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Routing Management and Control, Driving Transportation Success Co-Authored by TOYOTA-NAPO
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Introduction This white paper is co-authored by Tony Minyon, TOYOTA, National Manager-North American Parts Operation (NAPO), and several of the professionals from TransportGistics’ Convergence Practice. Convergence is a consulting process developed by TransportGistics; its methods include professionals representing like and disparate business disciplines that embrace specific techniques for the purpose of fully exploiting those knowledge bases. This holistic approach to research, consulting, and problem resolution was designed to provide an inclusive result.
In Mr. Minyon’s first white paper with TransportGistics, “Freight Transportation Purchasing Philosophy”, the writing team addressed the significance of developing, articulating and implementing an effective freight transportation purchasing philosophy that embraced the overall corporate values and philosophy. One of the key components of that paper demonstrated the importance of articulating the “Toyota Way” and reinforcing it every time freight transportation services were purchased. This process created a prevailing “mind set” that allied Toyota, its carriers, customers, and vendors under a single philosophical umbrella. While the importance of a sound freight transportation purchasing philosophy was specifically expressed; carrier selection and the significance of effective routing management and control were discussed. In fact, several TransportGistics white papers including “Contract Carriage Agreements”, co-authored by Rayovac, and “Purchasing Freight Transportation Effectively”, co-authored by Welch’s have also addressed subjects that generally relate to routing management and control. Additionally, the underlying principles of this white paper have their roots in all of the micrologistics components and can also be found in effective macrologistics strategies. “Routing Management and Control”, to be effective, must embrace the essential elements of Logistics, Purchasing, IT and Systems, Sales and Customer Relationship Management.
Executive Summary Freight transportation represents a large corporate expense, “right up there with people and material”, says Mr. Minyon. In fact, in most organizations, the cost of transportation is equal to or greater then the combined costs of warehousing, order entry and customer service. In addition to its recognition as an enormous expense, freight transportation is the “corporate life bloodline to the marketplace”. Its role in customer satisfaction is crucial; the carrier is the shippers’ representative at the customers’ doors. Its importance as a mission critical business function is easily understood; “without freight transportation, neither commerce nor industry can exist”. Recognition and appreciation of the scope and importance of freight transportation is the first step in the process of effective transportation management. Identifying the key elements of this micrologistics component is the next important step. These elements may vary from company to company, but the influence of “routing management and control” as the “corporate life bloodline to the marketplace” establishes it as a universal key element.
To be effective, all freight transportation purchasing programs should be represented by a documented “freight transportation purchasing profile”. The “profile” would embrace the “Freight Transportation Purchasing Philosophy”; and at a minimum, would be supported by the operating components presented in: “Knowledge Based Freight Transportation Negotiations”; and “Carrier Selection”. However, to be successful, the freight transportation purchasing program must include “Routing Management and Control”.
When positioned correctly, “Routing Management and Control” will add value to the organization and its relationships; affect cost avoidance and make a significant contribution to the bottom line; allow customers to receive and vendors to ship higher quality products more predictably, and appreciably increase the probability for improving customer and vendor satisfaction.
Routing Management and Control (RM&C) If you accept the notion that freight transportation represents the “corporate life bloodline to the market place”, then “routing management and control”, is the policy that:
1. Manages the freight, internally and throughout the supply chain 2. Administers the rules of engagement 3. And executes the functional tasks
RM&C is globally important. Its overall influence on the supply chain is palpable; and when you drill down to the operating components it manages, it should be clear that an effective and efficient RM&C policy plays a mission critical role in driving successful freight transportation practices and relationships. However, because of its importance and overwhelming operational influence, a determination as to who’s RM&C will prevail must be established; it is impossible to have both the consignor and consignee’s RM&C policies co-exist. In our white paper, “Legal Terms Surrounding The Transportation Process That Have Significant Impact On How Business Is Conducted And Where Responsibility Is Assigned” we identified the legal conditions and issues that are used to identify the party with the right to route. Provided that the relevant terms are stated in the appropriate instruments, “the routing party” is easily discernable. Therefore, prior to implementing your RM&C policies and programs that would affect the relationship of customer or vendor, it is imperative that you first determine if you have the “right” to do so.
