Managing Total Cost to Serve and Delivering the Win

In the most constrained and supply-challenged global transportation logistics landscape the world has likely ever seen, one thing is certain: it's more essential than ever to manage performance, control cost and, ultimately, optimize your operation’s total cost to serve.

Optimizing the delicate balance of performance vs. cost across your entire operation is a strategic imperative. The principles, practices and outputs of a quality, data-driven transportation spend management (TSM) program will enable the accurate measurement of spend, assessment of performance across all operational channels, and lead to final spend optimization. TSM, when coupled with a real-time event tracking solution, will give any executive charged with understanding how their business is performing, and managing the spend to do so, with enterprise-wide visibility to make strategic, data-informed decisions that deliver success.

Here are the steps required for best-in-class implementation for total cost to serve management:

Understanding the Flow of Goods and Information

• Flow of goods: Are our manufactured products reaching distribution and then retail on time, intact and was it done efficiently? What factors can interrupt this flow or make things more efficient between points A and B?
• Flow of information: Do we have real-time data accessibility across the operation?
• Financial flow: The flow of money in terms of payments and the effective process to make them.

TSM's Role in Managing Supply Chain Stages

Beyond managing goods, data and financials across your network, in a typical supply chain there are five legs, each incurring different levels of cost and each with their own processes, challenges and costs. The legs include:

1. Raw materials to manufacturing
2. Site to market
3. Market to trade consumer
4. Distribution center to retail or direct to consumer
5. Reverse logistics (returns)

As you and your team or partners work to use TSM data and practices to improve efficiencies across each leg, to look at cost reduction, performance improvements and cost-to-time tradeoffs, it’s also important to understand the nuances of different legs. This is particularly crucial with the three major stages of the supply chain: inbound, outbound and reverse logistics.

Inbound

With inbound it’s essential to have visibility into all shipping activity and their associated costs. This can be demanding, complex and data-intensive, especially with multiple suppliers and shipments from all over the country or world. For every one of these inbound shipments from every supplier, especially if you're liable for the transportation costs, compliance is essential in terms of shipment routing and the provision of ASNs (advance ship notices) to properly manage the process. When an inbound shipment goes wrong there's rapid escalation. Cost to serve goes up every time there's disruption, but having the data and visibility to predict, see and react to problems can help manage cost.

Outbound

Outbound is all about standardizing and maintaining internal compliance while delivering flawlessly to customers or internal stakeholders who rely on you for consistent performance and delivery. If a major retailer doesn’t receive your flat-screen TV or in-demand plushy for Black Friday, both your orders and reputation will suffer.

While the positive of outbound logistics of course is that you have the benefit of having more control over how those goods are shipped, outbound logistics can still present a challenge where the supply chain is decentralized. The recipients of your goods also expect on time and in full delivery — meaning perfect order, on time, in the right place with the right level of service and quality specified. Every time. If you don’t receive raw materials to manufacture the goods to ship your products on time, if shipments get delayed en-route, if a sales order from a customer comes in late and requires expedited shipping — all of these factors will increase cost to serve and lower profitability if allowed to continue over time. Outbound shipping also often requires less than truckload (LTL) or parcel modes of transportation which means a higher cost per unit weight and increased cost to serve overall, especially if using expedited services.

Reverse Logistics

Priorities here include creating and optimizing control over the method of how returns are processed and inventory is handled.

The Need for Options to Improve Performance

Whatever leg of the supply chain or region you're attempting to manage and optimize over time, it can’t be done without having options — especially if management of those regions and legs is decentralized. Have a solid plan B when market variables or events derail plan A. You can be one of the fastest growing companies in the world with an extensive supply chain operation, but it won’t shield your business from delays and missed deadlines.

Using TSM to Manage Typical Global Supply Chain Challenges

As any transportation logistics executive begins the implementation of TSM practices you should look to your strategies and processes to begin addressing the typical supply chain challenges that impact cost to serve:

• Cost management
• Performance and cost visibility
• Information, analytics and systems transportation management systems and event stream processing (ESP) systems
• People and processes
• Cost and service improvement
• Scalability

Integrating TSM Into a Mature Control Tower Ecosystem Strategy

Mature transportation logistics companies are increasingly adopting best-in-class control tower strategies and processes, where all systems are interconnected and informed by a master data management protocol. TSM has an important role to play in this kind of approach or strategic ecosystem. Working within an overall transportation management system and alongside functions like freight audit and pay (FAP), TSM is capable of improving strategic procurement of materials (best options, best prices, best deliveries); carrier management (using a scorecard system for monitoring and assessing performance against set goals); and managing invoices and payments in concert with your FAP system, sustainability, overall performance and more.

Wherever your business is on its transportation logistics maturity journey from initial launch to implementation across your global network, TSM can help. Adoption will speed the maturity of your operation, create interconnected data and financial flows, and optimize performance to deliver improved cost to serve for you and improved service delivery for your customers.

Chris Cassidy is the executive vice president of global sales and strategic partnerships for Trax Technologies, the global leader in transportation spend management (TSM) solutions.