By Jim Tompkins, CEO, Tompkins Associates
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Jim: Hello. My name is Jim Tompkins. I am the CEO of Tompkins Associates and Tompkins International. I’m pleased to be with you today to present our fourth segment in this second series in the Global Supply Chain Podcast.
In previous podcasts we have had the opportunity to talk with subject matter expert executives about the importance of developing and implementing responsive global supply chain strategies during periods of economic flux, and we have discussed leading practices in the buy and make elements of the five steps of the supply chain process – buy, move, make, store, and sell.
Today I’m pleased to welcome Don Anderson to our series to discuss the dynamics of Move processes and technologies in today’s global supply chains and learn how his past and present global clients have benefited from making “move” a core competency throughout the organization.
Don is the Vice President of Transportation services at Tompkins Associates in our global supply chain practice and has worked through out his 20+ year consulting career with global clients in improving transportation strategies, while meeting the service requirements of their customers and their trading partners.
Welcome Don, good to have you on board for the Move installment of our supply chain podcasts.
Jim:
Let me begin by asking you: How do you define the scope of "move" and equally important, what aspects of "move" are often overlooked by executives and managers?
Don:
Hello, Jim. Thanks for the opportunity to join your supply chain thought leadership forum and podcast series. This is a good question and it sets the stage for our conversation; the business processes and associated technologies that exist within the “move” category of supply chain are really those processes associated with goods in motion; namely, getting goods where needed, when needed, and in the most cost effective manner.
This includes transportation, product distribution, product returns, and spares and repairs; and field service support. Transportation is the linchpin of move processes and enabling technologies. This category includes fleet, carrier and service provider management; it includes the critical processes associated with transportation and shipment planning; and it also includes all activities associated with shipment execution.
Product distribution and retrieval, and field service support are also under the umbrella of “move.” While there is an important transportation element to these functions, distribution, returns and field service support each represent discreet “move” processes that interestingly extend out into the market place and at the end of the day are a company’s face to its customers.
In addition to extending out into the market place and among a company’s trading partners, “move” functions also exist across many other functional areas of the business. Shared strategic planning, balanced performance measures and coordinated execution among “move” executives within the enterprise all make this peer group within buy, make, store and sell able to effectively capture an optimum balance of move services and costs.
For example, procurement and supplier management depends on "move" policies and capabilities to manage the inbound flow of goods, and the inbound flow of components and materials and in some cases the actual value-add to these components and materials as their movements go from suppliers to the enterprise.
Likewise, manufacturing must collaborate with “move” resources and technologies to optimize their use of scarce and valuable assets and similarly, warehousing and distribution relies on “move” resources to help optimize distribution networks and meet order fulfillment goals. “Move” policies, practices and resources exist throughout the business ecosystem of an enterprise and impacts all of its customers, and service providers.
This is a dynamic cross-organizational effect that is sometimes under-considered. At a more tactical level, we find that clients often overlook the importance of integrating global trade compliance and optimal global trade management into their “move” strategies, and also into their investment decisions, and process improvements. Trade regulations and incentives are being imposed around the world and are going to increase.
These are aimed at securing global trade as well as promoting or constraining commerce among nations and economies. Understanding these trade incentives and constraints, sharpening the classification and valuation of goods moving across borders, and capitalizing on the over 200 free trade agreements that exist around the world will yield new markets and margins for global businesses.
Likewise, strictly complying with trade security regulations of regulatory authorities, customs authorities and government agencies around the world is not just about being a good global citizen, it’s also about avoiding export and entry delays and unnecessary costs and fees.
The upshot, Jim, is that “goods in motion” are really the lifeblood of an enterprise. Market leaders consciously embrace the notion of making “move” a core competency in the company.
Jim:
Okay Don, thank you. So, given the broad impact of “move” functions across the enterprise, how do companies effectively identify and capture service improvement and cost reduction opportunities that lead to increased customers and trading partner satisfaction levels while also making much-needed contribution to the company’s bottom line?
Don:
Cost reduction is an appropriately popular topic right now. Coupled with the need to maintain and improve service levels experienced by its trading partners, leading companies know that finding and capturing new “move” operational efficiencies and cost reductions requires a balanced approach. A couple of things: First off, you need to know the must-have and nice-to-have service requirements of your customers and trading partners.
Companies need to scour procurement and supplier management processes to uncover ways to more closely cooperate in calibrating transportation modes and service levels with desired delivery times. Doing this in tandem this will reduce costs on both sides of the buyer-seller equation. Similarly, make sure that you clearly know and meet your customers’ service demands without over-servicing and incurring excess “move” costs.
Secondly, you need to know what your total cost of service actually are and how to manage those total costs. My first data request of clients interested in improving their “move” service:cost ratio is to take a look at general ledgers. This is to understand what kind of costs come from transportation, distribution, packaging, taxes, duties, every “move” cost category. What kinds of costs are being billed for the company by your suppliers, vendors, service providers, and even in many cases like returns, for examples, even from your customers.
