November 2005

Best-in-Class in Wholesale Distribution SeriesTransportation Management: A Continous Improvement Framework

Dave Forberg Drew SatherliePrincipal Industry Consultant Durable DistributionAchieve Consulting FedEx

������������������������ ��������� ���� �� ���� �

November 2005

Best-in-Class Wholesale Distribution Series

Transportation Management: A Continuous Improvement Framework

Dave Forberg Drew Satherlie Principal Industry Consultant Durable Distribution Achieve Consulting FedEx

2

Median ROA 2001 - 2004 Public Distributors

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

2000 2001 2002 2003 2004Durable NonDurable

Best in Class - Wholesale Distribution Seminar Series Overview Business is changing rapidly and wholesale distributors are in the middle, playing a critical role in helping their manufacturing and customer partners manage the supply chain and all the activities that go with it (inventory management, logistics, sourcing, payment, etc). In one recent study, 80% of CEOs said Supply Chain Management was important or very important for the success of their company, and within five years this number is projected to grow to 88%. In addition, external dynamics are impacting distributors in a profound way. Including: • Customers who have more choices on

where to get product and what they will pay for it. They are demanding more from distributors.

• Costs which are increasing at an ever

faster rate and distributors have not or cannot pass on these increased costs. These costs are payroll, healthcare, and financing to name a few.

• Technology that is helping distributors to

deliver things better, faster, cheaper, smarter - and more customized. This has been a great productivity tool for distributors in the past to help bring down costs.

• Channel partners that are forcing

distributors to become more efficient and productive in search of profits. Distributors have responded primarily by rationalizing and leveraging their supply base and have achieved mixed results.

• Increased and new forms of competition

and Globalization that have commoditized some products and industries, focusing attention on price and service as differentiators. Distributors try to remain current with this trend.

FedEx recently studied 197 publicly-held durable and non-durable distributors and found the following financial issues:

• Return on assets (ROA) remains low between 3%- 4% from 2000 to 2004. (see below)

• The median revenue of these

companies was approximately $763 million, and the operating income margin was approximately 3.5% or $27 million. (See below) which although low is within a point of two of historical averages.

Median Operating Income Margin

0.0%0.5%1.0%1.5%2.0%2.5%3.0%3.5%4.0%4.5%

2000 2001 2002 2003 2004Durable NonDurable

Thus, to increase profitability, distributors must focus on getting more out of existing assets.2 If network operating costs (inventory, facility and transportation) are about 8.0% of revenues3, then the median public distributor spends about $61 million managing their network. A 10% improvement in managing this cost would result in $6 million increase to the bottom line or increasing operating income 22%. The data and this example provide a compelling case of why distributors are looking at new and creative ways to manage their business.

2 Finlistics, FedEx, and Achieve Consulting study 2005. 3 Council of Logistics Management “State of Logistics” report

3

It was from the external dynamics and the fact that distributors are struggling to remain profitable that FedEx decided to launch a series of Best-in-class in distribution seminar series aimed at trying to help distributors address their key issues (internally or externally). By studying these problems, we hope to understand the issues distributors are facing and possible solutions. FedEx has two goals in mind for this best in class series: 1) To help the distributor better

understand their industry, their supply chain and the issues impacting them and;

2) To develop tools that distributors can use to improve their business.

We hope you enjoy this and future papers. If you have any questions, comments, or suggestions, please contact your FedEx sales rep or email us. Sincerely, Drew Satherlie drew.satherlie@fedex.com Mike Younkin mike.younkin@fedex.com FedEx Distribution Industry Consultants

4

Executive Summary

Demand for transportation services and the available supply of capacity are out of sync and worsening. Wholesale distributors need to be prepared to deal with this environment. Recently shippers have responded by implementing some fundamental changes that have been effective, but more is needed to continue to improve. A transportation framework has been developed to allow distributors to align their transportation operation with their supply chain strategy and overall business objectives. This framework allows shippers to take their improvement to “the next level” because it is in sync with the goals of the organization. However, it is a dynamic framework that allows for continuous improvement. The framework identifies the following major processes within transportation management for further review and analysis.

• Carrier Management

• Load planning and optimization

• Shipping Execution

• Shipment Monitoring

• Freight pay and audit

• Performance monitoring A corresponding maturity assessment tool is also provided to describe a continuum of operating capability across the transportation processes. Shippers can use as a self-evaluation tool. The tool will also help them prioritize where they might employ resources to maximize their overall performance. We have provided the tool at the end of the whitepaper. This paper provides a road map for companies to improve performance in each of these process areas.

