Supply Chain & Logistics: Smarter Transportation is Part of the Plan

Seventy percent of all the freight moved in the U.S. is transported on a truck, and more than 80% of all freight expenditures are spent on trucks (and in fact, that percentage is expected to increase by another point over the next decade). Transportation costs account for between 5% to 15% of cost of goods sold, so it's certainly in a manufacturer's best interests to minimize these expenditures by whatever means are available.

And yet, while just about every cost center within the supply chain has benefited from software planning systems, transportation more often than not is still being planned by spreadsheet, points out Robert Byrne, CEO of Terra Technology. Byrne's company provides a demand-sensing solution, based on mathematics and downstream data, and is used to help improve supply chain performance for such consumer packaged goods manufacturers as Procter & Gamble, Unilever and Kraft Foods. The good news, Byrne says, is that "transportation planning remains one of the few untapped levers for manufacturers to make significant cuts in operating expenses, boost earnings performance and create new cash flows to reinvest in the business."

See Also: Lean Supply Chain Logistics Best Practices

For instance, Mondelēz International Inc., a manufacturer of chocolate, biscuits, gum and candy, is using transportation forecasting technology to get a more accurate daily forecast of its shipping needs by lane, mode and temperature class. This information is synchronized with sales and operations planning, a process that allows everybody in the company to execute against the same demand plan. As a result, the company is able to identify weeks ahead of time when capacity issues might arise, explains Pete Alle, senior director at Mondelēz's Product Supply Center of Excellence.

Even with various other transportation management solutions available, technology alone isn't nearly enough to help manufacturers keep pace with the often dizzying plethora of changes, rules and roadblocks in the trucking industry. While recent headlines have highlighted tense negotiations between several major less-than-truckload (LTL) carriers and the Teamsters, there are other long-term issues that have a direct impact on a company's ability to hire a truck when they need one.

Elaine Singleton, vice president of supply chain at Technicolor Global Logistics, lists the following ongoing challenges within the trucking industry that have a bearing on manufacturers:

• An increased push from customers and management to save on fuel costs.
• Pressure to meet government and industry regulations (e.g., hours of service restrictions).
• A shortage of qualified drivers.
• Growing pressure to lower emissions, both from consumers and government.
• Management focus on meeting customer service levels.

As one who works with companies such as Disney and Warner Brothers to reduce their transportation costs, Singleton recommends, "Become a true partner with your motor carriers by making it easier to do business with your company. This is especially important in the current tight capacity market where earned preferential treatment from carriers becomes more valuable to shippers."
 

That being said, she also suggests that companies closely audit their freight invoices and payments, as market research indicates that as much as 30% of all freight invoices are incorrect. "Automated communications, processes and workflows between supply chain partners allow companies to improve efficiencies while gaining visibility into freight payment and discrepancies before they impact a company's finances."