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Transportation Network Optimization in the Amazon Effect Era

June 13, 2017
Having transparency across all aspects of your logistics operation will enable your company to succeed in a competitive marketplace.

Efficient transportation management with end-to-end visibility is becoming more and more vital to a company's supply chain and its overall success. As e-commerce and omni-channel fulfillment service pressures continue to mount, transportation managers are faced with a growing number of challenges: shorter lead times, tighter delivery windows, driver shortages, the need to make more frequent and smaller shipments, rising freight costs, and globalization.

These challenges have a significant impact on a company's operation and its bottom line. From increasing freight rates to uncertainty in the transportation market, there are numerous factors playing an influential role in driving the market forces that could prevent supply chains from meeting their customers' rising demands.

The reality is that in the majority of cases, there is room for network optimization and cost savings. Private fleet shippers have the ability to achieve both through routing, dock scheduling, driver management, backhauls and fleet right-sizing. And the benefits are far-reaching:

  • Dynamic planning capability
  • Flexibility to manage variations in demand
  • Increased network visibility regardless of mode
  • Alleviated capacity changes and driver issues
  • Business intelligence and analytics
  • Comparison of costs for fleets vs. for-hire carriers
  • Strategic decision-making support.

You might be asking yourself what actionable things you can do to really streamline transportation management, transform operations and navigate the aforementioned challenges. First, you can formulate effective baselines that can be compared to actual results. Being able to quantify progress can be made simple if you make it a priority to understand performance baselines and the accompanying network profile.

Second, you can leverage data analytics to quickly drive business insights. You want to be sure you're spending more time interpreting the data than on gathering and reporting it, which can be achieved by purchasing a cost-effective tool that can quickly turn Big Data into actionable information.
Equally essential is establishing a four-step approach as the basis for managing and controlling network costs and service performance:

Performance + Variance to Plan + Root Cause = Action.

You can utilize tools including bar graphs, such as Pareto charts, to focus on the areas driving the greatest impact to the issue.

Also, when developing your weekly/monthly performance bundle for management reviews, the information, charts and dashboards that you gather should answer the question: "What should the takeaway be from this?" All too often, the audience is left to interpret the information with no direction from the subject matter experts.

Finally, get into the practice of reviewing. Consistently monitoring your network (weekly, monthly, etc.) will prevent network performance issues from lingering too long and worsening before getting addressed.

The Amazon and the Uber Effects

In addition to taking these steps when establishing your transportation management strategy, it's critical to be aware of the different emerging trends within the industry and how they're impacting your business.

Trends like the "Amazon Effect," for example, can no longer go ignored if you want your company to experience long-term success. The "Amazon Effect" goes hand in hand with the concept of the "now economy," in which customers order items at the touch of a button and receive them at their doorsteps just hours later. The phenomenon is evidenced by 2016 e-commerce growth, with Amazon accounting for 53% of online deliveries, according to Slice Intelligence.

The Amazon Effect has skyrocketed demands within the supply chain and has set the standard for what consumers have come to expect—everything from competitive pricing to free shipping and quick delivery time. This trend has been the key driver behind the closing of some brick-and-mortar store locations, including Macy's, JCPenney and Sears. With a limited inventory of in-store merchandise, fewer retail stores and the ability to find just about anything you could possibly need on Amazon, consumers are less inclined to get in their cars and head to the store for something. And if you're thinking that you're immune to the pressures because you're not in the retail space, think again. This trend is disrupting supply chains serving multiple industries, such as food and beverage, consumer packaged goods, automotive, technology, and healthcare.

A greater need for asset sharing has materialized as a result of the Amazon Effect, fueling what's known as the "Uber Effect"—yet another trend and supply chain disruptor. Asset sharing, which includes warehouses, trucks and drivers, is emerging as an opportunity to help companies meet the demands of the Amazon Effect by facilitating collaboration with peers and competitors to drive efficiencies, improve service and manage costs. This practice, which centers on sharing space, translates into shared costs, which will lower overall supply chain cost and improve cash-to-cash cycles.

These trends are pushing supply chain managers to adjust their strategies in order to keep loyal customers and remain in business. Approaches that once worked, no matter how recently implemented and regardless of the sector, can be obsolete tomorrow.

For example, up until a few years ago, a large retailer was performing dock scheduling for each of its 35 distribution centers separately. Too many employees were scheduling deliveries and there wasn't one consistent process. Transit times were reliable and tight, but the process was hampering deliveries, and it was too labor intensive. With managers relying on handwritten spreadsheets, the retailer partnered with a third-party logistics provider (3PL), which installed web-based software at each DC. Now, the software allows managers to dynamically control deliveries at each location, saving the company $2.8 million in operating and transportation costs the first year and improving visibility.

A Responsive Supply Chain

New strategies and results have supply chain managers embracing the same technology customers are using for data mining, analysis and tracking. In another approach, competitors are cooperating with each other to improve efficiency and keep shelves stocked. These strategies enable customer demands to be met while lowering their cost to operate.

Having transparency across all aspects of your logistics operation is ultimately what will enable your company to succeed in a competitive marketplace. This is where technology comes into play. By investing in new technology that gives you visibility into your supply chain, you're ultimately enabling a cycle of continuous improvement, in which you're able to track parts, components and products from the manufacturer to the final destination, both in transit or at rest. The ideal system captures data through new and flexible technologies, makes useful data rapidly available to stakeholders and customers, gives a clear view of inventory and supply chain activity, and helps create responsive supply chains.

Many businesses partner with a 3PL with engineering, integration and operation teams in order to get a true visibility program in place. A 3PL can help a company execute the five vital steps in system implementation:

  • Capture—Use advanced technologies to gain visibility across the supply chain.
  • Analyze—Evaluate where branded and private label products come from.
  • Design—Set up supply chain routes, material flow and logistics networks to accommodate varying requirements.
  • Sense—Use advanced analytics, business process and planning technologies.
  • Structure—Develop structured playbooks or scenarios to know how to comply with rules, regulations, exceptions and practices.

Technology solutions are available that work on both smart devices and desktops and that can provide load location visibility, tracking and customized communications across all modes of transportation through a single source.

Gary Allen is vice president, supply chain excellence with Ryder System Inc. He has more than 25 years of experience in supply chain management, logistics outsourcing and professional services.

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