Best Practices in Transportation – Transportation Strategy and Planning
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.