In my last post, I discussed the need to re-examine the supply chain in today’s environment. I talked about five major areas to consider and started with sourcing/purchasing. This week, I want to talk about transportation. 

Transportation is an area we need to be reviewing for a few reasons. First, the transportation sector has started to be effective in passing through rate increases and you need to be aware of the cost impact on your supply chain. Another reason is that many organizations have seen change over the past several years due to the economy. With the credit crunch, many companies have reduced their inventories.  Market uncertainty has prevented companies from confidently forecasting as far into the future as they had done in the past. These factors impact your transportation decisions—the time horizon is more compressed and we need to be able to respond quickly to orders from our life sciences and advanced technologies customers.

So, the question is: what can you do to address transportation strategies in the face of rising costs and changes in your own organization? I want to share a process we went through to address our strategy with the hope that it might be useful to you.

A robust transportation strategy is very important to us because we handle inbound transportation of materials into our regional service centers and outbound delivery to our Advanced Technologies and Life Sciences customers. A little over a year ago, we reviewed Doe & Ingalls’ transportation and logistics activities, and through the process, decided to shift our transportation strategy. We ended up creating a program that improved service levels to our customers and provided long-term pricing stability to Doe & Ingalls. These steps allowed us to maintain pre-pay and add rates to our customers in 2011, even in an environment where rate increases were being passed through and fuel surcharges were rising. We’ve solidified our relationships with partners who can offer the high-caliber, professional services that our customers require.

I’ll take you through the steps we took below.

Step 1: Kickoff

To start, we revisited our transportation objectives—safety, service and cost. While we agreed that these objectives should continue to drive our decisions, we felt that there were opportunities to improve service and price. At the time, we saw evidence that rates would be rising in the near future. And we recognized that we were making 100% of decisions at the local level without leveraging our national presence. Wanting to achieve stability and create a win-win with our partners, we thought that entering into a more collaborative, long-term relationship with carriers might help us achieve both objectives.

Step 2: Select Transportation Partners

After we went through and looked at our transportation spend and carrier performance history, we agreed on the carriers we wanted to engage. Because transportation is such a key part of chemical distribution, we had a good idea from the start of the partners with whom we wanted to do business.
We chose a core group of national carriers for the company and a select number of regional carriers for each D&I service center.  This dual strategy was important to meeting the high standards of our customers for quality, consistency and on-time delivery.

Step 3: Create a Win-Win

Our next step was to have our potential partners buy into the program. As we worked with our carriers, we communicated a consistent, win-win message:

1. We would be implementing a Core Carrier Program that would reduce our total number of carriers. Transportation providers selected for the program would immediately benefit from increased volumes and secure future business.
2. We expected a collaborative relationship with our transportation partners that resulted in costs being eliminated from the relationship, not just being pushed to the carrier.
3. Price increases would be capped on a year to year basis for the next three years.

Importantly, Doe & Ingalls did not force its partners into rate agreements that would not work for them in the long run. Recognizing the need for our carriers to be profitable was important to building a long-term, true partnership.

Step 4: Execute

With our Core Carriers established, we had to live up to our end of the agreement. We provided our internal decision makers with additional training and easily accessible information on each Core Carrier. Consolidating carriers went smoothly and had an immediate positive impact, reducing the number of daily pickups and deliveries and making it easier to monitor performance.

Step 5: Monitor

The last step in our process was establishing monthly metrics to monitor the Core Carrier program.  There are two main components to the monitoring process. The first is a detailed shipment analysis provided to the people making transportation decisions on a daily basis. The report allows them to review the decisions they made and look for opportunities for improvement. The second component is a monthly meeting of the transportation team to review high-level metrics. This review helps assure that we are adhering to our strategy and that carriers are continuing to meet their service and pricing commitments. 

We continue to monitor our transportation decisions today and find ways to make improvements. So far, the program has been a success, achieving our objectives for service and pricing improvements. Today, we have stronger relationships with our transportation partners and have avoided 2011 price increases.

What are the ways that you or your company has used transportation as a tool to strengthen your supply chain?