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.

“Transportation logistics accounts for about 20 percent of the product (cost),” says Min Shi, assistant professor in the department of management at California State University, Los Angeles. “Any savings will directly transfer to profits for the company. Technology is important when used correctly. Software helps eliminate errors by giving you a direct link between all businesses involved in the supply chain and your inventory. Monitoring inventory through your programs will significantly reduce the amount of stock you keep on hand and reduce the chance of business interruption.”

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.

“Developing a correct and effective logistics strategy means knowing your customers and the company mission,” Shi says. “Connecting this through software will be your best bet to make sure you’re meeting their needs and keeping track of your goods and minimizing your costs. Much of this software used for logistics is Web-based. This means there’s nothing physical to purchase, you simply gain access to the information cataloged and updated digitally. Software also allows you to have a backup plan if plan A doesn’t work out. Relying on one carrier will become your problem if something happens with their fleet or business.”

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 for 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.

“The implementation of systems and software rapidly changed customer demand,” says George Hynes, president of Logistic Edge LLC. “Companies are seeing smaller orders and more dot.com orders of one or two items at a time instead of mass orders through business-to-business retailers. This changes the way shipping is conducted and there is a software application that can help companies adapt to these alterations and remain flexible.”

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.

“Investigate if you are effectively controlling your costs,” Hynes says. “If shipping isn’t part of your business’s core competency and you don’t plan on making it one, then you could benefit from a third-party logistics firm. A third-party logistics firm can replace or complement your internal logistics operations. The supply chain can be made or broken with the use of software. This is really a necessity in today’s industry.”

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.

“Do a cost-benefit analysis to see if a third-party logistics provider will benefit your operation,” Shi says. “After you configure what areas you currently do not have software but need it, price that and compare it to a third-party firm. Make the decision if you want to invest in the man-hours it will take for employees to learn the programs and the costs involved.”

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.

“Monitoring every aspect of business is key,” Shi says. “When you can’t monitor what is happening, you can’t measure the effects, delays, inaccuracies and other issues like fuel use have on your bottom line. Software has assisted businesses in every aspect, yet it isn’t used as much as it could be in transportation logistics. I think it will one day be a given to have software, but for now, the top companies are using it and the rest will likely follow.”