There are 4 fundamental areas where global transportation is challenged. Three of these challenges are variants on traditional transportation challenges and the last is relatively new but growing in importance. These challenges are:
- Information Accessibility - visibility, reporting & analysis, communication
- Transportation Cost Management
- Delivery Performance (across the global supply chain)
- Political Disruption (new and showing increased intensity)
Today it is certainly true that the internet has helped organizations address these issues, and compared to even 5 years ago things have definitely improved - and improved quite dramatically. Access to shipment tracking details, from origin to destination, is readily available through carrier and 3PL self-serve websites. The same is true for carrier performance, invoice details, and basic reports. Information is simpler to access than at any other time.However, where transportation management traditionally focused on the basics of moving “boxes” or “packages”, today it is much more strategic. It is an important part of an effective and efficient global supply chain. Global transportation management affects product landed cost, inventory management, customer service, and satisfaction.
With as much progress as the industry has made in making information available to shippers, why are visibility, reporting, and analysis still a challenge? The answer to this lies not in the availability of information but in the inability of shippers to capture, manage, and access the information. Most shippers depend on a multitude of data sources to provide them with the data points necessary to have access to the status of their products and the performance of the suppliers and service providers in their specific global supply chains. The same is true for the information required to execute reports or analysis around transportation. The lack of a central data repository limits the overall effectiveness of the transportation team.
Shipper’s transportation teams, almost universally, have poor visibility into their suppliers' activity. From the time a purchase order is executed to a supplier the shipper’s transportation team has limited or no visibility into the PO or the execution status of the PO. The lack of PO visibility results in limited or no influence over the PO shipment plans and the execution of those plans by the supplier. Lack of PO visibility means that from the get-go the transportation team is visually impaired. Visibility, or the lack of visibility, at this early stage of the transportation cycle is often the greatest breakdown in global transportation control and represents one of the most significant challenges in optimizing inventory across a global supply chain. This problem is compounded when companies are relinquishing the transportation responsibility to the supplier or their agents.When the carrier or 3PL takes title to the shipment visibility improves...somewhat. Transportation milestones under the carriers’ immediate purview are readily available but from their portals. However, as a global shipment nears its destination visibility usually deteriorates because other parties, often disconnected from the carrier, don’t provide status updates in a timely and visible way. Customs, PGAs and, Ports of Entry are but a few of the actors that don’t make information is accessible and visible.
Reporting and Analysis
Accurate and timely reporting and analysis depend on the quality and availability of information. This continues to be a major challenge for transportation teams because much of their information is held outside of their information systems and is not easily validated. The transportation information is held in disparate systems - suppliers, carriers, freight forwarders, customs brokers, domestic carriers, etc. In most transportation departments aggregating the information and ensuring its accuracy is manual and time-consuming. Too often the information is out of date when it is actually prepared.
Communicating transportation information with internal associates and external actors is a real and continuous challenge because of the difficulty in aggregating the information from across the various data sources.Transportation information is foundational to managing any global supply chain. Communicating the status of a product across the global supply chain - from PO creation to receipt at a destination is vital to ensuring optimal operational and financial performance. The ability to communicate critical details like “ETD, ETA, Availability, etc.” dates is essential for Sales, Marketing, Replenishment, Purchasing, Accounting to proactively do their jobs. To meaningfully communicate requires information to be trustworthy and timely.
Transportation Cost Management
Cost remains the leading challenge for transportation in TMS studies. In a recent Peerless Group and Logistics Management survey, 96% of the respondents ranked cost as the focus of their transportation strategy. This is certainly not a surprise in this hyper-competitive and shifting trading environment. The challenge in reducing costs is often not one of negotiation and execution but one of visibility and analysis (see above)Product cost optimization is as much a function of the negotiated price and terms of the products as it is the costs associated with moving the product from origin to destination. Given that there is little room to improve the purchase price of a product, the ability to reduce product landed cost is directly related to the effectiveness of the transportation negotiations and activity.
