Joel Childs, Vice President of Marketing, Roberts Express, Inc., Akron, Ohio 44306, 216/724-4269.
ABSTRACT. The transportation/logistics function has become very different today, due to the increasing time and competitive pressures that businesses of all types are under. This presentation will argue that these changes call for a more integrated view of transportation, and for thinking outside old structural paradigms in order to ensure that transportation is an effective business management tool not an isolated function. It will review some of the available options for transportation and logistics management today, looking at the impact these can have on the bottom line, and discuss what it takes to make a broader, more integrated approach to transportation and logistics a reality.
CHANGES AND CHALLENGES IN TRANSPORTATION/LOGISTICS. Without exaggeration, it's a whole new world in terms of transportation and logistics today. There have been enormous changes in the way companies now operate, driven to a large extent by the increasingly competitive environment that virtually every business, in every industry, has to deal with. In a world where time is not only money, but a matter of competitive survival, everyone is scrambling to wring time out of every process they can. And that certainly impacts the entire process of getting goods and materials in the door, through the system, and into the hands of impatient customers all faster and more reliably than ever before.
In the last decade, we've seen a host of "new and improved" methodologies and management approaches take hold in American industry, in order to capitalize on time. Just-in-Time, cycle time reduction, Quick Response, and other time-conscious approaches have had and will continue to have profound implications for everyone involved with purchasing, inventory control, and transportation. When the goal is making the most of time, the importance of logistics can hardly be overstated.
In addition, the Total Quality movement, with its devotion to customer satisfaction, has brought a whole new set of demands in terms of production and delivery time, as well as the flow of internal processes. Many companies, for instance, have made vendor partnerships a key element in their quality initiatives, depending on fewer, but more carefully selected, high-quality suppliers who become an integral part of their operations. In many cases, the search comes down to single sourcing to take advantage of the benefits that a true, cooperative relationship can foster provided that solid provisions are made for transportation and logistics.
And no matter what methodology or philosophical banner it falls under in an organization, it's clear that there's been a concerted effort to reduce inventory levels. Holding down inventories and increasing turns can be extremely effective strategies for improving a company's bottom line. But cutting inventory levels, yet remaining well-stocked and being able to provide customers with what they want, is an enormous challenge, to say the least. Even with the help of sophisticated forecasting tools, it's risky operating with "lean" inventory levels.
THE NEED. With so many forces at work, there's a clear need for a much more integrated view of transportation, so that it fits into the overall objectives and business processes of the company. When there's little or no inventory cushion, when every minute of down time is a disaster, transportation cannot be an isolated function or an event relegated to the front- or back-end of the production cycle. It has to be a major factor throughout - an integral part of the orchestration that's going on, as well as a strategic part of the business management plan.
Making transportation and logistics an integral part of the organization means coming to grips with two equally important issues today - and seeing how they fit in with the needs of the organization as a whole. Speed is an obvious need in a just-in-time world, but so are precision and reliability. Getting the wrong shipment - no matter how fast, doesn't get the assembly line moving again; neither does getting the right shipment, but too late to meet your emergency.
When considering transportation needs within the context of the larger organization, there are key trade-offs that make decisions more complicated, and they're all set against the backdrop of a clock that is ticking, and competitors that are ready to pounce.
DEFINING THE NEW VIEW. Looking at things in a broader context means moving beyond the traditional structure of the transportation industry. The structural view focuses more on service categories - such as truckload or less-than-truckload, surface expedite or air freight/air charter - than on how individual needs can be met. In many ways, a structural focus is a carry-over from the "old days" under regulation, a system that was, by definition, unresponsive to the market. Regulated, the system was not driven by the market, but by pre-set structures, and it was reinforced by an additional bureaucratic structure. With all the pressures that businesses are dealing with today, they simply cannot afford to look at things in a way that pigeonholes "solutions."
A better way - in fact, the only way to make transportation really work today - is to look at your needs first, and then work back to select the most appropriate service vehicle or mode. This is a whole new paradigm that redefines the starting point, but it's clearly the way to go in a market-driven business world. Looking at things in this way will show that, as transportation buyers move outside of industry structures, they can focus on a point-to-point solution, and they can get increased speed and reliability, as well as increased control and more precise information when shipments are critical.
Given the options that are available, the bottom line is that paying for the right service is a very smart business decision. Expedited transport, for example, doesn't really cost "extra," considering the price tag on an idle hour for an assembly line, or the value of a long-term customer, especially when the competition for customers is as cutthroat as it is today. The transportation buying decision should be based on total costs for the organization, keeping in mind that a purchase that optimizes organizational resources is a bargain.
