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The transportation market in the past 18 months has been a source of challenges for shippers, with some softening currently. As shippers strategically prepare for the future, it’s worth asking how they will value logistics. Will logistics be a source of competitive advantage or a reliable utility?
The answer determines how shippers maneuver conditions to set a foundation for profitability.
Transportation is just one component of a shipper’s logistics network. As shippers have faced recent transportation cost increases, they’ve had to find ways to mitigate the impacts by bolstering their internal capabilities and honing their networks.
Shippers have three avenues to achieve more reliable transportation. They can take actions 1) internally, 2) with customers and 3) with logistics service providers (LSPs). These actions vary from investment in analytics and visibility solutions to shared-use strategies across warehousing and transportation.
Shippers looking to make the greatest impact are starting to look internally to identify and eliminate inefficiencies. One of the costliest root causes of logistics waste is poor inventory planning and placing the wrong product in the wrong location. To resolve this, many shippers are investing resources in cross-functional planning tools and processes to coordinate and smooth capacity needs across the supply chain.
Shippers also are re-evaluating the end-to-end flow of products from inbound suppliers to the customer. Prior to the ramp up of logistics costs, manufacturing efficiency was the primary metric of many shippers’ supply chain health. Inflated logistics costs driven by a tight market forced manufacturers to reconsider strategies like centralization of production and instead look at other factors, such as regional production strategies.
Another internal focus area for shippers has been costs related to logistics services. Dock planning and loading efficiency took renewed importance as carriers gained leverage in charging detention or pricing-in unloading costs. Shippers have saved costs through better loading hygiene and investments in yard and dock management technology.
Shippers using private and dedicated fleets have invested in optimization capabilities in fleet management and execution to ensure that their own equipment is being fully utilized, and many have actively partnered with digital startups to monetize their excess capacity by finding complementary third-party loads.
Many shippers also analyzed their customer relationships to drive more efficiency and have started to look at their pricing incentive structures in a new light. Cost-based volume pricing incentives (generally called bracket pricing) by manufacturers are an effective way to incentivize better ordering behavior; leading shippers have revamped their programs not just to reflect the higher costs of the transportation market, but also to customize their programs to specific pain points.
Shippers have realized the importance of strategic relationships with their service providers. More strategic shippers have balanced realizing cost savings with creating stability in their carrier networks, which enables their logistics providers to build their networks around their business. This is a key driver of capacity in tight markets and these shippers will be advantaged when the market swings back the other way.
Even companies that regard logistics as a utility may prefer options to outsource or share opportunities. Companies need to know which LSPs can provide efficient service and technology. Companies might look for networks and fleets that can be shared with competitors or noncompetitors. There also are other ways to drive efficiencies, such as forward buying of transportation contracts. Forward buying of transportation contracts creates an opportunity for shippers to buy one-way services at lower dedicated fleet prices.
Leading shippers are adapting to changes by investing in capabilities and technologies. And all shippers have an opportunity to realign their networks, processes and partnerships while preparing for future waves of logistics challenges.
Joshua Brogan is a vice president in the analytics practice of global strategy and management consulting firm A.T. Kearney. Sameer Anand is a partner in the firm’s strategic operations practice.