The 7 Pillars of a Modern Supply Chain
This article was originally published in The Illinois Manufacturer (first quarter).
Continuous Improvement in Logistics
The logistics process has evolved over the past 30 years. As a broker working in the industry for the length of that time, we’ve had a bird’s eye view as to what works and what doesn’t.
Here’s what we know: in good times and in bad, the manufacturers and distributors who continue to grow and succeed are those who take into account their logistics processes.
Too often, logistics is an afterthought–a simple means to get your product where it needs to be, but the truth is that with careful consideration, your logistics processes can save you time and money.
The 7 Pillars of a Modern Supply Chain
The 7 pillars of a modern supply chain are a template, a guidebook of sorts, to help you keep track of what’s important and to build a foundation based on continuous improvement.
First Pillar: Carrier Compliance and Risk Mitigation
Working with over 500 manufacturers, we’ve found that many do not understand the amount of risk inherent in hiring carriers or freight brokers. Typically, logistics is seen as a cost center and only at the very end of the manufacturing process. This means the number one consideration in hiring a carrier is the lowest rate. You might believe any carrier you hire will have proper insurance, licenses, and is following regulations, so if anything negative happens it’s on them.
This is not true.
When bad things happen (accidents, damaged goods, etc) you can be liable, especially if this case ends up in court. Many trial attorneys are looking for damages, and they are going to sue the company with the biggest pockets–rarely the carrier hauling your freight. You need a hiring process that you follow each time you hire a carrier or another logistics company.
An example of a carrier hiring process:
- Verify company phone and email contact and match carrier’s FMCSA data.
- Review TIA Watchdog and Carrier 411 Freightguard for adverse reports.
- Review TIA Fraud Check for association with undesirable companies.
- Review FMCSA MC Authority status and revocation history.
- Verify required insurance on file with FMCSA and obtain Certificate of Insurance from the agent.
- Review and assess carrier’s SMS violation record and out-of-service history.
- Review and assess the number, type, and location of carrier’s DOT inspections.
- Compare carrier’s stated truck count against their MCS-150 and SMS/Inspection data.
This is the process we use; however, it is possible to have a less onerous process in place. The most important thing is to have a process.
Second Pillar: Transportation Management System
We encourage all companies to take a look at how you’re managing shipments. In the past, you may have managed everything with an Excel spreadsheet but as you evolved in your processes your technology evolved as well. The same thing has happened in logistics. It’s called a Transportation Management System or TMS. Logistics companies have had these systems in place for years now, but what we’re seeing is that manufacturers and distributors can also derive a lot of value from using a TMS.
A TMS can help you with:
- Carrier Management–match up your production with carriers.
- Visibility, Reporting, & Analytics–this data helps you create efficiencies.
- Shipment Tracking
- Routing Guides & Waterfall Tendering–data repository for freight settlement.
- Customized Reporting–all businesses are different, and you can customize your TMS to report the data you need to make a difference.
Third Pillar: Active Carrier Management
Active carrier management–this means working relationships with your carriers–will allow you to save money and continually improve your relationships with carriers. This proactive approach will enable you to:
- Identify additional opportunities with current carriers.
- Review expectations and performance for better accountability.
- More efficiently implement new carriers.
- Reduce costs through carrier optimization.
While maintaining good relationships with the carriers you work with seems like a no-brainer, real, active carrier management requires time and intention, but it pays off.
Fourth Pillar: Freight Bill Audit & Payment
We see so much lost efficiency in the way companies manage their freight bill audit and payment. Typically the freight bill goes to the logistics department, is coded and approved, then logged and sent to accounting. Then it’s processed by accounting and sent to Corporate for payment. Finally, Corporate accounting pays carriers. With the right technology and auditing, you can save money and time using a better process that looks like this:
- Shipments are coded when they’re created.
- Carriers email invoices.
- The TMS receives, scrapes, and inputs data.
- Freight bills without exceptions are approved for payment
- Carriers receive payment via ACH: Quick Pay or Online
When you pay quickly and efficiently, you end up working with the best carriers. Right now, capacity is tight, and it’s never been more important for manufacturers and distributors to gain “shipper of choice” status. Being a “shipper of choice” requires you put a little extra effort into your relationship with carriers, but it puts you in a better position to navigate capacity shortages.
Fifth Pillar: Shipment Tracking
The Amazon effect has changed consumer perception in a variety of ways, but especially in our belief that we must know when a shipment is going to arrive. There is a misconception that truckload shipping is different. A few short years ago, it was difficult to track a truckload shipment; however, in the last couple of years that has changed dramatically. There are several ways to track shipments now:
- Electronic Logging Devices–All trucks must use ELDs, and these devices have built in tracking devices. It’s easy to log in and immediately track the truck at all times.
- Driver’s Cell Phone–At the same time, many driver cell phones are equipped with common apps that allow for tracking. It’s easy, quick, and you always know where your shipment is.
- Cellular based tracking device–These small cellular based tracking devices can be slapped directly on a pallet and provide real-time tracking of packages.
If you’re not tracking shipments with one or all of these devices, you’re missing out on some great technology. The ability to track shipments gives you peace of mind and keeps your customers in the know.
Sixth Pillar: Active Shipment Management
Active shipment management is the process of continually evaluating a shipment as it runs through the supply chain. Historically, shippers get a shipment out the door and forget about it, but by exploring what happens to your shipments, you can improve your processes by:
- Reducing costs on detention.
- Improving your shipper of choice status.
- Ensuring on-time delivery.
You may think you do not have time for such an active role; however, there are outside companies who can do this for you. If you use a broker, you should definitely ask about active shipment management to save money and boost customer satisfaction.
Seventh Pillar: Reporting and Visibility
There’s so much talk about reporting and visibility, but you should ask yourself these questions:
- What are you reporting on? This is an important question. Are you reporting on what’s important or what’s always been reported on?
- How hard is it to create new reports? Here’s where that TMS comes in. If you have good technology, you’ll probably have a dashboard you can pull up, one that will show you what’s going on in real-time. This makes it so much easier to create reports that matter.
Peter Drucker famously said, “You can’t manage what you can’t measure,” and this is applicable here. Accurate reporting is a must, especially now during the COVID-19 pandemic where shippers are finding it necessary to more efficiently move their freight.
The pandemic has changed the logistics landscape in 2020, and it’s likely that this disruption will continue. Manufacturers and distributors can get ahead of the curve by implementing some or all of the 7 pillars of a modern supply chain. By doing so, you’ll save both time and money, be prepared for continuous improvement, and ensure growth during both certain and uncertain times.