Shippers and Logistics Service Providers (LSPs) are constantly evolving – more rapidly than ever due to increasing activity in mergers and acquisitions, carve-outs, changing client and consumer demands, converging business models, and decreasing IT costs. These influences are changing shipper and LSP transportation requirements in real time, which creates a need for designing the right solution to address those challenges. To approach this, shippers and LSPs can employ a methodology to attack the opportunities and create a solution that addresses the problems and reduces costs and/or improves service.
Designing a solution to better manage transportation involves a 3-step approach:
- Evaluate and understand the current state
- Design the future state
- Create a business case for change with a return-on-investment (ROI).
Easier said than done, but let’s look at how this approach works.
In evaluating and understanding the current state of a transportation operation, you should start by laying out all of its costs on a simple one-page document called a “Spend Diagram,” which will help the broader supply chain organization understand the larger impact areas (see Find the Money – How a Transportation Spend Diagram Can Help for more on this topic).
Next, you should evaluate the current order process. Transportation operations are typically where the symptoms (excess costs) of upstream or downstream order process issues arise. Follow an order from beginning to end so that you can track all of the human touch points, integrations, and customer/vendor requirements. Documenting these current state processes in process flow diagrams, also known as “swim-lane diagrams,” helps people visualize, on paper, what the process is. We recommend that you discover these processes not via conference room interviews but by watching the doers at their desks executing the process – i.e, observe the actual people, doing the actual process, in the actual place (the “three actuals”). When interviewing the process owners in a conference room, they typically describe the process as it should be, or as they envision it, not because they are trying to be deceptive, but because as humans, we talk about things as we think they happen or should happen, not as they actually do!
After documenting these order processes at a high-level, it is best to then document the transportation specific processes (planning, optimization, execution, in-transit, delivery, and payment/settlement) also in swim-lane diagrams. Once these processes are mapped, it is best practice to review them on paper with the doers so that everyone agrees on what the current state processes are. Lastly, we recommend diagramming the systems and integration points that impact those order and transportation processes on an integration data flow diagram. This is similar to the Spend Diagram, but instead of costs and flow, you have systems and integration points (automated file transfers, file uploads, and even emails!).
Now that the spend, processes, and systems landscape is understood and documented, the shipper or LSP needs to evaluate it and begin thinking about what exists in the current state that they can leverage to meet the future state requirements. The best (and cheapest) answer typically does not involve a new OMS, ERP, or TMS. You can do this by answering the following questions: Can we more broadly implement our existing applications? Are there integration points that do not exist today that will enable lower cost processes in the future? Do the correct people own the correct responsibilities? Or, do we have the right amount of centralization or decentralization?
Executing against the future state plan always requires change in the organization – from IT to planning to operations and accounting. In designing this, you should create several documents similar to the current state. Take the current state (as-is) swim-lane diagrams and develop the future state (to-be) process maps that meet the objectives. This usually takes several iterations but can happen quickly. For systems and integration, create a future state integration flow diagram that outlines the message types and timing (see example below):
These future state changes will also require some type of investment. The best case scenario is that the investment will only require training costs and minor integration; however, it usually requires a new system and process that necessitates a six figure project. To pay for this, the shipper or LSP must create a business case with hard-dollar savings (or substantial cost avoidance), not soft-dollar visibility success. Why? The CFO will not approve it! We see these business cases and hard-dollar ROIs come from proper carrier selection, maverick spend elimination, shipment/load consolidation, mode switch, strategic carrier sourcing, freight/parcel audit, and optimization. This is usually the most analytical part of the project and does require using a software application. When running the potential savings scenarios, ensure that the assumptions are documented and validated within the transportation and supply chain departments to ensure the outcomes are achievable and valid.
As the business case is developed, consider phasing in the changes based on priority to the business (savings should come first, though customer service requirements might jump to the top of the list). It sounds obvious, but prioritize the higher return and lower risk items first, such as strategic sourcing, and make the more complicated solutions, such as implementing optimization into a network, a lower priority.
Build momentum within the organization around the impact of these changes. In this current dynamic transportation market, with roll-ups and business model shifts, the implementation of the future state will succeed with flexible, innovative, and adaptable people who own the success. At the end of the day, it is the people, at the shipper or LSP, that will make the project a success, not the software, vendors, or customers!
Geoff Milsom is a Director in the Freight Management practice at enVista, a leading supply chain consulting and IT services firm. He has more than 10 years of experience in various roles within the supply chain. Geoff earned his Bachelor’s degree from George Washington University and his MBA, with a focus on Supply Chain Management, from the Robert H. Smith School of Business at the University of Maryland.