Removing variability from transportation management is critical in ensuring the overall efficiency, cost-effectiveness, and reliability of the logistics operations. By doing so, it can yield several benefits:
- Cost Efficiency: Constant changes can lead to unpredicted costs, which can negatively impact a company’s bottom line. By reducing variability, a company can better predict and control its transportation spend.
- Improved Service: Variability can lead to delays or disruptions that affect customer service. Consistency in operations helps maintain service levels and customer satisfaction.
- Risk Management: A stable transportation process is less likely to encounter unforeseen issues or crises, thereby reducing the risk associated with the business.
- Performance Measurement and Improvement: It’s easier to measure performance and implement improvements in a stable, less variable environment. By reducing variability, companies can more accurately assesstheir performance and identify areas for improvement.
So how does a logistics organization reduce as much cost variability as possible? It really comes down to their overall approach when dealing with their carrier partners and how the procurement process is carried out. In times of extreme volatility, whether it’s in an oversold or undersold market, one’s approach makes all the difference.
Securing the lowest possible rate should be considered a short term strategy because low prices only benefit the shipper in the short term and may result in larger variability in the long run. Shippers need to be asking themselves several questions when potentially adding additional providers to their carrier network based solely on a lower rate structure.
- Does the provider have a proven track record in the markets they bid on?
- Can the provider seamlessly integrate with the TMS or are they just another typical email or EDI transaction?
- Is the provider capable of GPS tracking on every load they haul and able to provide a position location at any point in time?
- Does the provider have a strict carrier screening process which protects against safety and insurance issues?
- Does the provider offer dynamic pricing and update truckload rates based on market fluctuation?
All these factors play a role in reducing variability in the long run. Asking for the lowest possible reductions across the board and not taking into account how it affects their carrier partners’ business is a recipe for increased variability with the market cycle turns. Adding carrier partners makes sense in certain situations if it leads to a more seamless integration, higher visibility, and increased service levels. It shouldn’t be based on cost alone. Adding additional carriers creates a risk in service and available capacity as a shipper has no history with them, only a rate in a table. No matter how good a carrier is there is always a period where they have to learn a new customer’s business.
Having solid, reliable, carrier partners who might not be the cheapest in a down market will save a shipper unknown variables in the long run. As long as they have the aforementioned integration, tracking, and high levels of service, having honest and fair rate negotiations is the most prudent way to avoid long term supply chain variability. While so many variables in the supply chain are out of a shipper’s control, how they deal with their carrier partners is not one of them.
This blog was written by Dean Corbolotti. Dean has experience in a broad spectrum of the transportation discipline including management, purchasing, sales, warehousing, truckload, LTL, and intermodal both domestic and international.