Maximizing your global transportation spend takes patience, perseverance and focus. There is no magic formula or dramatic shortcut. Yet, a handful of basic practical and common sense approaches yield steady improvement and are essential in today’s complex global supply chain environment. Over time, huge savings can be realized while customer service levels, staff productivity and overall efficiency are enhanced. The points outlined here can be applied at any firm, scaled to the size of the organization and to the regional or global reach of its operations.
As simple and straight forward as these three recommendations are, I am amazed by how frequently I see that they are not part of core transportation strategy at other firms. When I meet with groups of other supply chain executives, the conversation often turns to the topic of transportation spend management with an over-emphasis on the importance of contract negotiation to the exclusion of other equally significant cost containment strategies. Don’t get me wrong—I am not minimizing the significance of effective carrier negotiation but there comes a point when rates have been optimized and actual additional cost savings lay elsewhere.
The following recommendations are not dependant on any particular technology and are not exclusive to any one industry sector.
Know your total transportation cost—First, it is imperative that you establish your true transportation cost. While this seems obvious, it is too often given insufficient attention. The subject by itself could fill a book but here are a few helpful questions in guiding the cost discovery process: ‘How are transportation costs tracked? What is passed along to customers and what is absorbed? Are all costs identified within the transportation budgeting process or are significant portions hidden in other budgets? If so, are they being tracked for analysis purposes? Are all staff functions being performed by the transportation team or is transportation transaction work embedded in other job functions? What is being gained by the freight audit process, and more importantly, what is being overlooked? What is the cost of compliance regulations and are there any areas not be given sufficient attention? What are your transportation systems costs and what penalty is being paid in the form of productivity loss by not having adequate system support?’
Each of these questions must be addressed on an on-going basis and are also helpful during an acquisitions process. For example, Avnet’s growth accelerated by many major acquisitions which each represented unique, benchmarking opportunities for our transportation team and served as learning opportunities to surface best practices. While these firms were previously competitors operating within the constraints of the same supply chain dynamics, they evolved their own transportation cost models. What has been an eye opener is some of these firms, who otherwise were high-performing organizations, did not have an adequate handle on their total transportation costs. It is apparent that many organizations operate with unclear pictures of their total transportation costs and that there is significant room for improvement.
Obtain a transportation business intelligence system scaled to your needs—A transportation business intelligence system is a benefit to any firm, will pay for itself and will drive down operating costs. The accelerating velocity of supply chain transactions resulted in a level of complexity that places most firms chasing old data instead of efficiently operating in real time. There is a cost penalty for this that also translates into less than optimal service levels, lost productivity and service quality problems. Anyone familiar with the ‘lean’ end-to-end process improvement approach will tell you that it starts with process mapping and gathering data before it is then managed by the active review of performance metrics.
Without real-time operational analytics to provide that data, meaningful and sustained improvement is unattainable—or at best difficult. So what tools do you have today to collect, aggregate and analyze real time transportation data? Does your system provide the flexibility to keep pace with changing market dynamics? Are you able to perform data drill-downs to support root-cause analysis? Does the system track and support your key performance indicators (KPIs)? Are you able to conduct ‘what if?” analysis in a fast and easy manner and does it provide the ability to benchmark key metrics against industry performance or across regions within your own network?
Our own capability to analyze a wide range of carrier data, comparing lane specific carrier strengths, drove us to the appropriate selection of highly cost-efficient express lanes that reduced expense and enhanced performance. Fundamentally, visibility to data enables the identification of options that might otherwise remain hidden along with the timely recognition of cost and performance trends. In fact, in any serious process improvement initiative at Avnet—be that in transportation or elsewhere—data is the foundation upon which the new process is built and the input for the six sigma analytical tools we use for process refinement.
Establish a corporate transportation mandate and awareness campaign—This next item seems so obvious that I hesitate to write about it here, yet its absence has been the downfall of many transportation cost reduction initiatives. The reality is that in most major organizations the transportation spend is so inexorably linked and impacted by other functional disciplines that the transportation department by itself cannot meaningfully drive cost reduction. A cross-functional approach that eliminates silos is required with the active and highly visible participation of senior executives. If you can do nothing else, start here—it will set up the necessary internal dynamics to put the wheels in motion and provide the needed traction for long-term improvement.
The sum of all its parts
There is no simple way to drive down transportation costs. However, the essentially basic approach of understanding the details of what constitutes your total transportation spend; the ability to manage high velocity transactional data; along with the support and leverage that a highly visible and active corporate mandate provides go a long way toward helping you achieve your transportation cost reduction goals.
Gerry Fay is Chief Global Logistics and Operations Officer for Avnet Inc., Phoenix, a global distributor of electronic components, computer products and embedded technology.