5 5

Transportation Management Best Practices: Continuous Improvement Framework

The Transportation Landscape: Past, Present, and Future Prior to the 1980s, transportation was highly regulated and characterized as lethargic with little differentiation between carriers on price or service. In the 1980s, deregulation changed the landscape for freight movement and shifted the balance of power from carriers to shippers. Competition increased in all modes and shippers demanded and received better pricing and improved service. Demand for transportation remained strong through the 1990s as the United States economy surged forward. Driven in part by outsourcing and globalization, huge increases in imports began straining ports, creating capacity issues in trucking, and clogging inter-modal operations everywhere. Naturally, cost and pricing grew steadily through the 1990s (See Figure1).

Cost per ton mile

80859095

100105110115120125

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999

Year

Inde

x

(Source: Bureau Transportat ion Stat ist ics) Figure 1

Demand continues to increase each year in all modes. The Bureau of Transportation Statistics reports that air freight ton miles are up approximately 4% since 2000 and motor freight ton miles are up over 6.5%. Accordingly,

costs continue to increase at an accelerated rate. Logistics Management reports costs have increased by nearly 20% since 2001. (Figure 2)

Figure 2 Today, the transportation industry is maturing but demand and supply are not synchronized. Consider the following supply-side facts: • Trucks handle more than 85% of all

goods moved through the US22 and are experiencing unprecedented capacity issues. Service changes have improved safety but reduced capacity by over 6%.3

• The average driver is 56.4 Retiring

drivers increase capacity pressures. • Average drivers’ wages increased 7-

8%. But there is a projected shortage of more than 100,000 drivers over the next 10 years.5

2 DC Velocity, October 2005 2 Transport Topics 3 Fortune, November, 2004 4 Logistics Management, 2005 5 American Truckers Association

Source: Logistics Management (11/05)

6

• West Coast port traffic is at an all-time high with nearly 40,000 forty-foot containers (FEU) entering each day.6

• Inter-modal volume is up over 65%

since 1990.7 • Durable goods shipping have

increased by nearly 10% since 2003 and air freight is up 12%.8

• Transport Topics reports that many

carriers were overbooked by 10-15% on any given day in 2004.9

Looking forward, there is no evidence that there will be a return to the “good old days” of the 1980s and 1990s. Clearly, distributors need to develop a rational, competitive response to these events. New Environment and Realities Wholesale distributors have had limited success navigating the tight channel between managing supplier relationships and cost-effectively satisfying customers. Previous transportation management efforts may have been implemented and many have delivered the expected results. During this time shippers have: • Centralized carrier management as

part of the procurement function and stressed efficiencies

• Emphasized narrowing the shipper base to 1-2 carriers to leverage scale and drive down rates through maximizing discounts.

6 Fortune, November, 2004 7 DC Velocity, October, 2005 8 DC Velocity, October, 2005 9 Transportation Topics

• Outsourced the delivery function entirely, or simply shopped for new partners or service providers to lower costs.

• Established core carrier programs

with 1-2 carriers in each lane for scale economies.

• Dedicated volume to a single parcel

express carrier to drive down pricing or to gain technology capability

These methods are effective, but are not enough. Combined with capacity constraints, shippers must find a new way. One path is to “share” the pain with customers by trying to initiate special charges, such as accessorial fees, fuel surcharges, and “extra service” charges. A leading lab equipment distributor introduced temporary surcharges even for customers with pre-existing free shipping contracts. Customer pressure forced a repeal of the charges after a few short months. Customers will be tolerant for only so long. Transportation Management Continuous Improvement Framework and Maturity assessment tool A different framework has emerged to help manage transportation processes and spend, and align them better with company goals. This new framework is comprised of two components: 1) A continuous improvement

framework which looks at the six processes and 23 activities encompassing transportation management.

7

2) The transportation maturity assessment tool which evaluates your capabilities in key processes against a continuum of best in class practices.

