7 Core Competencies for Optimizing Global Transportation and Freight Spend
In a constantly shifting and competitive global trading environment, it is increasingly important to control all costs across the entire supply chain. Global transportation is a critical component of the supply chain and optimizing it delivers incredible value and a compelling return on investment.
November 29, 2018
Managing a global supply chain network requires the ability to manage and control both global transportation execution and the associated freight spend. In a constantly shifting and competitive global trading environment, it is increasingly important to control all costs across the entire supply chain. While global freight cost varies significantly by industry and transportation mode, it is a major cost component of internationally sourced products.
Best-in-class global transportation is based on command and control competencies that create flexible and resilient transportation capabilities. Best-in-class global transportation empowers an organization to optimally manage its supply chains dynamically and holistically. Global transportation is a critical component of the supply chain and optimizing it delivers incredible value and a compelling return on investment.
The 7 Core Competencies for Optimal Global Transportation and Freight Spend Management
Visibility of Global Transportation Ops
A key driver for global transportation effectiveness is aligning global transportation objectives with overall corporate supply chain strategy. This requires constantly advocating for global transportation so that top management understands the impact that it has on the daily activity of the business. Because global transportation is key to moving a product into the domestic supply chain and fulfilling strategic organizational goals, it is a critical component necessary for organizational success.
Visibility of global transportation within the organization is often the poor cousin to domestic transportation operations. This is understandable given that on a spend basis domestic transportation is often 7-10X greater than its global counterpart. This naturally results in the focus of senior management on domestic transportation at the expense of its global cousin.
Raising the profile of global transportation in the "C" suite requires the transportation team to understand its broader impact on the organization. Global transportation directly impacts both the total landed cost of a product/SKU and the level of safety stock required in inventory. With a well executed global transportation program, net total landed cost savings of 1-2% is probable. But, more importantly, a well-executed global transportation program has a direct impact on the level of total inventory across an organization's supply chain. Utilize goods-in-transit as virtual inventory has a direct and often a disproportionately large positive financial impact on inventory.
Automated Freight RFQ (Request for Quote) and Contract Management
A strategic component of a successful global transportation program is managing freight costs. Cost factors often drive freight selection choices when planning and executing shipments. It is important to manage comprehensive freight negotiations and document all negotiated services and rates in support of obtaining optimized total freight rates.
Negotiating freight rates and contracts with carriers or 3PLs are complex and require multiple rounds of communication and negotiation. The time and resources required to manage an effective RFQ process is significant and often beyond the capabilities of the transportation teams available resources. Automation streamlines the RFQ process enabling controlled and quicker communication between the actors improving total negotiating cycle time.
There is a great level of detail necessary to comprehensively negotiate and create freight contracts. Route management, base rate costs and ancillary service charges, and volume commitments differ between carriers and 3PL. Capturing and normalizing the detailed information from all the actors in the process is arduous and difficult to maintain and manipulate on spreadsheets. Automating the RFQ processes support simple capturing of all the relative cost elements underlying negotiations and provide a standardized freight cost.
Constant review of carrier selection against planned and actual requirements
Optimal freight selection for any specific shipment requires visibility into the freight options available at that moment. This requires the ability to view current shipping options related to time to delivery, availability of equipment, pricing, and contract commitments. Each of these elements is driven by the need to move a product/SKU into inventory for fulfillment purposes, whether manufacturing or consumption.
Automated global transportation management enables transportation teams to quickly review contract options to see the best time-to-delivery and cost options based on outstanding commitments with carriers/3PLs. Visibility into the contract position provides global transportation operators with the context of the mutual obligations under the terms of a contract.
Dynamically managing the carriers/3PLs against their commitments means that accountability is an ongoing process as opposed a periodic review which enhances performance within the context of the relationship.
Constant Global Transportation Execution Monitoring
Optimizing global transportation operations is dependent on visibility into global supply chain activity and the opportunity to maximize resources around product movement. Visibility is the critical component necessary to minimize apparent transportation constraints. The degree of visibility across related operational functions, from purchase orders to receipt of goods at destination, determines the overall effectiveness of a global transportation program and the ability to optimize freight capacity and minimize related transportation costs.
