Every business requires an effective strategy to be successful. The strategy outlines how it expects to create future, sustainable value. It may have been developed explicitly through a planning process or implicitly through the various functional departments of the company. A company’s strategy requires a clear articulation of targeted customer segments and the value proposition required to please them. It also outlines how the company plans to win, what makes it different and better than its competitors and how it plans to achieve its business objectives.

Transportation is a commonly viewed as a derived demand. This is partially true in the sense that the modes and carriers that a company selects to move its goods are determined by the volume of orders it receives and the transit time it takes to move goods to market.

On the other hand, some successful companies such as Wal-Mart use their supply chain strategy as a competitive weapon, as a differentiator, as a leading component of their business strategy. A company’s transportation strategy forms part of its supply chain strategy and can be, like Wal-Mart, an essential part of its success. Supply chain planning (SCP) is the component of supply chain management (SCM) involved with predicting future requirements to balance supply and demand. SCM is sometimes broken down into the stages of planning, execution and shipping.

The concept of sales and operations planning (S&OP) has been around for decades, primarily as a collaborative supply chain planning process designed to drive more accurate demand forecasts and align that demand with production capabilities to ensure timely fulfillment of customer orders. Many manufacturers still adhere to that view.

Today, however, as companies face increased global competition and supply chain challenges, along with rising transportation costs and volatile economic and market conditions, a transformation of S&OP is occurring. Many industry-leading manufacturers - as well as consumer goods distributors and their retail partners - have been working towards elevating their S&OP processes to an enterprise-wide global scale in order to enhance supply chain visibility, to create better linkages with vendors and customers, to reduce costs and achieve more integrated business planning and management. As a result, businesses of all types and sizes are now discovering how this next generation of S&OP can actually become a mission-critical element of an integrated business management strategy. Success can come from relating supply strategy to sales, operations and financial planning to create a coherent integrated business plan.

Two of the most useful planning tools, that have been around a decade, and are very helpful in crafting an integrated Business Plan, are a Strategy Map and Balanced Scorecard. The concept of a Balanced Scorecard makes very good sense. The intent is to develop a series of measurements for the key elements of the business. In the case of transportation planning they can include on time delivery, claims, customer satisfaction etc. You then align the work of your people around these measurements to ensure you achieve your desired objectives.

For the past number of years, several companies have been working with a Strategy Map and Balanced Scorecard. They are the backbone of their business and drive everything their companies do. A Strategy Map addresses the issue of how your company creates value for its customers and how it differentiates itself from its competitors, a problem being faced by the many “me two” companies today. The so-called “value” is created through a company’s internal processes. Effective and aligned processes determine how value gets created and sustained. Companies must focus on the critical few internal processes that deliver the differentiating value proposition and that are most critical for enhancing productivity and maintaining the organization’s franchise to operate.

In their book, “Strategy Maps”, Robert Kaplan and David Norton outline how a Strategy Map identifies the themes, processes and objectives of the company’s core strategies. The beauty of a Strategy Map is, as the name implies, it is a visual representation of the company’s core strategies and the linkages between the various elements of strategy. It allows a company to see how the various components of the company work together or don’t work together to create its “differentiated value proposition".

The Balanced Scorecard contains the measurements, targets, initiatives and budgets associated with each of the core strategies. As the authors point out, the targets will not be achieved just because they are identified. They argue that “organizations must launch a set of action programs that will enable the targets for all the measure to be achieved. The organization must supply the scarce resources – people, funding and capacity – for each action program” or strategic initiative.

Supply Chain Planning becomes one component of the Strategy Map and Balanced Scorecard. From the end user’s perspective the key benefits of effective Supply Chain Planning processes are:

• Improved gross margin
• Improved customer retention
• Reduced lead-times
• Improved order fill rate
• Reduced inventory

Developing a Strategy Map and Balanced Scorecard is not a “one day wonder.” In fact, if you are in a rush to develop these tools and you do not have buy-in from the various leaders on your team, they will probably be ineffective or counterproductive. I would suggest that you employ an outside resource to at least facilitate the development of your first Strategy Map and Balanced Scorecard.

If done properly, they will drive what you do and what everyone else does in your business. They will answer the question of what you do best and where you want to take your business. They will provide your organization with a competitive advantage in the very challenging environment we face in 2010.

