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November 2005
Best-in-Class in Wholesale Distribution Series
Transportation Management:
A Continous Improvement Framework
Dave Forberg Drew Satherlie
Principal Industry Consultant Durable Distribution
Achieve Consulting FedEx
November 2005
Best-in-Class Wholesale Distribution Series
Transportation Management:
A Continuous Improvement Framework
Dave Forberg Drew Satherlie
Principal Industry Consultant Durable Distribution
Achieve Consulting FedEx
Best in Class - Wholesale Distribution Seminar Series Overview
Business is changing rapidly and wholesale • Return on assets (ROA) remains low
distributors are in the middle, playing a between 3%- 4% from 2000 to 2004.
critical role in helping their manufacturing (see below)
and customer partners manage the supply
Median ROA
chain and all the activities that go with it 2001 - 2004 Public Distributors
(inventory management, logistics, sourcing, 5.0%
payment, etc). In one recent study, 80% of 4.0%
CEOs said Supply Chain Management was 3.0%
important or very important for the success 2.0%
of their company, and within five years this 1.0%
number is projected to grow to 88%. In 0.0%
addition, external dynamics are impacting 2000 2001 2002 2003 2004
Durable NonDurable
distributors in a profound way. Including:
• Customers who have more choices on • The median revenue of these
where to get product and what they will companies was approximately $763
pay for it. They are demanding more million, and the operating income
from distributors. margin was approximately 3.5% or $27
million. (See below) which although low
• Costs which are increasing at an ever is within a point of two of historical
faster rate and distributors have not or averages.
cannot pass on these increased costs. Median Operating Income Margin
These costs are payroll, healthcare, and 4.5%
financing to name a few. 4.0%
3.5%
3.0%
• Technology that is helping distributors to 2.5%
2.0%
deliver things better, faster, cheaper, 1.5%
smarter - and more customized. This 1.0%
0.5%
has been a great productivity tool for 0.0%
distributors in the past to help bring 2000 2001
Durable
2002
NonDurable
2003 2004
down costs.
• Channel partners that are forcing Thus, to increase profitability, distributors
distributors to become more efficient must focus on getting more out of existing
and productive in search of profits. assets.2 If network operating costs
Distributors have responded primarily by (inventory, facility and transportation) are
rationalizing and leveraging their supply about 8.0% of revenues3, then the median
base and have achieved mixed results. public distributor spends about $61 million
managing their network. A 10%
• Increased and new forms of competition improvement in managing this cost would
and Globalization that have result in $6 million increase to the bottom
commoditized some products and line or increasing operating income 22%.
industries, focusing attention on price The data and this example provide a
and service as differentiators. compelling case of why distributors are
Distributors try to remain current with looking at new and creative ways to
this trend. manage their business.
FedEx recently studied 197 publicly-held
durable and non-durable distributors and 2
Finlistics, FedEx, and Achieve Consulting study 2005.
found the following financial issues: 3
Council of Logistics Management “State of Logistics”
report
2
It was from the external dynamics and the 2) To develop tools that distributors can
fact that distributors are struggling to remain use to improve their business.
profitable that FedEx decided to launch a
series of Best-in-class in distribution We hope you enjoy this and future papers.
seminar series aimed at trying to help If you have any questions, comments, or
distributors address their key issues suggestions, please contact your FedEx
(internally or externally). By studying these sales rep or email us.
problems, we hope to understand the issues
distributors are facing and possible
solutions. Sincerely,
FedEx has two goals in mind for this best in Drew Satherlie
class series: drew.satherlie@fedex.com
1) To help the distributor better Mike Younkin
understand their industry, their supply mike.younkin@fedex.com
chain and the issues impacting them
and; FedEx Distribution Industry Consultants
3
Executive Summary
Demand for transportation services and
the available supply of capacity are out • Carrier Management
of sync and worsening. Wholesale • Load planning and optimization
distributors need to be prepared to deal
with this environment. Recently • Shipping Execution
shippers have responded by
implementing some fundamental • Shipment Monitoring
changes that have been effective, but
• Freight pay and audit
more is needed to continue to improve.