At the core of the transportation management framework is flexibility which allows alignment between transportation and business strategy. The model does not profess one right answer that fits all situations or advise that all distributors should aspire to leading practices in all processes. Instead, the model helps distributors tie their transportation management process and activities to their business strategy. If and when environmental issues change or business strategies evolve, so to does the need to supply products from manufacturer to customer. The model helps see what to change and how. The maturity assessment tool helps identify and align the best practices of the key processes and sub-processes. These best practices apply whether your company utilizes a private fleet, dedicated carriers, a set of core common carriers, or contract parcel services. With this approach, shippers can focus on improving specific areas within transportation management in order to achieve their strategic objectives of:

• Controlling transportation costs • Increasing reliability of order delivery

and real time status availability • Making transportation and logistics a

differentiator in the market place. Tactical Best Practices are Necessary to Win “In the Trenches” While fundamental concepts serve as the foundation for a program of improving transportation operations from a time, cost, and service standpoint (see box on next page), real progress is made by applying tactical best practices that enable a more effective transportation management operation. The ability to get things done on the dock and on the road differentiates a transportation operation’s effectiveness in the customer’s mind. This is achieved when all aspects of transportation management are in sync and working towards servicing customers, while minimizing headaches and costs for all supply chain partners. For many distributors, the question is “Where to begin?” The transportation management framework suggests that shippers “break down” transportation management into processes and sub-processes that can be better managed and optimized. Improvements in each area of the framework contribute to a better overall operation. There are six processes or stages to the framework depicted in the figure on page 9.

THE FOUR FUNDAMENTALS FOR EFFECTIVE TM Companies in all industries, including wholesale distribution, are making progress by adopting and four fundamental concepts to implementing the model: • Centralize operations • Automate the routine • Collaborate with supply chain partners • Measure performance for continuous

improvement

Centralize Operations By centralizing transportation management, shippers are better positioned to control the overall flow of goods into and out of their facilities and are better able to exact savings improved resource use. Scale economies and the efficiencies of planning and coordination of all moves become much more attainable. Centralization offers a chance to maximize work force productivity, increase the span of control and to negotiate with carriers based on aggregate volume with carriers.

Automate the Routine Whether you use private fleets, dedicated carriers, or third party service providers, routing, tendering, and load optimization can be automated. Prices for powerful desktop optimization tools have dropped and now sophisticated packages can be integrated at very low costs. In fact, shippers with fleet size as small as 3-4 trucks can implement tools that minimize miles and time driven, meet service window requirements, and sequence orders for best delivery patterns. Additionally, these tools now have functionality to support all areas of Transportation Management. Electronic data interchange remains the dominant method for communicating externally, but the Internet is making direct, real-time connectivity possible for even low volume shippers. These tools quite literally pay for themselves in 2-3 months time. Collaborate with Partners The increasing demands of customers and limited capacity of suppliers is best managed through improved collaboration with supply chain partners. The critical

aspect to overcome for wholesale distributors is the willingness to share operational information outside the organization, but technological capability makes this simpler. Collaborative transportation management (CTM) programs are a natural extension of collaborative planning forecasting and replenishment programs that companies have been implementing over the past decade. Transportation exchanges and web-based service providers enhance the collaboration by offering standardized tools with easy access for shippers and carriers. Supply chain partners also means collaborating within your own company. It is suggested that you must master this first before attempting to partner with outside suppliers.

Measure for success and continuous improvement In order to accomplish strategic objectives, there must be performance measurements in place that provide the ability to monitor progress toward the improvement. Effective measurement systems work best when they are an integral part of the process. Fact based decision making requires accurate data. In transportations cost, quality, and time measures are best captured from actual moves using the TMS.

A recent study by the Warehouse Education and Research Council and DC Velocity supports this assessment. (See Figure 3) Companies are implementing these carrier friendly programs to become lower cost customers in hopes of receiving favorable consideration in competition for capacity and lower rates for moving goods. We believe more can and must be done by shippers in all industries.

Percent of Shippers that implemented changes to improve dock and yard management: Improvement % respondents Added dock staging 24.8 Changed shipping schedule 47.0 Changed operating schedule 39.0 Added drop lots 18.0 Added drop-hook operations 20.0

9

Performance Monitoring

Carrier Management

Load Planning & Optimization

Prepare & Execute Shipments

Shipment MonitoringFreight Pay & Audit

Achieve Consulting

Transportation Management Maturity Assessment Tool The transportation management maturity assessment tool (see sample below) breaks down the framework into operational business areas, processes, and activities. It then describes key

characteristics of the activity along a spectrum of outcomes. When used in conjunction with performance metrics, the model helps organizations identify key improvement opportunities.

