By Jay Friedman and Jerry Levy
The last several years have witnessed a wide proliferation of transportation management systems (TMS) executed in various environments, such as on-site software licensing, ASP environments or, most recently, software-as-a-service (SaaS). Regardless of delivery model, the success of TMS in reducing transportation costs, simplifying administrative functions and enabling shippers to measure key performance indicators (KPIs) is well documented. However, while major efficiencies have been achieved on the outbound supply chain, inbound shipment management represents a huge opportunity to further reduce transportation costs.
Implementing an outbound solution has been a classic "low-hanging fruit" in the supply chain. First, it is relatively easy to enforce, as users are under direct control of the application owner. Second, the number of outbound locations is usually much less than on the inbound side. And third, the technology infrastructure is close at hand, managed and maintained by in-house resources.
On the flip side, those factors that make outbound TMS implementations relatively easy don't necessarily apply for typical inbound implementations. Most manufacturers have numerous suppliers, all with different systems and processes, and all of whom are operating in far corners of the world. The terms of sale can make measurement of the transportation spend very difficult to gauge. Some suppliers may not even wish to give visibility to their transportation costs since prepay and surcharges can be profit centers for them. In addition, in today's environment, much of the inbound comes from international suppliers and involves complex documentation, regulatory and technology issues that some TMS systems simply don't manage.
So that's the bad news. The good news is a new wave of Web-based solutions can give your inbound supply chain 1) automated carrier and service level selection with shipment execution, 2) global visibility to shipments in transit, and 3) measurement of key performance indicators.
The Light at the Far End of the Inbound Tunnel
In the not too distant past, when companies implemented supply chain execution software or a new logistics module for inbound shipping activity within an enterprise resource planning (ERP) system, the challenge for their suppliers was to ensure that they had in place technology platforms that enabled them to communicate with their clients' systems. Today Web technologies and the supporting services bring powerful options to the table, allowing companies to more easily deploy a full-fledged inbound shipment management solution.
Web-based solutions give suppliers easier access, greatly simplifying the process of connecting with client systems.
No special hardware is required other than a Web-connected computer. When authorized by you, your suppliers can access the inbound solution from anywhere around the world at any time. Leveraging a TMS solution delivered under a Web-native software-as-a-service or "cloud computing" model allows companies to bring the suppliers to the technology, rather than bringing the technology to the suppliers as in the typical software installation model. In the latter situation, a version of the software needs to be loaded at every user location, requiring on-site installation, IT support, training and ongoing maintenance. With the cloud computing model, just one shared instance of the software resides with the technology provider, and access is available anywhere there is an Internet connection. Deployment, implementation and training can be accomplished with a phone call and a Web-based demo. This is the first step in assuring your suppliers that your intentions of managing this component of your transportation will have no adverse effect on their operation.
However, simply giving access to thousands of suppliers on its own does not provide a solution, it only opens the door. What they do — or, more important, cannot do — with the software is of critical concern. With a built-in automated routing guide, companies are in essence holding the hands of their suppliers, requiring and enforcing the proper selection of carrier and service level for every shipment. Since this selection process is automated and driven by the parameters of each individual shipment, companies can ensure the best mix of service and price for every shipment.
Seeing Is Believing
The next critical aspect to be addressed is visibility to shipments in transit. Many times supply chain professionals learn a shipment is on its way only because it arrives at their dock. Inbound transportation, for many, remains a very large black hole.
By implementing a Web-based inbound TMS solution, companies can have instant real-time access to shipment information immediately upon shipment execution. Additionally, this new wave of TMS solution brings shipment update information to a central repository, allowing multiple views of current shipment data across all carriers and modes from a single application.
With shipment execution being the data entry point, managers do not need to wait for information to come from their Accounts Payable department or to consolidate multiple reports in multiple formats from multiple transportation providers. Rather, by simply clicking on a couple of buttons, multiple views of shipment data — filtered, grouped and sorted every way imaginable — are instantly available. This gives companies actionable information to help become better educated supply chain decision makers.
Managed Services Increase the Value
Even the simplest software applications require some upfront training and ongoing support. Companies with suppliers that ship infrequently need a solution that is even easier to use than what we've discussed so far.
Where volume doesn't justify the time for software training, solutions with a managed services component afford an even greater value — suppliers just contact a support center where a trained associate takes shipment information, enters the shipment information on behalf of the supplier and then simply e-mails documentation to the shipping location.
Not only does this simplify the suppliers' operation, but it also ensures proper carrier and service level selection and rate application for the receiver. Once the shipment is executed, the receiver can also have instant visibility, even before the selected carrier makes its pickup.
