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7 Steps to Transportation Management Excellence

June 1, 2008
In this first installment, three transportation management experts offer the first steps in building a top-performing transportation management function.

For many firms, their current capabilities in transportation management are incomplete and they are, therefore, spending more money on freight transportation than necessary. They are caught in a dilemma because many recognize the critical importance of transportation management as the last mile in the customer service experience. Despite balancing cost and customer service precariously on the ability to manage the transportation function, they leave any project to improve transportation management to the next phase in their corporate projects planning process.

Taking these steps provides a solid execution plan whether the domestic transportation management process is managed internally or is outsourced. And for third-party logistics providers, it offers a view of what is needed to make the user’s network operate more efficiently.

Here are seven steps to help identify the potential for transportation management excellence and communicate your improvement project’s potential to top management by helping to “size the prize,” design the moving parts of the solution, and articulate the path forward.

1) Assess your transportation management capabilities.
2) Identify your “target state” of transportation operations performance.
3) Size the prize.
4) Determine the appropriate moving parts to move forward to the target state.
5) Determine the appropriate solution deployment strategy to move to the target state.
6) Plot the course.
7) Keep score for continuous improvement. Approaching the transportation management business process in this manner provides a series of facts and insights that guide improvement and can instruct top management on the value and importance of the transportation management discipline. To achieve these goals, people, process, and technology will be important. All three dimensions are central to progression toward transportation management excellence.

Steps one through four, work through the process of establishing a current performance baseline and setting goals. These steps also help determine how much opportunity exists, and will define what additional capabilities (people, process, and technology) will be required to realize those benefits.

Steps five through seven, focus on ascertaining which deployment strategy best fits your company’s environment and helps plot the path forward. The final step helps provide perspective on the importance of performance measurement and the need for a cultural commitment to continuous improvement.

Assess Your Capabilities
The first step in the process comes with some distinct challenges. Given the sheer volume of transportation management research and analysis, and the fact US companies spend more than $800 billion annually on moving freight, one would think that firms would be further along in achieving transportation management excellence. To the contrary, many shippers today report higher transportation expenses, lower customer service performance (defined as percentage of on-time deliveries), and a concerned outlook for their future transportation performance. While the causes for this degradation in performance are many and the depth of impact varies across companies, a few consistent themes emerge across sectors and size of company.

Those factors include:

  • Globalization.
  • Heightened customer demands.
  • More complex sales channels.
  • Increasing product portfolio complexity

In the context of these operational realities, many firms point to organizational skill deficiencies and inadequate information systems as consistent (bordering on chronic) challenges. The first step in determining where to focus attention and resources is to conduct a current capabilities assessment, in conjunction with establishing a forward-looking context for your company’s overall transportation strategy.

Capabilities Assessment
Company leaders at most firms can readily articulate their overall business strategy, the critical success factors associated with achieving success, and the operational outcomes necessary to achieve their financial targets. Product-based manufacturing companies consistently address attention to product quality, unit production cost, and product features and functionality. For retailers, having a presence in the proper markets (physical stores or e-commerce channels), delivering the right product mix, and following the proper merchandising strategy are critical. In the middle of these two ends of a supply chain, however, the leaders, laggards, and also-rans are separated. Attention to detail and operational excellence in the supply chain distinguish the winners.

To determine where your firm rests on the leader-laggard continuum, you must assess your performance against your industry peers and supply chain trading partners. Once you have done this assessment, you will have your baseline of performance against which to take proactive steps.

Leader, Laggard, or Middle Ground?
While your specific assessment will need to be tailored to your industry and conducted in the context of your company’s business strategy, you can take a high-level snapshot of your current performance to place yourself in a directionally correct position on the leader-laggard continuum. Use the People, Process, Technology Scorecards to assess your current “As-Is” state.

Select on Scorecard to enlarge

Identify Your Target State
Step two helps you determine where along the transportation management excellence continuum your company needs to be to support the realization of the business strategy. To determine where your company belongs, consider what it means to be best-in-class.

To be best-in-class, your company must have transportation performance metrics that place you in the top quintile of performance for your competitor grouping. The categories of performance consist of the following three outcome-based metrics:

What's Best in Class?
Select image to enlarge

As you total your high-level assessment, determine if there is a particular area within transportation management that you see as most in need of management attention. For example, if you scored yourself in an aggregate positive number, but you were significantly in the negative in one area (people, process, or technology), then this is your first indication of where attention needs to be focused.