The management of freight transportation consists of directing and controlling the movement of freight and information through a series of interconnected steps. The process begins with receiving customer orders that need to be consolidated and optimized for loading. The shipments have to be routed to the appropriate mode and carrier, including a company’s private fleet, if it has one. The carriers need to be contacted in order to confirm their ability to handle the shipments tendered, or the freight must be diverted to alternate or backup carriers. The necessary shipping documents must be produced and provided to the carriers.

Then the delivery execution piece must be managed to ensure the freight arrives at destination intact and on time. This involves the scheduling of carrier pick up and delivery appointments, arranging the loading/unloading procedures and route planning. Typically some sort of delivery confirmation is required. This triggers the carrier billing and rating process. The carrier invoices and rated bills must be audited to ensure they are correct and can then be forwarded to the appropriate department for payment. The data needs to be consolidated into management reports and scorecards to track performance and manage the freight spend.

Effective and efficient freight management processes minimize costs and maximize customer satisfaction. Manual processes that include duplicate clerical work (e.g. entering and re-entering the same fields into successive documents), labour intensive (telephone) communication with carriers to cover loads, manual route optimization, using manual static route guides to select carriers, to name just a few, raise costs and reduce productivity. Leading edge processes now include linkages with vendors, carriers and customers, on a national and global basis. Best of breed transportation management systems (TMS) feature portals where a company can exchange information with its business partners.

Effective freight management involves putting in place a set of processes to perform:

• Freight Handling Management - paper flow, pick-ups and deliveries
• Cost and Rate Management – cost, mode, rate and billing processes
• Carrier Management – selection, communication, shipment tracking, compliance management
• Performance Management – optimum carrier selection, on-time delivery, OS & D

As Best Practice, companies should periodically perform an audit of their transportation processes to identify weak links and fix them. It can be helpful to reach outside the organization to recruit a professional service that can provide the company with objective, independent assessments, a prioritized list of efficiency improvements and the potential cost savings associated with each initiative.

One of the interesting findings from the current (19th) annual study of Logistics and Transportation Trends (Masters of Logistics), conducted by the University of Tennessee and Georgia Southern University is that while cost cutting in Transportation has been “a prime target for companies over the past 18 months, companies may have reached the limit in pursuing this for additional savings. Instead the study findings indicate that firms have taken actions over the past 12 months to improve transportation efficiency and effectiveness.”

The top initiative for 2010 was improving carrier tracking. Sixty-two percent of the respondents had completed this task or were in the process of doing so. This was followed by improved shipment consolidation (60.5) and improved route planning (52.1). The study highlighted that these initiatives have resulted in lower administrative costs, reduced transportation and inventory costs.

For companies with straightforward supply chains and limited freight expenditures, Excel spreadsheets and paper route guides may be adequate tools to manage freight transportation. For companies with annual budgets of more than a few million dollars in freight transportation, TMS systems become essential. The various pricing models such as SAAS (software as a service) allow companies to scale the cost of their TMS expenditures to their business volumes. The ramp up time can be as little as a month or two and the benefits can be significant. In addition to cost savings, they can include improved supply chain visibility and dashboards and scorecards that provide detailed metrics on performance and improved efficiency. While the focus during the recession has been on driving down carrier freight costs, enlightened shippers are realizing that in order to move to the next level in cost savings, the focus must shift to driving process efficiency.

Freight expenditures typically run between one and ten percent of revenues in most manufacturers and distributors. There are a range of Best Practices that can be employed by shippers that wish to optimize the value derived from these expenditures.

The first Best Practice in Freight Spend Management is to create good quality data on freight expenditures. Please refer to the blog on Freight Data Management for Best Practices in this area. Good quality data serves several purposes.

• It allows companies to verify that they are paying the contracted rates for the service or services that were requested
• It helps monitor the effectiveness of a company’s supply chain planning and execution
• It highlights processes that are not working effectively and require correction and improvement
• It ensures that a company’s transportation vendors provide the services and rates that best meet the company’s requirements.

For freight data to be fully effective, it must include all of the standard fields such as pickup and delivery dates, origin and destination cities, provinces/states/postal codes/zip codes, mode, carrier name, service provided, weight, pieces or pallets, line haul rates, accessorial charges and fuel surcharges. In addition, the data must capture certain information that is often overlooked or incomplete. This includes the dimensions of the pallets or containers shipped, detailed descriptions of the products and actual and billed weight. Using average rather than actual densities as an example can lead to the procurement of rates that are applicable to a range of densities, resulting in consistent overpayment.

