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Transportation optimization should not be treated as a commodity, but why take it so seriously?
First, that’s where the money is.
There are a number of value drivers that contribute to the transportation business case. Just to name a few: improved customer service productivity through centralized visibility, increased efficiency through improved carrier communication and connectivity, and streamlined freight cost reconciliation and payment processes.
When you rank these items by specific monetary value, it’s the results of an optimization engine – mode and carrier selection, multi-stop consolidation, backhaul, and continuous movement – that rise to the top.
If you aggregate these items, the optimization value is equal to more than 85 percent of the total transportation process improvement value proposition. So, the more sophisticated the strategies; the greater the contribution to overall tangible and achievable value.
The goal of any transportation plan is to minimize cost. But this should not be done in isolation. The constraints of the network need to be represented and respected in order for the plan to have any real meaning. Solutions should take into consideration dock constraints, carrier service areas, cost structures and capacity, order and item dimensions and other factors. The more sophisticated the solution used to address these elements, the more planners can focus on dealing with incremental exceptions and disruptions.
The solution is targeting the “right answer” by considering a broad array of constraints, which increases the accuracy and hence the ability to execute on the answer. Stated conversely, it is important to consider the cost of a wrong answer – one that seems like it drives value but in reality violates a number of key network constraints.
An example could be a fully built, multi-stop load that was built without visibility to current dock constraints. Consequently, it has to be re-built because there is no capacity to accommodate it. Not only has the initial perceived value of the load been invalidated, but there is incremental value leakage due to the re-work required.
So, why so serious? Because optimization is where most of the bottom-line benefit is. It frees up planners to focus on value-added functions. And, it prevents on-going value leakage based upon getting the answer right the first time around.
This blog was adapted from a post originally published in JDA’s Supply Chain Nation Blog.