With full transportation visibility across the inbound global supply chain, it is possible to plan and control shipment execution of Purchase Orders optimizing transportation load capacity and item level freight costs. With visibility, the transportation teams manage suppliers, consolidators, carriers, and any other service providers in configuring transportation loads based on item weight/cube (dimensional weight) ratios.
Item level visibility throughout the global transportation life-cycle directly impacts inventory efficiency.
Item-level transportation visibility provides optimal supply:demand fulfillment opportunity at the lowest overall cost of a product to meet organizational strategic goals. Too often a company creates an emergency shipment because product visibility during the transportation stage life-cycle is not proactive resulting in redundant goods being ordered. Item level transportation visibility can significantly reduce the need for utilizing more expensive freight options by improving replenishment decisions and eliminating the need for emergency shipments.
Item-level transportation visibility directly impacts warehouse management. With item-level transportation visibility and accompanying alerting and communication support, warehouses improve labor-management during the receiving process. This results in increased labor management efficiency, improved fulfillment options i.e. cross-dock management, backorder fulfillment. etc.
Item-level transportation visibility increases direct delivery opportunities by enabling the order fulfillment team the opportunity to better match inbound shipments to existing orders and bypassing the warehouse.
Item-level transportation visibility has the potential to dramatically affect the overall cost of carrying inventory. This issue is a blog unto itself. The impact of item-level global transportation visibility has a direct impact on the total level of inventory carried in corporate warehouses (owned and outsourced) and the related financial cost. The impact of tight inventory control across the entire supply chain cannot be overstated. If/when interest rates rise the cost of carrying inventory increases and the pressures to better control inventory increase. The global transportation team has the ability to positively impact the levels of inventory from both a case and value perspective.
Consistent Carrier/3PL Performance Management
The key to successful performance outcomes is constant and consistent monitoring. This is especially valid for freight contract management and carrier/3PL execution. The more consistently performance can be fed back to the carriers/3PLs the greater the opportunity to affect their behavior and increase chances for success.
Consistent carrier/3PL performance management is dependent on visibility into the underlying commitments within a contract and the evaluation of real-time performance execution.
Continuous Alignment of Transportation Strategy with Overall Corporate Supply Chain Objectives
Corporate supply chain goals and objectives are constantly being reviewed and revised based on dynamic market conditions. Global transportation must be flexible enough to align its supporting global transportation capabilities to the immediate objectives of the corporation.
Global transportation management flexibility builds on the availability of the information related to overall freight costs, carrier equipment constraints, route requirements, and time to delivery as needed by the organization. The necessary global supply chain flexibility requires systems that provide context to the overall global transportation needs and supports quick analysis and decision outcomes based on obligations and opportunities.
Aligning global transportation with overall corporate objectives is dependent on quick access to outstanding obligations to carriers/3PLs and the ability to adjust quickly at the most advantageous cost.
Measure and Adjust
Measuring carrier/3PL performance is key to adjusting and improving their behavior. Performance evaluations must be built on factual information if it is to be credible and actionable. Performance measures and KPIs are based on information that reflects both the baseline and the actual activity. This requires a system that provides the global transportation team with contextualized information in the form or queries, reports, and dynamic analytics that reflects the actual behavior of the carriers/3PLs.
Adjusting global transportation to meet the changing corporate objectives requires understanding and cooperation with the carriers/3PLs. Adjustments require insights based on factual information about current global transportation obligations and future needs. Adjusting global transportation activity is dependent not only on the ability to measure current activity but on being able to quickly reconfigure commitments based on new actual cost assessments and equipment requirements.
Adjusting global transportation is extremely difficult to manage on a spreadsheet-based solution that cannot aggregate the information adequately and present it contextually.
When advocating for a corporate global transportation initiative it is important to align departmental objectives with corporate objectives. This applies to global transportation because the impact that transportation brings to the organization is more than just the cost. Global transportation management directly impacts the bottom line of the organization across several key areas:
Direct product cost - controlling direct freight spend.