Editor’s Note: The following is an excerpt of a research report published last week, “The Impact of Digital Yard Management on Enterprise Transportation Costs and Capacity.” The research, conducted by Adelante SCM and commissioned by PINC, was conducted to explore the broader value proposition and business benefits of digital yard management solutions. Please visit the report page for more information about the research and to download the full report. You can also register to watch the recent webinar with Adrian Gonzalez and PINC CEO Matt Yearling discussing the research results.
We all know the saying: a chain is only as strong as its weakest link.
This is certainly true in supply chain management, where numerous business processes, functional groups, and trading partners have to operate in close coordination with each other to achieve desired outcomes, such as delivery commitments, cost and profitability targets, and customer satisfaction.
The output of this integrated system, however, is limited by constraints, as the work of Dr. Eliyahu M. Goldratt and his Theory of Constraints (TOC) have taught us. As summarized by LeanProduction.com:
The Theory of Constraints is a methodology for identifying the most important limiting factor (i.e. constraint) that stands in the way of achieving a goal and then systematically improving that constraint until it is no longer the limiting factor…The Theory of Constraints takes a scientific approach to improvement. It hypothesizes that every complex system consists of multiple linked activities, one of which acts as a constraint upon the entire system.
For many companies, the most important limiting factor in their supply chains today, especially in their logistics operations, is yard management.
Over the past couple of decades, companies have invested in warehouse management systems (WMS) and transportation management systems (TMS) to streamline and automate those operations. Relatively few, however, have invested in digitizing their yard management operations. According to Logistics Management’s most recent Technology Usage Study, only 8% of companies are currently using a yard management system (YMS).
Why the low implementation rate? For some companies, their yard operations haven’t reached a critical level of complexity and shipping/receiving volume to justify an investment in a YMS. For many more companies, however, the reason is due to an outdated and limited view of the business benefits a YMS provides “beyond the four fences” of a yard.
The Business Benefits of YMS Beyond the Four Fences
Historically, the business case for a yard management system has been focused primarily on reducing the direct and indirect costs associated with yard operations. As outlined by the consulting firm Tompkins International, these direct cost items include:
- Yard jockey (operator of the yard tractor) wages
- Yard check wages
- Yard truck maintenance
- Detention/demurrage fees
- Non-use fees
- Spoilage and expiration of perishable products
- Direct two-way communication wages
“Two of the biggest direct cost components with the largest potential for savings are yard jockey efficiency and excess accessorial charges,” according to the Tompkins article.
No doubt, as the list above shows, there are significant opportunities for companies to reduce costs and improve efficiencies within the “four fences of the yard.” Viewed in isolation, however, yard operations account for a relatively small percentage of total logistics costs. According to CSCMP’s 31st Annual State of Logistics Report, business logistics costs in the United States, for example, reached $1.63 trillion in 2019, or 7.6% of GDP. Transportation costs accounted for 65% of the total ($1.06 trillion), while inventory carrying costs accounted for about 28% of the total ($454.6 billion).
Across virtually all industries, transportation represents the lion’s share of distribution costs. According to the consulting firm Chainalytics, transportation costs range from 60% of total distribution costs for High Tech companies to 88% for Food & Beverage companies.
Therefore, compared with transportation and warehousing costs, it is easy to see why investing in digitizing yard management operations has not been a priority for CEOs, CFOs, and even supply chain executives.
However, the problem is that you cannot view yard management in isolation. Unlike the saying “What happens in Vegas, stays in Vegas,” what happens in the yard does not stay in the yard. The inefficiencies that exist within a company’s yard — and in many cases, their network of yards — have a significant impact across the supply chain, especially in transportation and warehousing operations.
Again, the supply chain is a system of linked processes and activities. What many companies and senior executives fail to recognize is how big of a constraint (limiting factor) their yard operations are in achieving their overall business objectives, as well as its true and total financial impact that extends way beyond the four fences of the yard.
For more on this topic, including the results from the web survey conducted with industry executives from manufacturing, retail, distribution, and third-party logistics companies, please register to download the research report.