Supply Chain Gain: Trucking Tactics

Over the past few years, shippers have worked to squeeze costs from their trucking operations. Opportunities to increase fuel economy, better utilize assets, and create greater synergies with other logistics functions are driving further efficiency gains and best practices.

Transportation optimization has become a buzzword throughout industry, filling meeting agendas and visibility gaps between procurement and logistics functions. But it’s no longer a matter of simply devising better routes or consolidating fuller loads.

“We have reached the point where nearly everyone has been exposed to the term supply chain management,” says Chuck Franzetta, CEO of Franzetta and Associates, a Boalsburg, Pa., supply chain management consulting firm. “Now it’s a necessity that firms incorporate transportation and logistics into their planning at the beginning.”

challenges down the road

The move to optimize transportation can’t come at a better time. As industry treads carefully in an awakening economy, challenges loom down the road.

“As the economy improves, whether slowly or as a result of some big event, capacity will be tight, given the exit of so many carriers from the market,” says Chuck Clowdis, managing director of North American markets for IHS Global, a Lexington, Mass.-based economic think tank. “Driver availability can only worsen. The demographic group is smaller, and many drivers have found other work.”

If that doesn’t offer reason for pause, fuel prices certainly will. “The rising cost of crude oil, and the attendant rise in diesel prices, will impact transport budgets,” adds Clowdis. “Even at $100 per barrel for crude, fuel surcharges will soar.”

picking partners

More than ever before, shippers feel pressure to find transportation partners capable of handling a load and delivering optimal service. When the market was soft, many scoured freight boards and lanes for cheaper rates. Now, with so much flux on the capacity side, motor freight buyers are trying to lock up assets, or pare down core carrier networks and consolidate volumes with trusted partners.

“Determining which carriers to remain allied with seems daunting at the moment,” observes Franzetta.

He sees the potential demise of YRC Worldwide, and recent posturing by FedEx, Heartland Express, and others intent on taking even more market share from YRC, as a chance for some shippers to gain near-term rate relief. Discount incentives will be available to those who make commitments early.

“As the fate of YRC becomes increasingly apparent, however, those rates will climb at a fairly steep angle, until new players emerge and capacity begins to balance over the next few years,” Franzetta adds.

As a consequence of these pricing pressures, shipper and carrier collaboration will have to grow anew.

“Dialog between parties can make overall transportation planning smoother; eliminate supply chain glitches; prepare for unexpected events; and simply replace adversarial relationships with sound business practices that are mutually beneficial to both transport service buyers and sellers,” says Clowdis.

Customer Service and Planning

Even as economic recovery leads the shipping industry into another gloomy scenario, many companies are working collaboratively with logistics service providers and carriers to develop more innovative over-the-road solutions, especially in intermodal movements. With proper planning and attention to detail, shippers can augment their surface networks by looking off-road.

Aggressive play among trailer-on-flat-car (TOFC) service providers is one area where shippers are cherry-picking new opportunities to increase capacity and expedite intermodal.

“Better service and the associated cost implications will provide a transportation alternative some shippers have failed to fully embrace,” says Franzetta. “As service enhancements continue, with heavy private and public investment, alternative use of trailers will prove appealing to companies that might not have previously considered the opportunity.”

But the efficacy of intermodal is only as good as the service— and the planning. Regardless of mode, shippers need to identify “quid pro quo” service and cost changes that might have impacts elsewhere in the supply chain. And because first- and final-mile deliveries inevitably land in and on trucks, the motor freight area is ripe for further strategic improvement.

“Customer service perceptions have changed out of necessity in this economic slowdown,” says Clowdis. “Speed-to-market has been analyzed to the point that ‘delivery to the store at any price’ has been replaced with leaner inventory all along the route from plant to ultimate buyer.

“Shippers need to do deep analysis that includes not only transport costs, but actual required delivery dates and the cost of carrying inventory in transit, on the shelves of a distribution center, and at the retail store. Those elements are frequently overlooked and must all be part of the equation,” he adds.

Trucking and customer service

Trucking will always be a transportation and logistics fundamental— a core area rooted in nuts-and-bolts mechanics. But that doesn’t mean organizations can’t look at the trucking function in a more sophisticated way, as an integral part of the supply chain.

The same logic holds true for customer service. They both share a similar cascading effect that when put together— quality, on-time delivery, for example— yield tremendous opportunities upstream and downstream in the supply chain of command. “The service you provide your customers and receive from your vendors and providers is paramount,” says Franzetta.

But over-the-road shippers need to be proactive about customer service and address expectations up front, when they begin tinkering with tactics, entering new transportation arrangements, and creating benchmarks for existing partnerships.

“If you deal with customer service at the end of the process, you’re at a disadvantage,” explains Franzetta. “But incorporate it into the overall planning, and you’ve got the opportunity to tip everything to benefit you, your vendors, your customers, and your carriers.”

Trucking As Supply Chain Enabler

That is the power of viewing motor freight as a supply chain enabler and not just another logistics function. The supply chain is driven by the forces used to connect its links.

“A sound transportation management plan can help mitigate risks when a supplier fails, for example; or a critical customer needs to alter its receiving distribution center,” says Clowdis. “Nimble transport partners driving a supply chain can smooth bumps in the flow from raw materials procurement, to plants, to DCs, to customers— and even in any reverse logistics operation.”

Given future challenges in the motor freight space, it’s imperative that shippers begin thinking about how transportation fits within the broader supply chain puzzle, and piecing together new ways to align different logistics functions.

“We operate in a totally different world than only a few years ago,” says Franzetta. “Everything has changed and everything will keep changing. Unless firms embrace a total commitment to integrated supply chain management, which includes interfacing with their customers, they will be among the walking dead.”

And for those still left in the mix? They’ll keep tinkering with their trucking networks with an eye toward even better supply chain service.