• Performance monitoring
A transportation framework has been
developed to allow distributors to align
A corresponding maturity assessment
their transportation operation with their
tool is also provided to describe a
supply chain strategy and overall
continuum of operating capability across
business objectives. This framework
the transportation processes. Shippers
allows shippers to take their
can use as a self-evaluation tool. The
improvement to “the next level” because
tool will also help them prioritize where
it is in sync with the goals of the
they might employ resources to
organization. However, it is a dynamic
maximize their overall performance. We
framework that allows for continuous
have provided the tool at the end of the
improvement.
whitepaper.
The framework identifies the following
This paper provides a road map for
major processes within transportation
companies to improve performance in
management for further review and
each of these process areas.
analysis.
4
Transportation Management Best Practices:
Continuous Improvement Framework
The Transportation Landscape: Past, costs continue to increase at an
Present, and Future accelerated rate. Logistics Management
reports costs have increased by nearly
Prior to the 1980s, transportation was 20% since 2001. (Figure 2)
highly regulated and characterized as
lethargic with little differentiation
between carriers on price or service. In
the 1980s, deregulation changed the
landscape for freight movement and
shifted the balance of power from
carriers to shippers. Competition
increased in all modes and shippers
demanded and received better pricing
and improved service.
Demand for transportation remained Source: Logistics Management (11/05)
strong through the 1990s as the United Figure 2
States economy surged forward. Driven
in part by outsourcing and globalization, Today, the transportation industry is
huge increases in imports began maturing but demand and supply are not
straining ports, creating capacity issues synchronized. Consider the following
in trucking, and clogging inter-modal supply-side facts:
operations everywhere. Naturally, cost
and pricing grew steadily through the • Trucks handle more than 85% of all
1990s (See Figure1). goods moved through the US22 and
are experiencing unprecedented
capacity issues. Service changes
Cost per ton mile have improved safety but reduced
capacity by over 6%.3
125
120
The average driver is 56.4 Retiring
115
110 •
105
drivers increase capacity pressures.
Index
100
95
90
85
80
• Average drivers’ wages increased 7-
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 8%. But there is a projected shortage
(Source: Bureau Transportation Stat istics)
Year
of more than 100,000 drivers over
Figure 1 the next 10 years.5
Demand continues to increase each
year in all modes. The Bureau of
Transportation Statistics reports that air 2
DC Velocity, October 2005
freight ton miles are up approximately 2
Transport Topics
4% since 2000 and motor freight ton 3
Fortune, November, 2004
4
miles are up over 6.5%. Accordingly, Logistics Management, 2005
5
American Truckers Association
5
• West Coast port traffic is at an all- • Outsourced the delivery function
time high with nearly 40,000 forty- entirely, or simply shopped for new
foot containers (FEU) entering each partners or service providers to lower
day.6 costs.
• Inter-modal volume is up over 65% • Established core carrier programs
since 1990.7 with 1-2 carriers in each lane for
scale economies.
• Durable goods shipping have
increased by nearly 10% since 2003 • Dedicated volume to a single parcel
and air freight is up 12%.8 express carrier to drive down pricing
or to gain technology capability
• Transport Topics reports that many
carriers were overbooked by 10-15% These methods are effective, but are not
on any given day in 2004.9 enough. Combined with capacity
constraints, shippers must find a new
Looking forward, there is no evidence way.
that there will be a return to the “good
old days” of the 1980s and 1990s. One path is to “share” the pain with
Clearly, distributors need to develop a customers by trying to initiate special
rational, competitive response to these charges, such as accessorial fees, fuel
events. surcharges, and “extra service” charges.
