Report by Johan Hellman.
In a company that sells or produces physical products, the direct transport cost normally accounts for at least five per cent of its total cost base. Added to that are the indirect costs that can arise as a result of operational problems in transport, such as poor customer experience, unnecessarily large inventories, and inefficiency. Clearly, smoothly functioning transport operations are crucial, but how do companies approach this aspect?
Decisions on transport management are pushed down in the organisation to the staff closest to the operational activity. Quite naturally, the focus is then on the day-to-day processes, and these are adapted to the needs and attributes of each local sub-activity. In large organisations the focus is often scattered, needs in other parts of the business are not addressed, and there is no one to consider the situation as a whole.
Another approach is the global approach. Decisions are centralised with a focus on strategic decisions and large-scale solutions. With this approach, it becomes natural to consider the situation as a whole, but the risk is that the implementation itself falters and that the results are not as expected. In particular as conflicts often arise between the strategic objectives and the needs of the day-to-day operations. The approach a particular company chooses, either consciously or unconsciously, will affect the type of system support for transportation management requested by the organisation. The local approach calls for applied tools with high operational reliability, good links to carriers, and fast printing of labels and shipping notes. However, this type of tool often lacks support for parallel use in multiple physical locations, for central management and for control. And when it comes to strategic follow-up and analysis, these tools are also often weak.
Optimisation, management and analysis
With the global approach, the organisation will prefer to focus on tools built around optimisation, strategic management and analysis. These tools often look very good in theory, and in light of the large cost item that transport represents, convincing arguments can be made for the significant investment required. Quite simply, just a few percentage points reduction in the total transport cost is all it takes for the calculation to add up. However, the challenge here is normally the implementation itself; a prerequisite for achieving the promised results.
Clearly there are challenges inherent in both the local and the global approach. Working quickly and efficiently in the wrong direction is just as detrimental as heading in the right direction very slowly or not at all. Really significant value is only realised when strategy and implementation are combined and the day-to-day operations work and develop in a way that leads to long-term, overall improvement.
Connecting the day-to-day with the strategic.
A tool to connect the day-to-day aspects with the strategic aspects will be a crucial factor in resolving this problem. A transport management system with a stable, operational basis and a high degree of user-friendliness, while being scalable in a global business. A system that can give answers as to where to find major potential for improvement, as well as make it possible to realise this potential. How should such a system be configured? What functional requirements should be set? Here is an list of key functionality that can give some indications:
- Stable and user-friendly infrastructure, scalable and potential for global spread with modest funding.
- A stable foundation of existing carrier connections, complete with status and correct documentation, for rapid implementation and immediate operational support.
- Simple and quick addition of new carrier connections to cover a high proportion of the total transport flows.
- Part of an open ecosystem, with options for both technical and commercial integration with other tools for specific needs, both strategic and operational.
- Good options for guiding internal and external users towards optimal behaviour.
- Good support for analysis and follow-up.
- Option to access and share data from and to other systems in an integrated manner.
A continuous improvement process
A tool that can deliver these functions can be used to apply an iterative approach, through which it will be possible to combine visibility and control into a process for continuous improvement. Operational and strategic visibility will make it possible to identify areas for improvement, and to design measures to achieve this improvement with high precision. Control over the day-to-day operational activities will make it possible to apply these measures and realise the improvements identified. Thanks to the visibility, it will then be possible to evaluate the measures, as well as to apply the adjusted measures through the control. This is repeated in a continuous improvement process.