I interviewed Jit Hinchman who discussed Impact of Transportation Management on Supply Chain Performance during Digital Transformation.
1. What is Supply Chain Performance?
Supply Chain can be viewed as a network of interconnected trading relationships between business organizations across industries and disperse throughout the world in this global economy.
Transportation, either through Water carrier, air, pipeline, rail, truck, van, or mixed mode as Intermodal, is the moving part in the supply chain network that physically links between those trading partners, bridging the gap of physical distance to deliver goods between buyers and sellers, and it is one of key enablers of International Trade that helpsbusiness to reach beyond its local home market.
Supply Chain Performance can be considered in terms of responsiveness and efficiency of how well its Supply Chain activities to function and meet end-customer needs and requirements while achieving sound financial profitability.
2. What are key drivers that impact Supply Chain Performance?
The right Supply Chain performance outcomes that suit each individual organization business need is directly the result from the interactions and right trade-off between key Supply Chain Performance cross-functional drivers that affect one another, these are: Facility, Inventory, Transportation, Information, Sourcing of trading partners, and its Pricing. So, transportation is one of the key drivers that directly impacts Supply Chain Performance.Transportation management is the art and science of coordinating transportation activities to achieve its organization and Supply Chain objectives in terms of delivering the right products with the right cost to, where and when it is needed with the right conditions. Quality of Transportation management impacts Supply Chain Performance directly in terms of service level, customer satisfaction, cost, and speed. It doesn’t matter how excellent the product is in its markets, if organizations fail to deliver it on time, right place, and right conditions, it also fails its Supply Chain Performance and negatively impacts the relationships and trust between trading partners in the network.
3. Why Supply Chain Performance is important?
Supply Chain Performance affects nearly 35% of financial performance of apparel retailers. Represents 10-30% of Sales & lost Sales. Represents 5-10% of Sales. Supply Chain Performance is one of a key drivers of retailer’s financial performance. Transportation represents 2-5% of sales. Warehousing represents 3-5%, Store handling represents 3-5%, and Inventory costs 2-5% of sales. While precise fraction will vary for different supply chains, it is evident that supply chain performance along the right mix of six key drivers we mentioned above, has significance on a firm’s financial performance. It deserves attention to take a closer look for ways to improve performance and profitability.
4. What are the challenges Transportation Industry facing in this digital transformation?
Digital transformation refers to the changing process associated with the use of applications and integration of digital technology into all areas of a business, fundamentally changing how organizations operate and deliver value to customers. It’s influenced by the incoming of real-time or digital economy, Industry 4.0, the use of Automation, and AI, with the beliefs that Digital Supply Chain can provide the solutions that many organizations nowadays are struggling in terms of real-time demand feedback from customers to smart manufacturers, ready to view dashboard with KPI and insights that has been analyzed from almost real-time data, with the use of Blockchain technology provides more visibility, improve transparency, payments process and cash flow cycle, in turns it helps improving business’s financial performance.
Transportation & Logistics Industry has revenue over $100 Billion, it has been hit hard in many areas, in terms of resource scarcity, outdated technology, cost in operations to stay competitive in its market. Trucking dominates transportation industry. The high fuel price, and lacking industry capacity is intensified with time and amount of natural disasters. Almost 3,000 trucking companies gone bankrupt during economy downturn in 2008, eliminated 16% of total industry capacity permanently, majority of ageing driver population that will retire in the next decade or two, ATA mentioned that the US has driver shortage of 100,000 drivers per year to keep up with freight volume growth due to economics needs.High cost of safety and insurance can vary from over $20,000 up to $7 Millions per accident on the road. Difficulty to retain drivers is not new as Traffic World mentioned about this issue on December 12, 1914, and as of now in 2018, trucking companies are still facing the same issue.
Many business elements in Transportation Industry are counterproductive, fragmented complexity and interconnected by its nature, it represents the industry’s challenges in its highly competitive market.In the US alone about 6 Million of workforce are in Transportation & Logistics. American Truckers make up to 2% of workforce, 3 Million Drivers, 2.5 Million Trucking Companies, 90% of those fleets operate with less than 6 trucks, 50% are single owner operator, 13,000 companies are brokers, 67% of shippers are still using paper and manual documentation that increases time consuming in each business processes, 20% of truck on the road is empty that is inefficiency in asset utilization. Transportation can be over 40%of the total cost in Logistics function in Supply Chain, represents one the largest cost components, organizations look closely to cut this cost down and often times, Transportation & Logistics found to be one of the weaker links in Supply Chain. The wages of workforce in the transportation and logistics is one of the lower pays compare to other industries, this preventing more attraction to workforce.
5. Is there any recommendation to the industry?
Organization and its Supply Chain is aimed to meet customer’s needs and requirements in which, it changes with time while achieving profitability. Today, customers want speed and increased expectations. Transportation & Logistics Industry during digital transformation and beginning of Digital Supply Chain, is challenged with near real-time expectation, increasing in government regulations and control, new competitor entrants, evolving business models, needing of technology savvy workforce, investment in technology and mobile device, improving working conditions and pay incentives, these represent challenges of the industry.
With my humble opinion, the industry capacity constraint and driver shortage makes transportation & logistics industry becomes a bottle neck in Supply Chain. To cope with challenges, besides from having automation & AI to help simplifies the complexity and interconnected processes and, the needs to shift into digital transformation, the industry needs to find innovative ways to improve profitability, this includes drive off inefficiency in manual processes and cost, shorten cash-to-cash cycle with more effective billing process, ability to adapt to change, increase visibility and transparency, solutions to cope with driver shortage and available funds to invest in needed technology, the industry might need to consider merging and coordinating those fragmented companies to gain size and strength in the market, taking creative initiatives in using of data analysis platform, similarly to Uber application that can match and map out Driver locations, required Routes of origin and destination points, pickup/drop off locations and time both one way or round trip freight transportation to eliminate empty miles, increase asset utilization, improve customer satisfaction and revenue growth to remain competitive. In the long term, to attract millennials workforce, organizations need to know what value it’s contributed to the business communities, and organizations need to be good and transparent as well to thrive and earn respect in this digital economy where information is shared instantly around the world through social medias.
Successful of any business rely mainly on its people. Great mixed of open minded people who well equipped with global knowledge base collectively create a winning organizational culture consciously and unconsciously. People are the seeds to grow the continuing success for business. It’s a universal language once we are cared truly and deeply, we are at our best stage and give our best back in return. Same concept applies in business as business is a set of people, and they will give long lasting drive and will power to help business to prosper in good time and in bad time.
About Jit Hinchman
Engineering and Supply Chain Professional