Transport expenditures - reviewing optimization, cost savings, and how to create a robust transportation network

A majority of shippers have not made much progress in terms of optimization, cost savings, and creating a robust transportation network in which suppliers, carriers, and third party providers can all collaborate and share information to ensure the optimal balance between cost and service. (6/25/2003)

Transportation expenditures, traditionally are very reactive, and are a side affect to poor management of upstream business functions, especially production planning and procurement. Traditionally, those who procure transportation are under the illusion that squeezing a few more discount points from their carriers for a few pennies here and there are the ways that a company can ultimately lower transportation expenditures. While many spend time attempting this form of cost savings, true efficiency resides elsewhere.

The only way to truly optimize a transportation network is to take transportation and logistics costs, and build them into the costs of materials being shipped, and to evaluate materials planning and purchasing on a total landed cost basis. This will force firms to consider equipment optimization, much more collaborative carrier relationships, and the elimination of process disconnects between transportation and planning/purchasing.

Moreover, multi-million dollar ERP systems are widely available to assist companies in these efforts. Worldwide companies have spent hundreds of millions implementing and attempting to use such systems. Very few companies have been able to prove they can use these systems as they were intended. This is hugely because the companies with the money to buy such systems are so large, they are unwilling to re-engineer business processes to get the best performance out of their software investments.

So what's the answer?
If most firms cannot find the ultimate in transportation efficiency, how can they improve their networks to improve their position in the marketplace, as well as the bottom line? Hence, it may make sense to outsource. Firms leave the transportation and logistics to the transportation and logistics companies. They key there is to pick the right one. Volumes have been written about how to effectively select a third party provider, consultants have made millions by managing the selection process.

No single firm could understand the logistics chain of every possible company or network of companies. The answer is not found in the large, most commonly known 3PL's. They speak of expertise and technology, but ultimately try to be all things to all clients. These firms, such as Ryder, Penske, UPS Logistics Group, and Menlo can be effective only when the transportation needs of their clients are extremely simple.

The entities that understand your business the best is the small or mid-size 3PL's that have industry specific expertise and knowledge of the business arena in which they operate. Healthcare, Chemicals, Automotive, etc. have 3PL's that are well versed in the ways to totally optimize the transportation network.

Proven, efficient operations and logistics management, accented by the right software solutions is the right way to achieve transportation efficiency. Industry specific third-party providers are those that understand the logistics chain the better than all others. Their niche approach and expertise in their industry and the transportation processes that are necessary allow these companies to continually expand their knowledge base. They will know more than any single shipper because they work with a cross section of companies and a much larger network of carriers. Their experience is vast in both quality and quantity. These are the firms who understand the true cost dynamics of transportation efficiency. Companies who have not had successful 3PL relationships have failed in their selection process. Companies who have unsuccessful internal operations have failed to recognize the effectiveness and bottom-line efficiency available to them by engaging in the right third-party relationship.