A leading lab equipment distributor
introduced temporary surcharges even
New Environment and Realities for customers with pre-existing free
shipping contracts. Customer pressure
Wholesale distributors have had limited forced a repeal of the charges after a
success navigating the tight channel few short months. Customers will be
between managing supplier tolerant for only so long.
relationships and cost-effectively
satisfying customers. Previous
transportation management efforts may Transportation Management
have been implemented and many have Continuous Improvement Framework
delivered the expected results. During and Maturity assessment tool
this time shippers have:
A different framework has emerged to
• Centralized carrier management as help manage transportation processes
part of the procurement function and and spend, and align them better with
stressed efficiencies company goals. This new framework is
• Emphasized narrowing the shipper comprised of two components:
base to 1-2 carriers to leverage scale
and drive down rates through 1) A continuous improvement
maximizing discounts. framework which looks at the six
processes and 23 activities
encompassing transportation
6
Fortune, November, 2004 management.
7
DC Velocity, October, 2005
8
DC Velocity, October, 2005
9
Transportation Topics
6
2) The transportation maturity • Controlling transportation costs
assessment tool which evaluates
• Increasing reliability of order delivery
your capabilities in key processes
and real time status availability
against a continuum of best in class
practices. • Making transportation and logistics a
differentiator in the market place.
At the core of the transportation Tactical Best Practices are Necessary
management framework is flexibility to Win “In the Trenches”
which allows alignment between
transportation and business strategy. While fundamental concepts serve as
The model does not profess one right the foundation for a program of
answer that fits all situations or advise improving transportation operations from
that all distributors should aspire to a time, cost, and service standpoint (see
leading practices in all processes. box on next page), real progress is
Instead, the model helps distributors tie made by applying tactical best practices
their transportation management that enable a more effective
process and activities to their business transportation management operation.
strategy. If and when environmental
issues change or business strategies The ability to get things done on the
evolve, so to does the need to supply dock and on the road differentiates a
products from manufacturer to transportation operation’s effectiveness
customer. The model helps see what to in the customer’s mind. This is achieved
change and how. when all aspects of transportation
management are in sync and working
The maturity assessment tool helps towards servicing customers, while
identify and align the best practices of minimizing headaches and costs for all
the key processes and sub-processes. supply chain partners. For many
These best practices apply whether your distributors, the question is “Where to
company utilizes a private fleet, begin?”
dedicated carriers, a set of core
common carriers, or contract parcel The transportation management
services. With this approach, shippers framework suggests that shippers
can focus on improving specific areas “break down” transportation
within transportation management in management into processes and sub-
order to achieve their strategic processes that can be better managed
objectives of: and optimized. Improvements in each
area of the framework contribute to a
better overall operation. There are six
processes or stages to the framework
depicted in the figure on page 9.
7
THE FOUR FUNDAMENTALS FOR aspect to overcome for wholesale
EFFECTIVE TM distributors is the willingness to share
operational information outside the
Companies in all industries, including organization, but technological capability
wholesale distribution, are making progress makes this simpler. Collaborative
by adopting and four fundamental concepts transportation management (CTM)
to implementing the model: programs are a natural extension of
• Centralize operations collaborative planning forecasting and
• Automate the routine replenishment programs that companies
• Collaborate with supply chain partners have been implementing over the past
• Measure performance for continuous decade. Transportation exchanges and
improvement web-based service providers enhance the
Centralize Operations collaboration by offering standardized tools
By centralizing transportation management, with easy access for shippers and carriers.
shippers are better positioned to control the Supply chain partners also means
overall flow of goods into and out of their collaborating within your own company. It is
facilities and are better able to exact suggested that you must master this first
savings improved resource use. Scale before attempting to partner with outside
economies and the efficiencies of planning suppliers.
and coordination of all moves become much Measure for success and continuous
more attainable. Centralization offers a improvement
chance to maximize work force productivity, In order to accomplish strategic objectives,
increase the span of control and to there must be performance measurements
negotiate with carriers based on aggregate in place that provide the ability to monitor
volume with carriers. progress toward the improvement. Effective
Automate the Routine measurement systems work best when they
Whether you use private fleets, dedicated are an integral part of the process. Fact
carriers, or third party service providers, based decision making requires accurate
routing, tendering, and load optimization data. In transportations cost, quality, and
can be automated. Prices for powerful time measures are best captured from
desktop optimization tools have dropped actual moves using the TMS.
