This is part one of a two-part series.
Over the past 20 years, many companies have recognized the benefits of implementing transportation management systems and planning their inbound freight movements on an enterprise basis rather than on a distribution center basis. The advantages and economies have proven themselves repeatedly, and virtually every established TMS vendor can point to clients who’ve seen significant ROI’s.
The outbound segment – particularly in the private fleet realm – has fallen far behind. Many companies who operate a private fleet continue to view that fleet as strictly a customer service tool and steadfastly hold to the notion that the route planning for these operations are best performed at the distribution center level. This is even true of many companies who have “seen the light” on the inbound side and are actually operating quite efficiently on that side of the DC.
The result of this is private fleets who run 40-50% empty miles as compared to an overall trucking industry average of 3-5%. The daily plans are typically produced by line worker level staff – often former drivers who are more concerned with keeping the driver force happy than operating efficiently. Individual customers tend to have more leverage in forcing unrealistic demands on the operation due simply to volume and proximity. Local sales personnel are often exerting their own pressure in an effort to please their individual customers – which often results in diminished service for another sales person’s customers, less efficient routes, or both.
While there is a multitude of areas that require changes in these operations, one key move that large private fleet operations can make is to move the planning operations to a centralized location. The benefits of doing this typically fall into the following categories:
- Cross Facility Optimization
- Operational Expertise
- System Support & Personnel Training
Cross Facility Optimization
Companies that operate private fleets from multiple DC’s usually have some geographic overlap between the service areas. Many of them also conduct transfer operations between the facilities to address inventory shortages or to provide product that isn’t kept in inventory at one or both facilities.
These transfer operations are rarely planned with the normal customer deliveries but rather are typically done through a manual process. Rather than looking to match these transfers up, possibly with backhauls from one service area to the other DC or having a customer delivery truck emptied out close to the other facility, they’re simply trading phone calls and faxes with the other site.
A centralized operation has visibility into all of the available movements – inbound as well as outbound, customer deliveries and transfers. The planners therefore are able to identify and match up movements to help fill in many of the empty miles. Some TMS systems are also now offering integrated street level routing functionality which increases the ability to identify and plan backhauls. A centralized operation also streamlines “shared work” where a driver may leave one DC, deliver customers in the direction of another facility, drop his empty trailers at the second facility, pick up a load at the second facility and deliver that on the way back to his origin point. This is particularly beneficial in concentrated geographic regions such as Los Angeles where the company may have multiple DC’s with different product lines.
The most common argument against centralization usually follows along the line of “Our planner at that DC knows the drivers and the customers and what keeps everyone happy”. Unfortunately this just as commonly translates to “Our planner adjusts the plan to accommodate both the drivers and the customers and pays little to no attention to what impact that is having on efficiency”.
Companies who have moved to a centralized planning operation have found that the user skill level improves significantly. Rather than “disconnect” from the operation, the physical distance appears to serve more as an insulator, buffering the pressure from the drivers and to some extent the local customers to make inefficient changes.
Centralized operations also tend to be staffed by personnel that has more of a business analyst mind set rather than a strictly operational perspective. This encourages the exploration of strategic scenarios and effective cost/benefit analysis for changing business practices.
In Part Two of this feature, I will discuss the remaining benefits and best practices in utilizing technology to facilitate the centralization effort.
Scott Pettit is a Partner with Apollo Logistics Solutions, LLC – a partner consultancy specializing in Private Fleet Technologies.