centralizing transportation management as one means of increasing efficiencies. The more transportation movements that one can consider at one time, the more opportunities one has for consolidation and optimization across the enterprise. Centralization enables companies to drive discounts by aggregating shipment volume across business units, provide one-source visibility to shipments in transit, and create a consistent and efficient way to tender shipments and communicate with carriers.
Some companies turn to third-party logistics providers for centralized command and control.
Centralization also enables companies to analyze both domestic and international transportation in the same systems. This becomes more important as offshore manufacturing continues to increase.
Another advantage of centralization is that it allows companies to more easily share transportation information internally.
2. Collaborate with Carriers to Manage Capacity
One key way that shippers can help ensure they have capacity when they need it is to give carriers more advance notice of their shipping needs.
This typically takes the form of a two- to-six-week rolling forecast of expected requirements. Most companies that do this convert their sales forecast into weight or loads by lane using a spreadsheet. When coupled with an effort to tender freight earlier—a day or two in advance of actual shipment—results can be dramatic. These two simple steps enable companies to reduce their turndown rate from carriers by 40 percent.
This is important since having to go to a secondary carrier costs time and money.
One company that runned numerous promotions for different brands used to notify carriers two to three days in advance of a planned spike in volume. Because the company was having trouble securing capacity it initiated a program to convert its sales forecast to a load forecast and share that information with carriers two months ahead. Since beginning this program, the company has covered all of its capacity needs without an issue. This is the number one thing that has made a difference for the shippers.
Often the third-party logistics provider is the entity receiving the advanced information. In order to really do proper optimization, one has to have some lead time. When one is able to throw more loads and freight into the mix, that is when really get the value from optimizers.
3. Enable Carrier Flexibility
Ten years ago the paradigm was to get the carriers in a room and convince them to give the lowest possible rate. That just doesn’t work anymore. The scenario today is to ask the carrier, “What works for you? What areas and lanes are the best fit for you?”. “It is up to us as a transportation management company to find the best fit for our customers and for our carriers.”
Most sophisticated carriers today have some sort of modeling tool, so they can take that information and throw it into their system and see what fits.
If a company has 18 loads on Monday and three loads on Wednesday, that is probably not a good deal for the carrier. Maybe it should change its shipping pattern to have 10 loads one day and 11 the next. If a company ships on an inefficient schedule, the trucks may be there but they definitely will be more expensive. We try to smooth out shipping schedules so that carriers can plan better.
4. Be Driver and Freight Friendly
Good drivers are worth their weight in gold, especially to truckload carriers where driver turnover rates frequently exceed 100 percent. Customers that help keep drivers moving so they can maximize hours of service and that help create continuous tours to get drivers home more often will be far more likely to get the trucks they need at the rates they want.
It is the responsibility of the shipper to recruit drivers for their carriers. Shippers do this by keeping drivers moving and ensuring that they are treated with respect and provided with courtesies such as water and rest facilities.
Enabling carriers to make their own appointments over the web is another way companies can eliminate driver waiting time, as well as saving the phone and fax time needed to set up appointments. If repeated loading or unloading delays occur at a supplier’s dock, the shipper should consider requiring that supplier to pick up the freight. This does not eliminate the problem; it only shifts the burden. It does, however, remove the delays and operational costs from the shipper’s own carriers.
Another good practice is to monitor trading partners’ performance-to-plan on appointments and inform them of any schedule anomalies. Armed with this information, shippers can work closely with their suppliers’ customer service or their customers’ buyers on a continuous improvement program to reduce carriers’ operating costs.
5. Initiate Two-Way Communications
Improved communications at all levels is crucial for carriers and shippers to understand one another’s business needs and to develop a win/win partnership.
The process of trying to work more collaboratively with carriers started among best-practice companies some time ago, but with the capacity issues and rates going up, that whole effort has taken on a new dimension with the shipper community. Many shippers are trying to assess and analyze how they can make it easier for carriers to do business with them.
The key is to capture and provide visibility to the events or services being performed at the shipment level. Profitability analysis and yield management tools can then help both sides understand the impact of these services on costs. Both carriers and shippers want to lower costs but they don’t want to do it at the expense of service. By using technology to capture the events and services and to analyze the impact, they are able to sit down and have a fact-based discussion, which is something they could not do before.
Carriers also emphasize the importance of communications. One of the most prominent characteristics of the new environment is the focus on communications and collaboration with the customer at the highest level. Carriers emphasize, however, that they are not trying to force unwanted change on shippers and that the customer’s needs always take precedence.
Every customer’s needs are distinct. Sometimes the things you would like to pull together require two or three different customers to adjust something they are doing. When you start talking about multiple customer collaboration, it takes some effort and planning to mange those dynamics. So, yes, if a shipper or consignee could adjust their expected departure time or arrival time by an hour so a driver could maximize his hours and get home, that would be great. But it’s not a perfect world and that doesn’t always happen. In every case, though, the customer supply chain takes priority.
6. Re-evaluate Old Decisions
Best-practice companies recognize that decisions which made sense in a buyer’s market may need to be re-evaluated in light of changed conditions. Because of the way carriers structure their weight breaks and fuel surcharges, even a pound difference in package weight or a penny difference in a surcharge can change the way something is moved. So this tells us that companies that have been relying on static routing guides to determine how to ship something are probably leaving a lot of money on the table. Companies using a routing guide should update it frequently and should consider moving to a transportation planning system that can do per-shipment optimization.
Shippers should “dust off” their contracts and review the fuel surcharge provisions. One wants to make certain that the surcharge is included in all rates that you use for comparison. If the shipper is passing along the freight costs to the end customer, they also need to make certain they are including the surcharge in the rate quoted at the time of commitment.
7. Measure More Effectively
Standard performance metrics are no longer sufficient in today’s environment. Shippers need to measure their own performance as well as that of their carriers and both need to be using the same yardstick.
Traditionally, companies were very focused on measuring their carrier’s performance so they could beat up the carrier when it came to rate negotiations. The new best practice is for companies to also look at what they are doing internally that may be preventing transportation from working more effectively.
Some of the largest consumer-packaged-goods clients have done internal surveys that showed that half of their on-time delivery problems were self inflicted. If one is able to scorecard not only your carrier’s performance, but your own performance and even that of your suppliers and customers, you can cut lead times and make the supply chain more reliable.
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Articol disponibil in limbile: RO, EN
Data adaugarii: 5 Sep 2008
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