Where Does It Start?

by Mike Starling

The first step in helping an addict is getting them to admit they have a problem! The first step in stamping out ignorance is raising the individual’s level of awareness.

Awareness: how many companies view transportation as a necessary evil? Or as an additional duty for purchasing or warehouse managers? How many do not view transportation as a strategic function that should be managed and controlled separately? How do you view it?

Let’s take a typical example: transportation expense represents the largest component of a wholesale distributor company’s operating expense. Operating expense eats into gross margin and chokes operating cash flow. Do you consider the strategic implications of your transportation service and operating expense within the context of the corporate strategic planning and desired business objectives? How does transportation contribute to achieving corporate strategic revenue or expense control objective(s)? Do your current transportation tactics help or hinder achievement of these objectives?

Where to start? Consider your collective current inbound and outbound transportation network. This represents your baseline service and operating expense scenario. How are you doing?

Are your customers happy with your delivery service? Are your current freight and related expenses staying within budget? Do you have a budget for transportation? Is Purchasing still letting your vendor handle the inbound delivery? How much money are you leaving on the table as a result of this approach? Should you be doing customer pick-up on your inbound shipments? Ever consider multi-stop truckload outbound in lieu of your normal five LTL shipments? How do you know if your private fleet is paying for itself? What would the benefit be if you changed your freight terms? What is the cost impact of your transportation tactical decisions on company operating cash flow? I know, you are perfect. Right? No room for improvement! I got it all under control!

If your company is typical, you probably have a decentralized management decision-making process in place. This results in a random transportation tactics employment approach with multiple functional managers involved. Results, effectiveness, and efficiency reflect the individual priorities (and bonus goals) of the functional management involved. No corporate strategy at work here. I would call this a non-starter strategy. Are you living this dream? I know many of you are! So how do you become an agent of change?

Listen up: a transportation network is more than just a map of the origin-destination pairs that represent your total inbound and outbound shipping requirements.

Your network reflects the collective results of your transportation strategy management decisions and chosen tactics, which are clearly visible in your service performance and quantifiable in your direct operating expenses.

The objective here should be to ensure that tactics employed are aligned with the desired outcome of your transportation strategy in order to pursue optimization of both—service provided and operating expense control.

You do have a well thought out transportation strategy, right?

What plan ties all your transportation tactics together at the corporate level?

How do you measure collective efficiency of tactics employed?

Does transportation contribute to operating cash generated?

Perhaps it starts with awareness.

Can Transportation Contribute to Operating Cash Flow Generation?

Focus on Transportation Operations: Defining What We Are Doing Well