LOOKING AT THE OPTIONS. To compare transportation options and how they can work in various situations, consider the 800-mile, 2000-pound shipments of inbound freight discussed below. There can be important advantages and disadvantages for each alternative, and while cost is certainly something to keep in mind, it may not be the most important factor, given the situation. Buyers need to know the options that are out there - and how they stack up.
TRUCKLOAD AND LESS-THAN-TRUCKLOAD. This is a common way of dividing up the surface transportation world, and it's clearly based on how a particular shipment fits in with the vehicle - or doesn't. Under the right circumstances, truckload and LTL have a number of advantages to offer.
For truckload freight, prices have held relatively steady over the last three years. Today's rates are running between $1.00 and $1.40 per mile; at $1.20, an 800-mile shipment would cost approximately $960. However, there is a decided lack of capacity in truckload shipping, due to the dearth of quality drivers. Another limitation in this segment is the fact that manufacturers can't make trucks or trailers fast enough to meet existing demand.
Truckload is a solid choice when shipments can be planned well in advance, when a large shipment is needed for a single location, or when smaller shipments add up to a truckload that can serve the needs of several locations, all working around the given time frame. And there's always a level of control built in when "vehicle equals shipment," since tracking the truck also tracks the entire shipment.
The downside is whether or not, in a just-in-time world, organizations have the luxury of not shipping until they have a complete truckload. And, with truckload, there's always the risk of road emergencies that, when they hit, hit the entire shipment.
Less-than-truckload, on the other hand, is designed for mixed shipments: yours and however many other people's can fit on the same truck - and fit into the LTL carrier's system. On the positive side, LTL delivers consistent service over a wide geography, and it's a low-cost delivery system for smaller shipments. For an 800-mile, 2000-pound shipment of a class 85 commodity, the cost would be approximately $500.
On the negative side, the system is basically designed for the carrier's efficiency - not the shipper's needs. In a just-in-time and emergency-prone world, fitting into existing schedules and working around other people's needs and expectations doesn't always make it - certainly not when you have a critical deadline to meet.
SURFACE EXPEDITE. With tight inventories, just-in-time needs, and other pressures, it's easy (if not inevitable) for organizations to find themselves in emergency situations. When there's little or no cushion in terms of time or inventory levels, any setback can be a potential disaster. And there are so many possibilities, on top of the usual planning or production culprits within any organization - everything from weather blitzes and natural disasters, to man-made "events." Any problem along the supply chain impacts everyone from that point on, whether or not they had anything to do with it.
When the unexpected strikes and purchasing managers have to respond in a hurry, the usual truckload/LTL way of thinking breaks down - fast. At that point, it's simply a matter of getting the shipment there ASAP.
In surface expedite, by definition, "truck equals shipment," since there's no time to wait for someone else to have a delivery going in your direction; you need an exclusive-use truck and a driver or a team that can drive straight through. And, when it's critical that you get what you need for tomorrow's 7:00 a.m. shift, the $1,200 it may cost to surface expedite 2000 pounds, 800 miles, can be easily justified.
Another advantage of having your own truck in an expedited situation is that, if you know where the truck is, you know where your shipment is. While that's true in truckload shipments in general, it's especially important for a rush shipment, where, no matter what the intrinsic value is, it's "high-value" to you. A pallet of 20-cent connectors, if they save you a shutdown, is definitely "high value."
Also, with surface expedite, you know with more precision when your truck/shipment will arrive. Expedited services, because of their focus on time-critical shipments, are much more likely to have implemented on-line communications systems. These tell you more than the general area that the truck is in (based on the last time the driver checked in); they tell you where it is up to the minute, so you know how and when to plan for its arrival. That's especially important if the shipment needs to be met by technical or other highly trained people for testing, calibration, installation, additional R&D, etc. And there's further value in reduced loading/unloading time, as well as packaging or crating; all of these impact time, labor, disposal, and other factors that add up to the total cost of the shipment.
AIR FREIGHT AND AIR CHARTER. Although the structural view of transportation puts airplanes and trucks into two very different categories, the fact is, it's not really that simple. For starters, airplanes are not always faster. Surface expedite is often faster than conventional air freight for shipments of 1,000 miles or less. When there are no airport connections to make, no constraining flight schedules to hold things back, and no other customers to take into account, there's just your shipment and the open road. A team can drive virtually non-stop, covering several hundred miles in time for same day or early-a.m. delivery.
