Do you remember back in your earlier days when you did something stupid or said something offensive to someone and they told you to grow up? It implied that not being mature was about the worst thing you could be. By that standard we should tell our transportation operations to grow up, as well, since the recently released JDA Vision 2015 Supply Chain Market Study found that most companies are operating at the lowest level of the transportation maturity curve, leaving significant money on the table from lost opportunities to cut transportation costs.
Transportation Maturity Curve
The Transportation Maturity Curve
The transportation maturity curve is a representation of how companies’ transportation operations evolve over time from fragmented, manual “dialing for diesel” capabilities through various stages of automation and centralization until reaching a state where they could potentially be used as profit centers. This is a continuum where each company will find itself somewhere along the curve. The objective is to move up the curve over time in order to reap the associated benefits.
The Supply Chain Market Study, based on a global executive survey with over 250 responses representing a broad selection of industries across 17 countries, found that most companies are currently operating at the lower end of the maturity curve. Many statistical measures from the study point to this conclusion:
- 35% manage transportation on a location by location basis
- 18% manage transportation on a divisional basis
- 54% have no core carrier program in place
- 16% have separate operations for inbound vs. outbound transportation
- 31% have no transportation optimization capabilities, or use only faxes and phone calls for this purpose
How Transportation Moves are Optimized
As a result of these fragmented, largely manual approaches to transportation management, opportunities to reduce costs and improve customer service go largely unrealized. As just one example, the study found that respondents are expediting a surprisingly large 33 percent of all orders.
Centralization and Automation
There are two key tenets of how transportation operations move up the maturity curve—centralization and automation. Without centralization, many opportunities to reduce costs through consolidating loads, continuous routing and leveraging core carrier programs are lost. Centralization also allows shippers to present larger bid procurement packages that are more attractive to carriers and thus often result in lower negotiated rates.
Executives in the study recognize the value of centralized operations. Even though most are operating fragmented approaches today, a full 80 percent say they are either in the process of centralizing their transportation management operations today, or will be over the next 12 months. In addition, 31 percent say they will be initiating core carrier programs this year to take advantage of the opportunities for cost reductions and service improvements offered by centralization.
Automation is key to moving up the maturity curve for most operations, but especially so for transportation where the possibilities for load consolidations, routing options, mode selection, pool points, zone skipping, back hauls and many other potential cost savers are too numerous to be optimized manually or with spreadsheets. Not only are the options too numerous and interdependent to compute manually, situations change too quickly and too frequently to make manual adjustment realistic.
Despite the obvious benefits of automation, the study found that only 43 percent of the responding companies say they are using commercially available transportation management systems today, with another nine percent outsourcing this to third party logistics providers. This is likely one factor explaining why nearly seven out of ten respondents say a lack of network visibility is their biggest challenge for transportation optimization.
Centralization, automation and the resulting visibility across the supply chain are key enablers for companies to realize the benefits of moving up the transportation maturity curve. And some companies have already made this journey. Twenty-six percent of respondents say they are already at the shared services stage. These companies have significant cost and service advantages over their competitors who are further down the curve. Can you afford to forego these advantages in your marketplace?
To hear more of my comments on key transportation management issues, watch this brief video.
For a look at the key charts and graphs outlining the findings of the report, access the infographic.
To learn more about the transportation management issues and initiatives addressed in the report, read the full report.