Original article can be found at - Inbound Logistics April 2019
While shippers face the difficult market conditions of tight capacity and heightened customer demands, they are also challenged to find transportation cost savings and improve customer satisfaction. In the wake of double digit freight cost percentage increases, many transportation managers are scrambling to stabilize transportation budgets for the coming years. They are looking to secure the best truckload performance and rates as companies cannot afford to follow in the same footsteps as 2018.
Studies show that the typical cost of carrying inventory is 10.6% of the inventory value. The highest performing manufacturers with the most profitability growth potential spend 7.4% while the lowest performers spend double on inventory (up to 14%!) Because there is a 77% correlation between profitability and inventory turns, it’s important for manufacturers to keep inventory levels as low as possible and to sell inventory as quickly as possible.
The Distribution Director for one of our packaging clients in Wisconsin was challenged with limited transportation data visibility and increasing freight costs. As transportation cost was rising more than the average double-digit gains the industry experienced, both finance and leadership began to look for a stable budget solution to offset costs and grow profit margins.
When I was the VP of Transportation Management Solutions, for a large trucking company I competed against providers offering JDA and other platforms. I sold Oracle and MercuryGate solutions to mid-market manufacturers and distributors. While I was a major proponent for these platforms, I learned that TMS platforms have not evolved to support LTL and parcel needs.
On-time, in-full scores for Wal-Mart’s top 75 suppliers -- including Unilever -- had been as low as 10 percent. Not one had reached the 95 percent long-term target, hurting the retailer's ability to improve product availability to compete with Amazon, which provides consumers with the products they want, when they want it at the price they want it. The retailer is losing an estimated $1B due to product unavailability as products are not being shipped on time, in full or products are arriving too early cluttering back rooms slowing time-to-shelf.
Frustrated with the lack of automation, streamlining and “service” that 3PL providers are delivering, mid-market supply chains who are tired of being under-served have been moving to rising SaaS, cloud and other platforms that promise to make their supply chains efficient. There are also mid-market supply chains that know they need a TMS but because of the lower cost of entry, they’re going with these solutions versus the outsourced solution.
On average, mid-market supply chains ($50M to $150M) replace supply chain providers every 2 to 3 years as they are not achieving continuous ROI improvement and they are not getting the attention they deserve. They’re too big for the small supply chain operators who do not have the technology and processes in place to manage $50M to $150M in supply chain spend. And, they are not large enough to garner the strategic attention from the big industry players who are choosing to focus their improvement energy on the Apple’s and Nike’s that are providing higher supply chain revenues.