By Mike Eaton, Principal, Transportation Practice, Chainalytics LLC
Monday, August 24, 2009
Companies have tossed around the idea of transportation collaboration for years. Some have dabbled with successful backhaul programs. Occasionally, a private fleet partner has provided contract carrier services for another. Yet these positive, collaborative steps are only the onset of the potential.
Let’s face it. There is real potential for intercompany collaboration beyond customer backhaul programs — and yet there are few instances. Many trading partners could overlay lanes to provide better utilization of private and dedicated fleet resources. Many could even benefit from better use of shared contract carriers for continuous moves. The potential? Savings well into the millions of dollars. But I see three hurdles that are stopping companies from taking advantage of these savings.
First, few true “benefit-sharing” strategies are ever developed. Here’s why. Two shippers collaborate on a continuous move that reduces empty miles and overall cost. But alas, in order to reduce the overall cost of the trip, one company has to pay a higher rate on one segment than its current contracted rates. Getting over “paying more” on that lane to save is one hurdle, but determining how to allocate the savings across the companies is quite the other. This perceived inequity of benefits is a huge challenge.
Second, the trading partners often want a 3rd party to manage the load matching process. While the savings are real and tangible, when a third party manages the moves and adds margin, little appreciable savings remain. And realistically, don’t common carriers already provide this opportunity by building continuous moves in their own networks and passing the subsequent lane discounts on?
Finally, collaboration must exist not only across multiple enterprises, but also across multiple disciplines within each organization. Obviously the lanes need to have geographic compatibility. They must also have a high enough frequency to make the moves “continuous”. No one should be willing to park assets to wait for return loads. To achieve this, companies require a high degree of communication between trading partners at not only the load planner level, but also involvement from procurement, inventory management, and warehouse management to allow flexibility in pickup and delivery dates.
So with these challenges, is the opportunity worth the hassle? Yes. And here is how to begin:
- First, develop a true “sharing” strategy with a trusted partner that includes a mechanism for capturing and sharing the savings at some aggregate level. Be creative. There are multiple ways to solve this challenge.
- Next, sit down with that trusted partner and identify a handful of geographically compatible lanes that have a high degree of frequency. Look first for opportunities that will enhance existing private or dedicated fleet utilization. Then attack the common carrier market.
- Start small and keep it in house. This is the perfect project for an optimistic and upcoming transportation planner. It requires the ability to coordinate with both internal and external resources and some degree of creativity.
- Don’t go for the “big bang.” Set your expectations around achieving incremental — but continuous — improvement.
We’ve seen unprecedented renewed interest in collaboration recently. There is no better time to invest in an effort: the TL market has been soft, but a rebound is looming. Get these programs in place so you can lock in capacity and maximize future savings before carriers rates climb.
The savings can be significant. It requires some work, but it is achievable. Start small, but start nonetheless.