With the football season well underway, we hear breathless pundits tell us a lot of things that aren’t true — like the Cowboys will be terrible this season, and then that they will be unbeatable, both of which are false. Unlike pundits, coaches and scouts get paid to produce results not just talk about them. And many of those coaches and scouts have talked and written about the importance of scouting their own roster — that is, taking a close, clear-eyed look at their own capabilities and talent, and then taking action in free agency and the draft. Accurately assessing one’s transportation management capabilities is likewise critical to knowing where to improve and invest (and as much fun as football for some of us).
While all transportation assessments differ in some ways — based on the particulars of the industry, business strategy, global region and other variables — most are very similar in structure. The first thing we analyze is a shipper’s physical flows. In doing so, we learn important business impacts and factors. Once the data is in place, we can develop a Spend Diagram that depicts, at various levels of aggregation, all of the company’s transportation spend on a single page. While the diagram itself is often eye opening for transportation leaders, it is more often revealing for business leaders who are not in transportation, who often have no idea they control and impact so much transportation spend across various separate budgets. Often this spend is extensive and buried in expensive product cost. A Spend Diagram effectively highlights spend by category, but the lasting value is in the understandings and take aways. Once the numbers are aggregated and prioritized, the most important elements are clearly visible. What is necessary? What can be cut or streamlined? This tees up benchmarking to ensure rates are at market.
After knowing where and how much spend occurs, the next step is to understand how transportation planning decisions are made and executed. This almost always requires spending time with coordinators and planners, following processes from end-to-end, and making sure to incorporate physical, data, and financial flows. You can the create process flows with horizontal swim lanes for each actor in the process. It is easy to over invest in documenting processes since the document is usually at some level wrong the moment the pencil comes off the paper. We joke that companies will spend two hours, two days, two weeks (and if you work with the wrong folks, even two months or even two years) processing documentation efforts. This step should only take between two and ten business days. Using swim lanes is an easy feature that requires you to think through who the actors are and will give you a pretty good idea of the integration points; most of the time the process moves from actor to actor.
Now, with a good idea of both where the money is and where there may be process weakness, the last step before really getting into analysis is to understand the technical environment at more than a high-level without getting too deep in the weeds. Producing an integration flow diagram that shows how information flows amongst existing systems is a good way to understand the functional capabilities of existing systems, at least as currently configured.
When it comes to the actual analytics to model transportation management changes and estimate their impact, there are a couple of basic models – bottom up and top down. Bottom up analyses involve cleaning large data sets, manipulating them to reflect various hypotheses, and then running optimization scenarios. Often, quite a few more scenarios turn up than anticipated because interesting and valuable information is revealed. Bottom up modeling efforts result in tight confidence intervals and a very solid, defensible savings estimate, but they take longer and cost more than many shippers are willing to spend.
The top down alternative involves using insights gleaned from Spend Diagram data, process flows, and an integration flow diagram to identify the most likely areas for savings. Optimization modeling should then be targeted for those areas. When you obtain accurate data regarding where money can be saved, and where processes, system enablement and functionality are weak, it quickly becomes evident where you should focus efforts and make changes. A top down approach will typically not take into account interactions between solutions since they may be in different flows or scenarios, but when done well, the data will remain accurate, even while foregoing precision (e.g. 42 versus 42.368).
While every transportation assessment varies in the details, they share the basic elements of learning the physical and financial flows (a Spend Diagram), ensuring rates are at or near market (benchmarking), understanding the planning and execution processes (process flow mapping), documenting how available applications do or do not work together (integration flow diagram), and either a broad bottom up modeling effort or more narrowly tailored, top down, point solution analysis and modeling.
Like self-scouting in football, transportation assessments often identify improvement paths focused on the less glamorous members of the team – the “linemen.” From there, it is a matter of obtaining clean source data, implementing efficient processes that leverage advances in transportation technology, and building effective integration with carriers to drive down transaction cost.
Now if we can just figure out how to set up and score transportation management fantasy teams, we’d be all set.
Stephen Craig is Managing Partner of enVista’s Freight Management and Transportation Solutions business units and has 20+ years of transportation strategy, operations, and systems consulting experience working with shippers, 3PLs, and transportation-focused private equity firms.