There are, above all, four (4) key components of “routing management and control”:
A freight transportation mode is described as a form or type of conveyance that is used for transporting goods. The four (4) modes of freight transportation generally accepted are: Motor; Water; Air; Rail. Depending upon perspective and time, it could be successfully argued that “Express” is also a transportation mode. Additionally, the various “piggyback” plans, beginning in the 1950’s and more recently the intermodal programs, have begun to blur the modal distinction. However, understanding each mode, its characteristics, attributes, and operational differences remain an important part of the developmental process.
Mode selection can be driven by the freight itself. As an example, a manufacturer of steel construction beams would probably not choose air as its mode, but would consider water, truck, or rail. Bulk products such as flour or sugar would also eliminate air as its primary mode. Steel beams as well as sugar and flour would also drive the equipment selection. A carrier might supply a “hopper car” for flour; or if the sugar were liquid a tank vehicle would be appropriate. Pickup and delivery site conditions would also influence mode selection. The existence of a rail siding or the proximity of a team track would influence the modal decision as well. The strong relationship between mode selection and carrier selection may cause these two processes to be performed side by side.
Carrier Selection concerns itself with the carriers’ characteristics and idiosyncrasies. The “freight transportation purchasing profile” would identify the shippers’ decision criteria such as: the carriers’ financial condition; the type and availability of equipment; levels of insurance; time-in-transit; operating and claims ratios. Matching these criteria with the carriers’ description is the objective of effective carrier selection.
Routing processes and techniques refer to methods and processes used to arrive at a meaningful routing solution. The actual route over which the freight will travel; what freight should be consolidated over what period of time and the methods employed to determine the solution are a few examples that must be addressed during this activity.
“The associated and attendant operations” are far more esoteric than the other primary components and in order to be meaningful there must be an understanding and appreciation of what needs to be accomplished and the availability of the resources necessary to satisfy those needs. At the outset, identifying the areas of importance relative to RM&C must be accomplished in order to effectively construct an efficient operating system that is integrated within the overall freight transportation purchasing system. Functions within the existing freight transportation purchasing system may already be capable of satisfying, at least, some of the routing and control functions. Links within the system would also be important to identify because they could serve as adjuncts to routing and control operations.
The two overriding objectives of an effective RM&C program are cost and service. Both must be treated equally and where possible the strategy should embrace both collectively.
A successful method of approach used to determine routing processes and techniques is to expose the questions that are regularly faced during their daily operating challenges. Toyota has effectively used this approach and the following are examples of some of their questions:
This approach demands a thorough knowledge of the products, customers and the corporate philosophy. These questions are generic but presume that the company moves raw material, unfinished and finished goods. Within that description, it is possible that “mis-packs” or cross deliveries occur, that is, one customer gets another’s freight. Returnable packaging and goods for refurbishing or remanufacturing would also fit within the presumption. Finally, consideration should be given to distribution. As an example, are there or can there be line haul truckload shipments moving through a break bulk facility?
Manual and Automated Processing With the proliferation of software, we are compelled to examine the operating capabilities and the associated costs of automated processes. A realistic approach to this question would embrace the belief that a portion of the process will be manual. At the very least, management analysis of automated reports will occur; to the extent that management may have to drill down into those reports, consideration should be given to automating only a portion of the activity. This decision can be made over a period of time, provided there is a blueprint that would facilitate the adoption of an integrated automation strategy.
Mr. Minyon points out, “There has been an explosion of software makers that offer dynamic routing solutions. While these are extremely powerful programs, they are very expensive and complex. Before taking on one of these solutions, consider the magnitude of the problem against the full cost of implementation, and justify the ROI. A few of these companies will throw out quotations such as "we usually see a 10% reduction in the first year. Consider those numbers and look at the difference in your business model. Remember, no two companies are alike. Also, take a longer term view, and commit (or not) to the future of the system; are you willing to keep resources attached for the duration? Can you change your process?”
It is important to recognize that “dynamic routing solutions” are not necessarily equipped to address all “routing management and control” issues. More often than not, dynamic routing solutions are primarily designed to treat the end of the process; that is, “the what if” conditions that may occur just prior to staging. Mr. Minyon states that, “the easiest and most cost effective method of round trip logistics is by simple mapping. This can be achieved by simple software solutions that show point-to-point routes & distances; or simpler yet, a paper Atlas. While most companies are striving to reduce paper, this method is effective and inexpensive:
This is an excellent response to routing processes and techniques and will serve well and support an automated dynamic routing solution decision. As an ongoing method it effectively satisfies the need and it addresses the fundamental essence of case based reasoning which would be used to shore up a “buy or build” decision.
