The Laws of Lean Transportation Management
There are all these things in life that we think “Oh, I cannot live without that,” and if it wasn’t for transportation management we most likely would not have anything we want or need on time. Think about all the cars we have in the United States that have been shipped from different countries all over the world. These companies have deadlines to get their cars from one country to another, and supply us all with the bigger and better car every year.
Transportation, like inventory, is necessary activity within logistics. In fact, it is a fundamental to allow us to make product in one place and consume it in another, closing the distance of geographic separation. Fast, efficient transportation explains a great deal about why cities develop where they do. See the U.S. western expansion for a history lesson on the pivotal role of transportation in economic development. Can you name the largest U.S. city not located along a river, lake, or ocean?
Transportation Management Cost Consideration
Transportation represents the biggest single cost in logistics. About $600 billion is spent each year on transportation in the United States alone. That is just over 5 percent of U.S. gross domestic product or 5 cents out of every dollar spent in the United States. The vast majority (almost 83%) of those dollars spent on transportation are directed toward motor transportation.
Not only is transportation a big cost consideration, but the time that goods find themselves in transit represents a big component of order lead time and can be major contributor to variance in order cycle time. Again, in the absence of “teleportation” or the Star Trek beam, it takes time to move product from one place to another. Here is a host of reasons why shipments can be delayed: late pickups, equipment failure, driver failure, inclement weather, and traffic congestion, among endless possibilities. Despite these mounting challenges, there is decidedly less patience for failure and inability to meet on-time delivery commitments today.
The Five Laws in Transportation Management
When developing our strategies at LeanCor to bridge lean thinking and transportation management, we realized that there are five laws that we need to operate by. These are:
1. The law of transportation strategy
This first law is that transportation strategy and execution should be developed by inventory strategies designed to support customer expectations. Inventory and customer strategies should not be a result of transportation strategies based on silo optimization of the transportation function. In other words, start with ultimate customer demand and develop your inventory strategies to connect supply chain activities to actual customer consumption. Once this is complete, design your transportation plan to support the inventory strategies.
2. The law of transportation wastes
As it may seem to contradict some lean literature; the Law of Transportation Waste is that all transportation is not waste, and transportation can be used as a strategic differentiator. However, transportation in excess of what is necessarily required is waste, and should be eliminated. I fully realize transportation is one of the eight wastes of lean. However, at LeanCor we don’t think that way in totality. At times transportation can be strategic and value added.
3. The law of transportation performance
The Law of Transportation Performance says that transportation is not a commodity, as transportation providers and services are differentiated. Transportation service providers have distinct and measurable levels of performance capability. Therefore in transportation, you get what you pay for. This is a very important principle. All transportation providers are not created equally. To build a lean supply chain, organizations (shippers) need to work with quality carriers that will be stable and dependable. Where possible, shippers need to focus on long-term relationships with core carriers where the carriers are working directly for the shipper and not through third parties.
4. The law of transportation cost structure
The Law of Transportation Cost Structure states that transportation cost is made of two distinct areas. These are unit costs and productivity costs. The significant opportunity for reducing transportation cost is in productivity costs. Focusing on unit costs will only result in creating instability of the transportation network. What I am saying is that from a lean perspective, we should focus on productivity and not solely on carrier rates, or unit costs. There are simply no winners when shippers beat down carriers on rates to the point that they are running down the road unprofitably. The real prize for organizations is to focus on trailer utilization, total miles ran, equipment waiting time (which is pure waste), and adherence to core carrier routing guides. At LeanCor we focus on negotiating carrier rates that are fair, competitive, and equitable for all parties. We then pour all of our attention into the productivity of the transportation network. This is a big reason why we don’t own trucks but rather choose to work collaboratively and effectively with existing trucking companies and a few select non asset-based transportation providers.
5. The law of daily transportation management
The last law is The Law of Daily Transportation Management. This states that sustained and optimal transportation cost reduction is not realized through infrequent transportation network designs and carrier RFQs. Cost savings will result only from daily transportation event management and an hour-to-hour focus on transportation waste identification and reduction. This really builds on the previous discussion. The fact is that transportation functions need to be managed with the same rigor as any other important function in the business. We need to start the day with a transportation plan, we need to execute to the plan, and then check actual condition to the transportation management plan. Any waste that exists needs to be documented, and problem solving needs to happen around the waste. Going over monthly reports that average everything out will simply not do the trick. You have to invest in the infrastructure, technology, and trained people. In addition, you need to commit to create daily route designs, complete real-time track and trace, generate real-time metrics, and complete daily problem solving. This investment and focus on process discipline is the lean way.
Lean thinking can be applied significantly in transportation management and its function. All it takes is a willingness to examine new ideas in a mature business function.