There are many potential gains to be made by working smarter in sourcing, planning, and ultimately settling transport contracts but without best in class execution, ‘potential’ is all those gains will be.
A market analysis by ARC in August 2016 revealed a global spend on transport execution (TE) marketplaces and systems of $639 million, and anticipated further growth of 7% per annum through to 2020. EMEA and North America are, as one might expect, the largest regional markets but rapid growth is expected in Asia, driven as elsewhere by the growth of a more demanding middle class of consumers, the relentless surge of e-commerce, and a desire to reduce costs and improve environmental performance.
ARC defines TE as “marketplaces and systems that allow shippers to connect with multiple carriers and then tender, track, and pay using the software or marketplace”. The marketplace is highly fragmented along both modal and regional lines – despite widespread mergers and consolidations. To quote ARC “tens of millions of venture capital has flowed into start-ups that are looking to disrupt freight markets with non-marketplace models and hundreds of millions more into last mile consumer goods delivery marketplaces”, the Uber model being just one example.
The rise of Cloud computing and Software-as-a-Service approaches is rendering effective TE available and affordable to even the smallest and most remote companies. “Historically, if a company did not have over $20 million in freight spend, purchasing a transport management system (TMS) was out of the question. Now, essentially companies of all sizes can afford a TMS”, says the ARC report. Meanwhile the same technologies aid the larger multinationals in developing their ‘next generation control tower’ strategies.
It has been said that the difference between great logistics strategy and outstanding logistics results is measured by the quality of your transportation execution, yet TE can be seen as the boring, machine-driven piece in between the more exciting, and more human, activities of finding and sourcing new carriers, planning shipping strategies to meet ever-changing requirements, and the final haggling over invoices.
All these areas are significant drivers for reducing costs and improving customer service – important steps to increasing profits. Effective TE locks in the gains, reduces the cost of securing them, and shortens cycle times – increasing the velocity of the supply chain. In effect, you can do more business with the same resources.
When we look at the transportation source-to-pay cycle, as Aberdeen Group recently did, the benefits of automating transport execution processes are clear. Half or more of ‘best in class’ performers automate their carrier selection against known rules, allocate bids strategically based on carrier business performance, and monitor and track total freight costs – including accessories.
In addition, such firms are rapidly adopting the automatic auditing of invoices and subsequent reconciliation. Their TE systems provide insights that can be acted upon both tactically and strategically. As a result, the best are limiting landed cost increases to 0.56% per annum, against 1.96% for the rest, and they enjoy a 98% compliance to contract cost rate and 97% compliance on routing and service levels – it is 52% for the rest.
An effective transportation execution system – which is highly automated, probably Cloud-based and where appropriate acquired as a managed service – is therefore the essential prerequisite to achieving strategic transport procurement, where innovative sourcing, imaginative planning and dispute-free invoice settlement creates long-lasting, productive supplier relationships.
Clearly, supply chain performance depends, first and foremost, on the bedrock of efficient transport execution.