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22nd Annual Study of Logistics and Transportation Trends: Masters co-create value

The Masters of Logistics have developed strategic partnerships with carriers that enable them to keep costs low while providing innovative service to their customers—and our data show that this value-added perspective is leading to performance that is significantly better than their competitors.
By Mary C. Holcomb, Ph.D., and Karl Manrodt, Ph.D., Contributing Editors
September 01, 2013

Company alignment: Purchasing takes an increasing role
The way we manage and control transportation is fundamentally changing. Part of this change is driven by where the responsibility for transportation decision-making resides in the company. As Table 3 indicates, transportation and logistics is still the primary functional area with responsibility for managing and controlling transportation processes. However, a closer look at the data shows that when it comes to preparing and requesting quotes and bids, purchasing/procurement either solely, or in combination with transportation/logistics, leads this task in 43.1 percent of companies. Purchasing/procurement is also materially involved in carrier negotiations with 36.2 percent of companies reporting that this functional area either controlled, or jointly led, this activity. As expected, operations planning and carrier performance are primarily directed by transportation/logistics. What is interesting is the percentage of companies in which these core transportation activities are overseen jointly by the two functional areas (19.8 percent and 17.5 percent, respectively).

The data in Table 3 was collected by our large-scale survey and confirms the information we learned through the in-depth interviews: Transportation decision-making seems to be headed in what seems to be opposite directions. In a growing number of companies, procurement/purchasing is becoming much more involved in transportation management. Is this a good or a bad thing?

The overall feeling from the interviews was that when purchasing/procurement is in charge of transportation, this unit often views it as a commodity much like other products or services they acquire. On the other hand, companies that view transportation from a value-added perspective tended to have the function at an organizational level commensurate with sales, manufacturing, etc.

The “new” Masters of Logistics
The phrase “Masters of Logistics” was coined during a time when the size of company (based on annual sales revenues) made a significant difference in managing logistics and transportation. Over the years of conducting this study, the impact of the Masters (companies with annual revenues greater than $3 billion) has ebbed as many of the critical difference-making elements—such as technology and level of supply chain visibility—have become more widely available to companies of all sizes.

The results of this year’s study point towards a shift by the Masters of Logistics that is significantly different from smaller companies. The survey data indicate that the Masters are focusing on continuously improving their transportation processes in order to keep costs low.

Further, the Masters perceive that they are the primary source of innovation in transportation services. The interview data reveal that it’s the partnership between the Masters and their strategic carriers that enables them to focus on these two important objectives.

But, let’s be clear about this shift. Not every large-size company is moving in this direction. The evidence from the survey shows that in many companies—including a healthy percentage of the Masters—transportation is perceived as a commodity where the services provided have no essential differences, and the selection of a primary carrier relies heavily on price. In addition, the perceived cost of switching to another carrier is low.

One other key trend emerged from the data: The Masters aren’t always the Masters of Performance. Smaller and medium size companies, just like a high proportion of the Masters, also reported results that were better than competitors across factors such as firm profitability, return on assets, market share, and customer service levels. In the years to come, we believe that the “new” Masters of Logistics will be dictated by the results they achieve, and not by the size of the company.

Analysis of high performing firms found some interesting results, especially around the discussion of commoditization. The majority view transportation and the design and functionality of their transportation services as crucial to their competitive positioning. High performing companies also feel that their primary or core carriers help them acquire new customers through the services they provide.

“We have to deliver more services and be deeper in the customer’s business,” says Leathers. “To have a successful partnership we have to ‘swim upstream’ in their supply chain.”

However, the focus is more than just transportation effectiveness. High performing companies reported that they are constantly improving transportation operational efficiency, in addition to continuously refining and improving services in order to keep costs low. “Mutually looking at ways to take costs out of the equation is an expectation of our strategic carrier partners,” says Eaton’s Mayer.
Barnes, of Con-way Multimodal, agrees with this top shipper. “To deliver value-add service we have to embrace a lean culture that constantly seeks ways to reduce costs while delivering differentiated service.”

Are high performing companies and the Masters of Logistics forging a new path to the future through their value-added view of transportation? Certainly the results of the high-performing group hint that this is the case.

It is too early to conclude that this view alone drives company performance that is much better than competitors? The findings from the in-depth interviews suggest that as the business and regulatory environment continues to create adverse operating conditions, strategic relationships between shippers and carriers where transportation is viewed as a value-added function will have a significant impact on the company’s performance.

Changes to the hours of service rules, the impact of CSA 2010, the volatility of fuel prices, tightening of carrier capacity, the uncertainty of demand, and changing customer requirements are just a few of the adverse conditions that face transportation in the near future.

The question to be answered in future annual studies is which view of transportation—value-add or commodity—will contribute to better company performance. The answer to this question is right around the bend.


About the Author

Mary C. Holcomb, Ph.D., and Karl Manrodt, Ph.D.
Contributing Editors

Mary Collins Holcomb, Ph.D., is Associate Professor of Logistics and Transportation at The University of Tennessee.  Dr. Holcomb was also a member of the faculty in Transportation and Logistics at Iowa State University, Ames.  She holds B.S., MBA, and Ph.D. degrees from The University of Tennessee.  Her professional career involved some eighteen years at the Oak Ridge National Laboratory in transportation research and policy issues for the U.S. Departments of Energy, Transportation, and Defense.  Dr. Holcomb’s background also consists of various industry experience with the former Burlington Northern Railroad, General Motors, Milliken & Company, and two years of collaborative research with Procter & Gamble.  She is a principal researcher in one of the longest running annual studies – Logistics and Supply Chain Trends and Issues – that has been conducted for more than 14 years.  Dr. Holcomb is the former editor of the Transportation Energy Data Book, author and co-author of numerous reports and articles in the area of transportation policy and logistics systems design.

Karl Manrodt, Ph.D., serves an Associate Professor in the Department of Management, Marketing and Logistics and Georgia Southern University, located in Statesboro, Georgia.  Prior to joining Georgia Southern, he served as the Executive Director for the Office of Corporate Partnerships and the Supply Chain Strategy Management Forum in the Department of Marketing, Logistics and Transportation at the University of Tennessee.  Degrees include a B.A. in Philosophy and Psychology, Wartburg College, M.S. in Logistics, Wright State University, and his Ph.D. at the University of Tennessee.  He is the recipient of the Chancellor’s Citation for Professional Promise, the Walter Melville Bonham Dissertation Scholarship, both at the University of Tennessee, and the E. Grosvenor Plowman Award awarded by the Council of Logistics Management.

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