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.

“Without transportation logistics, businesses can’t operate,” says Luis D. Lopez, president of Dangerous Goods Declaration Inc. & DGD Transport Inc., a Miami-based hazardous materials transportation company. “Software use is critical in transportation logistics because it manages all areas of the process. Using software can eliminate at least two employees. The efficiency you’ll see immediately after the software is installed. Some types of software will allow you to check inventory or tracking on a load without calling the company. This software is Web-based and allows you to visualize your goods regardless of where they’re housed or where they are being sent.”

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.

“Some businesses shy away from the investment of software, but technology provides techniques that can increase the size of each shipment,” says James Moore, vice president of sales for Ryder System Inc. “Software can tell you your savings if you can get customers on board with two-day shipments instead of same-day, and the rates will be automatically lower for them and 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.

“Companies don’t need to keep a ton of extra people on board when they don’t have work for them and the economy is down,” says Cynthia Cabrera, president and lead consultant of Global Solutions & Services Inc. “Less people also means less to plan. Software can be very useful as long as it is necessary for your operation and the people using it know what they’re doing. This can save you a ton of money, but like everything else, you have to have a reason for it and know what return to expect.”

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.

“Efficiency means better customer service,” says Jamison Day, professor, University of Houston, C.T. Bauer College of Business. “Software helps you move through the process better, faster and cheaper. If you don’t have the capabilities to purchase all of the necessary software, but your company relies heavily on shipping, you should consider a third-party logistics firm.”

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.

“There are a fair amount of laws that must be obeyed in shipping, as well,” Day says. “Software will keep you abreast of what is necessary when sending out loads. You will, of course, have to keep upgrading your software, but this cost is much lower than fees and penalties that can be accrued when you don’t have paperwork in order. This delay will also make your customers unhappy.”

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.

“Computers tend to find ways that reduce driving time and improve loading of shipments,” Day says. “The technology doesn’t replace the humans; it augments them, making everything more efficient. Depending on the industry a third-party logistics firm will be a must. Calculate the rate to bring this service in-house compared to that of a logistics firm. Make sure that you find the right company to fit your needs. Don’t partner with the first guy holding a hammer looking for something to hammer even if it’s not the right tool. Look for a tool-independent firm.”

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.

“Make sure you have the appropriate network to support your needs,” Moore says. “If your needs have adjusted with the economy, use software to help eliminate unneeded assets and plan the process more efficiently. Because of the economy and companies’ need to take less profit to keep customers, rates of purchasing software or going through a third-party logistics firm are very low compared to even a year ago. Although the rates will rise with the economy, you can take advantage of them while they last. If you maintain your software, your capabilities won’t decline with the economy.”