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.

“The transportation logistics rules are all changing because of the economy,” says Arnold Bornstein, executive director of marketing and corporate communications for BDP International Inc., a global logistics and transportation solutions company. “Three-year strategic plans are all null and void and companies have to reconfigure budgets and readjust everything with their transportation logistics. If you aren’t operating your shipping through software, then you are at a great disadvantage. It will be much less efficient and more time-consuming to research rates and work off of spreadsheets than it would using software.”

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 companies will sell software with a perpetual license so you will always have access to the newest updates,” says Tim Andreae, senior vice president of global marketing for MCA Solutions Inc., a service planning and optimization software company. “There could be a monthly fee involved, but the benefits surpass the cost. Software gives you better visibility of the physical and nonphysical aspects of your 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.

“Part of the new normalcy when the economy heals will be the need for leadership to change economic credit to support normal business operation,” Bornstein says. “Part of daily business operation is having easy and fast access to your business information. Some businesses are delayed in this process because they can’t financially swing the initial investment costs.”

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 at the 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.

“Companies need to conduct an analysis for what their shipping prices are because the environment is ripe for renegotiating,” Bornstein says. “If you have in-house software, you can discover the best companies to use to meet your supply chain needs by finding their rates and history of on-time delivery. It’s always a good time to be efficient, but the softening of the economy demands no stone goes unturned. Technology will save budget dollars and maximize your employees’ use of time.”