It’s consumed our headlines the last two years—supply chain issues are running rampant across industries with chaos at ports, distribution centers, and along shipping routes. Manufacturing delays, raw material shortages and long-term effects of the bullwhip effect are contributing to the challenges, and now softening demand curves are leaving inventories at near-record highs.

Warehouses, an essential part of supply chain recovery, have been deeply impacted by the turmoil of COVID-19. They’re grappling with capacity overflows, supply and demand imbalances, and labor shortages; many are also redesigning fulfillment processes in reaction to growing e-commerce demands.

With all this turbulence, distribution leaders are trying to differentiate themselves in an industry fighting for qualified labor. Finding that wage competition only covers gaps temporarily, organizations are embracing the need to rethink their short- and long-term strategies to better manage inventory and capacity. And on the facility floor, developing a culture that empowers workers and prioritizes efficiency can optimize operations amidst disruptive environments.

Develop proactive, flexible inventory strategies for the short- and long-term.

The onset of the pandemic initiated several consumer behaviors that strained warehouse operations. Demand skyrocketed across industries as consumers panic-shopped for everything from toilet paper to frozen meat. Retail commerce shifted heavily to include a blend of click-and-collect and e-commerce fulfillment. Supply chains designed to accommodate 4-6% e-commerce rates began seeing rates closer to 15-25%. This placed a heavy burden on distribution facilities and warehouses to support this demand channel shift, moving work historically performed in retailer locations to distribution centers.

Now that we’re seeing demand and consumer purchase behavior normalize, facility leaders are shifting towards becoming more strategic and proactive. With warehouse vacancy rates at all-time lows and parking lots full of temporary storage, shippers are beginning to question past decisions to triple safety stock and acquire additional space in response to lags in global manufacturing.

Instead of knee-jerk reactions to keep safety stocks high, or abrupt overreactions to cull inventory, supply-chain operators need to pause and assess their inventory strategies and how they use existing space. Short-term solutions may include a needs-based inventory stratification with storage strategies, temporary racking strategies for surge inventories, and allocation processes that pass along lead-time challenges to margin-appropriate accounts.  Long-term solutions may include inventory strategies that ignore demand amplification signals, near or re-shoring sourcing strategies to alleviate supply constraints, and modular distribution center designs that allow channel flexibility.

Empower the front-line worker to increase efficiency.

Truck drivers aren’t the only in-demand talent in the shipping and logistics space—warehouse workers are also highly sought after. Unemployment in the transportation sector has seen a rapid decline over the last few years, beating pre-pandemic levels in April 2022. There’s no doubt that high order volumes and shifting customer demands have since pushed shippers to offer competitive wages and benefits to reduce turnover. Now is an ideal time to invest in workplace culture and training. Employers can help employees feel valued while expanding their skill set and improving warehouse functionality by offering them opportunities to learn and grow through coaching and other programs.

Part of this training should extend beyond culture and into methods for increasing efficiency and reducing waste to create a better work environment and a more effective strategy for warehouse management. Companies like Transplace offer Lean Enterprise Transformation solutions, which serve as guides to help teams work smarter—not necessarily harder. These solutions take an employee-centric approach to equip and empower the front-line worker to see and solve problems that impact their daily operations. This empowerment can have a dramatic impact on realized business results. Research shows that engaged employees stay longer while operating at higher and more meaningful productivity levels.

The worst may be over, but there’s still work to do.

Though the darkest days of the pandemic may be behind us, supply chain issues are far from over. There’s still a pressing need to optimize warehouse operations and build a strong foundation for shipping and logistics. Warehouses can re-establish the status quo from an industry and process perspective while also training and empowering employees to make decisions that maintain an optimized environment.

When shippers see warehouses as more than storage facilities, these facilities can be transformed into nimble, fast-moving velocity centers that drive value throughout the supply chain.

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The “3-legged stool” of transportation network optimization considers all three core elements of a successful transportation network: price, capacity and service. Pulling out one or more legs of the stool makes the network unstable. During this year’s Shipper Symposium, our Transportation Network Optimization session showcased how Transplace’s Supply Chain Consulting Practice (TSCC) helped a global producer of wood products strategically overhaul and optimize its North American network of transportation capacity, service and spend. Below is a look at that case study and the great results that the process yielded.

