If there is one lesson many companies learned the hard way last year, it’s that you have to be prepared for whatever twists and turns might emerge in the transportation market. How do you begin that preparation? What’s required? How do you know if you’re on the right path? Those are some of the key questions I discussed with Darren Miesner, VP of Operations at Transplace, in a recent episode of Talking Logistics.
Current state of transportation
With the transportation marketplace always changing, I began our discussion by asking Darren to level-set us on where the market is today, especially in regards to capacity. Darren indicates we’re definitely in a better position than last year.
“We started seeing improvement and loosening of capacity during the fourth quarter of 2018,” says Darren. “That has continued into this year so far. But that is in relative terms because 2017 and into 2018 was very bad. Although it feels better now, if you look at the spot market, we’re still well above where we were in 2015-2016 and early 2017.
“How that impacts the market is that contracted rates are usually set during the fourth quarter, so those rates are actually a bit higher than spot market rates right now,” continues Darren. “It typically takes six months for contracted rates to catch up to the spot market. But overall, it’s better than what we saw in late 2017 and 2018.”
Preparing for the unknown with PDCA
Darren mentioned that he has seen three previous boom and crunch cycles in his 19 years in the business, so I asked him how companies should prepare for whatever comes next.
Darren says, “You have to be consistent and approach it the same way whether conditions are favorable or unfavorable. We use a Lean/Six Sigma-based improvement model of PDCA, which stands for Plan-Do-Check-Act. Some portions of this can be very dynamic, such as planning and forecasting, while in other areas such as execution we try to keep it simple — you want a step-by-step plan when you go through the next hurricane Katrina or polar vortex.”
Here are Darren’s perspectives on PDCA.
Darren emphasizes, “The forecasting step is critical as you plan for capacity issues. Company engineers need to do the research to understand their actual shipping volumes and develop a playbook for their lanes, lead-times, seasonality and holiday surges, and update it as often as possible. If you come to the table with your carriers with a good playbook and understanding of your business, they will be more invested in your business, and can plan their resources to flex with your needs. Also, keep your network optimization up-to-date.”
Turning to the “Do” phase, I asked Darren what approach he recommends. Darren says, “First, do annual bids. A lot can happen in a shipper’s network over 12 months, and the same is true for carrier networks. Regular resets will produce the best results.
“In the bid process we see two basic strategies. One is an aggressive approach where you take 80%-90% of your shipping lanes out to bid for the best rates. The second is a little more strategic where you have a core carrier base you like and want to protect. You may take 10-15 of your top carriers who cover the majority of your loads and sit down with them to discuss your cost-out goals and their constraints to arrive at a mutually acceptable agreement. How your asset-broker ratio fits in your mix is key as well.”
There are tons of numbers associated with transportation, but not all are relevant to evaluating what really matters. I asked Darren which ones they use for the check phase. He says they keep it simple with four or five metrics: are carriers picking up and accepting the loads they said they would; are they servicing the business appropriately; as a shipper, are you giving carriers acceptable lead times; forecast accuracy — are you shipping what you said you would; and finally, the cadence and communication with carriers about score-carding and what’s happening with your markets and their networks.
I finished up our discussion by asking Darren what separates leaders from laggards in the act phase. Darren says it important to act on the metrics you’re tracking. “Once post-bid compliance goes awry, you have to be nimble,” he says. Darren goes on to discuss the financial impacts and the importance of filling gaps in coverage, as well as the people aspect and the role of technology. I encourage you to watch the full video for his insights and advice on those topics and more. Then post a comment and share your own thoughts and experiences on this topic.