How Do Companies Address The Issues of Decentralization?
A decentralized transportation network is rarely something companies plan for, but it’s a common situation many find themselves in. And even though decentralization comes with some serious negatives that we’ll get into below, it’s also common that companies don’t even realize it’s the exact predicament they’re facing.
The first step for shippers is recognizing that they are in a decentralized situation. The following are some of the issues that arise from a decentralized Distribution Network;
- A lack of buying power. Resulting in paying above-market, upward-trending, or higher-than-necessary logistics costs.
- No spending control. There are no processes or controls to enforce compliance with day-to-day decisions that directly impact costs like carrier selection.
- Absence of accountability for service failures. The wrong incentives are in place for providers (and employees) that encourage improvement.
- Ineffective logistics technology. Locations are using expensive and mismatched technology that is not serving the network’s needs.
- Inconsistent customer experience. The level of service performance differs by location when high and low-quality carriers are being used with little oversight.
- Missed opportunities. Cost and time-saving opportunities for shipment consolidation and back-hauls are overlooked due to a lack of visibility across locations.
- Too many mistakes. Wasteful routing and empty miles, and misroutes continue to happen, with management unaware or unable to fix the problem.
Do any of these sound familiar? Many of these issues are a result of a company's inability to take advantage of centralizing their Distribution Network and/or Transportation Management.
How to bring about organizational change
Centralizing your transportation function helps address the issues you may have identified. A centralized logistics operation develops and executes a well-defined distribution & transportation strategy, performs better short- and long-term, drives cost savings, improves service performance, eliminates data silos, and enables a better company-wide flow of information.
That’s an impressive list of benefits, but of course, achieving them is not that easy. Centralizing requires a lot of planning and effort to implement, the hardest being overcoming the hurdle of managing the built-in resistance to organizational change. .
The general difficulty of driving new processes and technology adoption is an ever-present challenge for decentralized companies. Change can be hard. A lack of documented processes and data or an inability of a network to scale appropriately to fill its own needs are also common. Add to that misaligned incentives, separate P&Ls, and autonomous decision-making at the plant or DC level, and these conditions make implementing a distribution & transportation strategy much more challenging.
That said, the benefits are worth the effort when it all comes together. Centralized transportation management requires broad company buy-in, which becomes easier when the process considers how the change will impact roles differently.
Change management is all about facilitating adoption to overcome resistance to change, and success requires executive-led buy-in through an understanding of how it will impact roles and stakeholders differently. Here are how the changes from a decentralized transportation network can favorably affect different roles within the company.
Transportation executives (e.g., V.P./Director of Supply Chain or Logistics) will gain an immediate ability to be more strategic and confident with planning, including more accurate budgeting, thanks to better access to cost and other data. Knowing their teams have the tools and information they need to be successful in their day-to-day (with some added accountability) is a win-win.
Finance executives (and often the CEO) share a keen interest in the cost-efficiency aspect of a centralized network. In particular, having the ability to budget costs accurately even as the logistics market fluctuates is sure to gain their buy-in. A cost-optimized, predictable supply chain is always desirable.
Logistics planners and analysts are where the rubber meets the road. Gaining better tools and access to more reliable data helps them perform better and can simplify their jobs. But they are also likely to face the most significant change when centralization happens, so this is always important to consider.
Take the next step
The first step is to recognize that your company has decentralized or partially decentralized Transportation Management & Operations and to understand the impacts of the situation.
Here’s what we suggest: Loadsmart can provide a complimentary, no-obligation assessment of your distribution network and transportation operations to understand the opportunities specific to your company.
In addition to quantifying the real impact of any issues from the list above, we’ll answer some additional questions, such as whether transportation is a core competency for you and what potential partnerships can provide value to your logistics operations. In the end, you’ll know in a clear and quantifiable way if your logistics processes, rates, market conditions, and shipping technology can be improved with the help of a Managed Transportation partner like Loadsmart.
Get Started with your free transportation assessment today!