First Thoughts
  By Dan Gilmore - Editor-in-Chief  
  May 14, 2009  
  Supply Chain News: Transportation Management Comes of Age  

Is there anything more striking in the supply chain, really, than the incredible advances we have seen in the skill, sophistication, technology and importance of transportation management?

Yes, a few pioneers and leaders have operated this way for decades. 3M is generally credited with creating the first “load control center” (as our weekly trivia fans will know) in the mid-1980s. PPG Industries and a few others weren’t far behind.

But overall, most companies treated transportation management as something of a back water. “Here’s the stuff – get it here on time.” A cost center mentality only. The “traffic department.” Offices in some obscure parts of the building, and a lot of ash trays and “good old boy” relationships. I worked at a major manufacturer for a few years that operated just like that in the early 1990s.

Gilmore Says:

We will see a steady stream of companies pursue a “transportation transformation” over the next few years."

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I am being extreme for an effect, but think I am mostly on the right track.

A few things started happening in the last part of the 1990s. Companies started to get supply chain religion, and realized that the darn glue connecting about every part of the supply chain was transportation.

That became especially critical as we “leaned out” the supply chain, went to just-in-time, were pummeled with customer demands, and realized just how much we were spending on transportation.

True story: about 6 years ago, we were having a social type event in our backyard for our kids, their friends and their parents, and I entered into a casual conversation with one dad who worked for a $400 million steel tube division of an even larger metals company. We found we had “logistics” in common. He said the previous year they had spent nearly $50 million of that $400 million on freight. Someone had decided to take a look. They had cut out $5 million just by paying a bit of attention. He was confident many more millions in savings were achievable. I never did hear “the rest of the story,” but I have no doubt he was correct.

Then came rising costs, the capacity crunch of 2005/06, driver shortages, globalization, rising fuel prices, you name it. The “perfect storm,” as we called it too often.

But we are past that now. Not only past it in the sense that right now we have a freight depression, and supply well exceeds demand and rates are in the toilet, but in that we understand we will always have challenges of some kind, and that transportation management simply has to exist at new levels of integration, flexibility, collaboration, and business savvy.

I recently spent some time with the excellent Dr. Chris Caplice of MIT, and one of his main themes right now is that the talent pool in transportation needs to dramatically increase to meet these new demands. “Technical skills” are still important, but perhaps no more important than communication and business skills, he told me. Transportation managers and executives need to become “influencers,” and help shape and drive overall supply chain strategies early in the process.

It was with that sort of underpinning that we moved forward on our latest issue of the Supply Chain Digest Letter, on Transportation Management. If you didn’t receive a copy in the mail, or would like an electronic copy regardless, you can find it and a wealth of other information on our Transportation Management Resources Page.

We note, for example, that while the “load control center” has been around for more than two decades, a huge number of companies have yet to move to this model. The world’s largest chemical company, BASF, for instance, just recently implemented a series of “command centers” (by mode) to manage transportation centrally in North America across its 15 business units.

Meanwhile, others are taking the LCC concept even further, in what we refer to as the “Load Control Center 2.0.”

That involves moving the LCC to become, as appropriate, a truly global transportation hub. It also means in some cases, as with PepsiCo (actually in two different dimensions – more soon) developing a “shared services” logistics group across business units – sometimes very heterogeneous business units.

That is something very different from even the traditional load control center – different services are likely required across those unique businesses. There are tricky accounting issues. In some cases, we are seeing these functions operating as a profit center, and even taking on outside transportation management business.

In this economic downturn, transportation management systems (TMS) sales remain relatively strong. Due to all the factors cited above, they were blazing hot until the financial crisis. When CEOs are telling Wall Street that the reason they missed the earnings estimate was due to rising logistics costs, as happened often in 2007-08, getting the OK for a TMS was as easy as it has even been.

The market, like everything else, is down – but not out. Companies realize that they just have to get better in supporting transportation management with the appropriate level of technology. I just finished doing a video interview with my friend Greg Aimi of AMR Research relative to an in-progress study they are doing on TMS (available next week), and he said the penetration in large companies of a true commercial TMS is still only about 38%. Many of those, he told me, have only been implemented in the last 1-3 years.

Circling back just a bit, as Rauzat Gaurav of i2 and Gene Tyndall of Tompkins Associates/SCDigest keep reminding me, getting the structure right for this new transportation world order is critical.

What can or should be centralized, perhaps even at a global level? What should be regional responsibilities? What local? And therefore what technology capabilities need to be available to teams at each level?

Is this just not at a totally different level of discussion and dialog than we really have had in transportation until just recently?

I have no doubt that we will see a steady stream of companies pursue a “transportation transformation” over the next few years, the core of which will be thinking globally, getting more strategic, and integrating tightly with the rest of the supply chain and customers.

As I hope you can tell, I love transportation management, both as a process and a technology.  For more along this theme, download the SCDLetter and access other good stuff at the Transportation Management Resources Page.

As we reported a few weeks ago, for a “boring” function in the eyes of many, transportation managers pursue their craft with an exceptional amount of passion, as Rob Long, Director of Transportation Development at Lowe's, recently observed.

From Chris Caplice at MIT to Steve Carter of Target stores to Matt O’Connor of Rockline Industries and so many hundreds of others - I agree.

Do you agree we are really in a new era of transportation management in terms of skill levels, sophistication, etc. Are we taking the load control centers to even higher levels? How important is the need for more complex skill sets in transportation management? Let us know your thoughts at the feedback button below.

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