by Marco Cristini, Business Analyst
Supply Chain Management (SCM) can be divided into three main areas: purchasing, manufacturing, and transport. From end to end, this includes decisions about which input materials to use, production quantities, inventory levels, distribution network configuration, and transportation for both the input materials as well as for the finished products. Logistics Management is the component of SCM that focuses on how and when to get raw materials, intermediate products, and finished goods from their respective origins to their destinations. Today, international trade is commonplace and increasing market share in emerging markets is highly desirable. It is therefore safe to say goods are rarely consumed where they are produced, and transportation services are the essential trait d’union between all of the elements of the Supply Chain. Effective, cost efficient Logistics Management can be a real point of competitive differentiation. But how does a company achieve this?
To practice effective, cost efficient Logistics Management, an organization must lay the foundation for a responsive, economical transportation network. With a responsive, economical transportation network, an organization is able to implement major strategic changes to reduce costs and increase customer service levels with very little disruption to the overall supply chain flow.
A responsive transportation network begins with end-to-end network visibility. Visibility allows the business to centralize production operations to lower-cost areas without impacting customer service levels, because any uncertainty within the network can be monitored and appropriately managed to keep inventory levels as low as possible.
An economical transportation network actually begins with a shift in attitude. Businesses are often trapped in the traditional view that transportation is a necessary evil – an inevitable source of cost and risk. And who can blame them? Transport is by far the largest component of the cost structure of a business’ logistics. According to sector research (Chang, 1998), transport accounts for as much as 30% of the total cost of logistics operations – almost as much as Warehousing and Inventory together!
Now consider the impact of transportation activities on the overall economy of a country. The numbers are impressive. In the United States in 2005, freight transport activities accounted for 10% of the GDP. In Germany alone, the Freight Logistics Sector (the largest in Europe) came in third in total revenue (after retail trade and the automotive industry) with a whopping 170 billion Euros, or 7% of the German GDP.
While the data certainly lends itself to the mindset that transportation is a “cost albatross,” if you will, around one’s neck, this attitude is rapidly changing. In fact, Supply Chain Managers who are outpacing their competition have done so largely by acknowledging transportation as a ready vehicle through which to drive cost savings and create value within the Supply Chain. How? Technology, for one. More and more sophisticated tools allowing Managers to monitor, control, and optimize transportation networks are available, and in the wake of the Cloud – are available with increasingly easy implementations.
That said, while a Bloomberg survey reports that 73% of Supply Chain Managers are undergoing this shift in attitude toward transportation and identifying transportation as their key focus in 2014, the same survey also reported that the current adoption rate of transportation solutions is somehow lagging – with 46% of participants reporting current use of a solution, and another 22% reporting plans to adopt one in 2014.
The road ahead is therefore still long, but the systemic impact of transportation-related figures clearly demonstrates that transportation is much more than just the financial drain associated with trucks, pallets, and warehouses. When the appropriate tools to manage complexity and guarantee visibility are in place, transportation provides an organization with the opportunity to continuously create operational efficiency and improve the bottom line – ultimately unlocking previously untapped value for shareholders.