C. F. Lynch & Associates : Logistics Advice : Article

Get the Lead Out

By Clifford F. Lynch

DC Velocity, September 2003.

Three years ago, logistics’ next big thing was going to be the collaborative network. Developers promised shippers that by banding together, they’d wield the kind of bargaining power enjoyed by the Wal-Marts of the world.

So where are they now? Most of these networks have long since faded from the scene or are madly reinventing their business models. In a classic miscue, they misread the industry. Transportation capacity remains tight in today’s market, which means truck owners have little difficulty keeping their equipment loaded and running, albeit at low margins. It’s hard to see how a large network could wield significant bargaining power in this environment. Beyond the economies of dealing with fewer customers, carriers have little incentive to drop prices in exchange for more volume – unless they can add capacity at a lower cost. And that’s unlikely given the costs of hiring, insurance and the new low-emission engines.

The case of the collaborative networks isn’t so very unusual. Every 10 years or so, someone in the logistics industry feels compelled to reinvent the wheel. All too often, the effort fizzles. Undeterred, the search teams fan out to look for the next silver bullet.

There is no silver bullet, of course. But if you’re willing to settle for a lesser metal, we can offer four lead bullets that have hit their targets time and again over the years. If you’ve set your sights on a cost effective and service-sensitive transportation network, then focus on the following:

· Network design. You wouldn’t think of introducing a new product without design and engineering support, so why try to run a transportation network without it? Schedule periodic and systematic reviews of freight flows, projections and service requirements. From there, you can develop a network that provides the required services at the lowest cost and then take up questions about the need for more warehousing, dedicated freight and mode mix.

· Transportation rate benchmarking and bidding. The advantages of reviewing your rates to make sure they’re competitive are obvious. But a surprising number of companies don’t run the numbers on a regular basis. Granted, finding good benchmarking data is much tougher than checking stock prices or mortgage rates. And it takes time to collect carrier bids and then wrestle them through the algorithms of computer analysis. Yet doing so could save you a lot of money. Just make sure your bid is fair, contains reasonable deadlines and provides for accountability.

· Transportation management systems. If there was ever a place to use technology, it’s in managing a transportation network. A good transportation management system (TMS) can quickly cut through the complexity, making short work of time-consuming processes like choosing the best carrier and getting the correct rate for each load. These systems also provide for easy electronic communications, better data collection and more efficient carrier payment. With the wide variety of systems available, there’s little reason to operate without one.

· Carrier accountability. It’s not enough to assume your carriers will meet your pickup and delivery requirements or honor their quoted rates and capacity commitments. It’s up to you to make it happen. Set standards, measure performance and correct non-conforming performance. And just as importantly, meet your own commitments to the carriers.

Silver bullet solutions come and go. But these time tested lead bullets have remained effective over the years. Some managers use their in-house staffs to design networks or oversee bidding; others seek outside expertise. How these projects are carried out is not as important as making sure they are carried out. And there’s no reason to wait: Hot lead’s remarkably effective at "neutralizing" problems like bloated costs and indifferent service.

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