By Clifford F. Lynch
DC Velocity, September 2003.
Three years ago, logisticsí next big thing was going to be the
collaborative network. Developers promised shippers that by banding together,
theyíd wield the kind of bargaining power enjoyed by the Wal-Marts of the
So where are they now? Most of these networks have long since faded from the
scene or are madly reinventing their business models. In a classic miscue, they
misread the industry. Transportation capacity remains tight in todayís market,
which means truck owners have little difficulty keeping their equipment loaded
and running, albeit at low margins. Itís hard to see how a large network could
wield significant bargaining power in this environment. Beyond the economies of
dealing with fewer customers, carriers have little incentive to drop prices in
exchange for more volume Ė unless they can add capacity at a lower cost. And
thatís unlikely given the costs of hiring, insurance and the new low-emission
The case of the collaborative networks isnít so very unusual. Every 10
years or so, someone in the logistics industry feels compelled to reinvent the
wheel. All too often, the effort fizzles. Undeterred, the search teams fan out
to look for the next silver bullet.
There is no silver bullet, of course. But if youíre willing to settle for a
lesser metal, we can offer four lead bullets that have hit their targets time
and again over the years. If youíve set your sights on a cost effective and
service-sensitive transportation network, then focus on the following:
∑ Network design.
You wouldnít think of introducing a new product without design and
engineering support, so why try to run a transportation network without it?
Schedule periodic and systematic reviews of freight flows, projections and
service requirements. From there, you can develop a network that provides
the required services at the lowest cost and then take up questions about
the need for more warehousing, dedicated freight and mode mix.
∑ Transportation rate
benchmarking and bidding. The
advantages of reviewing your rates to make sure theyíre competitive are
obvious. But a surprising number of companies donít run the numbers on a
regular basis. Granted, finding good benchmarking data is much tougher than
checking stock prices or mortgage rates. And it takes time to collect
carrier bids and then wrestle them through the algorithms of computer
analysis. Yet doing so could save you a lot of money. Just make sure your
bid is fair, contains reasonable deadlines and provides for accountability.
∑ Transportation management
systems. If there was ever a place
to use technology, itís in managing a transportation network. A good
transportation management system (TMS) can quickly cut through the
complexity, making short work of time-consuming processes like choosing the
best carrier and getting the correct rate for each load. These systems also
provide for easy electronic communications, better data collection and more
efficient carrier payment. With the wide variety of systems available, thereís
little reason to operate without one.
∑ Carrier accountability.
Itís not enough to assume your carriers will meet your pickup and delivery
requirements or honor their quoted rates and capacity commitments. Itís up
to you to make it happen. Set standards, measure performance and correct
non-conforming performance. And just as importantly, meet your own
commitments to the carriers.
Silver bullet solutions come and go. But these time tested lead bullets
have remained effective over the years. Some managers use their in-house
staffs to design networks or oversee bidding; others seek outside expertise.
How these projects are carried out is not as important as making sure they are
carried out. And thereís no reason to wait: Hot leadís remarkably
effective at "neutralizing" problems like bloated costs and