And, even beyond 1,000 miles, other factors can still give surface expedite the edge. A great deal depends on the distance to and from the nearest airport, the time involved in loading and unloading, the nature of the shipment, available freight capacity, and the chances that an air freight shipment might be bumped or misrouted. Depending on the distance involved, non-stop expedited trucking can be cheaper than air freight for shipments as small as 500 pounds; the price differential can be as much as 70%.
When distance and time factors are such that it takes air speed to get what you need, where you need it, fast enough, there are two basic options: air freight and air charter. Again, though it's important to understand the basic structural differences between the two types of air service, buyers often need to think beyond them.
The typical distinction - that air freight moves along scheduled flights, while air charter give you exclusive use of a plane, where and when you want it - is only part of the picture. In many ways, the bigger distinction is based on whether or not vehicle equals shipment.
With air freight, vehicle does not equal shipment, so a great deal depends on system capacity, the hub system that is in use, and other factors that determine how well a shipment fits into the existing system. There will undoubtedly be times when your critical shipments don't fit neatly into the air freight terminal system. Emergencies have the nasty habit of hitting at the most inconvenient times: after hours, weekends, holidays, and other "premium" times.
Still, air freight typically has an important cost differential over chartered, private-use airplanes, depending on their type and size. For a 2000-pound shipment, assuming standard dimensions, air freight costs between $0.80 and $1.20 per pound. With air charter, the cost depends on the size and speed of the aircraft that you "buy" for your run.
With any kind of air transport, however, buyers need to keep in mind that goods are typically handled four to six times: loaded for the trip to the airport, unloaded at the terminal, loaded onto the cargo-handling system, loaded into the plane, etc. Each of these is another chance for loss or damage along the way - and that's very risky when every minute counts.
AIR/SURFACE EXPEDITE COMBINATION. In effect, virtually every air shipment has a ground component to get goods to and from the airport. Assuming that the shipment is important enough to warrant air speed, you can't afford to let things fall apart on the ground leg of the journey. But there's a big difference between arranging for front-end and back-end "connections" - which is essentially a structural view - and making the most of ground transport. The ground portion of the trip can offer significant cost savings - and still meet time constraints. "All" it takes is some creative, alternative solutions.
For instance, an 800-mile, 2000-pound shipment by jet charter will cost $4,540 and take 5.0 hours (including time to and from the airports at each end); a propeller charter will cost $2,685 and take 7.25 hours. However, by trucking the shipment part of the way, the cost can drop significantly. Sending the shipment by truck approximately 75% of the way, then going on by air, increases the time to 15.75 hours, but it cuts the cost down to $1,585. If the situation can hold for a while, or if the other parts that are needed can't possibly get there any faster, the shipper could save over $1,000.
Of course, it's a question of the trade-off between time and cost. What's the most economic solution that meets your delivery needs? A given customer may decide on straight air charter after all, but it is important to know that there are a variety of time/cost options in combining air and surface expedite. A properly managed combination of air and surface expedite can deliver emergency shipments with time precision - and avoid jet charter "overkill." The following chart summarizes key points to keep in mind when looking at your transportation needs - and making a buying decision:
|Capability||Vehicle Equals Shipment||Does Not Equal Shipment|
|Speed geography||Faster||Consistent over wide|
|Cost||Lower for heavier, short haul||Lower for lighter,
|Shipment Integrity||Maintained||Multiple handling|
|Delivery||Shipment specific||General capability for all shipments|
|Tracing/Control||Shipment specific||General capability for all shipments|
|Availability||24-hour/day; 7-day/week||Restricted by operation characteristics (service cut-off times, etc.)|
MAKING THE INTEGRATED VIEW A REALITY. The first step in making transportation a more effective element for your organization is recognizing that time and inventory crunches will continue to pose new and tougher challenges for logistics management. That realization provides a sense of urgency about taking charge of transportation - and making it work to your advantage. And that, in turn, argues strongly for being open to a new, broader view of transportation.
From that point, it's a matter of looking at current practices with a critical eye, to see how much they cost the organization overall. A review of past practices over a variety of situations, including the most unusual that have come up, will point out where - and how - improvements could be made, based on the alternatives that are out there.
Throughout, the key is not being tied down by preconceived notions or structural categories that might have fit the old order, but don't work now. Whether it's the day-to-day pressures to move things ASAP, or the unexpected emergencies that crop up, it has never been more critical for buyers to look for ways that will make transportation work for their organizations - in every way.
CONCLUSION. With the right approach, transportation can be one of the most important competitive advantages an organization carves out for itself. But that can happen only if organizations are able to move beyond views of transportation that pre-date JIT and other powerful drivers in logistics management today. It's a fundamental shift in thinking that may well determine how well an organization meets its future.