Sample of a Maturity assessment tool

Transportation Management Framework

1 2 3 4 5

Business Area Process Activity Limited Developing Competitive Emerging Leading

Carrier Management Carrier Base Management Scope of Transporation

ManagementNo freight is actively managed. Inbound freight cost imbedded in purchase price.

Limited outbound management - mostly high volume lanes. Also limited cost visibility for inbound freight for high volume purchase goods.

Outbound freight is managed, but inbound is still vendor controlled. Beginning to breakout cost on invoice.

Outbound freight is managed, and inbound is still partly vendor controlled. All inbound costs are understood and significant volume suppliers are being managed.

All inbound and outbound freight across the enterprise is actively managed and controlled.

Carrier base Local decisions made when orders received Standard carriers based on service territories Line haul contracted to core set of carriers & local cartage to small group of carriers

Core carrier program established with minimum volume commitments

Carrier partnership programin place with frequent monitoring and an annual reviews

Understanding of Carrier Capabilities Very limited understanding Rudimentary understanding, communicating with

carriers Actively exchange information with carriers Understand carrier capabilities and plan accordingly In-depth understanding of carriers’ capabilities and plan accordingly

Carrier Contracting Identify Capable Carriers Carrier base not defined Some of existing carrier base capabilities known well, others unknown.. Invite core set of carriers to present their capabilities Core set of carriers identified with a clear understanding

of their capabilities.

Partner with core carriers and establish a program (qualifications, communication, etc) to help meet your needs

(Include Freight Forwarders & other Trans service providers)

Preparation of Bid No coordination Little coordination of volume, region, mode across business units

Volumes and service needs by mode are centrally coordinated by region

Volumes and service needs by mode are centrally coordinated at an enterprise level

Detailed selection process leveraging total volume and moves for the enterprise. Coordinated with TMS so requirements / schedules are synchronized.

Carrier Contracts No contracts established Use existing contracts developed around the carriers’ needs

Standardized on a few contracts and have all carriers participate

Core carriers on standard contract based on your service needs; all others using your standard terms

Custom contracts designed to simplify your requirements (i.e. simplified rate structures) and to encourage partnerships with pay for performance

Carrier Compliance Carrier Participation in Initiatives Carrier participation is not emphasized Limited participation Of the programs initiated, beginning to involve carriers Carrier participates in quality process as requested Carriers participate fully in quality process

Carrier Relationship Accountability/ Responsibility No established relationships / accountability Individual facility location relationships Business focused negotiation but locally managed

relationships Regionally focused negotiation but locally managed relationships

Only centralized authorized carriers are used. Company-wide negotiation with locally managed relationships.

Contract Obligations No contracts established to monitor No process is in place to monitor actual versus contractual volume shipped by mode and carrier A laborious manual process is in place An automated process is in place System monitors volume shipped by mode and carrier

to meet contractual obligations

Continuous Evaluation Process Process not defined Informal process in place Inconsistent recognition of factors beyond price Documented process evaluating service and cost Comprehensive score card focused on service and total cost

Transportation Management

10

The essence of the maturity assessment tool lies in the capability continuum, numbers 1 through 5 along the top. Each activity has several degrees of sophistication ranging from limited capability to competitive performance to leading practices. (Additional degrees of capability exist within the model but these three points will be used to describe companies in this paper). Defining and delineating these degrees helps distributors not only see where they are, but where they can be, if they aspire to improve in that activity or business area. To use the maturity assessment tool, management simply assesses their current capability and selects the desired performance for each activity within the model. The gaps between desired capability and actual capability across the entire function can be used to prioritize where management should focus resources for improvement. Carrier Management Carrier management is the set of activities shippers employ to identify and procure the best modes, best carriers for each mode, and best rates for shipping goods to and from their facilities, including maintaining a private fleet. High performance in carrier management allows companies to “set the stage” for excellence. Choosing the best service providers at the best cost with formal processes is the foundation for the transportation excellence. Companies with Limited capability can be described as local operations having little or no coordination between shipping sites, a high number of carriers, un-defined contracts, and limited or no formal relationships with

carriers. Competitive shippers have a centralized operation and established set of core carriers with whom they actively exchange information, and manage primarily outbound shipping. Leading companies manage all inbound and outbound freight with carrier partners. Carrier partners are selected through a formal, detailed process, and carriers participate in all applicable aspects of the transportation function. Best practices include collaboration between shippers and carriers which can lead to better overall performance when the participants have a common under-standing of goals and expectations. Of course, the relationship is best maintained with effective contract management and rate management systems that: • ensure “best” contracts are used in

