Hello, my name is Jim Tompkins. I'm the CEO of Tompkins Associates and Tompkins International. I am pleased to be with you today to present our third part in this third series of the Global Supply Chain Podcast.
Today we move on to transportation cost reduction, which is a very important topic, given today's transportation market volatility, which results from the rapidly changing supply and demand factors in this very difficult economy.
Joining me again today is the Vice President of Transportation Services at Tompkins Associates, Don Anderson. Don, welcome back.
Jim:
Don, it seems everyone today is talking about how companies can cut costs. Transportation is one area where costs can be quickly cut, but all too often to the detriment of the customer's overall service experience and level of satisfaction. Getting right to the point of our discussion, how can companies successfully reduce transportation costs without losing sight of important strategic goals?
Don:
Jim, that's a good question and a great place for us to start our conversation. It is certainly a difficult time for organizations who are trying to stick to their strategic goals while simultaneously trying to achieve all-important and in many cases very necessary tactical improvements in their operations. Transportation is one of these areas where, done properly and with forethought and a strategic backdrop, transportation can yield some nice benefits for companies.
It can be done - achieving tactical benefits and still maintaining true course to strategic plans and objectives is definitely possible. I tell our clients and I would suggest to any global organization that they stick very closely to what they've decided is tactically and strategically important, and communicate that to their trading partners and their service providers and certainly to their employees in the transportation organization. But then secondly, put together a program that allows them to make those changes in the context of a solid strategy.
A good example perhaps is the importance of maintaining a solid global carrier core program. When times are difficult, there's a tendency to lay a lot of these issues at the feet of carriers. Carriers were selected on the basis of their business attributes, their ability to serve the needs of the enterprise, their overall capabilities and capacities and in many cases, very specific certifications.
It's very important that companies look at things that are macro in their strategy, things such as core carrier programs. Again, the key here is to not overreact and go to the completely tactical end of the meter. Rather, try to keep the needle midway between the important tactical benefits that have been targeted - typically that is cost reduction with some level of maintained minimum service levels - and at the other end of that meter, those most important strategic objectives that a company needs to keep clearly in the sites so that when times improve, volumes pick up, the market footprint starts to expand for a company, they have their strategic components in place and they're ready to take on an expanding and growing market.
Jim:
Okay, I understand the importance of carefully balancing the tactical need for quick cost savings with the strategic vision and business plan that extends out beyond the company's current challenging economic condition. What are the best transportation cost reduction initiatives you are recommending that clients implement in order to strike a balance between the demand for tactical results and the strategic desire to position for the future?
Don:
First off, companies need to start where they are with what they have. By that, I simply mean there are a lot of tools and capabilities and other attributes of an organization that need to really be capitalized on when putting together and launching a successful TCR program.
For example, analytics tools that are available at the financial or operational level - tools and features that would be resident in Transportation Management Systems. So, capturing and understanding what the tactical landscape is begins with those analytics. The second thing is to make sure that there's a very collaborative tone set with transportation service providers (and I don't mean carriers) but certainly the brokers, customs house brokers, even freight payment services and technology service providers, especially those technology service providers that are working on 'software as a service' delivery model. Each one of these partners is closely aligned with the organization. They have a vested interest in that organization's success.
By approaching them with a win-win tactical program, each one of those is going to be able to come up with their own fair share of ideas on how processes could be improved, technologies more effectively used, and real cost savings captured and put to good use in other parts of the organizations.
One of the areas that companies tend to overlook at times in the cost of international trade management. A particular client example was a company who was recently in the process of moving major assembly and distribution facilities to Mexico and China, and in the midst of all these program launches and changes of product procurement from low-cost suppliers in Asia, they found themselves with a significant freight expense exceeding budget by over 12 percent. They saw that their revenues were dropping off but the cost of operations were not nearly dropping at an equal pace. It was pretty clear there was significant problem and a significant opportunity to reduce that excess cost.
So through a focused improvement program, looking at international trade savings right along side freight costs, we worked with the client to develop and prioritize a group of recommendations that really focused on a number of things that had nothing to do with transportation, but they were complementary to transportation. For example, better leveraging available free trade agreements and programs that they qualified for; taking a closer look at their classification of goods and how they really needed to do a better job of looking for more duty-favorable classification within the constraints of the HDS codes.
Also doing a better job of shipment and load planning in the context of maintaining customer service levels but also bringing that a little more in balance with the need for cost reduction. A significant multi-million dollar opportunity was realized. So once a company has gathered it resources and identified its course of action, it's time to get very detailed and organized around a very pragmatic approach.
First off, gain an understanding of what the current situation is. The most important thing at this stage is to have a well-defined scope, internally understand who's involved, what processes are involved, what business units and sites are involved, and externally do the same thing. Which of your key suppliers, service provider partners, and technology providers will be included and what will be the business processes, the scope of the organizational participation in the TCR scope, and what will be the commitment required from each.
