Transportation can provide a competitive edge--or take it away
By Brian Milligan -- Purchasing, 1/13/2000
Industry analysts say savvy companies today can use transportation to impact the bottom line. All this can happen, they say, if a company makes sure that its carriers:- Get shipments delivered on time.
- Provide representatives who will work onsite if needed and be accountable.
- Understand customers' demands for shipment deliveries, reduced costs and reduced travel time.
Those are some of the philosophies a manufacturing company needs today as it seeks ways of using transportation as a competitive weapon. But it's a challenge that is becoming ever more complicated as more and more companies try to find ways of making transportation services work for them.
One factor that is affecting all business areas, including transportation, is the Internet. "In this point-and-click environment, the competitor is one click away. If you can't be as fast as the competitor is doing it, you will lose business," says Tom Nightingale, director of marketing and customer development for Paxis Space LLC, a nationwide small-package consolidation and distribution company.
Impact on economy
Transportation experts today say there is no denying that transportation productivity has a big impact on the economy. Manufacturers should be using it to reduce costs and cycle time. They also should be using it to get products to market faster.
"If you can get your product to the customer quicker than your competitor can, you will be endeared to that customer base and get more repeat business," says Nightingale.
Lance Dixon, executive director for the JIT II Education and Research Institute in Massachusetts, agrees. He says transportation is an important piece of the competitive puzzle for a company that is seeking to build its components efficiently and get them out to a customer quickly. He says it comes down to two things: "Responsiveness and actually being able to respond to a company's customers."
Steve Mattman, managing director of supply chain sourcing and management and support for Federal Express, says transportation companies today want to give shippers the competitive edge. This means they are willing to go the distance and offer more than simply the ability to get goods delivered on time. Companies should be taking advantage of these services, he says.
"We try not to be just a transportation company, but a total logistics solutions company," Mattman says, referring to Federal Express. "We are not just getting the goods from point A to point B. We are doing supply chain initiatives on packages."
Rethink shipping
Nightingale also says manufacturing companies today are learning that they can treat freight shipping as more than just a means to an end.
"It is both cost and cycle time, and a lot of companies are now treating freight as a profit source," Nightingale says. "They can use it for purchasing power.
"They can come to us and say, 'We've got five million packages a year we want to ship. What can you do for us? Give a percentage off Carrier A or B?'" he continues.
Nightingale says, for example, that a savvy company can receive a charge for $4.75 to ship and handle a package from Massachusetts to Los Angeles. But if the company charges the customer $5 for the service, it can make a quarter on shipping and handling.
But not all manufacturers are getting in on the act. Many purchasing managers admit today that their companies have a tendency to treat transportation as an afterthought. Transportation, they say, often tends to be thought of as a necessary evil, rather than a strategy that their companies can use to their advantage.
And even at their best, transportation systems break down. Dixon says too many companies today are hampered by transportation problems. Purchasing managers can spend lots of time searching for lost or missing shipments, and then find themselves relatively unable to effect change. It can be hard to approach such a system and look for ways to make it give your company the advantage.
"It fails quite a bit of the time," Dixon says. And in trying to fix it, "You play telephone tag with a major bureaucracy."
In today's competitive environment, transportation can damage a company's reputation for making a quality product. The company that makes a quality product but either can't get it built on time or can't get it to market on time will lose out, they say.
Many products are very similar in quality Nightingale points out, and delivery can be a make-or-break factor. "People win and lose business as a result of transportation," Nightingale says.
Ample mistakes
But still, Nightingale says the world of transportation can be confusing and full of ample chances to make mistakes. He says companies that depend on transportation today need to ask themselves a lot of questions.
"Are they picking the right orders? Are the carriers they use cost-effective? Are they charging too much for shipping and handling? That can be a difference," he says.
Analysts, carriers and shippers alike say it doesn't have to be this way. As Nightingale says, companies need to apply the right strategies as they choose their carriers and modes of transportation.
"The key for them is to align their shipping, their operational interest with carriers who are in turn aligned with the population characteristics that are near their buying operation," he says. "It is a combination of that, and general focus on the total cycle time, not just transportation."