“Routing management and control” is the policy that: Manages the freight, internally and throughout the supply chain; Administers the rules of engagement; and Executes the functional tasks. In this regard, it typically begins far upstream of dynamic routing. In keeping with Toyota’s approach for an incremental solution, and to satisfy a coherent “routing management and control” policy, consideration should be given to incremental solutions such as: RoutingGuides; TRaIDS; and FreightTracing. The costs are low, individually and in the aggregate because their response is specific and integrable. They effectively and efficiently deal with the key components of: Mode Selection; Carrier Selection; and many of the Associated and Attendant Operations.
Today’s freight transportation paradigm considers the “entire freight life cycle” beginning with its first appearance in the supply chain as an SKU, and continuing on its lifelong journey through the entire supply chain, concluding with its ultimate consumption. Consequently, a “carrier” can be viewed as: a commercial carrier; a forklift; an employee; or a pick cart. A “container” can be viewed as: a shipping carton; a pallet; an envelope or a warehouse bin. RM&C must provision for effective tracking and tracing at every actual or virtual “touch point” that will occur during the “entire freight life cycle”. Knowing where the freight is at all times is necessary for effective management and control. Including accountability and responsibility as features in its freight life cycle tracking process, TRaIDS not only improves the chances for accurate and timely decisions it makes the entire supply chain visible.
The rules of engagement speak to: proper labeling; manner of packaging; special instructions, the carrier to be used and under what conditions; what constitutes an allowable exception; and who should be notified, are just a few of the dynamics that must be addressed in the rules of engagement. Historically, routing guides were volumes of paper--books thicker than War and Peace. Today the Internet is the domicile of the ASP. Hosted RoutingGuides on the Internet eliminate the volumes of paper, allow for quick response to routing opportunities and customer questions are answered from an on-line library that can be searched using standard “Word” search techniques developed by Microsoft. Documented histories of the rules of engagement are an important by product of the system that has significantly reduced unauthorized and invalid customer chargebacks.
Collaboration Talking with your partners and maintaining an ongoing dialogue is so simple and so important. In the above example, RoutingGuides achieves this over the Internet through its ASP business model. Mr. Minyon says, “partners are paramount to the process”. “The partner must be given the opportunity to learn and grow along with the host company. This can be done with face-to-face meetings, or structured training programs. A combination of both is preferable; Site visits (both ways) also goes a long way to understanding each others strengths and weaknesses.” The next best practice would be on-line dialogue capability where all of the parties have all of the information necessary to achieve the benefits of an effective “routing management and control” program, as well as the ability to exchange information on an interactive platform.
Conclusion Routing Management and Control play a crucial role in driving successful freight transportation practices. Creating a successful RM&C program can be achieved by employing the techniques identified in this paper. The “convergence” method of approach will typically provide a “corporate inclusive” solution. By-products of the RM&C can continually support customer satisfaction while its data capture capability and information makes the entire supply chain visible. Straight forward pencil and paper functions and solutions can effectively be used to carry out critical tasks such as routing. Dynamic routing solutions can also be an effective instrument in optimizing the routing solution. Simple, incremental, and integrable solutions, in a hosted ASP environment can add the important dimensions of managing: the freight, the rules of engagement and execute the functional tasks. Because of the influence RM&C has on the company generally and more specifically on the “last mile”, it should be a program worthy of consideration.
To learn more about “Routing Management and Control”, “Convergence”, please contact us. Continuation Please consider this white paper as a continuum in this subject area, succeeding white papers will address common issues and address them with common solutions. We encourage our readers to direct any specific questions or comments to papers@transportgistics.com . Disclaimer The information presented above represents the opinion of the author and not necessarily the opinion of TransportGistics, Inc. nor is it presented as a legal position. All content copyright by TransportGistics, Inc. All rights are reserved. The authors of the articles retain the copyright to their articles. No material may be reproduced electronically or in print without the express written permission from TransportGistics, Inc. or the individual authors (papers@TransportGistics.com) |
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Generate, Distribute and Manage Bills of Lading on the Web
Tracing and Tracking information in a central location to all authorized users
Freight Bill Management, Shipment Information, Cost Control Portal
Communicate routing guides rules of engagement and carrier selection
Extend visibility & gain accountability to the desktop by tracking shipments & goods
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