Set (Terms of) Sale for Success
In order to control your inbound freight, you have to own it. First and foremost, if shipments are coming to you on a "bill receiver" basis and you're not getting 100 percent compliance with carrier and service selection, a Web-based inbound TMS solution can help achieve transportation cost savings of 10 percent or more, which means that time-to-payback for these tools can often be as low as a couple months.
If your freight payment terms are anything other than "bill receiver," then you have some homework. Your first step though is to acknowledge that your shippers are most probably not sharing their transportation discounts with you, and your cost of transportation, even if supposedly included in the cost of goods, represents another profit center for your shipper. If you've made the effort to negotiate transportation rates and services with your preferred providers, you need to leverage them to the best of your ability and theirs.
Tame the New Frontier
Companies looking to evaluate the adoption of an inbound TMS solution should consider the following steps:
1. Grasp the magnitude — If you think the number of suppliers your company deals with is simply "a lot," then you have some homework to do. To really understand the potential savings available to you by controlling your inbound transportation spend, you need to know how many suppliers you have and where they are located.
2. Set your baseline — Establish buckets based on freight payment terms (e.g., "bill receiver," "prepay and add," "included in cost of goods"). Then divide up your inbound transportation spend by bucket (ballpark percentages are fine).
3. Analyze your data — You've spent the time and effort to negotiate service and price packages with your preferred carriers. They're only valuable to you if they're being used. If your supplier selects their own option or is sloppy about following your directives, you are throwing money out the window.
Start with the easiest bucket, "bill receiver." This is where you have the most control — if you pay the freight costs, you should dictate the carrier and service selection. Run reports, or manually pick out random transportation invoices, and verify that your preferred carrier and service levels are being selected by your supplier. Using your preferred carrier is not good enough — there usually is a quite substantial price differential between expedited and standard services, for example, so validate service selection as well. Also, make sure the correct carrier account number is used — not all account numbers are properly coded by the carrier for your corporate rates and/or discounts. This should be an eye-opening exercise.
You can stop here for now and move to Step 4 as Web-based applications and their associated pricing models allow you to pay for what you use, supporting a phased approach. This way you can validate your program with a proof-of-concept by starting with the "bill receiver" shipments while continuing to analyze your other buckets.
Eventually, though, you'll want to go to the "prepay and add" bucket. This is harder to measure because you don't get transportation invoices. But play "CSI detective" and find out what you're paying on a per-shipment basis (random selection is fine to start). Many (dare we say most?) suppliers who ship "prepay and add" do not pass on their actual discounted carrier rate to their customers — they build in a markup and this becomes a profit center for them. Not only are you paying higher than the actual price of transportation, odds are very good this line item is also higher than your negotiated rates with your preferred carries. Too many companies ignore this bucket simply because they don't get transportation invoices. If the "bill receiver" bucket exercise was eye-opening, the "prepay and add" bucket analysis may be life-changing!
Usually after analyzing the first two buckets, transportation professionals feel invigorated and empowered to take on bucket number three — transportation costs built into the cost of goods. Buyers can have a tendency to believe a sales promise that their transportation is free. But certainly everyone has heard "there's no such thing as a free lunch/truck/transportation cost." As your inbound transportation project builds momentum, you should ask your suppliers to break out transportation from the cost of goods and then revisit the "prepay and add" exercise above. Support from other areas of the organization, obviously including Procurement, is critical at this stage.
4. Weigh the benefits — Of course, inbound TMS solutions are not free. But after doing the homework in step three, you can gauge your upside and then measure that against the cost of the solution. Today's Web-based TMS solutions generally charge on a monthly subscription fee basis, making acquisition and deployment more affordable, with paybacks that can be as short as a couple of months.
5. Make it happen — Simply communicating routing requirements, although certainly a step in the right direction, is not enough. No matter how reputable your supplier is, your routing directives are only as good as the person processing the shipment. Take advantage of the TMS technology and service solutions.
Don't let the cowboys run wild over this new frontier of inbound shipment management — lasso them in, control their actions and reap the financial rewards!
About the Authors: Jay Friedman is a senior account executive at Gartner Group, the information technology research and advisory company. He has almost 30 years of supply chain services and technology experience. Friedman also is president of the Arizona Roundtable of the Council of Supply Chain Management Professionals and CSCMP Roundtable Advisor. He can be reached at [email protected].
Jerry Levy has over 20 years of sales and marketing experience in the logistics and transportation industries. Jerry recently served as Vice President – Corporate Marketing for Agility where he was responsible for all the marketing and branding across the over $6 billion dollar network. Jerry joined the former PWC Logistics during their initial integration and was instrumental in launching Agility as a top ten global provider of supply chain solutions. He can be reached at [email protected].
