What Is It Costing You to Not Execute a Best-In-Class Transportation Management Strategy?
Take our 60 Second Survey to see if the right transportation management strategy can make your company more profitable.
A 2018 benchmark survey, performed by Descartes Systems Group, showed a relationship between the strategic value of transportation and financial performance. The higher the strategic value, the better the financial performance. Specifically, the results illustrated that companies that viewed transportation as a competitive advantage were five times more likely to have industry-leading financial performance. Top performers were 18 percent more focused on customer service and 29 percent more focused on business growth. This report went on to show how top performers approached transportation challenges. 60 percent of top performers were looking at ways to change transportation strategies to prepare for capacity, while only 35 percent were looking at changing service providers to solve the problem. For underperformers, the reverse proved true; 55 percent were more focused on changing providers, while only 27 percent were considering changing strategies.
In other words, a best-in-class transportation management strategy will help you control transportation freight expenses and has a positive impact on key stakeholders touched by transportation. When done right, your company will be more profitable thanks to reduced freight costs and other related expenses. Your transportation management strategy should consider not only the line haul and discount rates but also the cost benefit to sales revenue. Consider how transportation impacts the cost to support customer service, accounting, finance, shipping, receiving, and inventory levels.
Additionally, a good transportation strategy should be sustainable, flexible, and agile — regardless of external factors that may occur outside of your organization. But creating and executing such a strategy can be overwhelming, which is why we recommend creating a plan that can be built and improved upon. Rather than expecting to start with a perfect plan, create the building blocks that will lead you to a best-in-class strategy.
The most common mistake in a transportation strategy is treating transportation too narrowly, like it’s an expense that can be controlled if only you can just find the lowest cost provider. This strategy leads many to taking too many chances and, as a result, overpaying to find success. Replacing the transportation provider is just one tool in the toolbox, and a hammer can’t fix every problem.
Without the right strategy in place, changing out service providers is a reaction to a problem, not the problem itself. It’s important to consider the cost to sales revenue and the cost to support those revenues. Otherwise, little is being done to make your company more profitable.
Below are some common transportation strategies that you may be tempted to try. These “strategies” look at transportation too narrowly, often negatively impacting your company’s profitability.
Many companies are tempted to hold an RFP each year, and why wouldn’t they be? RFPs are alluring and put you in control of the process. They promise savings nearly every time, and if the RFP doesn’t show any savings on paper, the results don’t have to be implemented.
RFPs are an integral part of any transportation management strategy — but they aren’t a strategy themselves. Here are some questions to ask yourself to see if you’ve fallen victim to an RFP strategy trap:
- Have you ever held an RFP where savings, despite claiming to save you 10 to 15 percent on your freight, never materialized? What were the reasons it failed? Did they stem from areas under your control?
- Did all carriers raise rates as a result of market rate increases?
- Did carriers with the lowest rates result in customer complaints?
- Did selected carriers not have enough trucks?
All of these things are out of your control, so consider how you reacted to them. Was your response to hold another RFP?
Plug and Play
When it comes to salespeople, there’s no shortage in the transportation industry. They are literally everywhere. Most likely, you’re fielding sales calls that promise to save you 10 percent on freight multiple times a day. With a seemingly bottomless supply of transportation providers that promise to cut your rates, it can be tempting to exchange one service provider for another in the hopes of meeting your objectives.
Both the salespeople and marketing teams of carriers and logistics companies have done a great disservice to their industry by encouraging shippers to swap out carriers and brokers with the promise of freight savings. Changing carriers as quickly as you would change a broken lightbulb leaves little room for real conversation on the shippers’ overall strategy and how the service provider fits into a defined role for the organization. Not every transportation service provider is suited to play the same role — even if their trucks look exactly the same.
Like the RFP approach, this “strategy” is much too narrow in scope to have any real impact.