Manufacturer Takes Transportation Management to the Next Level

The wood product manufacturer recently partnered with Transplace, with the objective of building a more strategic approach to sourcing transportation capacity and managing their core carrier base. The joint project team executed a Strategic Transportation Optimization (STO) project, which included:

• Creating a freight spend baseline
• Developing a comprehensive capacity sourcing RFP
• Executing a multi-round sourcing event
• Building a set of business rules and constraints
• Designing and producing a comprehensive set of alternative scenarios to test for optimal outcome
• Producing an optimized routing strategy that could be operationalized
• Generating more than $5M in annual savings

With a more centralized methodology for its transportation management as the desired outcome, the manufacturer wanted to take a more strategic approach to centralized and standardized sourcing.

Executing a Network-Wide RFP and Building a Baseline

Prior to this project, the manufacturer’s operations had been localized, using minimally structured routing guides or auto-tendering. Restructuring and optimizing its operations required planning and executing the company’s first-ever network-wide RFP – with a carrier base made up largely of regional owner-operators having little experience with technology-enabled sourcing systems.

It was also critical to build a strategic plan and establish the first company-wide freight spend baseline, which would allow for the optimization of the manufacturer’s routing strategy to achieve its internal goal of $5M in freight cost reduction. And because shipment transaction data was stored across three legacy systems, more than 75,000 shipment records needed to be consolidated, cleansed and validated to ensure the data was accurate and usable.

In addition to establishing this freight spend baseline, TSCC needed to understand how the manufacturer operated. This was achieved by conducting on-site discovery with the company’s regional transportation managers and dispatching staff to get a firsthand look at its transportation operations.

Because most of the manufacturer’s carrier base had limited experience with technology-enabled sourcing or RFPs, this process was extended to the incumbent carrier base as well. Several extensive, hands-on training and briefing sessions with carrier stakeholders helped communicate how this new approach would enable optimization of the manufacturer’s network as well as theirs – and guaranteed carrier compliance with RFP requirements. This not only helped carriers navigate the process, but ensured that the manufacturer would be partnered with the right carriers, the right service and the right capacity – all at the right price.

After evaluating RFP responses and conducting negotiations, Transplace worked with the manufacturer to create an optimized network strategy, covering high-level planning, as well as carrier routing at the lane-level. Transplace also managed the communications and implementation of the awarding strategy as well as the assembly of a routing guide.

The 3-Legged Stool Yields Impressive Results

Establishing a strategic, technology-based approach to sourcing has led to significant operational improvements, as well as cost savings for the manufacturer. As a result of this project, the manufacturer:

• Gained greater visibility into freight flows and spend – By consolidating and validating shipment level data from across its three ERP systems, the manufacturer – and its carrier partners – gained visibility into their transportation network by facility, lane, region and mode. This not only enabled the manufacturer to achieve centralization, it also provided the incumbent carriers with the ability to shift their capacities and offer improved service going forward.
• Developed an optimized routing strategy – Executing a technology-enabled, network-wide RFP and iterative scenario analysis, enabled the manufacturer to create a centralized optimal routing strategy.
• Reduced carrier base by 61% – By optimizing its carrier selection, the manufacturer reduced is carrier base from 270 to 105 carriers. The manufacturer benefitted from strengthening their incumbent carrier relationships by empowering the network sustainability of all parties involved.

Large-scale, complex, network-based projects, such as this case, will identify value in the network. They will present the opportunity to both save money and improve service to customers. But identifying value is only the first chapter of the story. The next chapter, implementation, is where the rubber meets the road and the value identified is turned into the value realized.

Far too often implementation is not well-planned or well-executed, with benefits and compliance not being tracked and performance KPIs and metrics not being monitored or measured. The inevitable result is a shortfall in benefits versus what could have been achieved with proper planning, tools and execution.

Through this project, the manufacturer also gained access to network data and a blueprint for the optimized sourcing process that will be the foundation for the next time a similar project is undertaken. This, then, becomes the launch-point for a continuous improvement process that will continue driving benefits well into the future.

How is the “3-legged stool” impacting your business operations?

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