Supply Chain Expertise and Technology Blog by TMC, a division of C.H. Robinson

Balancing the Cost Versus Service Equation

Cost and customer service

It is no revelation that of the many challenges transportation managers face, one of the toughest is how to bring costs down while ensuring that customer service moves in the opposite direction. This is particularly true in a post-recession environment, where companies are coming out of their shells to take advantage of new found growth.

It is difficult to overstate the importance of coming to grips with the cost/customer service struggle, so as you limber up for an upturn in business, here is a handy to-do list that will hopefully keep you focused on solving this classic transportation conundrum.

1. Get everyone on the same page

Do as much as you can to make sure that the sales, customer service, finance and purchasing departments are all pulling in the same direction when judging the performance of transportation. The first two have an affinity for service metrics while the latter two tend to favor hard cost measurements. You won’t change this psychology, but you can achieve broad alignment. A word of caution: this should not be a solo effort. The overall aim is to prioritize transportation metrics and align them with corporate strategy, a task best tackled by a cross-functional team.

2. Marshal your resources

When cutting costs, a common pitfall is to skimp on your back office budget. Taken to extremes this strategy can create inefficiencies that frustrate your original goal. Work with internal stakeholders to figure out how you can streamline back office functions without cutting them to the bone. Outsourcing activities such as freight payment and claims is a sensible first step.

3. Watch out for the gaps

Prioritize savings initiatives and identify the operational gaps that prevent the high-priority projects from being realized. Address these gaps, and estimate the cost of these actions to make sure that they are not too expensive in relation to your annual savings targets.

4. Be constrained

Constraint-based procurement software packages – that collect freight rates and model scenarios to help shippers buy the optimum transportation plan – are powerful tools that you should seriously consider using. Spreadsheets will not give you the same cost- saving horsepower.

5. Move to the center

Centralizing procurement and core transportation processes such as freight tendering makes it easier to do business and yields cost savings. A robust transportation management system (TMS) multiplies the benefits by automating routine processes and making it easier to monitor your operations. But don’t stop at centralizing these functions; apply the same discipline to your network.

6. Get serious about metrics

Use management routines to continuously measure performance. These involve carefully crafted monitoring programs that focus on specific elements of your operations. Scorecard yourself and the carrier community, keeping in mind that optimizing metrics such as dwell time can deliver significant paybacks.

7. Is inbound on your radar screen?

Don’t overlook inbound transportation (for more on this see the blog Make the Move to Inbound by Chris Brady, TMC General Manager, Americas). Inbound movements can offer rich pickings for cost-cutting and efficiency programs.

8. Don’t lose sight of the other guy

Benchmarking is not a one-off exercise but an ongoing effort to stay ahead of the pack. Always be on the lookout for unfavorable comparisons with industry standards and best-in-class competitors. For example, do you have access to real-time performance reports and do you have a formal carrier management program?

The above checklist of best practices is not a universal recipe for achieving the lowest costs and excellent customer service. But it does provide a basic roadmap that will help to keep you on track as the competitive traffic gets heavier.

- President, Managed Services
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