Transportation Best Practices: Solving the transportation network puzzle
This historical chart shows resurgent cost increases in transportation. Deregulation (price-based costing) provided a once-in-an-eternity benefit from regulation (cost-based pricing); it took a generation, but we have now “eaten all the seed corn.”
April 01, 2011
Re-engineering the process
Interestingly, a relatively small percentage of transportation consumers use this approach. In a recently conducted Accenture survey, only 30 percent of the respondents said they employed some sort of procurement application. That means that 70 percent still conduct this part of their business in a less-than-efficient manner and will inevitably sub-optimize results. Clearly, opportunities for substantive improvement abound.
There are many reasons organizations focus on simply trying to get better rates or forestall increasing them. They do not view transportation as a network or portfolio of services that, more often than not, are interconnected and interdependent. For some, it’s simply not a priority. Freight is too small a percentage of cost of goods sold (COGS) or is viewed as a necessary evil rather than something to be managed strategically. Also, freight services are often locally or regionally managed, which makes a holistic approach difficult from both a cultural and data management standpoint.
Empirically, it makes sense to buy transportation services centrally so as to aggregate volume, market power, and influence. But, this only works if the organizational structure and systems exist to support such a strategy.
The way we approach this type of activity can be characterized more as business process re-engineering, of which freight sourcing is a key part, rather than simply running a bid to get better rates.
Our team also prescribes standardizing and simplifying basic elements of transportation services. Many companies are dealing with complicated and arcane practices that frequently bear the residue of the regulatory era. This make them difficult to manage effectively and too often exposes the buyer to unforeseen charges relating to obscure rules and provisions. We seek to put a standard, preferably modular contract in place that is flexible enough to cover multiple modes. The overall goal is to embed all of the applicable commercial terms in the agreement and avoid obscure “omnibus” provisions, which invoke tariff references that may not be easily or readily discovered.
We do that by clearly stating common-sense and fair business rules and requirements that all can abide by; establishing a commonly agreed set of accessorial charges so that it’s clear when they apply and what they are for; developing a fair, equitable and standardize fuel surcharge mechanism, so that all carriers can clearly see what the deal is before they submit pricing; and finally setting forth clear and standard payment terms and conditions, with an eye toward simplifying and standardizing the process so payment can be made accurately and timely the first time.
We execute this process through an advanced, web-enabled, automated RFI/RFP process that is less about exhausting a carrier’s patience—filling out reams of useless and unused information—and more about providing a complete picture of the buyer’s business and what is being sought. This new process offers specific, detailed information to enable potential serving carriers to present an informed and accurate response and avoid having to go back an re-work the process a few months into the new network operation.
This is done by conducting a holistic, multi-modal, web-enabled sourcing event using leading-edge optimization technology for Expressive Competition. From that, we work jointly with our clients in developing an optimal solution that aims to be a solution of right freight, right carriers, right service, right price and focusing on a solution set that can be implemented and sustained.
Putting all of this together into a seamless, well-orchestrated program-approach to transportation management yields effective service networks that are profitable for buyers and sellers, which are then sustainable when they are operationalized. In the final analysis, this becomes a much less disruptive, much more systemic way of efficiently operating complex transportation networks.
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