Where Do the Savings from Managed Transportation Services Come From?

Managed transportation service providers work to deliver transportation solutions to maximize service at the lowest cost through people, process, and technology. “The people” is defined as a team of logistics experts collaborating together to provide customers supply chain value on a daily basis — saving time and resources internally. The process involves investigating the current transportation activities and engaging in new opportunities for cost-savings while optimizing service levels. The technology streamlines planning and execution while also collecting data to be leveraged for detailed analytics, reporting on a company’s supply chain efficiencies and effectiveness. A recent ARC Strategies study on managed transportation services found, on average, MTS can save a company between 2 and 10 percent of its transportation spend.

So where does the savings come from? Partnering with an MTS provider is a big investment, but one that can produce a return within a year. Once the company is integrated with a TMS program, the logistics team can go to work identifying areas for improvement.

Supply Chain Optimization

Analytics provided from a TMS can assist in identifying areas of the supply chain that can be optimized. Freight consolidation is a key area where transportation costs can be reduced. Logistics professionals can identify opportunities to move smaller orders onto full truck loads. Inventory pooling increases the amount of product picked up at a location to decrease the number of stops to both drive cost out of the supply chain while increasing service levels. These are just a few areas to be considered; there are a lot of efficiency solutions the TMS data can produce. A good MTS provider will present cost-saving solutions to the company and assist in the implementation of needed changes to enhance efficiency. A great MTS provider will integrate a productive tension into the relationship, respectfully challenging today and every day in pursuit of driving value over time.    

Process Improvement

One of the first areas an MTS provider will dive into is process improvement. This includes evaluating a company’s standard operating procedures, routing guides, forecasting, and appointment scheduling processes (to name a few). One simple area to drive value is to establish alignment with carriers to improve on time performance, establish accountability in capacity commitments, and create a competitive landscape. Other areas include TMS and business process flow, a shipper’s internal processes, and carrier engagement.

Targeted Procurement

The carrier relationship is an important part of running an efficient supply chain. An MTS provider will have more established relationships with carriers than one company will on its own. Leveraging benchmarking data from the TMS, logistics professionals will evaluate how much money a company is paying a carrier for their lanes. If the amount is outside of current or trending benchmarks, then a procurement event will be organized to establish a new routing guide. It’s important to always monitor the current indexes as well as carrier performance since the market is impacted by so many fluctuating variables.

Mode Shift

Another area to explore is how a company is transporting goods and if there is a more cost-effective alternative either based on current forecast or lead time in orders. What works today may not be the answer for tomorrow. Logistics professionals will monitor business trends and make proactive recommendations as a shipper’s business changes. If a mode shift is feasible, transportation spend can be reduced through fuel costs and per mile rates.

Shipper Collaboration

On its own, a shipper may find it difficult to collaborate with other shippers outside their business. This becomes easier for an MTS provider, through their relationships with multiple shippers, and visibility into both supply chains. If a company’s dedicated fleet has backhaul capacity for product, and another shipper has a complimentary capacity need, an MTS provider can offer visibility into that potential solution for shipper collaboration that benefits both companies.

Shippers who move toward MTS receive the short-term, tactical benefits of having standardized processes outsourced through a team of specialists to manage freight transportation. Long term, shippers benefit from the strategic relationship by leveraging the productive tension that challenges their current constraints coupled with a TMS where data becomes knowledge—and knowledge is power.

Bill Madden is the Director of Managed Services at LeanLogistics. He leads a team of logistics managers, coordinators, and account managers handling $2 billion in annual freight movement. His focus is on building better supply chain professionals and delivering operational excellence through engineered simplicity.