Terms of Purchase
Best practices dictate that the closer to the originating source a product is purchased the lower it's overall landed cost will be. Buying on DDP terms may be convenient but it is generally a much more costly purchase than buying Ex Works or FAS. Challenge: Being able to manage a purchasing program on a ExWorks, FAS or FOB basis is a real challenge for many organizations because they lack the transportation management infrastructure to control and manage the shipment process.Transportation is the critical factor enabling a company to change its terms of purchase to take advantage of the lowest landed cost. If transportation can manage (not execute) the global freight activity and associated costs from origin to destination, the organization can save 2-5% of the landed cost of a product. By changing the terms of purchase to as close to the source as possible there are direct savings in:
- Lower customs duties based on lower origin product cost
- Lower all-in transportation cost (see Freight Management - opportunities and challenges)
- Reduced 3rd party costs - freight forwarding, customs broker
Carrier freight invoicing is fraught with errors. It is not intentional but it is endemic. The rate of invoice errors ranges from 2-20% depending on the carrier irrespective of mode - although ocean freight generally has a more complex cost structure. The average cost associated with freight invoice errors averages between 1-4% of the value of the invoice - almost always in favor of the carrier/3PL. Challenge: Managing this high error rate is a significant and perpetual challenge for shippers because it is too difficult and too costly to manage the freight contract and audit processes effectively. Without an automated transportation solution that provides for freight contract management and integrated invoice auditing, it is just too costly for most shippers to manually audit. This hidden cost is a burden that most shippers are forced to absorb.
If managing carrier invoices is a challenge, managing the soft costs associated with transportation represents an extreme challenge. For the most part, these soft costs are totally below transportation’s radar and go unnoticed. These soft costs are related to:
- Shipment processing
- Claims management
- Expedited shipments
- Out-of-stock/Lost sales
A direct challenge resulting from poor global supply chain visibility is managing delivery performance. Transportation’s lack of visibility into the PO from its release to the vendor is only the first event in a series of events that negatively impact on-time delivery performance. Because poor global supply chain visibility is so endemic to global transportation management, the planning and management of transportation events are outsourced to 3rd party providers. The inability of transportation teams to directly monitor their global supply chain activity results in less-than-achievable performance capability.
Purchase Order Transportation Planning
Purchase order shipment planning and execution are critical first steps in ensuring delivery performance. The challenge for most shippers is that they have virtually no capability to monitor their suppliers through the PO execution stages. Because transportation lacks visibility into the PO there is a challenge in managing PO releases to align with the business demand requirements. Often POs are structured to allow suppliers to ship the product when it is available or within broad shipment windows. In more controlled situations, 3PLs or freight forwarders are given the task to monitor the suppliers and then arrange the shipment plan to the vendor.
Carrier execution is key to ensuring that product is delivered on time to the right destination. However, in an environment where carrier capacity constraints are often misaligned with capacity requirements, carriers are “ghosting” shipments. The ability to understand, in real-time, carrier milestone execution and respond to unexpected changes in delivery schedules is a significant challenge.
Another challenge for shippers is the inbound ports of entry. Port congestion, Customs, and other government regulatory agencies all impact the flow of product through the global supply chain. Delays at the ports negatively impact inbound delivery performance Having visibility into border activity is virtually non-existent to shippers resulting in untimely, but avoidable, delays and additional unexpected costs.
Inbound Delivery Control
Moving the shipment from the entry point to the final destination is becoming a greater challenge. Issues with both truck and chassis availability are creating challenges for the transportation team to move product on time and within budget. Unloading at warehouses and customers is increasingly a challenge leading to more additional cost.
Political tensions are increasing challenges for transportation professionals. As an expression of political will, countries are now using both tariff and non-tariff barriers to trade. These political barriers are increasing the need for transportation teams to respond quickly to changing trade patterns. The political disruption expresses itself in the weaponization of tariffs, increasing security barriers, Trade Agreement Disputes, and sanctions. Whatever the reason, political disruption to trade challenges the transportation departments resilience and flexibility to be more proactive and responsive at the same time. It creates disruption in operations and relationships with carriers and other 3rd party service providers. It increases the demand for the transportation team to do more when they are already time-constrained.ConclusionThe global trading environment is much more complex than its domestic counterpart. As such it requires a solution that embraces the complexities and simplifies them for the operators and consumers of information. Because the global trading environment is so complex a global transportation solution must be able to easily capture data from all originating sources (suppliers, 3PLs, carriers, consolidators, customs brokers, etc.) and contextualize it so that the consumers have the appropriate information to support their unique work and decision requirements.