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06/06/2014

Breaking the Reactive Cycle in Transportation

With transportation spend for consumer product companies at roughly 7 percent of cost of goods sold, why is logistics planning stuck in a world of manual spreadsheets disconnected from core supply chain systems? Granted, transportation management system (TMS) software has been widely available for years to help streamline execution activities like load/route optimization or carrier selection. However, these systems are not designed to provide forward visibility to transportation needs, so fail to answer the seemingly simple question “how many trucks will be required next week?” As a result, shippers are always in reactive mode, scrambling to secure capacity with each new day. Transportation forecasting software fills this gap by providing accurate daily forecasts of transportation needs by lane, by mode, by temperature class and by pallet. Industry leaders have turned to transportation forecasting to break this reactive cycle in favor of proactive planning. 

Forward visibility lets logistics professionals anticipate and proactively manage seasonal and promotional surges in freight demand. A rainy spring means a late start for outdoor activities; an earlier than expected flu season means a rush for tissues several weeks ahead of last year’s demand. Roughly a quarter of all consumer goods volume are sold on promotion, and for certain products like coffee, promotional volume can be as high as 75 percent of sales. As a logistics professional, wouldn’t it be nice to know about the large Walmart promotion weeks ahead of time? Or that manufacturing plans to gear up early for summer hot dog sales? These events are planned months in advance, but all too often the transportation planners are the last to know. Transportation forecasting software provides the missing link to synchronize logistics to sales and operations planning (S&OP) and gain advance visibility to promotional or seasonal surges so that the entire company can work from a single demand plan.

When manufacturers fail to deliver products on time, it is often because volume on a particular lane unexpectedly spikes and carriers struggle to find equipment on short notice. This risk has intensified over the past few years, with carrier capacity becoming increasingly tight. Access to transportation forecasts makes true carrier collaboration possible by sharing requirements weeks in advance. It is a win-win. Carriers can better manage fleets by scheduling vehicles and drivers to maximize return on assets. Shippers consistently and cost-effectively secure capacity, even in tight markets.

Once accurate daily forecasts are available, leaders can further cut costs through warehouse labor synchronization. The combination of predictable truck movements and confidence in daily flow of goods through distribution centers enables proactive cross-docking to increase warehouse efficiency and significantly reduce safety stock requirements. The result is less handling and a faster flow of goods, better warehouse utilization with each location supporting more sales, higher return on capital invested in inventory and lower operating costs.

Sophisticated transportation planning tools also open the door to powerful what-if scenario management capabilities to evaluate performance tradeoffs of different network designs. The days of overhauling distribution networks without fully understanding the cost and operational consequences are over. With billions of dollars at stake for large manufacturers, the old “change first, react later” approach is no longer an option – it needs to be and can be done right the first time. When integrated with demand sensing and inventory optimization tools, what-if scenario capabilities can virtually simulate the effect of network changes across the entire supply chain, from demand planning error to implications on inventory, lane volumes and warehouse flows.

Whether your goal is to cut back on firefighting and secure capacity with preferred carriers or to create virtual supply chain simulations for advanced what-if scenario management decision making, transportation forecasting redefines what is possible. Welcome to the new age of logistics!


ABOUT THE AUTHOR
Robert_Bryne2.jpgRobert F. Byrne, Chief Executive Officer, Terra Technology 
As CEO and co-founder of Terra Technology, Robert Byrne is honored to work with some of the world’s largest manufacturers including Shell, Procter & Gamble, Unilever, Mondelez International, Kimberly-Clark and AkzoNobel. In 2002, Terra created the first demand sensing solution and for the past 8 years has been recognized as a top five supply chain planning provider on CGT’s Reader’s Choice Award. Prior to establishing Terra, Robert led the supply chain consulting practices at J.D. Edwards and Numetrix and held management positions at James River and Unilever. He has degrees from Princeton University and Carnegie Mellon.