At this stage, data collection is performed. Scour the general ledger, scour records and available data from enterprise systems as well as those systems that are available from your trading partners and even suppliers. Secondly, identify those key processes that are going to have the greatest impact on change and really focus on having a project scope plan that is determining what's in and what's out.
At this point too, it's important to re-check and re-establish key sponsorship at the executive level. Make sure that the stake holders understand clearly what the TCR scope is and get their buy-in so that once the projects are launched and the organizations are impacted, there are no surprises.
Secondly, after putting together a definitional scope statement, work within the strategic plan and within the scope statement to adopt what I would term a triage method of opportunity identification. Really apply a litmus test that's rigorous in asking a couple of key questions:
1 - Does this projected benefit really provide a significant value for the company in terms of cost reduction or service improvement?
2 - Can you achieve speed to results through the team that's available, the tools that are available, and the authority that's available during this tactical TCR piece of work? In other words, can we capture the benefit that we've identified?
3 - And then finally, will we be able to realize results that are measurable and reportable in a maximum of whatever time period the team may establish?
We believe that an 8-10 week window of opportunity or window of success reporting is critical. Anything much beyond that starts to look a little bit strategic in nature. It's important during this stage to capture results, report results, and build what we would term 'success momentum.'
So as these opportunities are established and quantified and put through the 3-step litmus test that I have just described, kind of a mini-project approach is launched for each one of these. Instead of stacking these up and coming back later and executing each of these potential improvements, it's a good idea to deploy a team to launch a mini-project around each one of these because clearly the opportunity has been established. The achievability has been established. So, go after these with an aggressive approach.
Rank up more longer term opportunities to come along in the next stage. This also provides a good opportunity for the team to decide if they're even going to add resources at some point.
Building success momentum is the key to making TCR happen and making the TCR successful. Reporting progress on a regular basis is one of the most important things a team can do and it's really the primary reason why you want to be able to take each of these opportunities that's been identified and go after them with a lot of energy. Another component to the successful project in TCR is to build your group genius.
As you move down the path of discovering more and more opportunities, where appropriate, add to your team, adjust your scope, and enlarge your goals a bit.
And then finally, as the TCR matures, the group has been expanded appropriately and success numbers have started to add up to significant and noticable returns, begin to make those investments that make sense within the framework of your longer-term strategy.
Jim:
Cool. The initiatives you've outlined, as well as whatever other strong contenders didn't make it into this discussion, all require qualified resources, dedicated bandwidth, and some amount of time to realize results. You mentioned earlier that a strong TCR program launch typically results in successful momentum and ongoing solid results. How should companies best go after these important cost reduction benefits?
Don:
The 'how' of a successful TCR really lies in the execution of the project we talked about earlier. Armed with the TCR success momentum approach that we've described, framing up scope, team and those initiatives, the priority now is in execution.
There's an array of projects that will now be addressed by the team, and they're going to vary from company to company. So it's going to be a function of the discovery work, and the evaluation initiatives, analytics initiatives, and all the other work that precedes the projects that will drive that portfolio of tactical transportation cost reduction opportunities. It's difficult to go through the entire array because they range from systems to processes to foundational programs within the global TCR sphere of influence and authority.
There are few that come to mind, and sometimes these are blocking and tackling opportunities. But that really is, in many cases, what makes up successful transportation cost reduction. Auditing freight bills is a very simple, very foundational yet very valuable piece of a project.
In many cases, companies aren't paying close enough attention to the details of what they're paying for. Another area that we see tremendous opportunity in TCR is establishing basic routing guides.
These can range from improvements to existing system capabilities, where those systems exist today, or it may mean the delivery of a simple routing guide electronically or even in paper form, that tells everyone in the organization, every trading partner and every shipping location what route to use, how to manage the consolidation of goods, unitization practices, whether it's pallets or air cargo containers - anything and everything that relates to the essential movement of goods along a specific, pre-determined route, tends to be something that is overlooked.
Another area that straddles the tactical and the strategic is packaging. While there may not be an opportunity in the short term to dramatically impact item level packaging or even new product design, there is an opportunity to set the mentality of how important density factors are. This is especially true for companies who are shipping air cargo and companies who have an international footprint of air cargo and may perhaps be suffering excessive costs from just a cube issue.
They may be suffering excessive costs from just a cube issue. So with that, I would encourage organizations to take an aggressive approach, work within the framework of your existing strategies, deploy your resources in a way that produces success momentum, add resources both externally and internally.
There is a tremendous opportunity to speed up the acquisition of benefits by adding outside experts who have executed these kinds of projects before, and in the case of TCR the speed to result is what's going to continue to build that success. That is done through getting the right people on the project team and keeping them focused in the same direction.
Jim:
Thank you Don. I am really excited about this series and I look forward to our next segment in this Global Supply Chain Cost Reduction Series on distribution operations.