freight decisions • procure best carrier in each mode for

service required • provide data driven decisions Efficient carrier management processes reflect organizational discipline more so than other areas of transportation. Accordingly, shippers should be as aggressive as possible at implementing best practices and move towards becoming a leader. Some key considerations to think about are: • Are we using the right number and

mix of carriers for each mode? • How formal is the bid process? And

how frequent? • Are our service levels and costs

negotiated centrally for all our operations?

11

• Are inbound and outbound freight managed and negotiated companywide?

• How difficult is managing rates and the level of compliance of using approved carriers?

Load Planning and Optimization Load planning and optimization is the creation of efficient transportation plans that allow shippers to reduce costs and improve service by being more reliable day to day and to increase density of freight moves in aggregate. Visibility of demand for transportation services is as important as the tools and processes used in optimizing the flow of goods. Transportation Management Systems (TMS) tools are available to provide this visibility and associated optimization. Optimization capabilities of TMS systems automatically choose the best mode for each geographic region and the lowest cost route while considering planning horizons and real world constraints. Benefits include less dock congestion and more dependable carriers with more reliable service. Distributors and shippers with private fleets can minimize drive times, route trucks through and around congested areas, match deliveries to customer receiving times and provide real-time status updates to throughout the organization: • A Toronto-based perishable

distributor realized nearly a 10% increase in service efficiency by using planning and optimization tools.

• A national sundries distributor has been able to significantly reduce parcel delivery costs by building truckloads of parcel orders from a central distri-bution center and delivering them to the carrier’s local destination sort operation. The line haul cost for the truckload, plus the local package delivery costs, was much lower than long distance package delivery costs.

Lastly, sophisticated tools can be deployed to make “step-change” improvements with continuous moves, backhauls, and cross docking. Continuous moves combine inbound plans with outbound plans and allow for carriers to use the same driver, tractor for multiple legs of a delivery route, dropping off one load and picking up another. With the correct set of partners (particularly with on-line collaboration tools) backhauls can be planned for and arranged prior to leaving the origin dock. Companies with Limited capability usually have ad hoc planning with little or no tools to help with consolidation. Orders are sorted on the traffic desk and manually combined into loads based on “tribal knowledge” of territory service providers. Competitive companies may still be planning and building loads in a decentralized organization, but they are likely using power desktop tools. In some cases these companies are

12

beginning to work with carriers on expanded planning horizons in order to secure capacity for future shipments. Leading companies use longer planning horizon and advanced systems to select mode and carrier using current actual cost and service data. They shift modes, route dynamically, and experiment with concepts, such as merge in transit and facility by-passing. Additionally, these top performers look across the organization to optimize use of assets and leverage their full scale.

Best practices include shifting modes by consolidating orders into larger shipments which lowers the per unit cost (assuming no service requirements). Parcels may be combined for greater weight breaks or, if possible, sorted into line haul runs to the parcel service providers regional sort operation. Less than truck loads (LTL) can be combined into multi-stop trucks, pool loads, or truckloads. Each of these improves the total delivered cost. Some key considerations for effective load optimization and planning are: • Load optimization and planning may

not fit all distributors. Highly sophisticated TMS applications are expensive and are appropriate for large organizations with complex

networks with complex shipping challenges.

• In some situations, simpler tools can deliver greater load density or better routing of private fleets. Competitive activities and practices may be sufficient to deliver exceptional performance at reasonable costs.

• Each organization should determine the optimal level process and technology required to deliver transportation performance aligned with overall supply chain strategy.

