Wheels of change Featured

8:00pm EDT April 25, 2009

The transportation industry has taken a hit in the past couple of years — first pummeled by fuel costs, now endangered because of lack of product demand. Even though the economic forecast may be grim, this is a prime time to evaluate your current network to find wasted money and inefficiencies that may be hurting your customer service.

Delivery delays and poor packing and routing methods can all cost your company money.

The good news is that there are software solutions out there that can help you fix your problems with a minimal investment and lower your logistics and transportation costs by 8 to 15 percent.

“Software will help you minimize the number of employees you need and eliminate errors,” says Emre Ikiok, business manager for Chase Transportation & Logistics LLC. “Supply chain problems tend to have a domino effect, so having one area of your operation managed by software and not the rest won’t eliminate issues that may arise in truck loading, for example, if you’re only managing your routes with software It’s best to just make the investment for the entire system or use a third-party firm that handles everything.”

Software programs are available to assist companies from the time an order is placed through the successful delivery of the order. Many executives view their transportation department as a cost center, but through successful management, it can be another way to earn money.

Why logistics software is important

The addition of software to your logistics department will optimize daily and long-term transportation plans and scheduling, carrier selection, route planning, inventory management and small parcel shipping, which can reduce costs.

While a software investment may cost at least $10,000, improving your shipping processes will allow you to serve more customers and increase profits in the long run.

“Transportation logistics is all about meeting needs,” says Izak Duenyas, a professor and chair of operations management for the Ross School of Business and a professor of industrial and operations engineering at the University of Michigan. “Transportation logistics isn’t a cost center, you have to think of it in a problem-solving fashion. Customers want something and finding the fastest, most efficient process will create customer loyalty. Software plays a big role in this, but it will have no benefit if you don’t know the solution you need. Have a clear strategy then invest in the most appropriate software to assist you.”

A common transportation management issue has businesses keeping more inventory on hand than necessary. This typically happens when stock is manually cataloged instead of tracked with software. This means more of your money is sitting in warehouses instead of in your pocket.

“This economy has been like getting bariatric surgery,” says James Moore, vice president of sales, Ryder System Inc. “If you lose 100 pounds all at once, your clothing isn’t going to fit anymore, and that’s what’s happened with many companies’ networks. They are now way larger than what they need to be and their one-time assets are now financially draining them. If efficiency is a problem with your transportation process, software will help eliminate errors and make the most of all efforts.”

Human error is a big part of what can go wrong in logistics. Depending on the volume of orders you are receiving, this can add up. The use of software can eliminate these errors and make your inventory and tracking easier to manage. Software can also determine the best carrier for a particular type of shipment and contractual agreements.

“Software will also help you bargain with all of your purchases,” Ikiok says. “You can look at the amount of business you do with a company, how frequently they were on time and a variety of other facts that will give you leverage when negotiating rates. The software can even tell you if another company has better rates.”

What you need to know

Before making a software purchase, you need to assess what areas of your process are in greatest need of assistance. While some companies package their software options, others individualize the programs for specific areas of interest such as shipping and loading.

To figure out where you need help, you will need to perform an audit that tracks products from production to delivery.

Start by making a checklist. Are your shipments on time? Are your trucks traveling with full loads? What are your current fuel expenditures? Are you utilizing the best routes? What rates are you paying carriers? Are you paying your employees overtime? Are your orders accurate? If you don’t know how to obtain this information or you’re finding inconsistencies, software can probably help you reduce errors and delays.

“Being more efficient with software also means employees will be free to work on other projects,” Ikiok says. “One of the biggest benefits of software is it will help you to maximize each load and reduce the number of trucks you use to deliver. If you aren’t getting the best rate, you have options to go elsewhere. With the bad economy, clients are looking for the lowest shipping rates possible. If you are working with a company that isn’t flexible, you need to find a new one. But if you aren’t in the loop with technology that can provide rates, you’ll be spending a lot of time evaluating other rates and possibly putting off finding the better company for convenience reasons. That won’t happen with software.”

After you’ve determined the area you need the most help with, choose a software company you feel comfortable working with. Find a company that will be accessible when you need them. If you decide handling everything in-house is too expensive, find a third-party logistics firm that handles the details while you focus on your core competencies.

“If you choose to do business with a third-party logistics firm, you need to have a good relationship with them,” Ikiok says. “We all need to help each other stay in business and a good third-party firm will always look out for clients’ best interests.”

Today’s economic climate may be tough, but by looking for savings in every area of your business — including transportation — you can find money that can be better used elsewhere in your organization.

“It can be challenging to find the legitimacy in making investments when so many companies are in trouble right now,” Duenyas says. “But if you can invest in something, invest in the proper software and don’t look at only the price, take into account everything a partnership can bring to the table.”