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Focus: Transportation Management

Feature Article from Our Transportation Management Subject Area - See All

From SCDigest's On-Target E-Magazine

May 2 , 2012

 

Logistics News: Can Pre-Rating Each Shipment in TMS before Optimization Run Provide Valuable Insight into Transportation Performance?

 

A Three-Level Analysis of Transportation Performance Could Help Measure Effectiveness and Reduce Cost Leakage, but Cost Allocation is a Challenge


SCDigest Editorial Staff

 

A presentation by Ric Bush of Ryder at the JDA Software User Conference in Las Vegas this raised an interesting question about the potential use and value of rating each individual shipment before it is optimized and then executed.

The basic premise was this: by capturing what the rate would be for each shipment/order upfront as a standalone move, interesting and valuable analysis can be performed later to see what improvements were delivered via the optimization.

SCDigest Says:
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Many companies already face that allocation challenge now apart from any notion of including a standalone shipment rate into the reporting, as they need to allocate costs between say business units or product groups, or support cost to serve analyses with allocated transportation cost data.
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In Ryder’s case, the JDA TM solution has an available web services call (basically, “get rate”) that can be easily added to the TMS workflow. That call brings back the best standalone mode, carrier and rate for each shipment. Most other TMS systems likely have a related capability out of the box, or such a function should be able to be created without too much effort.

So, a given shipment would be routed and rated upfront based on the optimal choice for mode and carrier, following existing rules within the system (for example, any shipment over 15,000 pounds goes truckload). Bush said the JDA solution includes estimates of accessorial c osts in its rate calculation.

These “pre-rates” then become the baseline for later changes to this standalone shipment view and cost that come from the subsequent optimization runs – or mode/carrier shifts that happen during execution.

And those changes could be many at each stage. In optimization, for example, less-than-truckload (LTL) shipments will often be consolidated into multi-stop truckload moves; individual truckload moves might be linked in a continuous move that lowers the combined individual costs of each. On the other side, sometimes the cost of an individual shipment sometimes goes up a bit versus standalone after optimization in the goal of minimizing the total cost of all the freight movements.

Another example might be that there are limits for how many loads are assigned to a specific carrier in a lane due to carrier capacity constraints or rules to meet how much freight is allocated to a group of carriers. Planners will sometimes make adjustments to a plan for their own reasons.

Changes of course can also happen after the optimized plan is promoted to execution for any number of reasons. Those include order changes, carriers declining tenders – and sometimes the whims of the transportation manager, and more. Bush cited the example of a carrier who happened to be at the DCA, and the transportation manager there just decided to give that move to that carrier.

So, with each of these data points, it would be possible to compare the costs for each shipment as rated individually, costs as planned coming out of optimization, and costs as actually executed. One could even ad a fourth level, which would be actual costs paid to capture any changes in actual accessorial charges. That data might, for example, pinpoint how much value the optimization is delivering.

Similarly, if the savings delta from optimization over the base case starts to degrade over time, perhaps the optimization rules need to be updated to meet new business realities. One member of the audience suggested that analysis might be used to compare over time the amount of savings over the baseline different planners are achieving, recognizing that there could be differences in the order profiles or other factors across planning region/segments driving those differences too.


(Transportation Management Article Continued Below)
CATEGORY SPONSOR: SOFTEON

 

 

A number of companies, but far from all, already in some way track difference between final planned costs and executed costs, whether it is the simple but important measure of what percent of loads are executed as planned or more sophisticated approaches such as tracking specific reason codes for changes from plan. This can be combined with setting targets for minimizing additional costs above planned costs through root cause analysis. For those companies not well measuring those things now, the step of getting that stand alone rate could serve as a catalyst to get to that three-level analysis.

 

 

Source: Supply Chain Digest

 

Cost Allocation Challenge

The fly in the analysis ointment, in a sense, is how optimized costs are allocated in the reporting system.

For example, supposed a company has a 30,000 pound shipment going to the Chicago area that initially rated at $600.00. After optimization, a 5000 pound order is added to that load that will require the carrier to make another stop and drive some extra miles, adding $75.00, making the new cost for both deliveries now $675.00. Now, most everyone would agree of course that the extra $75.00 should be allocated to the 5000-pound shipment, but other than that, does it ride for free, get allocated one-seventh of the $600.00 cost – or something else?

Of course, many companies already face that allocation challenge now apart from any notion of including a standalone shipment rate into the reporting, as they need to allocate costs between say business units or product groups, or support cost to serve analyses with allocated transportation cost data.

There is no right answer, but the consensus of the audience was that bringing in the standalone rate for use in analyzing transportation management effectiveness would likely force issue if a company does not use a cost allocation process currently.

Ryder’s Bush also noted that another benefit of calling for a rate at the start of the process is that if a given shipment will not rate for whatever reason, that exception will be called out early, allowing transportation managers to deal with it.

Do you grab a rate for each shipment before optimization currentlyfor use in analysis? Do you think there would be any real value from this? What about the allocation question? Let us know your thoughts at the Feedback button below.

 

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