Shipping Execution Optimal plans must be supported by effective operations in the shipping office, on the dock, and in the yard. The heart of all wholesale distribution operations is shipping execution which gets the right product, on the right truck, which goes to the right place, at the right time and fulfills the company’s operation. This must be executed flawlessly by today’s distributors. Companies with Limited capability tender loads by phone or fax and schedule transportation in reaction to production output or new receipts from suppliers. They rely on local carrier “friends” or underutilize their own fleet. Yards are small, docks are congested, and dock door use in not planned in advance. Documentation is usually

13

manually generated at the time of shipping. To be Competitive today, wholesale distributors, at a minimum, must auto-fax or email load tenders. They must maintain a dock schedule that balances inbound and outbound and provides some flexibility to respond to daily crises, and shipping documentation should be standardized and computerized. Leading firms use EDI or web-enabled tendering with automated acceptance and dock scheduling interfaces. All moves are known in advance and shipping documentation is printed and electronically communicated with actual ship quantities. Best practices include: • Automatic load tendering • Automatic appointment scheduling • Efficient dock and yard practices

which include: o Drop and hook programs to allow

carriers to plan multiple moves for a driver and tractor.

o Emphasis on efficiency within the

warehouse to enable quicker load and unload times.

o Expanded shipping and receiving

hours or multiple shifts are being adopted to increase flexibility for carrier routing of loads.

o Expanded trailer drop lots at

shipper and warehouse delivery sites.

Wholesale distributors are well served by implementing leading practices on their docks and in their load tendering

operations. Thus, key considerations to this business area are: • Do we have good relationships with

drivers and carriers so that we make our supply chain partners better and in turn improve our operating performance?

• Have we made the right level of investment in systems for automatic dock scheduling, yard management, or dynamic equipment availability status updating to improve performance? Do we have disciplined shipment scheduling and load tendering processes that that allow us to be flexibility and efficient? Do our carrier partners and warehouse operations interact automatically?

Shipment scheduling and load tendering processes combined with disciplined operational execution can significantly improve a distributor’s profitability and customer service performance. Shipment Monitoring (track and trace) Critical to a wholesale distributor’s success is to know the whereabouts of product at all times. Proactive management of load status allows the distributor to maintain control over the shipping process. Ideally, status updates are sent to customers as events in the delivery process unfold. Skilled employees, who know what to do with the information and how to do it, enhance customer service, improve profitability or both. No visibility or process is characteristic of Limited shippers, while Competitive shippers will follow only select shipments and use their invoice as proof

14

of delivery. Leading wholesale distributors have carriers provide real time updates of delivery status using standard EDI transmissions or web-based XML capability to update files, or alert customers. Best practices of leading distributors also include status updates for load pick-up and load delivery at multi-stop orders thus alerting the shipper if subsequent stops are at risk of service failure. Proof of delivery notification not only enhances the service between the shipper and its customer, but it improves the billing and freight payment process between shipper and carrier. Additionally, notification or alerts of service failures can be sent from carrier to shipper to customer in order to proactively manage customer service issues. Parcel carriers lead the way with this integration of order delivery status. In fact the leading carriers can provide shipping systems with this integrated capability to customers as part of their collaborative offering. Tracking and tracing is the ‘ante’ in today’s supply chain management. Key considerations for shipment monitoring include: • Are our carrier partners providing us

with good data • Are we using transportation data to

update status and sharing that information throughout the organization especially in customer service

• Are we proactively alerting

management of any issue related to a customer service failure in order to differentiate ourselves

Freight pay and audit Transaction heavy processes such as audit and freight pay are ideal for automation. Yet freight pay and audit has historically been ignored or mismanaged. Recent technology developments and large shipper’s scale have begun to drive efficiencies in freight pay processes. Wholesale distributors with Limited capability continue to manually manage rates, pay bills as received, and post-audit their freight bills. Competitive performers do manage rates electronically and compare ‘actuals’ to plan for the high volume lanes. Leading companies manage rates for all ship points from a central location and re-rate the invoices when received to compare invoice amounts to contracted terms. At the leading edge, companies utilize auto-pay or self-pay, wherein the shipper pays the bill based on contract terms and actual freight shipped at the time of shipping. These companies rely on the carrier to file adjustments, essentially shifting the burden for accuracy to the carrier. Key considerations for freight audit and pay are: • Have we automated the non-value

added set of processes that should be automated as much as possible?

• Should we evaluate the cost to

manage our freight bills and consider teaming with a 3rd party service provider to manage this activity as an alternative?

• Are we sufficiently large, and do we

have the capability to mange this activity internally? If distributors are advanced in their carrier

15

management processes, then the audit and pay process may not be too onerous. If so, keeping it in-house may be a good strategy.

• Should we consider auto-pay to shift

the audit and adjustment burden and cost to the carrier? If so are we prepared to operate and pay per their contracts?

