In order to create operational and financial stability, we must manage our transportation by lean principles:
Focus on Total Logistics Costs defined as total cost associated with logistics, including purchasing, transportation, warehousing, ordering and inventory carrying costs.
Operate by the Guiding Principles of Lean Transportation Management:
1. Develop and Execute Transportation Strategy.
Develop inventory strategies designed to support inventory strategy and customer expectations.
2. Eliminate Transportation Waste.
Transportation in excess of necessary requirements is waste and should be eliminated. Focus on how transportation could be your strategic differentiator in the industry.
3. Measure Transportation Performance.
Do not view transportation providers as transactional, but rather as strategic partners. Transportation service providers have distinct and measurable levels of performance capability; therefore, in transportation, “you get what you pay for.” To build a lean supply chain, organizations need to build long term relationships with quality carriers that are stable, dependable, and committed to servicing the organization.
4. Understand Transportation Cost Structure.
Transportation cost is made of two distinct areas: unit costs and productivity costs. The significant opportunity for transportation cost reduction is in productivity costs. Focusing on unit costs, or carrier rates, will only result in creating instability in the transportation network. Rather, focus on productivity: trailer utilization, total miles ran, equipment waiting time (which is pure waste) and adherence to core carrier routing guides. There are simply no winners when shippers beat down carriers on rates to the point where they are running unprofitably. The real prize is to negotiate carrier rates that are fair, competitive, and equitable for all parties.
5. Perform Transportation Daily Event Management
Optimal and sustained cost reduction is not realized through infrequent transportation network designs and carrier RFQ’s. Cost savings result from disciplined, daily event management and hour-to-hour focus on waste identification and reduction. Every day, start with a transportation plan, execute the plan, and then check actual condition to the plan. Any detected waste needs to be documented and followed by problem solving. Create daily route designs, complete real time track and trace, generate real time metrics, and complete daily problem solving. This investment and focus on process discipline is the lean way.