The quest to identify and achieve transportation cost savings is an ongoing one for transportation and logistics executives. It’s also a focus area for CEOs and CFOs because of transportation’s impact on the bottom line. But while there are many paths to achieving transportation savings — everything from taking a smarter approach to procurement to building loads and optimizing routes more effectively — what many companies continue to struggle with is sustaining those savings in year two, year three, and beyond.
What is the main roadblock to achieving sustained transportation savings? The answer is often rooted in a company’s culture, as Mike Regan, co-founder and Chief of Relationship Development at TranzAct, explained in a recent episode of Talking Logistics:
“I was talking recently to the CEO of a multi-billion dollar company and he was telling me how they need to get their transportation spend under control, and one of the things I highlighted for him was the impact of culture. Practically speaking, everyone gives lip service to saying ‘I want to do this, I want to do this,’ but when the rubber meets the road, they will basically honor their culture.
At the CSCMP conference a couple of years ago, Howard Schultz from Starbucks said ‘You need to face reality — culture beats strategy any day of the week.’ So, one of the main roadblocks companies have to address if they want to achieve sustained transportation savings is making the necessary changes to their culture so that people do the right thing instead of the things they’ve been doing all these years. I can give you countless examples of how this impacts transportation costs.”
One example is the disconnect between talking about Lean principles and actually applying them in transportation. “I visited a company in Michigan this past fall,” Regan recounted, “and they were all into Lean. They even had a chart that talked about how to clean toilets in their organization and they had a toilet cleaning cart in a supply cabinet and all these [defined process steps and metrics], but when I walked out on the shipping and receiving docks, guess what was missing? Any kind of charts or [evidence of Lean principles in action]. So I concluded that cleaning toilets was more important for this company than transportation, and because of that, they’re willing to live with a lot of waste when it comes to managing logistics and transportation.”
In another example, Regan was at a company that had over 20 people in charge of booking freight. “So, I asked the question, why are you doing that? And the reason was, ‘Well, that’s the way we’ve always done it.”
Of course, technology plays an important role in helping companies to eliminate waste from their transportation operations. “What you’re going to see in the future is that if you don’t take advantage of the technology that’s out there — like transportation management systems and APIs — if you’re a late adopter, your competitors will run all over you,” cautioned Regan.
So, in addition to having the right culture in place, what are some other key factors needed to achieve sustained transportation savings? Watch the short clip below where Mike discusses three important factors: commitment from the top, accountability, and communication throughout the organization.
“I encourage C-level executives to understand that this is not just a momentary, ‘quick pop’ type of thing,” said Regan. “This is something that you need to stay engaged with over time…Transportation savings is what I like to call a ‘get your hands dirty’ type of thing. When you talk about transportation savings, you’re not talking about $10,000 here and $20,000 there; what you’re talking about is $50 or $100 or $150 on a particular freight move, but that freight move occurs hundreds or thousands of times during the month.”
Simply put, it’s like death by a thousand cuts — many companies are failing to achieve their expected transportation savings, or failing to sustain them after the first year, by bleeding $50-$150 per freight move.
I encourage you to watch other clips from my conversation with Mike for additional insights and advice on this topic, including segments on the role of third-party partners and the capabilities companies should look for in a partner, and the questions CEOs need to ask to determine their next steps toward achieving sustained transportation savings. Then post a question or comment and keep the conversation going!