Maybe it’s just a bias I have, but the supply chain and logistics field seems to be a hotbed of innovation at the moment. Every day we see new innovations in process improvement, operational efficiencies, and hardware / software improvements that make the job of getting what we need where we need it. The pace of this innovation means increased complexity in planning and strategy, and more time commitments on (typically) overburdened resources. For this reason, and many others, it becomes increasingly important that we not lose sight of the fundamentals of transportation management.
In our interactions with clients it is not uncommon to find shippers that are planning complicated reorganizations of their distribution networks, without accounting for the impacts to issues like service level utilization, revenue tier attainments, etc., etc. ad infinitum. To be fair, supply chains have become incredibly interlocked. This is arguably the price we pay for maximum efficiency and effectiveness. The downside, however, is that shifting one piece of the puzzle has ripple effects across the entire supply chain. Maintaining a macroscopic perspective, while understanding the granular implications, is a key to maintaining the health of your transportation network. Here are just a few of the items to consider as you move your pieces around the board. I’ve discussed some these issues in past articles. But we continue to see these same issues again and again, so they are worth repeating:
Revenue-Based Incentives:
Most modern parcel agreements include discounts that are dependent on the gross revenues tendered to the carrier over time. Monitoring the revenue attainment of your parcel agreements is always important. But, projecting the impact to this attainment is especially important when considering large changes to your carrier split, service level optimization, and distribution network. I have personally seen shippers that took an action that saved 4%, but saw their transportation costs increase 10+% as a result of falling out of a discount tier. This same principal holds true even when revenue-based incentives aren’t part of the agreement. Don’t expect your carrier to maintain your current aggressive discounts if you cut their volume by 90%. Discount tiers, like anything else, are negotiable. So if you’re planning a change that could impact your revenue tier attainment, engage your carrier representative in discussions early to avoid a negative impact to your discounts.
Service level Optimization / Transit Times:
Consistently challenging assumptions about inventory, customer demographics and preferences, and the geography of your distribution network is a good and worthwhile activity. But like all other areas of the supply chain this cannot be done in a vacuum. Be aware that transit tables are not linked to zones, but are a function of the carriers’ networks on a zip code-to-zip code basis. Just because Ground service worked for you out to zone 6 at your current facility, don’t assume that same metric will work everywhere. If your network is changing you need to look at the potential impact on your service level allocation. This is especially true for e-tailer and those for whom customer expectation is a prime motivator.
Account Maintenance:
This may seem obvious, but when establishing a new location or new facility, be careful that not only are new account numbers established, but that they are properly linked to your discount program. I once had a $40M+ shipper whose primary export agreement wasn’t properly linked to their discount program, and hadn’t been for some time. This was their primary export account number. This simple oversight was costing the shipper tens of thousands of dollars a year. Before you think “that would never happen to me”, let me explain that this was a large international shipper that was and is considered an industry leader. They weren’t doing anything wrong. They like so many others, they just missed one little thing. An annual account maintenance review session with your carrier is all it takes to eliminate this problem.
Agreement Alignment:
Let’s assume you’ve done a fantastic job managing your carrier agreements. They are optimized based on your shipping patterns, service utilization, and accessorial usage. Your carrier is providing you with low-cost value-added services. You are so tightly integrated (maybe too tightly) with your carrier they have a seat at your Thanksgiving table. But, will your agreement still suit your needs in one year? How about in three years? What about five? As we’ve been discussing, distribution networks are not static. They move and change over time. Add a line item to every business case review that poses the question, “How does this impact my agreements?” The answer to this question is an important variable in any go / no-go project decision.
These are just some of the issues you need to concern yourself with as you plan and strategize for the future. No list can be exhaustive, as every situation is different. But the message is this, don’t be so consumed with the big picture that you forget the blocking and tackling. There is a reason they are called fundamentals.
Joe Wilkinson serves as Director of Transportation at enVista. enVista is a leading enterprise and supply chain consulting services firm, delivering innovative solutions that improve profitability, enhance customer service and reduce waste from source to consumption. enVista provides exceptional value in its unique ability to consult, implement and operate. This core focus, in combination with enVista’s unrivaled consulting experience, deep vertical expertise and comprehensive solutions portfolio, enable clients to leverage one experienced partner for all matters related to supply chain, transportation and ERP/CRM. Visit www.envistacorp.com or email inforequest@envistacorp.com.
