Rethinking network flows

Rethinking Network Flows to Survive – and Sustain – in a Capacity Constrained Environment

A robust construction market and increased regulatory requirements are combining to squeeze domestic transportation capacity. The American Trucking Association has reported that Q2 2017 driver turnover jumped 16% (to 90%), and in Q3 2017 it rose another 5% (to 95%), that figure’s highest level since 2015. Elsewhere, we see reports that many smaller regional fleets are still lagging behind super-regional and national fleets in Electronic Logging Device compliance – even though the compliance deadline is long past.

On top of these capacity issues, recently enacted tax reform could potentially generate more consumption and further boost the economy.

Takeaway: transportation requirements may increase during a capacity crunch. It will be harder for any company to post reliable, cost-efficient customer service performance. So, what is a shipper to do?  Where should a shipper focus on solutions?

To begin with, focusing on traditional tactical transportation solutions is always worthwhile and often produces quick results. Transportation professionals should be doubling down on eliminating waste and practicing good shipper behaviors, such as establishing reliable dock appointment times, working to reduce dwell times and paying carriers quickly. Growing the role of dedicated fleets is another common option, and in tight markets more fleet service may be justified.

However, this situation also deserves a strategic, more sustainable approach, not unlike what we saw in 2008 when fuel spiked to over $4/gallon in a few short weeks and independent truckers staged a short strike. The question changed, from “how much will this move cost?” to “can we get a truck?”

In response to the 2008 capacity crisis, an industry event focused on fundamental issues in supply chain design that drive transportation requirements. The event raised a completely different question: “how can we reduce highway miles?”

Reduce highway miles without compromising revenue − now that is a great, sustainable quest! True, it can seem a bit ludicrous at first; but rethinking traditional conventions and tradeoffs in network flow paths can uncover valuable solutions that remove highway miles. Some examples:

  • Consider intermodal as an option. We often see opportunities overlooked here. In many lanes intermodal is comparable to truck. Challenge your mode decision process. Customer Service often makes the mode choice and frequently defaults to truck based on perception, not facts. Evaluate intermodal service issues. Intermodal reliability is usually a function of dray moves, not the train schedule. Better management of dray providers or even insourcing the dray move can improve performance and support additional shifts to intermodal.
  • Re-think the inventory vs. transportation tradeoff. As transportation performance declines, historical network optimization results may require re-examination. Consider inserting additional nodes in your network’s “inventory deserts.” You may add some inventory cost, but you will be closer to customers and strip out highway miles.
  • Consider establishing shared-use network nodes. Although establishing new nodes seems like a long project, logistics service providers are increasingly offering shared-use facilities for a wide variety of purposes, provided on a variable cost basis with no capital investment. For example, Transportation Insight has a national network of over 100 strategic warehouse locations to supplement a network. Examining segmented flow strategies on a SKU or customer basis can reduce highway miles through mode conversion or facility bypass.
  • Re-consider port gateways and import flow paths. Progressive ports are introducing new options by investing heavily in infrastructure to change the speed, cost and reliability of inland flow paths. One port executive tells us that their growth strategy is figuring out “how to take trucks off the road,” working with rail carriers and developers to create inland ports and increase rail capacity to all areas of the country. Consolidation facilities are a critical component of these new options and can be used to either speed up or slow down inventory. They will also connect directly to local markets (via the virtual network), rather than flowing through a dedicated Distribution Center network. The result is fewer total miles and shorter, higher-service final-mile deliveries to the customer.

While today’s tight trucking capacity market may eventually improve, best practice in transportation management dictates that a more calculated long-term solution will provide a more reliable return on investment than frequent short-term adjustments. Moreover, designing adaptability into your network model will likely result in higher customer satisfaction levels.

At Transportation Insight, we believe the capacity constraint challenge is more than just a transportation issue – often it is a product of less-than-optimal processes across the supply chain. As such, improved business performance is reliant on a supply chain strategy driven by an approach that considers the entire network from end to end. Companies struggling to alleviate capacity concerns benefit from an Enterprise Logistics Partner that brings a depth of supply chain expertise to enable new and adjusted logistics strategies. A partner with detailed understanding of network segmentation, flow path segmentation and inventory and network optimization can yield performance improvements that maximize shipping capacity usage and accelerate competitive advantage.

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