The Many Costs of Decentralized Transportation Management
A lot of companies run their transportation operation in a very decentralized way, not knowing why it’s a problem. Do you fall into this group?
If you have multiple shipping locations where logistics decisions are being made locally, there’s a good chance you are experiencing issues and sub-optimizing transportation operations. Companies stuck in this position usually have no one person to blame because decentralized transportation management (DTM) is a problem that’s often inherited. For better or worse, these types of networks tend to evolve on their own in response to rapid change.
Yet regardless of how you got here, it’s a situation that needs to be fixed. The implications of DTM can be difficult to fully recognize without knowing what to look for, but at the core, it comes down to efficiency. Keep reading to see if you recognize any of these scenarios and learn about how the inefficiency of DTM can lead to unexpected transportation costs and other problems.
What Is Decentralized Transportation Management?
The typical decentralized transportation management environment is when each of your shipping locations relies on different processes, technology, and carriers. And oftentimes, there’s a severe lack of visibility and standardization across locations.
An example could be in a manufacturing setting where a company has multiple plants, warehouses, and distribution centers with each location individually arranging shipments under their own carrier agreements or managing their own local fleets.
Another could be a national distributor operating multiple warehouses and branches across its network, yet each regional location is routing its freight or using a private fleet independent of how the larger national network is managed.
A third example (more prevalent with large enterprises) is an organization with a shared services department to centralize load planning but still allow localized execution.
DTM comes in many forms, but the common links are a lack of standardization, visibility, and oversight over protocol. The results are common as well – duplication of effort, siloed data, inconsistent service, and missed savings opportunities.
What Are the Costs and Problems of a Decentralized Network?
Unfortunately, the impact of DTM on costs and service performance can be severe. If your logistics operation is decentralized, you are also:
Limiting your buying power: A big factor that determines the freight rates carriers offer you has to do with volume. A decentralized network means you’re losing out on this opportunity because you’re only negotiating rates on a portion of your actual shipment volume, whether you’re working with local or national carriers.
Not able to enforce compliance: Even if you have a centralized planning and a procurement group that develops a routing guide, there will likely still be compliance issues. There is always the risk that sites ‘go rogue’ with their own carriers and the result is companies pay more overall.
More likely to provide inconsistent service: Different processes, technology, and carriers from facility to facility will lead to an inconsistent customer experience and service levels for your clients and vendor network.
Limited reporting options and visibility: Without centralization, you’re unable to generate useful reporting at a network, enterprise, or corporate level, and what data can be collected is often dated (at least a quarter behind). You’re also not seeing or understanding service failures in real-time which impedes your ability to understand the cause and put prevention measures in place – not to mention putting your customer relationship at risk by failing to be proactive and take action to fix the problem as it occurs.
Missing opportunities to optimize: Without full network visibility, decisions made at the local level miss out on opportunities to save money and improve delivery performance, including backhauls, load consolidation, or using alternative shipping modes (such as shifting LTL to FTL or taking advantage of intermodal).
Solving these potential issues and mitigating risk begins with standardization and this is often enabled through centralization of decision making and execution..
What Are the Benefits of Centralized Transportation Management?
A centralized transportation network avoids the pitfalls of DTM and offers several direct cost and service advantages.
Reduced logistics costs:
- Consistent processes and technology ensure cost optimization across locations, including finding opportunities for load consolidation and ensuring the cheapest mode is always chosen
- Freight rates are based on volume, and a centralized network leverages your entire company’s volume to get better carrier agreements
- Centralized inventory visibility ensures orders are fulfilled as quickly and as inexpensively as possible
Lowered overhead costs:
- Redundant positions and processes that perform the same work can be eliminated with centralization
- Companies can also sunset multiple redundant transportation management systems when a single platform is in place
- Fewer locations mean fewer logistics connection points, leading to less IT effort thanks to simpler integrations and information flow
Improved Visibility, Control, and Standardization:
- How and where the decisions are made is more consistent with centralization to ensure more accountability and compliance
- While some autonomy at the local level is necessary, visibility and checks and balances within it are also needed to ensure decisions still align with company goals and meet KPIs. Tools and partners should support local offices to be able to do so.
With the upside of creating a centralized transportation network clear, what steps should you take next?
This is part 1 of a 2-part blog series. Look for our next post that will offer new ideas for how companies can overcome and fix the challenges of decentralization as well as details on how different roles within an organization benefit from the approach.
We have some more great information to help you in the meantime. Click here for instant access to our recent webinar event with FreightWaves: Bringing Logistics Clarity to Decentralized Transportation Management
In it you’ll learn more about:
- The hidden costs of decentralized transportation management
- Tips and tricks for managing everything under one roof
- The benefits of having a centralized management system
- How third-party managed transportation can guide you to a more organized approach