Helping Manufacturers to Make the Right Transportation Choices
As we explained in our previous post (Managing Your Supply Chain With a Vertical Twist by Greg Gader), managing increasingly complex, specialized logistics operations requires a high level of expertise in industry vertical supply chains.
In this post, we take a look at freight transportation issues in one vertical: manufacturing.
A defining feature of freight networks in the manufacturing vertical is just-in-time (JIT) operations. JIT manufacturing brings many logistics challenges, but here are three that we consider to be especially important.
Visibility into parts contained within shipments is critical to shippers working in the manufacturing vertical. Planners in a JIT environment need detailed information on inbound movements into the factory, down to the individual part level, to be confident that a supply chain disruption isn’t pending. Knowing which replenishment parts are expected, and when, helps to avoid unnecessary expediting costs, as well as the cost of idle production lines.
Also important is visibility into how inbound freight transportation movements are being initiated. Is a supplier driving up inventory costs by filling orders that arrive well before the due date? Perhaps a supplier is spreading an order across multiple high-cost less than truckload (LTL) shipments when the order was placed as a truckload quantity.
A transportation management system (TMS) that provides visibility to track inbound freight movements and metrics to monitor supplier behaviors are critical to driving corrective actions within the manufacturing vertical.
2. Mode selection
A manufacturer might need to use a wider variety of modes in their domestic supply chain than you would see in other verticals.
Generally, truckload will be the favored low-cost mode. However, in manufacturing there can be a tradeoff where the more expensive LTL mode is often utilized because shippers can control inventory costs by moving product in smaller quantities.
Manufacturers should also consider less costly modes, such as rail and intermodal, as alternates to truckload. Service times need to be considered when using either of these options. In recent years, service improvements have made these modes more attractive.
A high level of supply chain expertise is needed to understand the cost and service tradeoffs within integrated order and transportation planning to identify which mode delivers the best landed cost advantage.
3. Managing complexity
Keeping JIT costs down to a minimum often requires manufacturers to operate freight networks that are more complex than those found in other verticals. For example, the use of multiple cross docks and various pick-up/drop-off locations is not uncommon in this vertical. Freight can be routed direct, through a cross dock, via a static milk run, or as a dynamic multi-stop load.
How do manufacturers develop, build, and manage these complex networks?
We could write a book on the subject. In general, however, manufacturers’ freight networks include a set of static assets, such as plants. The idea is to complement these standing assets with more mobile assets, such as carrier- or 3PL-owned consolidation hubs. This mix of assets affords shippers the flexibility they need to meet the stringent delivery windows of JIT operations while keeping a lid on transportation costs.
Such a network can be created in four broad steps.
- Develop. Employ network engineers to figure out where the various assets need to be positioned. The engineers not only consider the costs involved, but also service implications such as on-time delivery rates and the level of damage claims.
- Implement. Once the network is implemented, use a TMS to dynamically route shipments. The TMS must be capable of making the best cost/mode tradeoffs and applying the correct rates based on the selected modes.
- Measure. Develop the set of KPIs that best measures cost and service quality in the network.
- Review. Reevaluate the network on a regular basis. Freight volumes, rate structures, and carrier availability change continuously, and the network has to be updated to reflect these changes.
The uniqueness of freight transportation in the manufacturing vertical has increased over recent years, and shippers need specialized support to achieve the optimum balance between cost, service, and profitability.
Critical to the success of JIT is keeping inventory levels to a minimum. This demand can, in turn, inflate transportation costs, as shippers utilize the relatively expensive LTL mode to move raw materials and components in smaller lots. It follows that a key logistics challenge in the manufacturing vertical is adopting a strategy that will minimize costs by optimizing freight networks without compromising stringent JIT delivery windows.