By starting this discovery work in accounting, companies can rather quickly understand how effectively they are identifying and capturing all direct and indirect “move” cost. Not too surprisingly, the up-tick between actual and expected “move” costs within the enterprise, especially transportation costs, is often in double-digits.
Executives are often surprised when all the numbers that are being reported are typically understated. Really a rigorous search for all sources of “move” costs is essential to striking the important balance between desired levels of transportation and other “move” services and the true, total cost of delivering those services.
Once a company has accurate, timely information regarding target vs. actual “move” service levels and costs, they can then pretty effectively dial in the optimal cost/service ratio by supplier, by customer segment or individual customer, by product line or other measure. Through the use of planning tools and available information and data, the “move” service requirements and cost targets of all trading partners can be consistently met.
Additional TCR or transportation cost reduction strategies can be pursued in parallel with optimizing the service/cost mix at the transactional level that I just described.
An example of a practical TCR initiative is leveraging technology to stretch “move” dollars. A recent survey by the Supply Chain Consortium revealed that over 20 percent of all companies surveyed were not utilizing the complete, applicable capabilities of their transportation management systems. Another interesting finding from the same survey was that all companies in the top quartile of “move” technology best practices utilized technology tools to manage and award global freight bids, while on the other hand only 30% of all other respondents employed these highly efficient tools.
The takeaway from these examples is that companies who have invested in “move” technologies such as transportation planning and management systems need to utilize all the applicable functions and capabilities of these systems. Likewise, companies without valuable “move” planning and execution tools should evaluate the business case for making technology investments and make those decisions based on a convincing ROI.
Jim:
Don, you have mentioned the significant value of transportation planning and the importance of getting this right. What steps do global firms take in order to capture the service and cost benefits of improving transportation planning?
Don:
There are a couple of response levels to your question, Jim. With respect to large scale planning that is targeted at capturing equally large scale improvements in “move” performance and costs, companies need to always be evaluating the efficiency of their “move” network.
Most companies are subject to constantly changing markets, competitors, new products, shorter shelf life; all of which translate into new transportation and related “move” service requirements, shipping lanes, tariffs and taxes, and customer expectations.
Effectively staying in front of these major changes requires periodic network analysis and planning that in turn drives improvements in the size and location of inventories and facilities and improvements in the mix of modes and carriers that are moving a company’s goods.
At a more tactical level, effective transportation planning that is enabled by proven technology tools allows companies to realize their greatest rate of return on transportation assets and expenditures.
This level of planning is aimed at optimizing the management of each and every transaction moving through the network and includes mode planning, consolidation and load planning, density offsets, returns and backhaul planning.
Companies not currently employing technology in the planning and execution of transportation and other “move” functions should form a streamlined, cross department task force preferably led by an experienced systems and business process improvement expert to develop the business case for investment and in some cases, arrive at the decision for non-investment.
Procurement, manufacturing, transportation, warehousing and customer service and sales are all beneficiaries of effective “move” planning and execution.
Each of these therefore needs to be part of the opportunity assessment, technology selection, and enterprise-wide implementation.
Jim:
Lastly Don, we continue to observe fluctuations in global fuel costs and there are tremendous changes taking place in the industry around asset based carriers and their 3rd party and direct shipping customers.
How do companies deal with this and maintain a reliable transportation service that allows them to meet their customers’ requirements even though we have this price volatility and these expansions/contractions in capacity?
Don:
This is a good question, given the frequency and wide range of changes in today’s global transportation marketplace. We have seen the price of fuel back off to more reasonable levels of we saw 12-18 months or even longer ago, but many companies have learned how to more effectively collaborate with their strategic service provider partners to accomplish more with less.
The nature of a company’s relationships with its core “move” service providers is really the most essential ingredient in a transportation management excellence program.
Just as a company’s manufacturing or retail goods companies focus on utilization of assets, carriers and non-asset based carries alike focus on the most efficient utilization of their assets and resources. High levels of asset and resource utilization make for better profits, and control against loss.
So companies need to build relationships that work for themselves as well as their move service provider partners. The most tried and true backstop for managing these important relationships is a balanced scorecard that exists between the enterprise and its service providers. By aligning the service and cost objectives for service users and service providers, all parties are pulling in the same direction of efficient use of resources and capabilities.
Jim:
Thanks Don, some very valuable insights into the “move” component of the overall supply chain process of Buy-Make-Move-Store-Sell.
This takes us to the next supply chain element, the “store” component of the supply chain. In our next podcast we will feature Brian Hudock, a partner in our Distribution Operation practice. I am looking forward to that and also to speaking to you all real soon.
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