By Caroline White | July 8, 2021
In large logistics operations, especially those with who rely on third party carriers, the greatest variable in supply chain budgeting is transportation. With market per-mile rates for shipping lanes changing with fuel costs, truck availability and even the needs of other industries in the local area, budgeting for logistics can be like playing the stock market without any market data, reacting to the ticket price without thinking through the implications to the larger market. In any case, third party transportation rates are outside of any one firm’s control. However, managing these costs and finding weak links in transportation planning and management systems can lead to significant savings for any organization.
Transportation management systems (TMS) are a solid backbone for starting an over-the-road distribution plan. While there are many features and customizations which can be applied to any individual firm, the key components for any TMS include: damage tracking, fuel and labor estimation, and on-time-delivery tracking at the driver, company and often even the SKU or dock-door level. These KPIs applied to an easy-to-use UI will empower over-the road planning teams, allowing for improved accountability for all parties involved in a transportation pipeline. Still, with most truck drivers in the US being over 50 according to the Bureau of Labor Statistics report, the driver shortage from 2018 is sure to continue long after the effects of the pandemic shift market forces back toward brick-and-mortar stores. So how should a firm prepare for the ongoing demand pressure around over-the road shipping?
First, define a baseline. This should be based on previous years per shipment cost (broken down by month or even day for more accuracy if possible) along with an estimated cost increase per the market. This baseline will serve as the true budget for long term planning purposes. However, from a team performance perspective, another metric could be used – a market-based price. Basing a team’s performance around how well they compare to the current listed price on a certain lane gives a strong incentive for the team to continue striving toward the lowest possible price, testing in performance reviews not whether the market forces were good that year, but on whether the team or individual responded appropriately to those forces. This kind of historical data usually requires a TMS to properly track but can drastically improve the overall effectiveness of a logistics organization. The team can now be properly rewarded for a year where they avoid drivers or companies with poor on-time delivery rates, find efficiencies within the warehouse loading and unloading processes, decrease demurrage and decrease fuel costs, despite the average rate per mile increasing by 28 percent from May 2020 to May 2021.
Outside of benefits for the logistics and transportation team, this level of data tracking can also improve operations upstream from the dock door itself. If a route is historically going to spike over a holiday weekend when a firm plans on sending 12 trucks, the demand planning team can reoptimize their network fulfillment around that lane. If a customer sits isolated at the end of a long shipping lane, it might be time for a renegotiated contract before next year’s shipments start flowing. With a full battery of information, a firm could even find that certain dock doors may be less efficient for full shipments as opposed to LTL.
Each of these possible improvements would require specific circumstances to be effective but one key insight remains: Without all the information, any company attempting to solve the third-party carrier problem is going to struggle. Bricz is here to help. Reach out to one of our subject matter experts today at email@example.com to start the journey of realizing your supply chain potential.
Contributor: Ryan Salmon, Supply Chain Consultant at Bricz