In February of 2005, Amazon created its Prime Membership with guaranteed two day shipping; this is the genesis of dynamic customer ordering. However, the system still had a number of constraints because customers still had to use a computer to order items. In July of 2008, Apple launched its app store which was the beginning of the truly mobile dynamic customer. As we all know Apple went on to create multiple mobile device products that all feature the app store. The overwhelming success of the app store forced all other mobile device companies to replicate the app store. It also forced retailers to create apps and mobile sites, so that customers can shop anytime anywhere. We are now in the age of same day delivery due to constant innovations by Amazon and Apple. The response from brick and mortar retailers has been to either evolve or endure a slow death. Those that have chosen to evolve now have a new focus on inventory and transportation.
The largest retailers have new goals.
- Eliminate stock outs; this keeps customers that are in stores from ordering online.
- Reduce shipping windows; this improves the speed in which their inventory can move thru the supply chain making sure they have exactly enough.
For vendors of major retailers’ dynamic transportation planning must be implemented in order to survive.
Dynamic transportation planning is the ability to optimize mode, carrier, cost and service for every load on a daily basis, as well as, develop a customized transportation strategy that fits the company’s specific needs. That strategy may include using intermodal instead of Truckload (TL) when possible, using multi-stop TL to service major retailers and the implementation of pool points. All of these are focused on providing the best possible service at the lowest cost. The days of a standard one size fits all routing guide are gone. Each day requires its own unique solution because retailers will only order what they need, when they need it and where they need it. Without dynamic transportation planning your multimodal network will experience some of the following.
Underweight Truckloads – An underweight TL can be defined as a load that is less than 15,000 lbs or less than 13 pallet positions that costs a truckload rate. Shrinking delivery windows at major retailers will cause some suppliers to use TL service instead of Less-Than-Truckload (LTL). Your daily KPIs should include a cost per pound metric to help identify problem lanes, customers or carriers. Ideally depending on required service and carrier (some retailers have a required set of carriers) in a LTL environment loads that fall in this category should cost $.05 - $.12 per lb. It is critical to understand and utilize this metric because some Third-Party Logistics (3PL) service providers that offer consolidation to large retailers and often charge an increasing pallet rate. For example, your first pallet may be billed at $85, second pallet at $200 and anything over two pallets is $475 per pallet. This may seem reasonable if you usually ship one or two pallets. However, in this ever changing dynamic ordering environment a company could suddenly need to ship eight pallets. Based on this rate structure eight pallets would cost $3,135, not including fuel, while standard LTL service would be in the $600 to $800 range depending on freight class and discount.
High Minimums and Accessorial Charges – Typically when in a well managed dynamic network, on average a company should be paying approximately $87 for a minimum charge. However, in networks with static routing guides very frequently we find that this number creeps up to $107 or more.
Dependence on Freight Brokers – Tendering a large portion of freight to brokers makes a company subject to changes in market conditions that allow the price of lanes to fluctuate. The ability to develop consistent optimization through engineering is lost. Also, company’s pay the margin from the carrier and the margin from the broker, which is approximately 10% higher than what would be paid for a transportation management company that has contracted rates. This is not ideal for cost management. Ideally brokers should be used on an exception basis.
Finally, dynamic transportation planning is a paradigm shift in transportation management that ideally should be implemented by a non-asset based 3PL that runs a Tier 1 TMS that connects to a company’s Warehouse Management System (WMS). This allows them to leverage their buying power, reporting, management and expertise. It also eliminates the need for having contracts with multiple carriers. There are also considerable soft dollar savings with no longer having to hire, as well as, provide a career path for a team of experts to manage load tendering, optimization, carrier RFPs, freight audit and pay and claims. Lastly, executing a customized solution on a daily basis ensures a company remains flexible and responsive to dynamic customer ordering.
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