Transportation Optimization: Why So Serious?

Back in January, I mentioned in my blog post “Must-Have Transportation Resolutions for Manufacturers and Retailers” that transportation optimization should not be treated as a commodity. This, of course, implies that the function of transportation optimization is often treated as such. Sadly, in my experience, it is.

Too often have I come across comments such as “well, don’t all engines do the same thing?” or “my people already optimize” essentially trivializing this important capability. This got me thinking about why. Why is it so important? To quote, The Dark Knight, one of my favorite films, “why so serious?” To answer this question, here are three things to consider:

It’s where the money is

There are a number of varied value drivers that contribute to the monetary value of the transportation business case: Improved customer service productivity through centralized visibility, increased coordinator efficiency through improved carrier communication and connectivity, and streamlined freight cost reconciliation and payment processes, just to name a few. But when you look to rank these items by specific monetary value, it’s the results of an optimization engine, mode and carrier selection, multi-stop consolidation, backhaul, and continuous movement that rise to the top.

Furthermore, when you aggregate these items, the optimization value is equal to more than 85 percent of the total transportation process improvement value proposition. Consequently, the more sophisticated the strategies to be considered, the greater the proportional contribution to overall tangible and achievable value.

The benefit of heavy lifting

The goal of any transportation plan, whether automated or created manually, is to minimize cost. But this should not be done in isolation. The constraints of the network need to be represented and respected in order for the plan to have any real meaning and that is where the concept of heavy lifting comes in to play. Dock constraints, carrier service areas, cost structures and capacity, order and item dimensions are examples of what a solution can and should take into consideration. The more sophisticated the solution to address these various elements, the more planners can focus on dealing with incremental exceptions and disruptions.

The value of the right answer

In addition to freeing up planners to focus on other tasks, a solution needs to do the heavy lifting by considering a broad array of constraints, which increases the accuracy and hence the ability to execute on the answer. Stated conversely, it is important to consider the cost of a wrong answer one that seems like it drives value but in reality violates a number of key network constraints. For example, consider a fully built, multi-stop load that was built without visibility to current dock constraints and consequently has to be re-built because there is no capacity to accommodate it. Not only has the initial perceived value of the load been invalidated, but there is incremental value leakage due to the re-work required.

So, why so serious? Because optimization is where the majority of the bottom-line benefit is, because it frees up planners to focus on value-added functions, and because it prevents on-going value leakage based upon getting the answer right the first time around.

How serious is your approach to optimization? What are some other factors to consider?

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