and now sophisticated packages can be A recent study by the Warehouse Education
integrated at very low costs. In fact, and Research Council and DC Velocity
shippers with fleet size as small as 3-4 supports this assessment. (See Figure 3)
trucks can implement tools that minimize
miles and time driven, meet service window
Percent of Shippers that implemented changes to
requirements, and sequence orders for best
improve dock and yard management:
delivery patterns. Additionally, these tools
Improvement % respondents
now have functionality to support all areas
Added dock staging 24.8
of Transportation Management. Electronic Changed shipping schedule 47.0
data interchange remains the dominant Changed operating schedule 39.0
method for communicating externally, but Added drop lots 18.0
the Internet is making direct, real-time Added drop-hook operations 20.0
connectivity possible for even low volume
shippers. These tools quite literally pay for
themselves in 2-3 months time. Companies are implementing these carrier
friendly programs to become lower cost
Collaborate with Partners customers in hopes of receiving favorable
The increasing demands of customers and consideration in competition for capacity
limited capacity of suppliers is best and lower rates for moving goods. We
managed through improved collaboration believe more can and must be done by
with supply chain partners. The critical shippers in all industries.
Transportation Management Framework
Load Planning &
Optimization
Carrier Management Prepare & Execute
Shipments
Performance
Monitoring Shipment Monitoring
Freight Pay & Audit
Achieve Consulting
Transportation Management Maturity
Assessment Tool
The transportation management characteristics of the activity along a
maturity assessment tool (see sample spectrum of outcomes. When used in
below) breaks down the framework into conjunction with performance metrics,
operational business areas, processes, the model helps organizations identify
and activities. It then describes key key improvement opportunities.
Sample of a Maturity assessment tool
Transportation Management
1 2 3 4 5
Business Area Process Activity Limited Developing Competitive Emerging Leading
Limited outbound management - mostly high volume Outbound freight is managed, and inbound is still partly
Carrier Scope of Transporation No freight is actively managed. Inbound freight cost Outbound freight is managed, but inbound is still vendor All inbound and outbound freight across the enterprise
Carrier Base Management lanes. Also limited cost visibility for inbound freight for vendor controlled. All inbound costs are understood
Management Management imbedded in purchase price.
high volume purchase goods.
controlled. Beginning to breakout cost on invoice.
and significant volume suppliers are being managed.
is actively managed and controlled.
Line haul contracted to core set of carriers & local Core carrier program established with minimum volume Carrier partnership programin place with frequent
Carrier base Local decisions made when orders received Standard carriers based on service territories
cartage to small group of carriers commitments monitoring and an annual reviews
Understanding of Carrier Rudimentary understanding, communicating with In-depth understanding of carriers’ capabilities and plan
Very limited understanding Actively exchange information with carriers Understand carrier capabilities and plan accordingly
Capabilities carriers accordingly
Partner with core carriers and establish a program
Some of existing carrier base capabilities known well, Core set of carriers identified with a clear understanding
Carrier Contracting Identify Capable Carriers Carrier base not defined Invite core set of carriers to present their capabilities (qualifications, communication, etc) to help meet your
others unknown.. of their capabilities.
needs
(Include Freight Forwarders Detailed selection process leveraging total volume and
Little coordination of volume, region, mode across Volumes and service needs by mode are centrally Volumes and service needs by mode are centrally
& other Trans service Preparation of Bid No coordination moves for the enterprise. Coordinated with TMS so
business units coordinated by region coordinated at an enterprise level
providers) requirements / schedules are synchronized.
Custom contracts designed to simplify your
Use existing contracts developed around the carriers’ Standardized on a few contracts and have all carriers Core carriers on standard contract based on your
Carrier Contracts No contracts established requirements (i.e. simplified rate structures) and to
needs participate service needs; all others using your standard terms
encourage partnerships with pay for performance
Carrier Compliance Carrier Participation in Initiatives Carrier participation is not emphasized Limited participation Of the programs initiated, beginning to involve carriers Carrier participates in quality process as requested Carriers participate fully in quality process
Only centralized authorized carriers are used.