The last several years have witnessed a wide proliferation of transportation management systems (TMS) executed in various environments, such as on-site software licensing, ASP environments or, most recently, software-as-a-service (SaaS). Regardless of delivery model, the success of TMS in reducing transportation costs, simplifying administrative functions and enabling shippers to measure key performance indicators (KPIs) is well documented. However, while major efficiencies have been achieved on the outbound supply chain, inbound shipment management represents a huge opportunity to further reduce transportation costs.
Implementing an outbound solution has been a classic "low-hanging fruit" in the supply chain. First, it is relatively easy to enforce, as users are under direct control of the application owner. Second, the number of outbound locations is usually much less than on the inbound side. And third, the technology infrastructure is close at hand, managed and maintained by in-house resources.
On the flip side, those factors that make outbound TMS implementations relatively easy don't necessarily apply for typical inbound implementations. Most manufacturers have numerous suppliers, all with different systems and processes, and all of whom are operating in far corners of the world. The terms of sale can make measurement of the transportation spend very difficult to gauge. Some suppliers may not even wish to give visibility to their transportation costs since prepay and surcharges can be profit centers for them. In addition, in today's environment, much of the inbound comes from international suppliers and involves complex documentation, regulatory and technology issues that some TMS systems simply don't manage.
So that's the bad news. The good news is a new wave of Web-based solutions can give your inbound supply chain 1) automated carrier and service level selection with shipment execution, 2) global visibility to shipments in transit, and 3) measurement of key performance indicators.
The Light at the Far End of the Inbound Tunnel
In the not too distant past, when companies implemented supply chain execution software or a new logistics module for inbound shipping activity within an enterprise resource planning (ERP) system, the challenge for their suppliers was to ensure that they had in place technology platforms that enabled them to communicate with their clients' systems. Today Web technologies and the supporting services bring powerful options to the table, allowing companies to more easily deploy a full-fledged inbound shipment management solution.
Web-based solutions give suppliers easier access, greatly simplifying the process of connecting with client systems.
No special hardware is required other than a Web-connected computer. When authorized by you, your suppliers can access the inbound solution from anywhere around the world at any time. Leveraging a TMS solution delivered under a Web-native software-as-a-service or "cloud computing" model allows companies to bring the suppliers to the technology, rather than bringing the technology to the suppliers as in the typical software installation model. In the latter situation, a version of the software needs to be loaded at every user location, requiring on-site installation, IT support, training and ongoing maintenance. With the cloud computing model, just one shared instance of the software resides with the technology provider, and access is available anywhere there is an Internet connection. Deployment, implementation and training can be accomplished with a phone call and a Web-based demo. This is the first step in assuring your suppliers that your intentions of managing this component of your transportation will have no adverse effect on their operation.
However, simply giving access to thousands of suppliers on its own does not provide a solution, it only opens the door. What they do — or, more important, cannot do — with the software is of critical concern. With a built-in automated routing guide, companies are in essence holding the hands of their suppliers, requiring and enforcing the proper selection of carrier and service level for every shipment. Since this selection process is automated and driven by the parameters of each individual shipment, companies can ensure the best mix of service and price for every shipment.
Seeing Is Believing
The next critical aspect to be addressed is visibility to shipments in transit. Many times supply chain professionals learn a shipment is on its way only because it arrives at their dock. Inbound transportation, for many, remains a very large black hole.
By implementing a Web-based inbound TMS solution, companies can have instant real-time access to shipment information immediately upon shipment execution. Additionally, this new wave of TMS solution brings shipment update information to a central repository, allowing multiple views of current shipment data across all carriers and modes from a single application.
With shipment execution being the data entry point, managers do not need to wait for information to come from their Accounts Payable department or to consolidate multiple reports in multiple formats from multiple transportation providers. Rather, by simply clicking on a couple of buttons, multiple views of shipment data — filtered, grouped and sorted every way imaginable — are instantly available. This gives companies actionable information to help become better educated supply chain decision makers.
Managed Services Increase the Value
Even the simplest software applications require some upfront training and ongoing support. Companies with suppliers that ship infrequently need a solution that is even easier to use than what we've discussed so far.
Where volume doesn't justify the time for software training, solutions with a managed services component afford an even greater value — suppliers just contact a support center where a trained associate takes shipment information, enters the shipment information on behalf of the supplier and then simply e-mails documentation to the shipping location.
Not only does this simplify the suppliers' operation, but it also ensures proper carrier and service level selection and rate application for the receiver. Once the shipment is executed, the receiver can also have instant visibility, even before the selected carrier makes its pickup.
