Monitor Transportation Performance to Ensure On-Time Profits (and Deliveries)
By Richard Wilhjelm, VP Sales & Business Development, Compliance Networks, August 1, 2013 Source: SCDigest
The Importance and the Role Transportation Performance Plays in Mitigating Retail Margin Risk
In my previous article dated June 27, we discussed not only the importance of visualizing the purchase order lifecycle, but taking active steps to reduce the time between milestones to improve financial performance and reduce retail margin risk. In the fourth installment of our five part series, we will examine the importance of transportation performance and the role it plays in mitigating retail margin risk. In addition to financial performance, we will also discuss a bonus benefit of monitoring transportation that is sure to please your board, customers and other related stakeholders.
Transportation Performance Defined
How do we define transportation performance? Is it the answer defined in terms of speed? If that were the case, retailers would receive daily air shipments from the Far East with their merchandise. If you go to the Nashville Airport (BNA) you will witness a 747 arrive daily with shipments for Dell. But I know of few retail VPs of Transportation who have that type of budget. So is transportation performance defined in terms of the lowest cost? Hardly. As we have discussed in previous articles a retailer's financial performance is tied to the speed and execution of its supply chain. And consistently getting beat to the floor by five days by your closest competitor is certainly not a recipe for success. (That Is typically what you get with the lowest cost approach) I suggest that transportation performance is defined as financial balance between speed and cost layered with a component of predictability. Since most retailers have sophisticated Transportation Management Systems (TMS) to assist them in establishing the economic equilibrium between speed and cost, this article will focus on the necessity of measuring transportation as it improves predictability as well as reducing overall transportation costs.
Measuring Transportation Performance – Where Do We Start?
Simply put, your vendor expectation guide or routing guide is a great place to start. (I like to refer to the vendor expectations guide as the plan for mutual profitability but more on that later) While our next article deals with the importance of effectively communicating with your vendor partners, it is critical to note here the importance of setting the right expectation for your vendor partners up front. And once your requirements are in place, it's extremely important not to change them on an ongoing basis. Traditionally, some but not all, retailers are poor communicators of their of not only their initial requirements, but also make frequent changes to their requirements guide which makes it difficult for vendors to perform. Vendors are challenged with not only the number of retailers they serve, but also the number of vendor requirements changes retailers make during the course of the year. Creating a clear and consistent plan for your vendor partners and communicating their performance at regular intervals is the simplest way to achieve not only transportation performance, but overall supply chain performance.
What and How Often Do We Measure?
The answer, as always, depends on your strategy. Where do you fall along the cost versus speed continuum? Your transportation rules, your daily notifications and your vendor scorecards should all reflect that. While strategies will vary from retailer to retailer, some of the most common rules I see include:
- Failure to ship collect per TMS instructions
- More than two shipments in a week
- Routed carrier not used
- LTL shipments on consecutive days
- Shipped to wrong location
- Early and late shipments
How often should we measure these rules? Ideally we would like to capture these avoidable costs daily if resources and systems are available. By capturing these occurrences daily, we can feed this information back to our vendor partners to speed up the cycle of continuous improvement. But some of the information we are looking for isn't system generated and won't be discovered until the physical freight bill is received. For this I recommend a dual approach to capturing freight violations. On a daily basis we capture the system generated violations and feed this back to our vendor partners as quickly as possible to maintain our continuous improvement cycle. Then on a weekly basis, I recommend reviewing the physical freight bills to ensure they are in compliance with our vendor requirements guide. This dual approach will ensure a consistent and thorough view of our overall transportation performance.
The never ending question to the supply chain professional is what is the value of this project versus the other 10 'high value' projects that currently reside on his or her desk today? The easy answer is money and its impact on the income statement, as a reduction in overall transportation costs will flow directly to the bottom line. TMS projects are often easier to approve than other projects for this reason alone. But there is much more value to be had here than a reduction in transportation costs. By tracking our transportation performance, we are adding milestones to our purchase order (PO) lifecycle we discussed in the previous article. Once we understand these and the other milestones along the purchase order lifecycle, the time between them and the bottlenecks that are increasing days in our supply chain we can then take active steps to eliminate them. While reducing our overall transportation expense is certainly desirable for the upcoming income statement, a larger savings will come from having a higher performing supply chain that continuously seeks to reduce our working capital requirements and mitigates margin risk. And beating our competitor to the floor by five days is not such a bad deal either!
In addition to the value listed above, measuring transportation performance comes with a bonus value that retailers often don't consider, a reduction in their carbon footprint. Supply chain professionals are often at loss to articulate their sustainability strategy to their board members and customers. Leading retailers such as Wal Mart and Kohl's consider their sustainability efforts not only important for driving avoidable costs out of their operations, but also strategic to their brand. For retailers who have yet to articulate their sustainability efforts, measuring transportation performance is an extremely easy place to start.
Measuring transportation performance will not only yield next quarter benefits on the retailer's income statement, but also increase visibility to the PO Lifecycle which can be used to reduce long term working capital requirements. As a bonus, retailers can also begin to articulate a sustainability strategy through the reduction of their carbon footprint.
- Reduce Purchase Order Lifecycle
- Complete and On-Time
- Retail Margin Risk
- How to Switch EDI Providers
- ASNs: In Advance and Accurate?
- 2012 Supply Chain Videocasts
- How Can We De-Clutter Bulky Performance Reports?
- Data, Collaboration, and Profitability from the Extended Supply Chain
- Five Steps To Profitable Vendor Performance Management
- The Path To Compliance: Paved With Collaborative Technologies
- ASNs 102 - Retailer Process - Infographic
- ASNs 101 - Supplier Process - Infographic
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