Carrier Relationship Business focused negotiation but locally managed Regionally focused negotiation but locally managed
No established relationships / accountability Individual facility location relationships Company-wide negotiation with locally managed
Accountability/ Responsibility relationships relationships
relationships.
No process is in place to monitor actual versus System monitors volume shipped by mode and carrier
Contract Obligations No contracts established to monitor A laborious manual process is in place An automated process is in place
contractual volume shipped by mode and carrier to meet contractual obligations
Comprehensive score card focused on service and
Continuous Evaluation Process Process not defined Informal process in place Inconsistent recognition of factors beyond price Documented process evaluating service and cost
total cost
9
The essence of the maturity assessment carriers. Competitive shippers have a
tool lies in the capability continuum, centralized operation and established
numbers 1 through 5 along the top. set of core carriers with whom they
Each activity has several degrees of actively exchange information, and
sophistication ranging from limited manage primarily outbound shipping.
capability to competitive performance Leading companies manage all inbound
to leading practices. (Additional and outbound freight with carrier
degrees of capability exist within the partners. Carrier partners are selected
model but these three points will be through a formal, detailed process, and
used to describe companies in this carriers participate in all applicable
paper). Defining and delineating these aspects of the transportation function.
degrees helps distributors not only see
where they are, but where they can be, Best practices include collaboration
if they aspire to improve in that activity between shippers and carriers which
or business area. can lead to better overall performance
when the participants have a common
To use the maturity assessment tool, under-standing of goals and
management simply assesses their expectations. Of course, the relationship
current capability and selects the is best maintained with effective contract
desired performance for each activity management and rate management
within the model. The gaps between systems that:
desired capability and actual capability
across the entire function can be used • ensure “best” contracts are used in
to prioritize where management should freight decisions
focus resources for improvement.
• procure best carrier in each mode for
service required
Carrier Management
• provide data driven decisions
Carrier management is the set of
activities shippers employ to identify and Efficient carrier management processes
procure the best modes, best carriers reflect organizational discipline more so
for each mode, and best rates for than other areas of transportation.
shipping goods to and from their Accordingly, shippers should be as
facilities, including maintaining a private aggressive as possible at implementing
fleet. High performance in carrier best practices and move towards
management allows companies to “set becoming a leader. Some key
the stage” for excellence. Choosing the considerations to think about are:
best service providers at the best cost
with formal processes is the foundation • Are we using the right number and
for the transportation excellence. mix of carriers for each mode?
• How formal is the bid process? And
Companies with Limited capability can how frequent?
be described as local operations having
little or no coordination between • Are our service levels and costs
shipping sites, a high number of negotiated centrally for all our
carriers, un-defined contracts, and operations?
limited or no formal relationships with
10
• Are inbound and outbound freight • A national sundries distributor has
managed and negotiated been able to significantly reduce
companywide? parcel delivery costs by building
truckloads of parcel orders from a
• How difficult is managing rates and
the level of compliance of using central distri-bution center and
delivering them to the carrier’s local
approved carriers?
destination sort operation. The line
haul cost for the truckload, plus the
local package delivery costs, was
Load Planning and Optimization
much lower than long distance
package delivery costs.
Load planning and optimization is the
creation of efficient transportation plans
that allow shippers to reduce costs and
improve service by being more reliable
day to day and to increase density of
freight moves in aggregate. Visibility of
demand for transportation services is as
important as the tools and processes
used in optimizing the flow of goods.
Transportation Management Systems
(TMS) tools are available to provide this
visibility and associated optimization.
