Logistically Speaking: What are you doing to make your supply chain run better?

July 7, 2005
I've criss-crossed the country a time or two in recent weeks, talking and listening to shippers, carriers and industry pundits of all shapes and sizes.

I've criss-crossed the country a time or two in recent weeks, talking and listening to shippers, carriers and industry pundits of all shapes and sizes. Much of that time was spent in conference sessions where, if not every logistics problem of the world was solved, at least plenty of energy was spent discussing them.

One of the few topics that almost everybody agrees on is that it's the carriers' world right now, and the rest of us are just living in it. The quicker logistics professionals come to terms with that reality and get on with the business of managing their supply chains more efficiently, the sooner everything will get back to normal... or at least, as normal as things ever get in logistics.

At the Supply Chain World conference, Gary Girotti, vice president transportation with consulting firm Chainalytics, urged shippers to benchmark early and often. "Shippers need to know where they stand and why before they can take actions to improve their situation," he says.

Carriers, Girotti points out, are using customer allocation models to give capacity to the highest margin lanes. That makes it incumbent upon shippers to adopt model-based benchmarking themselves so they can identify and quantify their transportation cost drivers, rather than doggedly relying on blind rate-to-rate comparisons.

"Seventy-five percent of the cost of any move over 200 miles can be explained by distance, but what makes up the rest of that cost?" he asks. Regional factors and location restrictions contribute somewhat to that other 25%, Girotti says, but one factor that does not drive rates is a shipper's total volume. The days when a shipper could expect preferential treatment merely because it had a lot of goods to move are over, he observes.

He adds that while rates went up an average of 4% last year, they were only up 1.5% in the "power" lanes (i.e., the most attractive routes to the carriers). Shippers who are able to exploit the use of these power lanes are the ones with the most leverage in the current environment. And that's where model-based benchmarking can pay off.

Chris Caplice of MIT's Center for Transportation and Logistics is equally matter-of-fact. At the Logistics & Supply Chain Forum, he pointed out, "Carriers don't like stop-off charges, so now that they're able to charge more for them, they are."

Echoing Girotti's observations, Caplice notes that carriers don't really want mid-range hauls of 400-500 miles any more because, thanks to the 2003 Hours of Service rules, drivers can no longer do those runs in a single day. And of course, thanks to the driver shortage, drivers can afford to be picky these days about what runs they're willing to make.

Shippers need to make their freight more friendly to carriers, Caplice says. Truckload is all about line haul and continuous moves, while less-than-truckload (LTL) is all about packaging and cube utilization.

With capacity likely to remain tight for at least the near term, shippers need to be proactively planning to minimize the impact. That means selecting the right mode for the right move, Caplice says. That means increasing use of private/dedicated fleets. That means shifting shipments by day of the week or time of day.

Current best practices in transportation planning, he notes, include: dual sourcing for ports; expanding the carrier base; and locating facilities with multiple transport options.

"We should increase our spending on transportation by 10% this year because I think it'll improve our value to our customers by more than 10%." That's a statement you'll probably never hear from your company's CEO. And there's the irony, suggests John Langley, professor of supply chain management at Georgia Tech, because the savviest CEOs recognize that well-run supply chains create value and satisfaction for the consumer.

Speaking at the NASSTRAC conference, Langley pointed out that one of the biggest impediments to supply chain transformation is the inability or unwillingness to change. Too many senior executives' eyes tend to glass over when logistics and supply chain issues are brought up. They look at logistics mainly as a cost, and fail to understand that best-inclass supply chains are driving shareholder value well above the industry average.

So as you continue to wrestle with the reality of a marketplace that has turned completely upside down, where the goods you make are now looked on as commodities and the carriers now have the upper hand in negotiations, ask yourself this: What are you personally doing right now to ensure your company is a leader, not a laggard, in its supply chain operations?

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