Effective management of freight expenditures requires the capturing of all carrier rate quotes in a consistent manner. If carrier invoices have not been audited in the past, this should be done as soon as possible for all types of freight - - - domestic, cross-border and global. Current Canadian regulations allow shippers to claim for billing errors and overcharges for the most recent three month period. In some cases, carriers may refund billing errors beyond the three month period. A shipper that conducts a post audit exercise can expect to recover one to two percent of their freight costs.

There are other benefits to a post audit. It will identify carriers that intentionally or unintentionally are committing billing errors. It may highlight issues with data quality. It will also highlight faulty audit processes and provide a road map for corrective action. On a going forward basis, it will set the stage for the design and execution of a pre-audit process to capture billing errors before they happen.

TMS systems provide rate auditing as part of the service. They also can provide various compliance tracking and spend management reports. There is an ongoing requirement to verify that a company’s route guides are being followed by its dispatchers and front line transportation personnel. There is also a need to track carrier compliance to ensure higher priced are carriers are not being used due to unsatisfactory load refusal rates by a company's core carriers.

Spend management reports highlight actual mode and carrier utilization as compared to plan and budget. Variances may signal poor supply chain planning, production problems, over-commitment by sales or other issues, all of which can result in unwarranted freight costs. Employing Best Practices in Freight Spend Management can save companies thousands or millions of dollars in excess freight expenditures and as a result, have a direct impact on the bottom line.

The economies of North America continue to stumble and bumble along as an excruciatingly slow recovery unfolds. The tepid pace of the rebound coupled with excess truck capacity would not appear to create an environment for trucking company rate increases.

Typically North American LTL carriers seek annual rate increases. Many of the “name brand” and smaller LTL carriers announce their GRI percentages (which are usually very close) within days of one another. These GRI’s or general rate increases apply to non-contract freight rates. This freight usually represents a small portion of a carrier’s business since most shipper rates are covered under contractual rate agreements that are negotiated individually.

Thus the September 20 GRI announcement (of 5.9 percent) by YRC, one of North America’s largest LTL carriers and a company hit hard by economic and financial problems, highlights YRC’s desperate need to raise rates. YRC has lost billions of dollars in recent years and still remains on shaky ground. The company suffered major revenue erosion during 2008 – 2009 as some of its direct competitors used price as a weapon to inflict “body blows’ and possibly a “knockout punch” that ultimately failed.

The YRC announcement was quickly followed by ABF, the other large unionized LTL carrier that signalled their 5.9 % rate increase on Sept. 27. FedEx Freight (6.9% on 11/1/2010), UPS Freight (5.9% on 10/18/10) and Vitran (5.9% on 10/4/2010) quickly announced their general rate increases. Clearly YRC and its competitors that attacked it using price as a weapon, all suffered from the feeding frenzy and are anxious to improve their bottom lines.

It is important to note that each of these carriers announced rate increases eight or nine months ago. As a result, on non-contract rates, LTL shippers are being hit with increases in excess of ten percent within less than a year. Since shippers continue to have leverage with carriers in these economically slow times, the question remains as to how much of these proposed rate increases will “stick” and how much backbone these carriers will have as shippers play one carrier off against another.

Shippers can protect their freight costs by taking one of several actions. If they have more than a few hundred thousand dollars of freight, they should be negotiating contract rates with a small number of core carriers. Shippers with more volume should leverage their volumes through the use of an RFP.

Since these rate increases are weighted averages across a range of weight breaks, shippers should compare the rate increases by freight segment against their current mix of freight. As an example, a carrier may be taking a 5.9% GRI but may be receiving a 10.2 % increase on minimum charge shipments. For shippers that have a high volume of minimum charge shipments and do not perform this matching exercise, they may be in for a nasty surprise at the end of the year when they look at their freight costs as compared to Budget.

It is also important for shippers to understand that the GRI announcements are intended for the LTL carrier and investment community as much as or perhaps more so than for them. These announcements are all about optics. They are intended to tell other carriers to get on the bandwagon and raise their rates so everyone’s’ rate increases will be easier to secure. The message is that we are going for rate increases so give us a “wide berth” and we will do the same for you. They signal to the investment community that these carriers are seeking to improve yields which down the road may improve their share prices.

Some observers claim that GRI’s are “much ado about nothing.” With two rate increases with eight months, on a small amount of an LTL carrier’s business, they send a message that this segment of the freight industry is financially troubled and is pulling out all the stops to turn their businesses around.