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TRANSPORTATION STRATEGY FOR SUPPLY CHAINS
Transportation is a key logistics function of supply chains which runs from suppliers through to customers or stores. It involves the movement of product, service/transit time, and cost which are three of five traditional key issues of effective supply chains. It also impacts with the other two issues of movement of information and integration within and among suppliers, customers and carriers.
A transportation strategy, to be effective in supply chain management, is fitting the movement of goods to the corporate supply chain. It is not playing one carrier off against another. Rather it is a way to respond to the dynamics of the business, its customers, suppliers' and operation.
The strategy, regardless of whether you are involved with domestic or international, should recognize.
- Segment. Each shipment does not have the same priority. Products, suppliers, customers, time of the year, and other factors can affect the importance and urgency of transport movements. The strategy cannot be one-dimensional. It should be segmented to reflect urgencies. That can mean mode changes and/or alternative carriers.
- Customer requirements. The supply chain involves continuous and efficient movement of product from vendor to manufacturer to customer. Therefore, the transportation program must reflect and meet customer needs. The time and service aspects of transportation are vital.
- Shipments must move timely. Customers demand their shipments be delivered as they require--on the date needed, by the carrier preferred, in the proper shipping packaging method and complete, both shipped complete and delivered complete and in good order. Being able to have a transportation program with can do this provides customer satisfaction and can give your company a competitive advantage.
- Mode selection. How will products move, by air versus surface? What modes will be used? What roles do transit time play in your supply chain? How will the inventory and service impacts be measured as compared to the freight charges?
- Carrier relationships. Volume creates carrier/forwarder attention. Even if there is no strategy, the number of carriers trying to get business will make firms develop one. Infrequent shipping dictates another approach.
- The carrier attention with volume creates a competitive interest in your business. But there is another side to this attention as to freight cannot be divided among many carriers. This cannot be done for two reasons. First, as random, fracturing of the freight impacts negotiating or leverage position. Second, too many carriers hinder the ability to develop carrier relationships needed to meet supply chain requirements. Developing supply chain responsive programs be demands effort by both the carriers and shipper. Transportation must responsive and needs a focus with a carrier--a relationship.
- Measuring/Metrics. It is important to know how well the strategy and carriers are performing. This takes two approaches. One is measuring. Measuring means comparing performance versus agreed standards. What is the actual delivery to customer performance, on a macro basis, carrier and customer by customer basis? A macro measure can hide a problem even if the overall measure is good. And, with supply chain management, this means realizing primary customers and delivery locations. A test of measuring costs is how well the transport spend is being managed. Transport performance metrics can provide a way to view the value of the spend.
- Carrier mergers and alliances and closings. This is an important and difficult issue. Firms should understand what is happening within each mode and align the strategy with carriers who will still be viable in the future—often five years since strategic plans may extend that far. A great strategy with a carrier who is taken over or goes out of business is suddenly not a good strategy.
- Flexibility/Adaptability. Change is happening. It is not a question of whether or not it happens. The only question is how quickly it occurs. The strategy should be able to change. New customers. New products. New businesses. New suppliers. New corporate emphasis. Each of these can dramatically impact the strategy. The times they are a changing--and so will the strategy.
Conclusion. Transportation is a key logistics function and is critical to supply chain performance. To meet the vigorous requirements of the supply chain, the strategy should be dynamic. It must be responsive, both as to service and cost demands.