Defining and Implementing an Effective Transportation Strategy

In the first episode of this educational series focused on the link between transportation management and supply chain excellence, Chris Timmer of LeanLogistics (a Talking Logistics sponsor) outlined the attributes of a strong transportation management foundation and how to build it. An important component of that foundation is defining and implementing an effective transportation strategy – a topic that I discussed with Eric Meister, LeanLogistics’ former COO, in a follow-up episode.

Here are some of the valuable insights that Eric shared regarding the path to building an effective transportation strategy:

Q: An important component of that foundation is defining and implementing an effective transportation strategy. What’s the first step in that process?

A:  Fundamentally, what kind of shipper you are is really based on three elements. The first element are the comprehensive set of strategies covering all the functional elements of your supply chain, including supply management, procurement, demand management, production, inventory management, distribution, customer service, and reverse logistics. Transportation strategy is the second component, and that’s focused on positioning transportation to support your supply chain strategy (i.e., modes of transportation, equipment types, consolidation programs). Carrier strategy is the third component, and that’s focused on positioning your carrier partner network to support the transportation strategy, and it includes how you select and interact with your carrier partners. Combined, those three elements — plus how you execute against those strategies — all play a role in defining what kind of shipper you are.

Q:  So, if I’m a shipper, how do I go about answering that question?  

A:  Understanding your business’ unique requirements and characteristics is a fundamental component. This will help you formulate the strategy and allow you to develop a waterfall [approach] from supply chain strategy to transportation strategy to carrier strategy. Key questions include, what is the variability of your demand and supply? How predictable is your demand and supply? Another characteristic would be identifying what the unique value proposition is to your customers — Is it cost? Is it service? Is it innovation, flexibility, or a combination of those factors? You’ll also want to look at your supply chain in relation to customers and suppliers. What is the relative scale of your operation and what is its sophistication compared to your trading partners? What are the unique characteristics of the products that you manufacture and distribute, and then what’s the relative importance of transportation cost in the overall total cost? Fundamentally, these and other metrics are key to understanding how to segment your supply chain, develop strategies, and then execute those strategies effectively. What we find is that the better aligned your strategies are — from supply chain to transportation to carrier strategies — and the better aligned they are with execution, the better able and more effective you are at managing both cost and service at the same time. Being able to benchmark allows you to identify your supply chain performance and the [positioning] of your supply chain within the business – both critical factors in determining what kind of shipper you are.

Q:  How can you enable alignment and synchronization across a broader supply chain strategy?

A:  It’s the people, process, and technology that allow you to hook everything together and make sure there’s alignment over time. Processes and technologies that are designed to provide transparency, visibility, and data are critical to ensuring an alignment between the various levels of strategy. We talk about a waterfall from the carrier to the supply chain strategy to the transportation strategy to the carrier strategy and then to the execution. There’s also a feedback loop forward that allows you to understand whether your strategies are aligned, and what impact changes have on your overall performance. An example would be, what is your carrier performance telling you about your supply chain strategy? If you have a significant change in your on-time or cost [performance], what is that telling you about your supply chain strategy? Having that feedback loop ensures alignment.

Q:  How do you get external partners synchronized around your strategy?

Watch the episode highlight below for Eric’s response

Q:  How often should a shipper evaluate its transportation strategy?  

A:  Typical strategic planning cycles span three to five years, but changes are happening much faster than that in business and in supply chains. I would hope that with most organizations, there’s a check against strategy at least once a year during the budgeting cycle. With regulations and requirements constantly changing, these [variables] will indicate whether you have the right data, metrics, and business processes in place. For example, the data will tell you, “Hey, something has changed in our supply chain, competitive marketplace, and/or regulatory environment that’s impacting our metrics and data. We need to take some action and talk about a longer-term approach to addressing these issues.”

I encourage you to watch the full episode to gain additional insights on this topic. Then post a question or comment for Eric and keep the conversation going!