There is an old proverb: You never know what you have until it is gone. Is this true for your in-house transportation management department?
Why would you hand over your transportation management to someone else? There are viable reasons to outsource the system, people, or both; for example, your transportation requirements are not unique enough to staff a full department. In certain situations, allowing a firm to host the systems is a viable alternative as long as the planners, dispatchers and other users are within your department.
Other segments in your business could be outsourced, but a core function like transportation planning within your supply chain might not be one of them. Control of the supply chain is one of the top priorities of most corporate leaders. Can you be a supply chain leader if you do not plan your transportation?
If all you have to do is optimize transportation, it is easy to look good and show significant savings. Cutting delivery to once every 2 weeks or cubing out trucks to really lower transportation cost would increase the amount of inventory and service levels would fall. One would challenge these service companies to solve the business problem of outbound routing, which is heavily dependent on how the orders are handled at the warehouse.
The key process within supply chain management is optimization and creating a competitive advantage. In order to become optimized, a supply chain has to work together and share information with many parts of the organization. The largest risk and the greatest opponent to optimization is the separation of the supply chain, back into silos. Optimization within silos allows one group to optimize at the expense of another, putting customer service levels and cost at risk.
Considering the possibility of migrating to a silo-based model would be a huge step back for enterprises. Here are 5 questions enterprises should answer before outsourcing their transportation talent:
1. Do you differentiate on customer service? Companies that staff a transportation department have a competitive advantage with customer service. Without the proper staff, who in your company could quickly respond to a service inquiry if a delivery was late? If a high level of service is a competitive differentiator, then you would not be able to brag to your prospects and potential partners.
2. Do you differentiate on cost control? Transportation management, above all else, is tasked with achieving the lowest possible cost of moving goods across your supply chain. As volume and complexity grow, shippers could see a threshold where outsourcing defeats the purpose of cost reduction, because of the service provider’s margin. And, like leasing a car, you may pay more in the long run without owning anything in the end. After all, the provider may be in the business of making a profit from your operations, profit that you might be funding instead of keeping to yourself.
3. Do you differentiate on integration? Many leading shippers see the integration of processes and systems across their divisions as a significant competitive advantage. Think about, for example, the advantages offered by closely integrating your warehouse management and transportation management systems. From dock appointment scheduling, to control of yard functions, to better load planning, a number of benefits are only available to those companies that have the ability to closely intertwine systems and processes across these functions. Integrations with service providers can often be expensive, complex to maintain, and take time to implement. This stems from the need to navigate restrictions by the managed service provider on access and changes to application, data, and communications protocols.
4. Do you differentiate on data? Corporate data is special, and should be treated with great care. Within your system, this data is owned forever, and there is full access to the data. A fundamental disadvantage to a managed service might be ownership of the database where data is stored. This adds a layer of complexity for other applications to interactively use this data, create reports and alerts, and even extend the database to meet specific needs.
5. Do you differentiate on flexibility? As companies change and grow, transportation operations need to scale to meet increasing customer demands and expand into new lines of business. Because managed service providers compete on common-denominator service offerings and price (rather than system capabilities that support new processes), the ability for managed service customers to explore new transportation management approaches could be inherently limited. Dedicated TMS technology subscribed to or owned by the enterprise has the ability to be a more strategic weapon that can drive market differentiation and business process improvements.
Before you decide to outsource (or continue to outsource), ask yourself the questions above. If transportation management in any way allows you to differentiate yourself — whether through service, cost, or operational performance — you may want to take pause. Companies often decide after outsourcing that they had left too much on the table.
Making a strategic decision to outsource the transportation department of your supply chain may essentially be de-constructing your business.
Steve Vail has worked with customers in the logistics and supply chain industry for over 18 years. Steve is currently responsible for marketing of the Transportation Management solutions at Manhattan Associates.