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Core Logistics Strategy: Data-Driven Transportation Management
Carrier Selection and Load Matching: TMS and Real-Time Analytics
The greatest portion of spending on logistics is on transportation. In 2019, the U.S. spent more than $1.4 trillion on transportation (CSCMP), and the U.S. total is likely to rise. However, transportation no longer needs to be a cost center. A Transportation Management System (TMS) that incorporates real-time analytics collects, synthesizes, and analyzes transportation data, then makes automated carrier load and route selections. This process replaces habitual decision-making by implementing a systematic, dynamic match of partial load capacity to carrier resources. This consumes fewer miles driven, uses less fuel, and lowers the cost per shipment. Additionally, the cargo is delivered before the promised arrival time. Cost center transformation is a side component of the TMS and the advanced analytics model.
Automated Freight Auditing and Strategic Sourcing: Eliminating Rogue Spend
Rogue spending, which includes off-contract shipments, duplicate billing, and incorrect accessorial charges, inflates annual transportation costs by as much as 5% for mid-sized and large companies. Being constrained by time, manual audits rarely identify all inconsistencies. However, TMS software that incorporates automated freight auditing scans each invoice, checks for discrepancies against the contract and delivery data, and flags the invoice for the audit. This balance strengthens the system, and clean, auditable data enhances the TMS software's automation. Strategic sourcing decisions, such as changing the route to a low-performing carrier, changing the carrier to a more efficient option, or renegotiating accessorial charges, can be made. Typically, each shipment shows a savings of 3–4% of the total spend.
Shipment Consolidation and Network Optimization to Reduce Distance-Based Costs
Consolidating Less Than Truckload and Full Truckload With the Regional Distribution Center Strategy
Consolidating Less-Than-Truckload (LTL) shipments into Full Truckload (FTL) shipments creates an immediate economy of scale that lowers the cost of truckload shipments and improves the efficiency of trailer utilization. A regional distribution center (RDC) becomes an important hub in transporting goods from many suppliers and consolidating them for shipment in bulk. When integrated with the highest demand lanes, the RDC model reduces haul distances by 18–32% and minimizes trailer capacity that would otherwise be wasted. The number of times a shipment is touched is reduced, which increases the speed of transport. An example would be combining LTL shipments that originate from the Midwest into a full shipment that is freighted from a Chicago RDC to a Texas shipment, thus removing multiple regional routes and the associated problems.
Using Zone Skipping and Customer Clustering to Optimize Destination Routing
Zone Skipping eliminates the costs of shipping a package per zone that accumulates during long distance transport by freight shipping to a hub that is within the destination of the end customer. The resulting hub then distributes the packages to their individual destinations. When zone skipping is integrated with customer clustering, which organizes delivery orders and optimizes delivery routes from the furthest to the closest within the delivery area, the efficiency of delivering the final package is improved. For example, an order that ships delivery pallets from a Midwest distribution center to a Los Angeles sortation center as a freight shipment, rather than shipping individual orders to the East Coast, then optimizing the delivery routes within the East Coast, reduces cross country shipping and significantly reduces the cost of the last mile delivery from 22% to 40%. The delivery time is also reduced, improving both the cost of shipping and the reliability of the delivery.
Hybrid Services Combined with Strategic Partnerships with Carriers
Strategic partnerships with the Carrier creates a relationship that focuses on shared objectives and accountability. Transparent partnerships create an advantage in transportation for the company rather than a cost.
Volume Commitment Based Negotiated Win-Win Contracts With KPI Performance Incentives
In negotiations, data-supported volume commitments leveraged for price discounts combined with contractual service metrics like KPIs (OTD, Damage Rates) are important. This model aligns objectives and supports operational discipline and improvement. Industry benchmarks indicate a cost reduction of 12% to 18% is possible, with the added benefit of increased service consistency and fewer service exceptions.
Cost and Speed Trade-offs Using Hybrid Last-Mile Solutions
Hybrid last-mile delivery models that integrate a national line-haul network with regional and local delivery solutions provide the best balance of delivery speed, coverage and cost. Using a national carrier for long-haul transport, and a regional partner for metro-area final delivery, saves 20% to 30% on transport costs, with no negative impact on service. Flexible solutions, such as those offered in hybrid last-mile delivery, mitigate the expensive residential delivery costs that single carrier delivery networks impose, particularly benefiting business that are at the growth stage of offering direct-to-consumer fulfillment.
Measuring Logistics Strategy Impacts
Because a logistics strategy relies on measurement, reassessment, and refinement to sustain value, it is essential to establish outcome-focused KPIs that include, but are not limited to, average percentage of on-time deliveries, average cost of freight per unit, and amount of trailer space utilized. These KPIs will identify areas of improvement and the cause of suboptimal performance. If a given area has a greater than 15% difference in transportation costs, it may be necessary to redesign the network and/or find a new third-party logistics provider. To eliminate waste in dock management, returns, and paperwork, implement Lean or Six Sigma. Every quarter, reassess your strategy against the current benchmarks for the market. Incorporate changing fuel costs as well as customer demand in your assessments. Perform time-based workshops involving multiple departments to be able to finalize the logistics quickly. This will ensure your customers view the strategy as cost-effective and value customer satisfaction.
FAQ
What is the purpose of a Transportation Management System (TMS)?
A Transportation Management System (TMS) uses a real-time analytics based software to select carriers, match loads, and streamline/optimize transportation operations to enhance efficiency and reduce lead times.
How does freight auditing reduce costs in your transportation process?
Automated freight auditing enforces corporate policies and spending compliance to freight invoices by preventing rogue spend through off-contract charges and duplicate billing.
What are the advantages of establishing regional distribution centers and shipment consolidation?
A regional distribution center will optimize your network’s distribution, decrease the distance of the average haul, and increase the efficiency of the overall system. Shipment consolidation will lower your unit costs for a haul by maximizing the load on the freight vehicle.
Hybrid last-mile solutions utilize a mix of national carriers for long-haul shipments and regional providers for final deliveries. This approach has been shown to reduce costs by 20 to 30 percent while sustaining the level of quality required for the service.
What KPIs are essential to monitor when evaluating a company's transportation management performance?
Essential KPIs for analyzing the performance and trustworthiness of a transportation system are: the percentage of shipments arriving as scheduled, the average cost of transporting goods, and the percentage of occupancy per trailer.