Scoring Your Report Card
Clearly, a deeper assessment of your business is required to make definitive statements about your overall level of transportation management excellence. However, to conclude the first of the seven steps to transportation management excellence, let’s determine where your company stands at first review:

If you scored your company at or below -10 …then your company is most likely a laggard.

If you scored your company between -10 and +20 …then your company is a middle performer.

If you scored your company at or above +20 …then your company is most likely a leader.

With a reference position in mind, you can now move to Step Two in your pursuit of transportation management excellence.

While your company’s participation in more than one industry sector might make aggregate scoring difficult, these figures will give you a sense of where your company sits in relation to other competitive benchmarks. With these three transportation management performance criteria, you can begin to assess what capabilities and attributes the leaders exhibit, and where you need to place emphasis and focus.

Attributes of the Leaders

Top-ranked companies in transportation management share a set of common attributes across industries. The most significant attributes are:

  • Process rigor.
  • Centralized leadership.
  • Strategic Sourcing.
  • Utilization of Transportation Management Systems (TMS).
  • Consideration of transportation management in the context of the firm’s overall supply chain strategy.
  • Reliance upon fact-based metrics and score-carding to drive performance.

As your company determines its aspirational or “To-Be” state for transportation management, you must give due consideration and focus to all five attributes listed above. While there is no hard-and-fast sequencing of topics to undertake first, second, and third, there are guiding principles. The first is to have an appropriate appreciation for the importance of process. Without adequately detailed process design, good leadership, and automation; technologies will not yield your desired outcome. A process design phase, coupled with leadership and change management, helps draft the proper roadmap. With process and organizational considerations addressed, making technology decisions and designing performance metrics reports will proceed much more smoothly, and with far less ambiguity.

The Aspirational Report Card
Using your responses in step one as your baseline, complete the same assessment process with your aspirational view of where your company needs to be. This aspirational vision should be completed in the context of your company’s overall business strategy. At the conclusion of this step, you will have a summary picture of where you are, where you aspire to be, and the resulting performance gap to be addressed and remedied.

With this vision of your prospective “To-Be” transportation management capability, you are now ready to begin step three of the program.

Size the Prize
In steps one and two, we established an understanding of what it takes to be a transportation management leader. The third step, “sizing the prize,” is perhaps the least often applied step in the program, and the one which most often causes a company to remain in the baseline position of performance.

While many logistics managers aspire to transportation management leader status, this ambition and passion must be conveyed to the corporate C-Suite in a form and fashion that will compel them to act. To gain the attention for transportation operations, you must answer your C-Suite’s essential question: Is this a $1,000 problem or a multi-million dollar opportunity? With a proper baseline established, and a set of competitive benchmarks to gauge your company’s performance, your next task is to quantify the potential economic impact delivered by a properly sponsored transportation management excellence program.

The Case for Action
In brief and clear language, seek to answer the following questions:

  • What is the potential economic benefit of moving from our current state to industry average?
  • What is the potential economic benefit of moving from our current state to best-in-class performance?
  • What additional operational benefits will the business see by pursuing improved transportation management capabilities?
  • What potential impacts in customer service and customer satisfaction will the business see by pursuing improved transportation management capabilities?
  • What steps and specific actions are required for the company to migrate from our “As-Is” condition to our desired “To-Be” Model?
  • What are the organizational and leadership requirements?
  • What are the process and business methods requirements?
  • What are the infrastructure and technology requirements?
  • When will we see operational benefits?
  • When will we see positive economic results?

This might appear daunting, but having completed the assessment work in steps one and two, you have the bulk of the information required to put a number on the potential project. You will know your own company’s culture in terms of project sponsorship thresholds and funding/staffing requirements. Unlike other logistics business cases, in transportation management business cases, every dollar identified in the analysis drops immediately to the bottom line of the company’s financials.

Move to the Target State
At this point, the case has been made to top management and either gained C-level sponsorship or confirmed that your company’s leadership does not see transportation management excellence as a critical component of its business strategy. The good news is, much of the tedious and challenging work is done. It’s time to determine the specific attributes and capabilities (the moving parts) of your transportation management program.

The first action item is to lay out your “To-Be” transportation management business processes.

Business Process Requirements
Determining and agreeing on the process model is the single most important step in this journey. The complexity of this task is directly related to the complexity of your business. If your company has a single division, the business process blueprinting is less complex. However, if your company has multiple divisions that compete in a cross-section of industries and markets, the task at hand is more challenging.