On-time delivery
And it all begins with on-time delivery. "In our industry, time of delivery is the number-one competitive edge you can have," says James Rasmussen, purchasing manager for North Carolina-based PacFab Inc. "People want their product and they want it today, ever since the creation of the fax machine and the microwave.
"Giving better leadtime, inventory returns, just-in-time service. If you can negotiate better freight rates, you can give them better total cost of ownership," he says.
Dixon says in today's business world, when so many companies have become converted to the principles of just-in-time (JIT) practices, transportation should be considered an invaluable link in the supply chain. The JIT manufacturing philosophy requires manufacturers to work in concert with suppliers and transportation providers to get required items to the assembly line at the precise time they are needed for production. This means that if the shipments of parts don't arrive on time, the system doesn't work. "You keep the material moving, under control, and thereby flatly reduce inventory. It's much more efficient," says Dixon.
Dixon says more and more companies are learning that JIT practices can take full advantage of benefits that superior transportation services can deliver. The basic idea of keeping inventory at a minimum and using valuable space for the manufacturing process gives them an edge. The right transportation provider will help companies do that, he says.
"You can go to whole new levels of inventory reduction when you work properly with a transportation provider," Dixon says. "It's the way a lot of companies begin to understand how you do these things is through the procurement manager.
"The logistics managers become very aware with the power of computerization available, and can keep material flowing or moving as opposed to sitting static in a warehouse," Dixon continues. "You can track down exactly where this material is, you can deliver it on a JIT basis. The bottom line is take the material, keep it moving in trucks, and you will have less inventory sitting dead in a warehouse."
Losing track
But Dixon argues that this is still not enough. It is still too easy, he says, for companies to lose track of late shipments and find themselves cutting away at their own ability to turn a profit. Lost shipments add up to frustration--and money loss.
"A person who wants their factory to go faster gets on the phone and tries to find where that material is, where it's been shipped by their supplier, and why they haven't got it yet," he says. "You intercept it, take it off the slow mode, put it on a plane, and solve the crisis. But there is a dramatically better way to do that today."
Dixon, a strong proponent for JIT II (practice that is patented by BOSE Corp. in which resident supplier reps handle ordering and inventory management), says companies today must take this strategy to what he describes as the next step. He says they must get carriers to keep representatives on the site of large manufacturing facilities, and through computerization, let them track and trace shipments. This lets the companies keep constant tabs on shipments, and helps them visualize their entire supply chain in motion. "You need somebody who has the authority back in those transportation companies that will carry out the actions you want carried out," Dixon says.
"This is a whole new age in the way that you can support your factory when it comes to responsiveness, efficiency and cost reduction," Dixon continues.
Through JIT II, Dixon argues that companies can keep their fingers on the pulse of their transportation transactions. Company representatives need to keep access to these command centers, he says, and be constantly aware of the whereabouts of shipments.
"You tell them you want access to that command center, into their mainframe computer that controls all of their activity, because in controlling all their activity, you control six or seven thousand trucks," Dixon says.
"If I have access from my floor space to their system, their system becomes my system," Dixon continues. "If I do the same thing with another, and put their computer terminals side by side in a room, as long as I only use these companies for transportation, I have total visibility on every single bit of production material that is moving toward my plants and out there in the world. I can play it like an orchestra."
The integral part
Ron Stortz, as the onsite logistics coordinator for Roadway Express at BOSE Corp. in Massachusetts, is an integral part of the company's JIT II system. Stortz agrees that a company stands a better chance of turning a profit if it can get its product to market the quickest, using reliable transportation.
"The quicker the customer has it on his shelves, the sooner it can be sold and the customer will be ordering a new product," Stortz says.
"Just to shorten the delivery time on their product, get it to their customer quicker than anybody else can," he says.
Through his agreement with BOSE, Stortz works at a command station, tracking and tracing shipments and expediting shipments on a continuous basis.
"I follow the shipment straight through to delivery, checking it on a daily basis," Stortz says. "In doing this we decreased the number of service failures by half for BOSE."
Stortz says by being onsite, he is able to react quickly to any changes in transportation schedules. These were the very things that confounded purchasing managers in the past as they sought information about lost or late inventory shipments. The quick information about schedule problems can allow him to call in emergency carriers if necessary and get the products to the plant or out to customers.
