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The Transportation Supply Chain: Transportation’s Role in Supply Chain Management to Lower Total Costs

transportation supply chain

In order to avoid incidents of mismatch between supply and demand, establish more efficient manufacturing and lower costs, it is necessary to establish an environment of consistent supply chain visibility. In order to implement this visibility, it is crucial that companies take into consideration many elements. Everything from sourcing raw materials, manufacturing, to the sales channels which feed supply for a finished product are essential factors. One of the often missing links, however, in supply chain visibility, is transportation management. Basically the act of getting the needed finished goods from start location to destination. We call this the transportation supply chain.

What is the Transportation Supply Chain?

Transportation refers to the movement of product from one location to another as it makes its way from the beginning of a supply chain to the customer’s handle. This requires a new broad look at the business of transportation supply chain, including supply chain management, logistics, & procurement. Freight transportation costs in the United States amount to about 6% of the GDP, which means that a large portion of a company’s supply chain costs come from transportation. As we’ve stated in blogs posts about understanding how transportation costs fit into the business, the more you think more holistically as a logistics or transportation manager about the role of transportation in the overall supply chain and business, and less about the tactics of transportation (technology now is the business process enablement tool), you can strategically work with other players in the supply chain in order to more effectively reach the corporate and business vision your organization has set out to reach.

Many manufacturers & retailers have found that they can use state of the art supply chain management to reduce inventory & warehousing costs while speeding up delivery to the end customer.

Any supply chain’s success is closely linked to the appropriate use of transportation. Walmart has effectively used a responsive transportation system to lower its overall costs. At distribution centers, Walmart uses cross-docking, a process in which product is exchanged between trucks so that each truck going to a retail store has products from different suppliers.

Managers should ensure that a firm’s transportation strategy supports its competitive strategy. Firms should evaluate the transportation function based on a combination of transportation costs, other costs such as inventory affected by transportation decisions, & the level of responsiveness achieved with customers.

Managers should consider an appropriate combination of company-owned & outsourced transportation to meet their needs.

The Adverse Affect of Not Understanding the Transportation Supply Chain’s Role

When freight costs are high, even seemingly small oversights can result in unneeded expenses that could have been avoided and thus cut into overall profit margins. Product write-offs can occur when sales channels are oversupplied. Undersupplied sales channels can also have negative results in the form of missed sale opportunities. Failure to monitor raw material prices can also result in above average costs across multiple sources. In addition to this, and probably more detrimental to budgeting, is the hidden cost of transportation in a poor supply chain. When getting goods from one point to another is a crucial aspect of business, then ensuring that this process is most efficient becomes a huge economic concern.

This is especially true in large enterprises and the obvious connection between visibility of freight and the transportation economics become easy to see. Even in smaller businesses where the margins are rather low, transportation costs are still a crucial element of creating profitability.

The Transportation Supply Chain is Driven By Properly Integrated Technology Systems

Most businesses would identify transportation supply chain visibility as a primary goal, however, it is sometimes used little more than a marketing term that gets used to simply impress those invested in the company. This is especially true in larger enterprises. That is because many enterprises have never really figured out ways to implement real transportation and supply chain visibility. One of the reasons that transportation supply chain visibility does not get the attention it deserves is because as a process, supply chain visibility requires true system integration operating between many elements. Some of these elements have different master data that must be used. This data must be not only present, but also running in harmony over all systems. These can include warehouse management systems, multiple ERPs, ordering systems, and transportation management systems.

When these sources are made up across many geographies, special attention is required in order to keep them all cohesively glued together. The glue is getting the materials from starting point to destination. The goal is to get this done efficiently and cost effectively. Without transportation supply chain visibility there will be time delays, expenses, and even backlogs. These events can throw off production schedules even creating idle labor or eventual lost sales. So, as the costs add up, you can see the importance of focusing on understanding transportation’s role in the supply chain.

The Delicate Balance of Transportation Supply Chain Management

Usually supply chain management simply becomes a balancing act of time versus cost. This is seen most easily in the transportation element. There are many ways available to ship goods from one place to another, but with foresight, the cost of shipping can be balanced through different practices and compared against relative shipping times. When manufacturers plan ahead to make sure the materials are arriving in the most time efficient way, they can then achieve the lowest freight costs.

Many like to think of an enterprise supply chain as a living thing. Living things are always changing. Some suppliers like to challenge incumbents with what seems to be better prices or services, raw materials may fluctuate in price, or foreign exchange rates could change. Any of these changes can affect the transportation supply chain as well. This basically means that the supply chain is not static, and if the supply chain is not static then the distribution requirements are not static either and will change. Transportation systems must change in response and it’s up to the shipper putting in place systems either in-house or through a transportation management 3PL who can supply that expertise immediately to be prepared for the constant of change.

Many problems in transportation supply chain can be addressed through the availability of analytics provided through a transportation management system. Needing such insights to allow companies to make smarter business decisions is especially true when supply chains become larger and begin operating on a larger scale. Recent advancements in technology also help promise a better integration between physical product movement and visibility. One good example is the surge of interconnected devices to connect pallets, trailers and containers systems in order to provide greater visibility. Of course, proper implementation is essential in order for these great technologies to succeed.

Companies of all sizes must approach the transportation supply chain by implementing more harmonious systems in order to achieve greater visibility and a lower occurrence of supply chain errors. In the end this will result in lower total costs for the organization even beyond transportation costs.

Well executed transportation management system always lead to the greatest supply chain visibility. When transportation systems feed into a predictive analytics scheme performance will be improved across the board. In fact once the inventory is loaded into a channel it is the predictive analytics responsibility to plan for efficient transportation.

Supply chain management ultimately has many moving parts, the starting point must always be transportation, however, as it is anywhere from 40 to 60% of your supply chain costs. .