Reducing your carrier base – risk or reward?
You've heard the adage "Focus on the journey, not the destination." In the transportation business, you must be relentlessly focused on both. Continued global expansion is leading to a wealth of new business opportunities. Consequently, your transportation strategy is an even more critical component of supply chain planning. Today, you must plan farther ahead, ensure that your transportation strategy is firmly aligned with your business needs, and perhaps most importantly, maintain visibility throughout your supply chain.
This is where carrier relationships come into play. Without the right carrier base, you could be preventing your company from taking advantage of market opportunity and exposing your business to a host of supply chain disconnects. To avoid these scenarios, your transportation planning process must begin by strategically structuring your carrier relationships.
Studies over the last decade have consistently shown that the supply chain can directly impact, on average, 75 per cent of a business' operating results. According to UPS research, conducted in conjunction with CFO magazine, corporations identified as having best-in-class supply chain practices manifested market cap growth of seven to 26 per cent above industry average. However, trading companies identified as having poor supply chain operations experienced market cap growth below their peers. One key difference between the "leaders" and the "laggards" has been their freight purchasing strategy not just driven by price considerations.
Our experience tells us that leaders pursue a strategy focused on productive working relationships with select providers who deliver sustainable competitive advantage in addition to delivering freight. Laggards frequently allocate individual shipments haphazardly across a wide number of carriers, limiting both their operational efficacy and their economies of scale.
How do you become a "leader" and not a "laggard"? Understanding the importance of carrier relationships and their impact on your business is the first step. The next is developing your carrier base. Some companies adopt a multi-carrier approach. While this is a sound strategy in theory, the reality is that involving too many responsible parties often means no one takes responsibility. Too many touch points in the supply chain increase the likelihood that key steps will be bypassed, resulting in a breakdown that could lead to lost shipments, customers and profits.
While reducing your carrier base sounds like a daunting task, the rewards far outweigh the risks. In addition to avoiding business disruptions by decreasing the number of touch points in your supply chain, reducing your carrier base can lead to significant cost savings. With multiple niche providers, you lose operational efficiencies and dilute the value of your buying power. By working with one carrier, you concentrate your spending and obtain better pricing options regardless of transport mode. You also realise savings on the back-end by reducing costs associated with processing and paying multiple freight bills.
Supply chain visibility is another area in which you can reap the rewards of a smaller carrier base. Technological advances ensure that you now have the ability to "see" where your freight is at all times. This gives you the flexibility to make real-time business decisions, including communicating any delays to customers and planning for contingencies. When multiple parties are handling your goods and those parties are not connected, you can quickly lose visibility into your supply chain. Streamlining your carrier base enables you to answer consistently your customers' "where is my freight" question.
Once you make the decision to reduce your carrier base, the next challenge is identifying the right lead logistics provider and carrier to best meet your needs. As the critical link between you and your customers, carriers should be seamless partners in your business. They should understand your business needs and how those needs fluctuate. They should monitor their own performance and make changes proactively when needed. They should have flexibility to adapt to your customers' needs. Most importantly, they should always be helping you maximize your transportation investments, resulting in a strong, reliable and resilient partnership.
- The writer is Managing Director UAE for UPS
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