"I work on inbound freight coming into BOSE, so if schedules change, if the product is needed sooner than it is scheduled to deliver, I am onsite and can divert freight to or from our system to express delivery service," Stortz says. "I can divert it to Roadway time critical or to air carrier. This way it gives buyers more flexibility in their schedules."
Constant use
Stortz says the system is in constant use. He says that he frequently receives calls from the company's purchasing department. "I'm always getting calls from purchasing, with someone looking for a shipment, something that's supposed to be shipped here by a vendor," Stortz says.
The theories behind JIT and JIT II are working for companies like the Ohio-based Ferro. Philip McCartney, purchasing manager for the company's Plastic Colorants Division, says having actual representatives from a transportation company onsite is giving Ferro an edge over competitors.
"We have a third-party logistics system that is in our plant on a daily basis, and it sits with us in daily production and customer service meetings," he says. "They hear firsthand early what the customer's requirements and needs are and can respond to that by doing better planning because the equipment is becoming more and more constrained with the amount of truck traffic out there."
McCartney says using systems like this to shorten leadtimes is paramount for a company. In the case of Ferro, which produces colored plastic pallets, McCartney says the company is able to demand fast delivery of parts to churn out orders.
"Service is the key," he says. "Shorter leadtimes. By getting faster delivery, they give us more production time to get the job done."
An edge
Some purchasing managers say manufacturing companies that own their own transportation services have the philosophies of JIT pre-built into their systems. Rasmussen says in many ways, companies that own their own transportation services already have an edge in the marketplace. The key, he says, is to have control over inventory shipments and the ability to get final products to customers on time. "If you have your own trucks, you have control," he says.
But even these companies can early lose the competitive edge they are seeking in transportation. Some purchasing managers say companies have a tendency to focus their information technology funding on product manufacturing and marketing, instead of on transportation. That means there is less money available that can be used to improve customer service, reduce operating costs, or increase hauling revenues. That puts pressure on private fleets that may perhaps be lagging in technological updates regarding communication systems, information systems, tracking and tracing or other Internet-related abilities.
For those who don't own their own fleet, Rasmussen says too many times companies forget the power they have when it comes to making their needs clear. He says companies can maintain control over shipments by making their demands clearly known when they choose a carrier. These companies need to be on their toes, negotiating travel time as well as rates. "If you need them to get across the country in four days instead of seven and make sure the delivery is within certain hours, you've got to make that a requirement," he says.
Making a difference
Dixon says this is where purchasing managers can make a difference for a company. He says coordination between purchasing and transportation can be crucial and can go a long way toward giving a company a competitive edge.
"When you have the proper relationship between a purchasing group and a transportation group, and they work close together, work as a team internally, they are more coordinated with the outside providers of transportation," he says.
But Mattman says companies can do all of this and still not gain the advantage they are looking for. If they do all of these things and still don't use the Internet wisely, they are going to miss the boat, he says.
"If companies are not up to speed on technology, they are going to be left behind," Mattman warns. "You have to have the ability to grow and be a part of e-commerce."
Nightingale agrees it is a given that companies today can use the Internet to track and trace their goods once they have been shipped. Those who aren't taking advantage of this service are leaving themselves open to problems, he says.
"If you are delivering a package, and it takes you a week to tell the customer that it has been shipped, you are more than a week late," he says. "You need to keep the customer online and keep them on your Web site. We would rather have the information right there to track, Internet enabled, and keep them happy so they stay a customer of one of our shippers."
McCartney of Ferro says this sort of service is invaluable to a company. "The freight companies are reporting to us on a daily basis the status of all our shipments within the system, both inbound and outbound," he states.
Mattman says the Internet is forcing companies like Federal Express to look at themselves in a different light and reconsider the way they use transportation to save on the bottom line. That means making transportation orders available on the Internet, providing companies with the ability to choose carriers, and then track and trace their progress.
"We like to think of ourselves as an Internet company," Mattman says. "When somebody orders on the Internet, they are looking for streamlined service. The message is, get it here the next day through us. We are looking at ourselves to be part of the whole speed-to-market solution, and the Internet is an integral part of that future."
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