Performance measurement The old adage “if you’re not measuring it, it won’t get any better” certainly holds for transportation. You need to know how good you are before you can decide how good you can be. Typically, the measurement process relies on data from internal TMS systems and often will also include data reported by carriers and customers. At one end of the spectrum, Limited companies don’t bother to track or measure cost or performance or if they do it is exception based and on a manual basis. In the middle of the spectrum, Competitive companies gather information from their TMS systems, analyze it and look for any ‘glaring’ errors or ways they can improve the cost center. Leading companies utilize well-developed performance management processes, employ scorecards to track performance, and have frequent (quarterly or semi-annual) reviews with partners. These meetings are then used to review the current state and brainstorm on additional ways to align transportation goals (cost, quality, service) with business goals and strategy. These meetings should also be used to discuss changing needs such as big projects, seasonal requirements,

new customers and new products. This ensures the carrier understands and plan for your future requirements. A continuous improvement framework requires vigilance in measuring internal operating performance. More complex operations generally require more complex measurement systems (not more complex measures, but systems capability). Key consideration for performance management needs: • Have we built effective relationships

with supply chain partners and do we have the infrastructure in place for fact based metrics reporting?

• Do we provide feedback to partners,

internal and external, in a timely enough method to influence future performance? Do we do this at the right frequency? Is real-time really required?

• Have we determined the level of

feedback that would be most effective for our organization and do we consistently measure, report, and respond?

Next Steps Included with this paper is the maturity assessment tool complete with each activity broken down. In order to maximize the use of the framework and the tool, the authors suggest the following: 1. Review their current operations

according to the framework 2. Assess current state against the

maturity assessment tool 3. Determine where you want to be for

each stage of the life cycle

16

4. Prioritize your resources to close the largest gaps in the maturity assessment tool or those gaps which can be closed quickly and offer a quick return

5. Develop a plan to close the gap 6. Measure and improve, continuously. By reviewing the transportation management framework and assessing their current state along the maturity assessment tool continuum, distributors can take a first step toward aligning their transportation strategy with their business strategy. Conclusion Wholesale distributors must define and focus on their core competencies and competitive advantage — where they add value — to stay out in front of the changing business climate. But that is no longer enough because the environment is always changing. Instead of statically trying to adhere to one model, distributors must change, constantly reviewing what they do and how they do it and evolving to new business model.

This is true in transportation as well as in all other areas of the business. The framework provided in this paper is a straightforward guide to help distributors continue to evolve in the transportation management operation. No one answer is correct. What is presented here is a tool that enables distributors to prioritize where they should focus their management attention and resources in transportation so that it remains aligned with the overall business strategy.

17

About Achieve Consulting

Achieve Consulting is a supply chain management consulting firm specializing in process improvements and technology implementations for manufacturing and distribution companies. Achieve offers forward thinking and a new approach to consulting services. By leveraging an experienced team of former industry practitioners and “big-firm” consultants, Achieve can help your company reach its objective of a more competitive and market responsive supply chain. To learn more about Achieve Consulting, please visit our website at www.achieve-consulting.com. About FedEx

FedEx Corp. (NYSE: FDX) provides customers and businesses worldwide with a broad portfolio of transportation, e-commerce and business services. With annual revenues of $30 billion, the company offers integrated business applications through operating companies competing collectively and managed collaboratively, under the respected FedEx brand. Consistently ranked among the world's most admired and trusted employers, FedEx inspires its more than 250,000 employees and contractors to remain "absolutely, positively" focused on safety, the highest ethical and professional standards and the needs of their customers and communities. For more information, visit fedex.com.

About the Authors

Dave Forberg is a partner with Achieve Consulting, LLC. Dave has over 20 years experience in Logistics Operations, evenly divided in industry and consulting. Dave has enjoyed the opportunity to work with manufacturers, distributors, retailers, and third party logistics service providers. Dave has a Bachelor of Science in Industrial Engineering from the University of Illinois and Master of Management from Kellogg Graduate School of Management at Northwestern University. Drew Satherlie is responsible for developing and implementing corporate-wide marketing strategies and initiatives for the durable distribution industry within FedEx. Drew has over 14 years of experience in the distribution industry, divided between industry and consulting. Prior to FedEx, he was a consultant focused on helping wholesale-distributors with their marketing and supply chain strategies. He has also held a number of marketing leadership positions inside distribution organizations. Drew has a bachelor’s degree from DePauw University and an MBA from Kellogg Graduate School of Management at Northwestern University.