Lastly, sophisticated tools can be
Optimization capabilities of TMS
deployed to make “step-change”
systems automatically choose the best
improvements with continuous moves,
mode for each geographic region and
backhauls, and cross docking.
the lowest cost route while considering
Continuous moves combine inbound
planning horizons and real world
constraints. Benefits include less dock plans with outbound plans and allow for
carriers to use the same driver, tractor
congestion and more dependable
for multiple legs of a delivery route,
carriers with more reliable service.
dropping off one load and picking up
Distributors and shippers with private another. With the correct set of partners
(particularly with on-line collaboration
fleets can minimize drive times, route
tools) backhauls can be planned for and
trucks through and around congested
areas, match deliveries to customer arranged prior to leaving the origin dock.
receiving times and provide real-time
Companies with Limited capability
status updates to throughout the
organization: usually have ad hoc planning with little
or no tools to help with consolidation.
• A Toronto-based perishable Orders are sorted on the traffic desk and
distributor realized nearly a 10% manually combined into loads based on
increase in service efficiency by “tribal knowledge” of territory service
using planning and optimization providers. Competitive companies may
still be planning and building loads in a
tools.
decentralized organization, but they are
likely using power desktop tools. In
some cases these companies are
11
beginning to work with carriers on networks with complex shipping
expanded planning horizons in order to challenges.
secure capacity for future shipments. • In some situations, simpler tools can
deliver greater load density or better
Leading companies use longer planning routing of private fleets. Competitive
horizon and advanced systems to select activities and practices may be
mode and carrier using current actual sufficient to deliver exceptional
cost and service data. They shift modes, performance at reasonable costs.
route dynamically, and experiment with • Each organization should determine
concepts, such as merge in transit and the optimal level process and
facility by-passing. Additionally, these technology required to deliver
top performers look across the transportation performance aligned
organization to optimize use of assets with overall supply chain strategy.
and leverage their full scale.
Shipping Execution
Optimal plans must be supported by
effective operations in the shipping
office, on the dock, and in the yard. The
heart of all wholesale distribution
operations is shipping execution which
gets the right product, on the right truck,
which goes to the right place, at the right
time and fulfills the company’s
operation. This must be executed
flawlessly by today’s distributors.
Best practices include shifting modes by
consolidating orders into larger Companies with
shipments which lowers the per unit cost Limited
(assuming no service requirements). capability tender
Parcels may be combined for greater loads by phone
weight breaks or, if possible, sorted into or fax and
line haul runs to the parcel service schedule
providers regional sort operation. Less transportation in
than truck loads (LTL) can be combined reaction to
into multi-stop trucks, pool loads, or production
truckloads. Each of these improves the output or new
total delivered cost. receipts from
suppliers. They
Some key considerations for effective rely on local
load optimization and planning are: carrier “friends”
or underutilize
• Load optimization and planning may their own fleet.
not fit all distributors. Highly Yards are small, docks are congested,
sophisticated TMS applications are and dock door use in not planned in
expensive and are appropriate for advance. Documentation is usually
large organizations with complex
12
manually generated at the time of operations. Thus, key considerations to
shipping. this business area are:
To be Competitive today, wholesale • Do we have good relationships with
distributors, at a minimum, must auto- drivers and carriers so that we make
fax or email load tenders. They must our supply chain partners better and
maintain a dock schedule that balances in turn improve our operating
inbound and outbound and provides performance?
some flexibility to respond to daily • Have we made the right level of
crises, and shipping documentation investment in systems for automatic
should be standardized and dock scheduling, yard management,
computerized. Leading firms use EDI or or dynamic equipment availability
web-enabled tendering with automated status updating to improve
acceptance and dock scheduling performance? Do we have
interfaces. All moves are known in disciplined shipment scheduling and
advance and shipping documentation is load tendering processes that that
printed and electronically communicated allow us to be flexibility and efficient?
with actual ship quantities. Do our carrier partners and
warehouse operations interact
Best practices include: automatically?