In our interactions with clients it is not uncommon to find shippers that are planning complicated reorganizations of their distribution networks, without accounting for the impacts to issues like service level utilization, revenue tier attainments, etc., etc. ad infinitum. To be fair, supply chains have become incredibly interlocked. This is arguably the price we pay for maximum efficiency and effectiveness. The downside, however, is that shifting one piece of the puzzle has ripple effects across the entire supply chain. Maintaining a macroscopic perspective, while understanding the granular implications, is a key to maintaining the health of your transportation network. Here are just a few of the items to consider as you move your pieces around the board. I’ve discussed some these issues in past articles. But we continue to see these same issues again and again, so they are worth repeating:
Revenue-Based Incentives:
Most modern parcel agreements include discounts that are dependent on the gross revenues tendered to the carrier over time. Monitoring the revenue attainment of your parcel agreements is always important. But, projecting the impact to this attainment is especially important when considering large changes to your carrier split, service level optimization, and distribution network. I have personally seen shippers that took an action that saved 4%, but saw their transportation costs increase 10+% as a result of falling out of a discount tier. This same principal holds true even when revenue-based incentives aren’t part of the agreement. Don’t expect your carrier to maintain your current aggressive discounts if you cut their volume by 90%. Discount tiers, like anything else, are negotiable. So if you’re planning a change that could impact your revenue tier attainment, engage your carrier representative in discussions early to avoid a negative impact to your discounts.
Service level Optimization / Transit Times:
Consistently challenging assumptions about inventory, customer demographics and preferences, and the geography of your distribution network is a good and worthwhile activity. But like all other areas of the supply chain this cannot be done in a vacuum. Be aware that transit tables are not linked to zones, but are a function of the carriers’ networks on a zip code-to-zip code basis. Just because Ground service worked for you out to zone 6 at your current facility, don’t assume that same metric will work everywhere. If your network is changing you need to look at the potential impact on your service level allocation. This is especially true for e-tailer and those for whom customer expectation is a prime motivator.
Account Maintenance:
This may seem obvious, but when establishing a new location or new facility, be careful that not only are new account numbers established, but that they are properly linked to your discount program. I once had a $40M+ shipper whose primary export agreement wasn’t properly linked to their discount program, and hadn’t been for some time. This was their primary export account number. This simple oversight was costing the shipper tens of thousands of dollars a year. Before you think “that would never happen to me”, let me explain that this was a large international shipper that was and is considered an industry leader. They weren’t doing anything wrong. They like so many others, they just missed one little thing. An annual account maintenance review session with your carrier is all it takes to eliminate this problem.
Agreement Alignment:
Let’s assume you’ve done a fantastic job managing your carrier agreements. They are optimized based on your shipping patterns, service utilization, and accessorial usage. Your carrier is providing you with low-cost value-added services. You are so tightly integrated (maybe too tightly) with your carrier they have a seat at your Thanksgiving table. But, will your agreement still suit your needs in one year? How about in three years? What about five? As we’ve been discussing, distribution networks are not static. They move and change over time. Add a line item to every business case review that poses the question, “How does this impact my agreements?” The answer to this question is an important variable in any go / no-go project decision.
These are just some of the issues you need to concern yourself with as you plan and strategize for the future. No list can be exhaustive, as every situation is different. But the message is this, don’t be so consumed with the big picture that you forget the blocking and tackling. There is a reason they are called fundamentals.
Joe Wilkinson serves as Director of Transportation at enVista. enVista is a leading enterprise and supply chain consulting services firm, delivering innovative solutions that improve profitability, enhance customer service and reduce waste from source to consumption. enVista provides exceptional value in its unique ability to consult, implement and operate. This core focus, in combination with enVista’s unrivaled consulting experience, deep vertical expertise and comprehensive solutions portfolio, enable clients to leverage one experienced partner for all matters related to supply chain, transportation and ERP/CRM. Visit www.envistacorp.com or email inforequest@envistacorp.com.
