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Rising Transportation Costs Are Slowing Overall Business Growth

April 28, 2017
With the rise of e-commerce and consumer expectations transportation must be treated as a strategic element of the business plan and the end-to-end supply chain in order for companies to remain competitive in a digital economy.

Companies are having a harder time meeting both their supply chain and financial goals due to the rising cost of transportation, according to a new study from the University of Tennessee, Knoxville's Global Supply Chain Institute. 

"With the rise of e-commerce and consumer expectations, cost can no longer be the primary focus in transportation," said Mary Holcomb, professor of Supply Chain Management in UT's Haslam College of Business.

"Transportation must be treated as a strategic element of the business plan and the end-to-end supply chain in order for companies to remain competitive in a digital economy," Holcomb added.

Consumers' delivery experiences and online product availability have become key market differentiators, making transportation the last customer service touch point. The study emphasizes that this change to viewing transportation as a value–added enterprise will affect the relationship between shippers and carriers, as well as business strategy, much more than previous fluctuations in the business environment. 

"Contextualizing transportation in the overall strategy of the company is a must for creating value, especially as the traditional distribution model changes," explains Rick McLeod, vice president of family care product supply at CPG giant Procter and Gamble. "If you are still solely focused on minimizing transportation cost without consideration for the overall value proposition, then you will definitely fall short of the customer's growing expectations for speed and synchronized product availability."

The research shows shippers who have appropriately aligned transportation with their business model have significantly better performance than those who have not. All the companies surveyed have created value from Lean methodologies and established a culture for driving transportation excellence.

Other common best practices included creating strategies for long-term transportation partnerships with carriers, leveraging intermodal capabilities, customizing services to meet emerging needs, leveraging digital technology and bundling services for growth. 

The report focuses on three megatrends businesses should adopt by 2025 to remain competitive. The three megatrends are: an omnichannel approach replacing multiple distribution network strategies; integrated supply chain operations enabled by data-format neutral technology; and the emergence of chief supply chain officers.

The study suggests that by 2025, leading companies will have replaced their multiple distribution networks with an omnichannel approach, integrated supply chain operations using data that can be interpreted by multiple technologies and created a chief supply chain officer position. 

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