• Automatic load tendering
Shipment scheduling and load tendering
• Automatic appointment scheduling processes combined with disciplined
operational execution can significantly
improve a distributor’s profitability and
• Efficient dock and yard practices
customer service performance.
which include:
o Drop and hook programs to allow
carriers to plan multiple moves
for a driver and tractor. Shipment Monitoring (track and
trace)
o Emphasis on efficiency within the
Critical to a wholesale distributor’s
warehouse to enable quicker load
success is to know the whereabouts of
and unload times.
product at all times. Proactive
management of load status allows the
o Expanded shipping and receiving
distributor to maintain control over the
hours or multiple shifts are being
shipping process. Ideally, status
adopted to increase flexibility for
updates are sent to customers as
carrier routing of loads.
events in the delivery process unfold.
Skilled employees, who know what to do
o Expanded trailer drop lots at
shipper and warehouse delivery with the information and how to do it,
sites. enhance customer service, improve
profitability or both.
No visibility or process is characteristic
Wholesale distributors are well served
of Limited shippers, while Competitive
by implementing leading practices on
shippers will follow only select
their docks and in their load tendering
shipments and use their invoice as proof
13
of delivery. Leading wholesale Freight pay and audit
distributors have carriers provide real
time updates of delivery status using Transaction heavy processes such as
standard EDI transmissions or web- audit and freight pay are ideal for
based XML capability to update files, or automation. Yet freight pay and audit
alert customers. has historically been ignored or
mismanaged. Recent technology
Best practices of leading distributors developments and large shipper’s scale
also include status updates for load have begun to drive efficiencies in
pick-up and load delivery at multi-stop freight pay processes.
orders thus alerting the shipper if
subsequent stops are at risk of service Wholesale distributors with Limited
failure. Proof of delivery notification not capability continue to manually manage
only enhances the service between the rates, pay bills as received, and post-
shipper and its customer, but it improves audit their freight bills. Competitive
the billing and freight payment process performers do manage rates
between shipper and carrier. electronically and compare ‘actuals’ to
Additionally, notification or alerts of plan for the high volume lanes. Leading
service failures can be sent from carrier companies manage rates for all ship
to shipper to customer in order to points from a central location and re-rate
proactively manage customer service the invoices when received to compare
issues. invoice amounts to contracted terms.
Parcel carriers lead the way with this At the leading edge, companies utilize
integration of order delivery status. In auto-pay or self-pay, wherein the
fact the leading carriers can provide shipper pays the bill based on contract
shipping systems with this integrated terms and actual freight shipped at the
capability to customers as part of their time of shipping. These companies rely
collaborative offering. on the carrier to file adjustments,
essentially shifting the burden for
Tracking and tracing is the ‘ante’ in accuracy to the carrier.
today’s supply chain management. Key Key considerations for freight audit and
considerations for shipment monitoring pay are:
include:
• Have we automated the non-value
• Are our carrier partners providing us added set of processes that should
with good data be automated as much as possible?
• Are we using transportation data to • Should we evaluate the cost to
update status and sharing that manage our freight bills and consider
information throughout the teaming with a 3rd party service
organization especially in customer provider to manage this activity as
service an alternative?
• Are we proactively alerting • Are we sufficiently large, and do we
management of any issue related to have the capability to mange this
a customer service failure in order to activity internally? If distributors are
differentiate ourselves advanced in their carrier
14
management processes, then the new customers and new products. This
audit and pay process may not be ensures the carrier understands and
too onerous. If so, keeping it in- plan for your future requirements.
house may be a good strategy.
A continuous improvement framework
• Should we consider auto-pay to shift requires vigilance in measuring internal
the audit and adjustment burden and operating performance. More complex
cost to the carrier? If so are we operations generally require more
prepared to operate and pay per complex measurement systems (not
their contracts? more complex measures, but systems
capability). Key consideration for
performance management needs:
Performance measurement
• Have we built effective relationships
The old adage “if you’re not measuring with supply chain partners and do we
it, it won’t get any better” certainly holds have the infrastructure in place for
for transportation. You need to know fact based metrics reporting?
how good you are before you can
decide how good you can be. Typically, • Do we provide feedback to partners,
the measurement process relies on data internal and external, in a timely
from internal TMS systems and often enough method to influence future
will also include data reported by performance? Do we do this at the
carriers and customers. right frequency? Is real-time really
required?