In either case, begin with the most complex business process scenario or situation. By hammering out the details of the most challenging scenario first, the design of the remaining scenarios will run much more smoothly and require far less re-work. Considerations in this step include:

  • How many customer types must we segment our customer base into for transportation execution purposes?
  • How many shipping order types will we need to manage the complexity of the business?
  • How many (and what types) of supplier relationships will we need to manage the business?
  • How many (and what types) of transportation carrier relationships will we need to manage the business?

In this portion of the project, you will most likely discover that your business has evolved over time to include too many order types, too many customer classifications, and too many trading-partner-specific business rules. This project is your opportunity to streamline and simplify the business.

With a clean and logical set of business rules, established by customer, supplier and carrier class, the path to transportation management excellence becomes much clearer and more achievable.

Supply Chain Relationships
Another consideration at this point is to define specifically and document the nature and types of relationships in your company’s supply chain ecosystem. For instance, most of your existing suppliers may control the transportation and shipping process as part of their current relationship with you. Many companies have discovered that when they altered this relationship and opted to take control of the transportation process, they enhanced on-time delivery while reducing the total freight costs associated with the relationship. In your company’s supply chain, some trading partners will find it operationally viable, as well as economically advantageous, for you to control and arrange transportation. For others, this will not be advisable. The key is identifying and understanding the grouping of suppliers and customers in which your company can be the lead transportation coordinator and those where you cannot. By doing so, you refine your controlled freight spend, and identify those trading partner relationships where you must employ performance scoring methods to ensure that your trading partners’ transportation management performance is of leader quality.

Transportation Network Design
The next area of consideration is to get a full view of your transportation network. This is a visual representation of your company’s freight flows—typically depicted with mapping software. Seeing the “as-is” map for the first time can be surprising (or even a little shocking). The visualization offers an excellent opportunity to analyze your transportation network and identify cost and service opportunity areas. Once identified, these can be integrated into the overall project’s change management strategy.

While considerations such as the optimal number of distribution centers and their locations are not easily made at this point, it is appropriate to include that type of analysis in the scope of the project. Transportation network design and modeling can help identify significant long-term supply chain savings in terms of transportation rates, inventory carrying costs, and real estate considerations.

Transportation Carrier Relationships
Yet another essential ingredient in a transportation management excellence program is the nature of your company’s relationship with your transportation carrier community. Asset-based companies, whether manufacturing firms or transportation carriers, concern themselves with asset utilization. High levels of asset utilization make the difference between profit and loss for asset-intensive firms. You can help your carrier community achieve the visibility and predictability it needs to manage its assets for your needs. Your “to-be” transportation management model should recognize the strategic importance of having a strong and healthy relationship with your carrier community.

Some of your lanes will be easy to cover with adequate and highly consistent capacity, while others will consistently present challenges. In your subsequent core carrier selection process and resulting awarding of business, be certain that you leverage and combine your total freight profile to ensure that your tough lanes get as much attention and care as your easy lanes.

Enabling Technology Requirements
The last step at this stage is to define the necessary technology enablers for your “To-Be” model to deliver results. In this portion of the project, it is important to keep your “To-Be” process model top-of-mind.

Technology requirements can quickly become power-user wish lists if not managed within the context of the stated process objectives. To achieve transportation management excellence, your technology requirements list should address the following areas:

  • Business process enablement–via a transactional system that instills process rigor via business rules.
  • Business process measurement–via an analytical application or reporting toolkit.
  • Trading partner collaboration–via communications infrastructure and application tools.
  • Trading partner relationship management–via procurement and sourcing applications, as well as financial settlement applications.

A final consideration at this point in the journey toward transportation management excellence is the determination of what method is best for acquiring the technology needed to enable the vision. If your company’s long-term vision includes transportation management as a mission-critical success factor, your company might make infrastructure investments in communications tools (e.g., Electronic Data Interchange), and applications licenses. On the other hand, your leadership might consider transportation management a domain and discipline that is best outsourced to a third-party specialist that can be held accountable for results. Many companies fall somewhere along the continuum in this respect.

Two key questions to consider are: 1. If we make a capital appropriation for new transportation management technology, will a third-party be able to use the purchased system if we choose to outsource key transportation functions somewhere down the road? 2. If we outsource much of the transportation management process to a third-party early on, will our company have the ability to bring the third-party’s technology in-house later, if and when our strategic direction shifts?

These are questions of deployment, which are addressed in step five. Steps five through seven will be presented in the next issue.

Scott Sykes is senior director of soluton sales for Transplace. Matthew Menner is senior vice president of sales and alliances for Transplace. Vincent Chiodo is senior vice president of solution sales for Transplace.

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