The Increasing Importance of Transportation

The Increasing Importance of Transportation

By Bogdan Fedorciow, EVP, International

Contact: | +44 1628 851 151

Throughout the 1980s and mid 90s, many manufacturers began to transition away from a traditional mass production strategy and toward a Just In Time (JIT) strategy. Rather than manufacture large volumes of products and then hope market demand would ensue, JIT allowed manufacturers to produce product volumes more in sync with actual market demand. Consequently, this strategy led to smaller production runs and frequent deliveries of low product volumes, often in a more unpredictable manor.

To execute this new manufacturing strategy successfully, changes to supply chain operations had to be made. The importance of transport in particular increased exponentially, and distribution rocketed to the forefront of discussions on key factors necessary for companies to achieve success in a JIT environment.

At the turn of the millennium, however, many manufacturers began to turn their attention to what they believed were core competencies necessary to achieve competitive differentiation in their marketplace. Logistics, in most instances, was outside of this sphere. As a result, manufacturers chose to outsource logistics operations, and in fact, many manufacturers identified transportation as one of the simplest supply chain components to run via a third party.

Control of transportation was then allocated to LSPs, who in return for pre-negotiated fees ensured timely and accurate delivery of products. With a large number of LSPs from which to choose, manufacturers easily secured competitive rates. As this outsourcing trend continued, the consolidation of LSPs increased, and accelerated further in 2007 with the “Credit Crunch.”

Fast forward a couple of years, and behold the rapid popularity of social media, technology, and Internet shopping – creating a new, more savvy breed of consumer who in addition to seeking the best possible price, also demanded more in terms of customer satisfaction and flexibility. These marketplace changes put substantial pressure on the manufacturers’ transportation networks, to the point where Transport Management was becoming an increasingly important corporate function, necessary for the optimisation and management of complete transportation processes.

Having outsourced their transport capabilities, however, manufacturers now faced a critical challenge: how best to keep costs as low as possible while still providing the service and flexibility customers demanded? With production and distribution expenses already accounted for on the corporate ledger, further hits to the financial KPIs and customer service levels in the case of JTL (Just too Late!) scenarios were untenable.

From conversations around the world with our customers and prospects, one of the next trends we see emerging is that of bringing the transport function back in-house. From one industry to the next, executives are telling us distribution execution is too important not to manage closely. These executives argue that with the transportation function in particular back in-house, they can better identify ways to reduce costs and get more from their transport network – often to the point where they can offset the overhead of managing the function themselves.

Eyefreight has helped world leading brands across manufacturing, FMCG, food & beverage, and retail assume control of their transport networks locally, regionally, and globally. Essentially, Eyefreight provides these manufacturers with their own 4PL capability. The crucial difference, however, is that the manufacturer maintains control over the transportation process. This allows the manufacturer to realise an increase in reliability, flexibility, service levels, and value.

If you are thinking of starting or have started a transport management project… or if you have questions about any of your transport KPIs including reliability, service levels, price, and flexibility…or if you are one of the fortunate few getting maximum value from your current transport network and you just want a sanity check to reconfirm this….

Please feel free to contact Eyefreight.