The quest for transportation cost savings and service improvement is never ending, but many companies still take a fragmented approach to analyzing and optimizing their transportation operations. In a recent episode of Talking Logistics, Brooks Bentz, President of Supply Chain Consulting at Transplace, argues that companies need to “change the game” in how they approach transportation optimization in order to stay competitive in today’s fast-changing business environment where improving the end-customer experience is more important than ever. According to Brooks:
Companies often make the mistake of thinking “I can’t afford 6 months or 9 months to do this transportation optimization project, so I’m going to try do it fast. Or they’ll say “I don’t have the money to license the technology or hire a consultant, so I’m going to do it with what I have on a part-time basis. Oh, and by the way, that means I can’t do it all, so I’ll just do LTL right now and I’ll show some benefits, then I’ll come back and do truckload later.” The process gets watered down to a suboptimal solution that never really changes the game, and this is an era where you need to change the game.
“Changing the game” means taking a portfolio management approach to transportation optimization, which Brooks describes as follows:
It’s taking a holistic view of transportation — not as trucks and planes and boats and trains, but as a network of capacity that is available to move freight, and as a network of freight that is available to be moved.
While optimization is a much over-used word, in its true sense, it really can’t occur in modal silos nearly as effectively as it can when it’s applied across the entire network. So the portfolio management approach basically says, “If I have a lot of freight and I can identify the freight flows that I have — inbound, outbound, and inter-facility — and I have data [about the nature of my freight], what capacity is available to move that freight?” Real optimization is the act of, and the process of, using the power of these overlapping transportation networks to the greatest extent possible.
We do that through an exercise called expressive competition where we allow the carrier and service provider community [across all modes] to examine the freight flows and then provide the optimum capacity to meet that demand. That’s really a simplistic concept, but what really becomes difficult is the sheer volume of transactions that you have to manage, and that requires you to have very robust technology.
Companies have traditionally managed transportation in silos — I’m going to look at LTL, I’m going to look at truckload, I’m going to look at air and ocean, and do them all separately — and while the overlap of those [modes and freight flows] might not seem to be great, overlaps do exist. So looking at your transportation as a complete network and figuring out how to best optimize it and what the value of that network is to the service providers, as they express it in the pricing that they provide, is really a vital way to do it.
What type of benefits can companies achieve taking a portfolio management approach? In Brooks’ experience, companies can save, on average, 8-12 percent on transportation costs per year for 2-3 years.
So, if the benefits are so great, why aren’t more companies taking a portfolio management approach? Not surprising, as Brooks highlights in our conversation, overcoming change management issues and lack of resources and quality data are on the list.
I encourage you to watch the rest of my conversation with Brooks for additional insights and advice on this topic, including the carrier’s perspective of this process.
Do you agree with Brooks that companies need to “change the game” in how they approach transportation optimization? Post a comment and share your perspective!