At one end of the spectrum, Limited
companies don’t bother to track or • Have we determined the level of
measure cost or performance or if they feedback that would be most
do it is exception based and on a effective for our organization and do
manual basis. In the middle of the we consistently measure, report, and
spectrum, Competitive companies respond?
gather information from their TMS
systems, analyze it and look for any
‘glaring’ errors or ways they can improve Next Steps
the cost center.
Included with this paper is the maturity
Leading companies utilize well- assessment tool complete with each
developed performance management activity broken down. In order to
processes, employ scorecards to track maximize the use of the framework and
performance, and have frequent the tool, the authors suggest the
(quarterly or semi-annual) reviews with following:
partners. These meetings are then used 1. Review their current operations
to review the current state and according to the framework
brainstorm on additional ways to align
2. Assess current state against the
transportation goals (cost, quality,
maturity assessment tool
service) with business goals and
strategy. These meetings should also be 3. Determine where you want to be for
used to discuss changing needs such as each stage of the life cycle
big projects, seasonal requirements,
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4. Prioritize your resources to close the This is true in transportation as well as
largest gaps in the maturity in all other areas of the business. The
assessment tool or those gaps which framework provided in this paper is a
can be closed quickly and offer a straightforward guide to help distributors
quick return continue to evolve in the transportation
management operation. No one answer
5. Develop a plan to close the gap
is correct. What is presented here is a
6. Measure and improve, continuously. tool that enables distributors to prioritize
where they should focus their
By reviewing the transportation management attention and resources in
management framework and assessing transportation so that it remains aligned
their current state along the maturity with the overall business strategy.
assessment tool continuum, distributors
can take a first step toward aligning their
transportation strategy with their
business strategy.
Conclusion
Wholesale distributors must define and
focus on their core competencies and
competitive advantage — where they
add value — to stay out in front of the
changing business climate. But that is
no longer enough because the
environment is always changing.
Instead of statically trying to adhere to
one model, distributors must change,
constantly reviewing what they do and
how they do it and evolving to new
business model.
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About Achieve Consulting About the Authors
Achieve Consulting is a supply chain Dave Forberg is a partner with Achieve
management consulting firm Consulting, LLC. Dave has over 20
specializing in process improvements years experience in Logistics
and technology implementations for Operations, evenly divided in industry
manufacturing and distribution and consulting. Dave has enjoyed the
companies. Achieve offers forward opportunity to work with manufacturers,
thinking and a new approach to distributors, retailers, and third party
consulting services. By leveraging an logistics service providers. Dave has a
experienced team of former industry Bachelor of Science in Industrial
practitioners and “big-firm” consultants, Engineering from the University of
Achieve can help your company reach Illinois and Master of Management from
its objective of a more competitive and Kellogg Graduate School of
market responsive supply chain. To Management at Northwestern
learn more about Achieve Consulting, University.
please visit our website at
www.achieve-consulting.com. Drew Satherlie is responsible for
developing and implementing corporate-
About FedEx wide marketing strategies and initiatives
for the durable distribution industry
FedEx Corp. (NYSE: FDX) provides within FedEx. Drew has over 14 years
customers and businesses worldwide of experience in the distribution industry,
with a broad portfolio of transportation, divided between industry and
e-commerce and business services. consulting. Prior to FedEx, he was a
With annual revenues of $30 billion, the consultant focused on helping
company offers integrated business wholesale-distributors with their
applications through operating marketing and supply chain
companies competing collectively and strategies. He has also held a number
managed collaboratively, under the of marketing leadership positions inside
respected FedEx brand. Consistently distribution organizations. Drew has a
ranked among the world's most admired bachelor’s degree from DePauw
and trusted employers, FedEx inspires University and an MBA from Kellogg
its more than 250,000 employees and Graduate School of Management at
contractors to remain "absolutely, Northwestern University.
positively" focused on safety, the
highest ethical and professional
standards and the needs of their
customers and communities. For more
information, visit fedex.com.
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