How to approach transportation strategy and execution

How to approach transportation strategy and execution

1 Overview

The Challenge

After identifying your warehousing strategy and addressing the compliance/tax/legal considerations, get a plan in place for your Transportation strategy and execution, as this will directly impact the end customer experience and therefore overall growth and conversion.

The Aim

To have a Transportation strategy and execution that exceed customer expectations while meeting your cost targets.

Transportation is a fairly complex space and for purposes of this document, we have divided it in 3 sections:

  • Inbound - since most of manufacturing across products happens in Asia, having a solid air, Ocean and rail strategy to get products from Asia into in-region is necessary

  • Outbound Parcel - relevant to Merchants with an e-commerce presence. Typically, Outbound parcel Transportation costs is a key contributor to the Logistics P&L and hence there is a need to focus on optimizing it while improving speed to customer

  • Outbound LTL/TL - relevant to Merchants who deliver to Retailer DCs, Stores or their own Retail stores. Also relevant to shippers looking to deliver to last mile carriers. This transportation leg represents the largest volumes and therefore highest risk in the network. Procuring smooth operations in the domestic distribution is the base of a solid supply chain. Understanding the landscape of the players by market and mode will also help with the best alternatives to meet delivery requirements that retailers may have at their DCs or Stores. Choosing the right partners will power your network with flexibility and scale.

2 Inbound

1. Analyze the manufacturing volumes and supplier locations

  • Supplier location and volume analysis will drive freight forwarder choices, Transportation mode and optimization of inbound for cost and speed.

  • Segmenting the supplier base could be one approach to balance between cost and speed. Long tail suppliers with small volume could potentially be consolidated in a central location vs large volume suppliers could be direct shipped.

2. Choose the right set of freight forwarders across air, Ocean and Rail

  • There are global players like: Expeditors, Kuehne-Nagel, DHL Global forwarding, DB Schenker etc. Each of them have their area of expertise. Understand the strengths of each player before making decision on your freight forwarder

  • Recommend having a portfolio of providers with a mix of Global and regional players to diversify capacity and cost

3. Decide based on product cycle and Weeks of Supply needs, the best speed. Some generic guidelines:

  • If feasible minimize LCL and control upgrade to faster services for lower premiums
  • Standard transit time from Asia to Europe for Ocean is ~30 days, lower cost
  • Rail from Asia to Europe is ~20 days, higher than Ocean
  • Airfreight deferred is ~ 10 days, higher than Rail
  • Airfreight standard is ~ 5 days, highest cost

4. Choose a customs broker who partners well with your list of freight forwarders

  • Suggested approach would be to choose a global customs broker who has strong systems and global operational support

  • Ensuring your product clears on-time and is not impacted by customs delays would be critical for the inbound delivery of your product

  • The customs broker will drive to have right paperwork to enable clearance within the SLA that you have specified. In addition, they will have right paperwork to pass compliance audits

5. Evaluate best approaches to drive automation with your suppliers and freight forwarders. Some industry practices to improve visibility are below and this will help scale your warehouse operations execution effectively:

  • PO (EDI 850, 855, 860, 865)
  • ASN EDI 856
  • Carrier Events EDI 214
  • Setup Warehouse receipts events on EDI 861
  • Match ASN with Carrier Events and Warehouse receipts to get tracking visibility on SKU level on real time.

3 Outbound Parcel

Parcel Delivery Experience is consistently rated as one of the key items that influences customer retention and drives e-commerce growth. Developing a parcel strategy can be complex as the customers faster delivery speed while there is constant pressure to drive down Transportation costs. The parcel strategy should be country specific to reflect the expectations of the customer of that country.

Overall, parcel strategy can divided into two parts. Last mile and first mile strategy on the forward side and Returns Transportation.

Forward:

  • As you consider expansion into a new region, initial approach could be utilizing a national couriers (like UPS, DHL, Fedex) to address both the first and last mile parcel delivery

  • In some regions, the above approach might need to be changed if it is dominated by local players. For example: Japan is dominated by Yamato, Japan Post and Sagawa

  • Pricing for parcel delivery should be optimized for the specific product profile (weight, size) and distance to customer

  • It should be fast followed with evaluating if a combination of courier and postal options is needed to optimize for cost

  • Understand customer expectations with respect to: express deliveries, differentiated delivery options (like: Click and Collect via stores and lockers, scheduled delivery etc) will help adjust offerings on the front end and choice of carriers to help support the offering

  • Next step would be to understand the local Transportation players in the market and add them to the portfolio of parcel carriers

  • In order to further optimize the last mile, the Merchant could own the first mile using TL carriers and inject directly into the last mile carriers final hub further optimizing for speed and cost

Returns Transportation:

  • For Returns Transportation, ability to offer options to make drop-offs easier for customers would be key

  • Consider starting off with couriers and then optimizing via using postal first mile and courier last mile

  • Evaluate utilizing portfolio of return carriers based on product profile to enhance customer experience

  • Key would be to enable faster refunds to customers and then can be enabled as soon the product gets to the first return hub via carrier tracking data

  • In order to further optimize the last mile, the Merchant could own the first mile using TL carriers and inject directly into the last mile carriers final hub further optimizing for speed and cost

4 Outbound- LTL and TL

1. Analyze network volumes by shipping and destination locations

  • Shipper’s locations will drive the choice of a partner that is based and is able to have enough supply of trucks for your warehouse operations

  • It is recommended to evaluate 3-5 TL/LTL to start. This will enable you to achieve your goals in terms of cost and service

2. Choose the right set of LTL/TL partners

  • You should decide if you want to work with an asset based carrier or if you want to work with a broker. Both sides of the industry are very developed and provide different advantages

  • Being one of the oldest transportation businesses, there are several local and national carriers. Each of them have strengths on different lanes, depending on current businesses that they run. For example a carrier that has a customer that ships daily from NY to CA will be interested on getting loads back from CA to NY, and therefore the cost structure will be cheaper

3. Decide what are the service levels that you will need to run your network, based on product cycle. Some generic guidelines:

  • Palletized cargo should move on LTL up to 12-14 pallets

  • After 12-14 pallets, it is recommended to use a TL to minimize risk

  • Have available TL companies that can provide single and team drivers, so they can run more distance with the truck. There are time limits on driving hours

  • Look for Expedited services that can help you accommodate urgencies for shipments smaller than 12 pallets

4. Evaluate automation in load tendering, routing and tracking.

  • Several TL and LTL companies can share carrier events on EDI214 formats, and it is a trend that more companies are following as it is becoming critical to run a business, to have full visibility on pickup and delivery of TL and LTL loads