Managing Transportation Costs— Four Steps to Predict the Unpredictable
In the foodservice supply chain, managing transportation costs is often cited as one of the biggest challenges. Unexpected deviations can impact the bottom line, quality and service of a distribution network, adversely affecting the customer experience. Predicting transportation expenses is becoming increasingly difficult, and this stems from four industry issues affecting virtually every transportation network—labor, fuel, assets and infrastructure.
Let’s take labor, for example. The ongoing shortage of qualified drivers, due to the struggle in finding and keeping drivers, continues to drive the prices for needed transportation services up. Labor shortages are especially acute in trucking because the pool of drivers is ‘aging out’. The average age of US truck drivers is 55. Trucking regulations, that restrict how fast, how long and how far a driver can drive, add yet another headache as you work to get goods to customers. This labor shortage not only impacts a company’s ability to cost-effectively deliver goods, it impacts growth and revenue. Companies like Walmart, for example, are trying to alleviate the problem with various incentives, such as a $1,500 bonus for driver referrals and the promise to onboard new drivers more quickly.
Fuel provides yet another variable that is difficult to accurately predict, with price fluctuations driven in large part by OPEC and other microeconomic issues. Even a moderate rise in fuel prices can wreak havoc on attempts to optimize a transportation network. The third factor that impacts companies’ ability to effectively control costs is how they manage and leverage transportation assets. Your modal mix—whether it’s by truck, rail or sea—can result in a long-lasting impact on your bottom line if not done with foresight. The flow patterns of products through the distribution network, if unbalanced or not optimized, can also drive transport costs up. Finally, the conditions of the transportation infrastructure used can negatively affect both the cost of operation and the maintenance of your assets. While not directly controllable by individual companies, local and federal government investments on infrastructure development and maintenance influences the freight operating costs.
One might begin to wonder if there is anything supply chain decision makers can do to alleviate the issues inherent in these four influencers. There is. Here are four initiatives you can implement from inside your operation that will help drive costs down:
- Establish better visibility across the entire supply chain. Having visibility across the transport of your goods and assets is a starting point, but it is important to take it one step further and create visibility from the origin of raw goods to the end user. Having end-to-end visibility puts you in a position to leverage the utilization of your transportation assets, control your costs and drive better performance. In our work with supply chains, we have seen companies that implement a detailed plan to control product flow across the entire supply chain reduce their costs significantly—without capital investment, incremental asset requirement or impact to the supplier and partner relationships.
- Create a digital supply chain. Leveraging emerging technologies can make organizations extremely resilient and responsive. New technologies allow organizations to become more “connected,” enabling them to create a digital replica of their physical ecosystem. The Internet of Things (IoT) is great example of technology that will be part of the next generation supply chain. IoT combined with Artificial intelligence and machine learning are already having an impact on supply chain management by automating mundane tasks where human touch is not needed. However, while AI and IoT are extremely useful and effective tools, they are only tools. To get the greatest benefit, technology needs to be part of a larger strategy. Fully implemented, these technologies can drive in substantial reduction in costs while at the same time enabling new business models that drive growth.
- Invest in analytics for actionable insights. While visibility and the use of emerging technologies are critical, they are not a complete solution. Substantial amounts of data are generated through end-to-end visibility and the use of sensors and other technologies. Proper mining of this “big data” to separate noise from nuggets and generating the right insights will not only help organizations improve productivity and reduce costs, but also create competitive differentiation. These include descriptive, predictive and prescriptive analytics to plan, anticipate and respond to transportation challenges. Extracting value through analytics is not trivial – companies need to invest in data engineering and data science capabilities. Some companies have been successful in attracting and retaining qualified data scientists or data engineers with the skill sets needed to analyze different courses of action. Many others rely on the support of proven consulting services organizations to provide these insights to great benefit.
- Cultivate end-to-end thinking. Elevating your view to look at things from a holistic perspective will make it possible to see the trade-offs that occur across the entire value chain. For some time now, companies have operated in a siloed manner. For example, we have found that often the different functions involved in transportation planning are done in different parts of the business. It is a cultural change to break these silos and one that requires a way of thinking that moves from a singular job focus to an understanding of how each function impacts the whole business. Cultivating this type of end-to-end thinking will make it possible to minimize risks, make smarter business decisions and optimize how you serve your customers.
All of this may seem like a huge task, but it’s not an impossible one. Visibility, analytics, digitization and end-to-end thinking are enablers to not only improving supply chain performance but can position it as a growth enabler. This is where HAVI can help. Our decades of experience at designing flexible supply networks that respond to fluctuations can help you transform your transportation network. We can show you how to map optimal distribution routes, use the best modes of transportation, define the right type of assets and synchronize material flow. It’s this type of planning that will alleviate the issues associated with labor, fuel, assets and infrastructure, making it possible for you to better predict transportation costs and serve your customers in the most efficient way.
Our e-book “Finding the Path to Supply Chain Network Optimization” offers both best practices and actionable insight to improve and optimize your supply network. Take advantage of this valuable information by downloading it here today: http://content.havi.com/reports/ebook-supply-chain-optimization