CENTRALIZE FOR CONTROL – DECENTRALIZE FOR EXECUTION
by Mike Starling
What is the benefit of centralizing the management and control of your transportation operations and expense requirements vs. decentralization? If your transportation operations direct spend (for-hire transportation and/or private fleet) is a significant percentage of your overall operating expense, someone should be responsible for managing and controlling that expense. What is your situation?
All too often, the responsibility is decentralized and/or parceled out as an additional duty to a department manager wearing multiple hats. History shows that managers with multiple hats tend to be firefighters rather than functional managers. Hence, freight expense gets managed by exception rather than by KPI parameters and objectives.
A classic case of sub-optimization of transportation expense control is decentralizing operations and control of inbound and outbound transportation. Typically you see inbound transportation as a sub-function of Purchasing. Logic dictates that the buyer negotiates both product price and transportation freight expense with the vendors. The reality all too often is that freight expense is either a) buried in the price of the product so your buyer doesn’t really know what the freight expense is, or b) gentleman’s agreement in that the vendor will ship the freight Delivered because that is more convenient that having OUR TRUCKS or OUR CARRIER pick the freight up at the vendor’s dock. Why the latter? Because Purchasing does not want to get into the business of managing transportation.
On the flip side, Warehouse Operations is often in control of outbound transportation. Logic? Well someone has to either call in the carrier to handle the shipment to the customer or load the private fleet trucks for route delivery. This is a logical extension of the order fulfillment process, so it gets dumped onto the Warehouse (or Operations) Manager. Again, the primary focus is on order fulfillment and getting the order delivered, not necessarily on optimizing transportation operations and expense, which can quickly eat away at any gross margin being generated.
Want to find a quick way to improve operating cash flow? Try centralization of your transportation operations and let them get involved in finding ways to optimize your transportation expense. Remember, every transportation dollar saved is a dollar that goes straight to your bottom line.
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