Logistically Speaking: Shippers Seek a Smarter Way to Control Logistics Costs

As much as we’d like to think otherwise, logistics management is really a pretty simple concept: Spend as little as possible to get your products delivered on time to your customers. All of the other components of your supply chain strategy—sourcing, forecasting, product development, workforce development, safety, risk management—take a backseat to the main goal of achieving the Perfect Order, within budgetary restrictions. Because there's always going to be a tradeoff between what's possible and what's affordable, and no matter how high up the corporate ladder you are, you’re always going to have to answer to the bottom line.

In fact, it's that very focus on cost reduction that supply chain executives say is their #1 focus area, according to Scott Sopher, a principal with Deloitte Consulting. Sopher, one of the keynote speakers at last month’s Modex trade show, believes that this preoccupation with cost reduction is actually working against supply chain professionals, "choking off investment in essential innovations that are the key to long-term growth, performance and efficiency."

And yet, how do you avoid being preoccupied with costs when they can change the nature of your logistics strategy overnight? In the recent Freight Pulse 32 shipper survey conducted by Morgan Stanley with MH&L, respondents indicated they expect to see base rates for transportation rise for every mode studied over the next six months. Rate hike expectations are:

2.4%  Truckload

2.4%  Rail

2.0%  National less-than-truckload (LTL)

2.0%  Regional LTL

1.7%  Intermodal

Those expectations tend to be on the optimistic side, since already this year we’ve seen several of the major national LTLs announce general rate hikes in the range of 4%-6%; a mere 2% hike now seems like a bargain. According to Rosalyn Wilson, transportation analyst with Delcan Corp., expenditures have been growing at a faster rate than shipment volume this year. "The economy has yet to feel the rate increases that should be coming later this year when capacity tightens and carriers take back the reins for rate control."

Now, there are any number of strategies that shippers can adopt to try to minimize the impact of rising costs—fuel, equipment, regulatory compliance, labor—in their logistics spend, and they're certainly well known to the MH&L audience: modal shifts; load-sharing; cross-docking; collaboration; outsourcing to 3PLs, etc. In fact, I even wrote an entire book about the various logistics strategies in play (Supply Chain Management Best Practices, Wiley, still available at fine websites near you).

But the top strategic priority for supply chain managers right now, according to a report from Deloitte Consulting and the MHI trade organization, is analytics. Now, it's quite possible that analytics is this year’s Next Big Thing, a technology in search of a solution, but then again, a number of companies are already tapping into resources that allow them to gain a better understanding of their supply chain world. As Deloitte's Scott Sopher explains, "Companies can now create control towers that provide proactive visibility into global events along the supply chain by portraying vast amounts of data visually to reveal insights into shipping patterns. This provides better insight into material flow, and enables trade lane managers to respond more quickly and holistically to unplanned events."

Sopher points to an aerospace & defense manufacturer that uses visualization and simulations to reduce material shortages and improve planning in the face of volatile product lead times. Meanwhile, an industrial products company uses analytics to monitor supplier risk, helping to ensure uninterrupted material flows form supplier to point of use.

One company that has always had a laser focus on minimizing logistics costs is retail giant Walmart, and in recent years the retailer has become as well known for its sustainability initiatives as for its omnipresent private fleet. Walmart currently employs 7,200 drivers in its fleet, according to Kevin Jones, vice president of inbound transportation, who says that Walmart maintaining its own fleet is "a competitive advantage since it helps us be more flexible with our supply chain." More to the point, through its Sustainability 360 program, the retailer has delivered 658 million more cases while driving 298 million fewer miles. And while still in the prototype stages, Walmart has unveiled a tractor-trailer combination that features "leading edge aerodynamics, an advanced turbine-powered range extending series hybrid powertrain, electrified auxiliary components, and sophisticated control systems" as part of its goal to further reduce logistics and transportation costs in an environmentally-sustainable manner.

So will a strategy that encompasses both analytics and sustainability be the key to helping you reduce your own logistics costs? The jury may still be out on the final answer to that question, but a number of major players are already reaping the benefits of the top two strategies of the year.