Set (Terms of) Sale for Success
In order to control your inbound freight, you have to own it. First and foremost, if shipments are coming to you on a "bill receiver" basis and you're not getting 100 percent compliance with carrier and service selection, a Web-based inbound TMS solution can help achieve transportation cost savings of 10 percent or more, which means that time-to-payback for these tools can often be as low as a couple months.
If your freight payment terms are anything other than "bill receiver," then you have some homework. Your first step though is to acknowledge that your shippers are most probably not sharing their transportation discounts with you, and your cost of transportation, even if supposedly included in the cost of goods, represents another profit center for your shipper. If you've made the effort to negotiate transportation rates and services with your preferred providers, you need to leverage them to the best of your ability and theirs.
Tame the New Frontier
Companies looking to evaluate the adoption of an inbound TMS solution should consider the following steps:
1. Grasp the magnitude — If you think the number of suppliers your company deals with is simply "a lot," then you have some homework to do. To really understand the potential savings available to you by controlling your inbound transportation spend, you need to know how many suppliers you have and where they are located.
2. Set your baseline — Establish buckets based on freight payment terms (e.g., "bill receiver," "prepay and add," "included in cost of goods"). Then divide up your inbound transportation spend by bucket (ballpark percentages are fine).
3. Analyze your data — You've spent the time and effort to negotiate service and price packages with your preferred carriers. They're only valuable to you if they're being used. If your supplier selects their own option or is sloppy about following your directives, you are throwing money out the window.
Start with the easiest bucket, "bill receiver." This is where you have the most control — if you pay the freight costs, you should dictate the carrier and service selection. Run reports, or manually pick out random transportation invoices, and verify that your preferred carrier and service levels are being selected by your supplier. Using your preferred carrier is not good enough — there usually is a quite substantial price differential between expedited and standard services, for example, so validate service selection as well. Also, make sure the correct carrier account number is used — not all account numbers are properly coded by the carrier for your corporate rates and/or discounts. This should be an eye-opening exercise.
You can stop here for now and move to Step 4 as Web-based applications and their associated pricing models allow you to pay for what you use, supporting a phased approach. This way you can validate your program with a proof-of-concept by starting with the "bill receiver" shipments while continuing to analyze your other buckets.
Eventually, though, you'll want to go to the "prepay and add" bucket. This is harder to measure because you don't get transportation invoices. But play "CSI detective" and find out what you're paying on a per-shipment basis (random selection is fine to start). Many (dare we say most?) suppliers who ship "prepay and add" do not pass on their actual discounted carrier rate to their customers — they build in a markup and this becomes a profit center for them. Not only are you paying higher than the actual price of transportation, odds are very good this line item is also higher than your negotiated rates with your preferred carries. Too many companies ignore this bucket simply because they don't get transportation invoices. If the "bill receiver" bucket exercise was eye-opening, the "prepay and add" bucket analysis may be life-changing!
Usually after analyzing the first two buckets, transportation professionals feel invigorated and empowered to take on bucket number three — transportation costs built into the cost of goods. Buyers can have a tendency to believe a sales promise that their transportation is free. But certainly everyone has heard "there's no such thing as a free lunch/truck/transportation cost." As your inbound transportation project builds momentum, you should ask your suppliers to break out transportation from the cost of goods and then revisit the "prepay and add" exercise above. Support from other areas of the organization, obviously including Procurement, is critical at this stage.
4. Weigh the benefits — Of course, inbound TMS solutions are not free. But after doing the homework in step three, you can gauge your upside and then measure that against the cost of the solution. Today's Web-based TMS solutions generally charge on a monthly subscription fee basis, making acquisition and deployment more affordable, with paybacks that can be as short as a couple of months.
5. Make it happen — Simply communicating routing requirements, although certainly a step in the right direction, is not enough. No matter how reputable your supplier is, your routing directives are only as good as the person processing the shipment. Take advantage of the TMS technology and service solutions.
Don't let the cowboys run wild over this new frontier of inbound shipment management — lasso them in, control their actions and reap the financial rewards!
About the Authors: Jay Friedman is a senior account executive at Gartner Group, the information technology research and advisory company. He has almost 30 years of supply chain services and technology experience. Friedman also is president of the Arizona Roundtable of the Council of Supply Chain Management Professionals and CSCMP Roundtable Advisor. He can be reached at [email protected].
Jerry Levy has over 20 years of sales and marketing experience in the logistics and transportation industries. Jerry recently served as Vice President – Corporate Marketing for Agility where he was responsible for all the marketing and branding across the over $6 billion dollar network. Jerry joined the former PWC Logistics during their initial integration and was instrumental in launching Agility as a top ten global provider of supply chain solutions. He can be reached at [email protected].
