If shippers learned anything over the past three years, it’s how fragile our reliance is on efficient and reliable transportation systems to keep operations running smoothly. Whether delivering goods to customers, moving products between manufacturing facilities or transporting raw materials to production sites, transportation is a critical component of the supply chain.
Transportation is a complex and dynamic business function that requires careful planning and management. A well-planned logistics strategy is essential to ensure that goods are delivered on time, at the right cost and with minimal disruptions. Multiple factors must be taken into consideration like shipment requirements, carrier selection, network design and risk management. The ability to effectively juggle all of these elements has a direct correlation on how effectively a business can optimize its transportation processes, reduce costs and improve customer satisfaction.
As the global economy continues to evolve and become increasingly competitive, shippers are rethinking their approach and implementing new and different logistics planning models to stay ahead of the curve and meet customer demands. From the backend technology to carrier relationships, now is the time to assess the systems and people powering the logistics engine.
1. Information Technology Systems
With the help of IT systems, logistics managers now have numerous ways to track the movement of goods in real-time, identify the most efficient routes for transportation, manage inventory more effectively, communicate with drivers, suppliers, and other stakeholders and analyze data to make better decisions. Determining the right mix of technologies can be overwhelming but can give shippers a competitive advantage if managed correctly.
Transportation procurement is step one of a business’s supply chain management process and can help ensure both the carrier and route chosen are reliable and cost effective. Procurement software can manage the entire process – from sourcing carriers to negotiating contracts. The transportation tender process – falling within procurement – is likely the most critical, as it involves issuing a call for proposals, evaluating quotes and eventually selecting the best one. Also, within the transportation tender process is monitoring the performance of different transportation providers and finding potential areas of improvement.
Auditing is another business area in which incorporating software can help streamline operations. Most companies are already regularly auditing freight charges to ensure accuracy, but software can take these audits one step further. Utilizing software to perform freight bill audits can shine light on cost inefficiencies by analyzing data around turnaround times, freight capacity and price hikes. Because every carrier presents its invoices differently, manually keeping track of freight invoices and bills is difficult and time consuming. Automating this process helps free up employee time to focus on other, more valuable deliverables, that are unable to be automated.
Shipping and tracking products are critical to the success of businesses. Freight tracking systems provide real-time updates on the location of shipments, allowing companies to monitor progress and ensure timely delivery. GPS mapping software enables drivers to receive driving directions and real-time traffic updates, facilitating efficient transport. If necessary, companies may outsource transportation and logistics needs to third-party logistics systems. Whether a business decides to manage logistics in-house or completely outsource it, information technology is a necessary tool for maintaining competitiveness and keeping customers happy.
2. Shipper-Carrier Relationship Building
Most full truckload freight shippers have a core group of carriers in their Rolodex. Having a network like this streamlines the management of relationships and creates an opportunity for building strong carrier trust. However, being too reliant can also pose inherent risks.
As truckload shipping volumes evolve and carrier networks change, the close relationship a business has with a carrier could lead to a misalignment between needs and capabilities. Long-term relationships are advantageous to shippers and carriers as they allow partners to strategically align their logistics network patterns, particularly during times of disruption. Nonetheless, like any supplier relationship, these agreements require regular evaluation.
3. The Carrier Mix
That brings us to our next point, sourcing the right carriers. Selecting the right mix of truckload freight carriers can reduce risk, but it is a difficult task. Knowing what constitutes a healthy and balanced carrier portfolio varies based on the ebbs and flows of each business. Selecting carriers with imbalances can lead to risks that can harm shipper-carrier partnerships over time.
As a manufacturer or retailer, your logistics carrier management team should aim to deliver goods to the market to meet customer demand. While transportation sourcing teams often focus on meeting operational requirements, the unprecedented disruptions of 2020 have caused many to pivot their truckload carrier sourcing strategies.
Each shipper has its own approach to strategic carrier procurement. Some prioritize pricing and seek low-cost options, while others rely on longstanding carrier relationships. Some have contingency plans in place, while others use a request for quote (RFQ) process to find freight services.
When selecting carriers in the procurement process, it’s important to evaluate how you distribute truckload freight to your partners. Your routing guide should be diverse and balanced, and carriers should demonstrate positive performance metrics. Utilizing data in your carrier performance management can help identify inefficiencies and hidden costs in your network, regardless of your carrier strategy.
4. Inventory Management
Effective inventory management allows companies to maintain optimal inventory levels and ensure that the right products are available in the right quantities to meet customer demand. This helps to avoid stockouts, backorders and other issues that could impact customer satisfaction. In today’s omnichannel marketplace, a high level of accuracy is required to track supply, demand and availability easily and in real time.
There are many related challenges associated with inventory management. First, the increasing complexity of the supply chain in turn creates a more complex environment in which to operate. Beyond the supply chain, products and customers are becoming more complex as well – products today are sophisticated, with a high number of components that sometimes require heightened shipping and handling. Major online retailers have elevated customer service to a level now demanded by consumers no matter where they shop, so organizations are tasked with keeping up with a growing inventory size, as well as more accurate management abilities. Many organizations still operating with manual processes can also lack visibility into their inventory across locations and across the business more broadly.
Managing stockouts and planning the right level of safety stock is one of the most difficult aspects of inventory management. Why? Because revenue lost from out-of-stock items goes to competitors – and those customers often don’t return. Stockouts also reduce the supply chain’s overall efficiency.
Safety stock, on the other hand, acts as a buffer, helping account for uncertainties like high demand, inaccurate forecasts, supplier delays and late orders. With well-planned safety stock, a supply chain can operate as usual. There are several formulas available to manually calculate safety stock, but getting the number wrong has consequences, too. Too much safety stock is an expensive problem, if shippers are paying to house inventory that isn’t turning over quickly enough. Products that can expire or are on markdown at the end of a season further complicate safety stock. As the number of factors needing to be considered around safety stock grows, so do the complications in calculating the correct number.
To combat this, many supply chain managers tap software and tech-driven planning tools to calculate optimal safety stock levels. These advanced capabilities offer improved forecasting and reliability, better accounting for demand and supply fluctuations than traditional manual formulas.
Efficient inventory management can minimize transportation costs by storing inventory in optimal locations and utilizing transportation resources effectively. It can also reduce lead times by ensuring product availability at the right time and place, leading to faster transportation, processing and handling and improved customer satisfaction.
5. Risk Reduction
Transportation systems are prone to various challenges that can cause disruptions, such as adverse weather conditions, mechanical breakdowns and road accidents. Logistics planners must also consider other risks, including theft, damage and loss of goods, when planning logistics operations.
To mitigate these risks, logistics planners need to have a clear understanding of potential threats to transportation systems. Developing risk reduction strategies such as contingency plans, insurance coverage and backup suppliers can help mitigate risks. Contingency plans allow organizations to respond swiftly to unexpected disruptions and ensure that transportation systems remain operational. Insurance coverage protects organizations from losses due to theft, damage or loss of goods. Backup suppliers can also mitigate risks by ensuring alternative options are available if primary suppliers fail to deliver.
By identifying potential risks and developing risk reduction strategies, shippers can minimize the likelihood of disruptions and ensure that their transportation systems remain operational. This, in turn, can help organizations maintain customer satisfaction, increase productivity and ultimately achieve their business goals.
To sum it all up, transportation plays an important role in the success of the supply chain and it all starts and ends with having a good logistics planning strategy. The integration of information technology, carrier partnerships, inventory management and risk mitigation strategies, as well as fostering strong relationships, can help shippers optimize their transportation processes, decrease expenses, navigate disruptions and keep customers happy.