With the increased press exposure and new customer demands for faster and more specialized deliveries, the opportunities to leverage transportation management system (TMS) technology to elevate your business have never been greater. For many years, transportation professionals have lamented the lack of visibility and understanding of how critical and strategic transportation is to an enterprise. Now our time has come, the transportation team has visibility, alignment with strategy, and accountability. The right TMS can propel your transportation team forward; however, there are still challenges in getting an executive alignment. While the cost saving opportunities are numerous, identifying cost savings alone is not enough. When the rubber hits the road, most TMS projects encounter internal alignment issues in three areas: technology strategy, carrier strategy, and process change risk.
Building the Cost Savings Model
A couple of weeks ago, I was at CSCMP and attended a panel titled “Communicating Transportation’s Value and Challenges to the C-Suite.” Participants included transportation executives from Ulta Beauty, Bridgestone, and Kohler. There were a few common themes: (1) Make sure you do not under-estimate the expected cost increases in freight, without appearing like a sand-bagger (2) Have regular updates across the organization and with executives, and leverage the wealth of data to highlight transportation challenges (3) With all the news about freight rates and the impact on earnings, executives are well aware of the issues and are now looking for solutions from transportation.
With TMS, there are proven and clear areas of cost savings. These include:
- Optimization across LTL and TL
- Increase contract compliance
- Reduce freight costs with automated freight audit
- Increase fleet utilization with backhauls
- Increase control of inbound freight
- Cut inventory with improved inbound visibility
- Lower dock and receiving costs
The requirement to build out a cost savings model in the right areas above is relatively straightforward; however, it is not enough anymore. Companies that consider transportation as a competitive weapon also invest in transportation to improve customer service and support revenue growth.
Source: 2018 Descartes 2nd Annual Transportation Management Benchmarking Study
Once the business plan includes the cost savings, new market growth opportunities and customer services advantages, too often the TMS project gets derailed internally due to how carriers are managed and the company’s IT platform strategy.
Tactical Carrier Strategies Contribute to Silos
The cost-driven approach to carrier relationships has created a more tactical approach to carrier strategy and ultimately compromised overall value.
While cost is a critical element, many companies have a very siloed view of their carriers. It is common to have different teams focused on inbound versus outbound, or fleet versus common carrier. Similarly, across different business units, organizations often end up driving some “local” efficiencies while forgoing the larger optimization opportunity.
Relationships with carriers tend to be tactical with annual bids and increasing requirements and a drive for better cost control. Of course, cost is a critical element, and collaborating more on detailed issues and fact-based data can help strengthen overall relationships and lead to better cost control. One customer I spoke to, a major retailer with a lot of leverage, negotiated new contracts at the beginning of 2018; however, within a month of the contracts being signed, some of their largest carriers were turning down loads. The retailer ended up having to increase spend in the spot market. As they reflected on their contracts, they determined it would have been better to work more collaboratively with the carrier on capacity, even if they paid a higher contract rate.
Gaining a detailed understanding of the carriers’ business, costs and capabilities can also lead to contracts that are more strongly aligned with a carrier’s business. Focusing on securing a good base rate does not help if there is leakage on assessorial fees and detention fees.
Technology Platform Strategy
Technology strategy can also be a roadblock in creating alignment for a TMS initiative. The two extreme examples are companies that have legacy systems and want to squeeze as much from their investment as possible, versus large “platform” strategies such running everything on an Oracle database or running “an SAP shop”.
The challenge today is that transportation companies need to be able to address three (at least) main market drivers: cost control, the flexibility to serve customers as they are demanding, and the agility to address new market opportunities. Legacy systems do provide a low-cost IT approach; however, there are huge opportunity costs. Legacy systems tend to be fragmented, with often embedded business logic that nobody really understands anymore. The fear and risk of changing things entrenches the status quo and has a huge impact on the transportation team’s ability to serve customers, deliver to new markets and support revenue growth.
The fragmentation associated with a legacy-focused technology approach is addressed in a great post by Adrian Gonzalez called Stuck at 33%: The True State of TMS Deployment.
Delivering the Vision Behind the Business Case
Creating a financial model for your TMS initiative is critical; however, as outlined above, while required it is not enough. To be able to deliver the vision behind the business case, you need to have a comprehensive carrier strategy and ensure your IT strategy is not compromising your agility, growth and ability to serve your customers.
A comprehensive carrier strategy also highlights requirements for your TMS including optimization and multimodal support, including parcel and fleet. Alignment on contracts need to get captured to ensure compliance in execution and freight audit across modes. Customer demands will lead to needs in global and real-time visibility.
To learn more, download Descartes’ webinar and presentation on “Creating Executive Alignment for your TMS Initiative, which took place on October 18th, 2018.