If It Ain’t Broke…
After churning carriers, brokers, and 3PLs over the years, it’s no wonder that when you find one you like, you want to hold onto it. Chances are, you’ve come to the conclusion that chasing the lowest cost provider can cost you in other ways that may not be reflected in the line haul charge or discounts. Since you likely wear many hats, you have learned that, if you let it, transportation can consume your time and take you away from the other key roles that you perform for your business — something that takes time away from generating revenue growth.
If you operate under “if it ain’t broke, don’t fix it,” you are likely seeing some of the benefits that having a good transportation service provider can have. With a good service provider in place, the notion that you can impact both expenses and top line revenue with good execution (including transportation) has only been reinforced. However, you should always be seeking a way to gain additional advantage over the competition.
Customers are becoming increasingly sophisticated. They are starting to ask for collaboration tools that contribute to a responsive sales force that is able to provide accurate all-in pricing, a customer service team that can immediately identify the location of an existing order with predictive analytics, or online access to shipping documents like Bill of Ladings (BOLs) and Proof of Deliveries (PODs).
You see the same types of requests coming from your purchasing teams for the inbound freight. While some transportation service providers will help pick up your freight and deliver it on time at a competitive rate, you’re now seeing some gaps in your current strategy — and they don’t meet your customers’ newest set of needs.
Since COVID-19 has changed how and where people work, these gaps have become more evident. Now, moving information and physical product has become more challenging than ever. Additional friction in the supply chain has increased delays in communication and product deliveries, putting more pressure on your customer service and sales teams. Your current service provider is good at moving freight, but are they equipped to help you tackle this new opportunity and further separate your company from the competition?
Developing a Complete Strategy
So what do each of the above “strategies” have in common? None of them are strategies; they are the tactical execution of part of a strategy. By themselves, they are largely ineffective in helping you to move the needle on your company’s profit.
In each case, the service provider is treated like an interchangeable part, serving the sole purpose of moving product from Point A to Point B. Operating like this ignores the fact that transportation touches more parts of the operation than Point A and B. Transportation doesn’t only impact the shipping and receiving warehouses, no matter what price you’re paying. And when each of these strategies fails to meet expectations, it is never for a reason you can control.
Each of these so-called strategies focuses on “line haul” or “per pound” freight expense while failing to consider how operating without the right transportation strategy can lead to lost customers, lost account growth opportunities, lost efficiency, lower employee morale, higher employee turnover, lost production time, and often lower profits. By not focusing on a more complete strategy, they are each running the risk of creating a transportation capability gap that will inevitably impact their company’s competitiveness.
When executing the right transportation strategy, your company will be more profitable. Here’s why:
You’ll Stop Repeating Past Mistakes
By implementing a strategy, you can assess what is working and what needs to be fixed. Doing so will allow you to improve upon your strategy and eliminate costly mistakes. This puts you in a direct position of control, rather than leaving you at the mercy of your environment.
Differentiate Yourself From Other Small and Medium Businesses
As a small and medium business, you are likely competing on service. If you see transportation only as a way of moving product from one point to another, you have missed a chance to differentiate yourselves.
Reduce Silos and Improve Workflow
A complete strategy will help you remove silos and improve workflow between departments such as customer service, sales, and supply chain and production. It will help make the user the center of the solution, no matter the department. With the right tools in place, you can put shipment data that will help them to perform roles better right at their fingertips.
Generate Future Revenue
With a complete strategy, you’ll get your time back. By spending less time on “urgent” problems, you’ll be able to spend more time on generating future revenues. How much money did you save last year by managing your freight on your own or by not managing your freight at all compared with having a transportation management professional helping you? How well were you able to execute your transportation strategy? How much more profit could your company have made if you and your team spent that time working with customers, marketing, sales, or production?
Putting the right strategy in place includes identifying and implementing cost savings measures. The ability to identify and execute on these opportunities will save your company money.
How complete is your transportation management strategy? If you need help, let us benchmark you against best practices and help you create a roadmap to success. Learn more about our services by giving us a call at (980) 999-8003. We can help make sure you’re on track.