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Best Practices for Transporters and 3PL Service Providers

Written By: Ashfaque Ahmed
Published On: February 6 2008

The current state of the goods transport business is such that most transporters and third party logistics (3PL) service providers are forced to offer their services at lower rates while faced with the continual rise in costs for doing business (e.g., increasing fuel prices, employee salaries, and other operating expenses). This scenario calls for transporters and 3PL service providers to streamline business processes and provide value-added services to boost their top lines and improve their bottom lines.

Such results can be achieved by implementing software systems equipped with built-in best practices and with the ability to adapt for future growth, entry into new markets and market segments, and changes in business practices. It also makes sense for transporters to enter into new business lines (e.g., providing services to manage entire supply chains for clients, including managing inventory, warehousing, in-plant services, etc.).

Transportation is the crucial link among all partners in any supply chain. Goods move from suppliers to manufacturers, from manufacturers to distributors, and from distributors to retailers. In cases of rejections, repairs, and customer service, goods move in the reverse direction. Transportation of goods is the lifeblood of most businesses, and in an ever-increasing global market, its role is becoming increasingly vital.

In the agrarian societies of yore, transportation of goods was limited to taking farm produce to the central market of the village. Then came trading communities, which would ship and receive goods via sea routes. Slowly, after the dawn of industrial era, goods were being made on a mass scale, and they were shipped both nationally and internationally.

Now, in the era of global trade, some industries manufacture parts at different geographies, and these goods are then transported and assembled at locations close to end customers. In other industries, products are made at contract manufacturing sites that are located in faraway countries having low labor and materials costs, and are transported and consumed at other locations.

Transporters Have Distinct Needs

Because of the nature of global trade, goods are being transported to faraway places in larger quantities. Transporting goods over long distances both economically and with minimal transportation time requires special knowledge, resources, and expertise. Since the size of transport operations is becoming huge, transport organizations need reliable transportation management systems (TMSs) to communicate effectively with suppliers, distributors, retailers, and service providers. With the help of a capable TMS, transporters can plan and execute their shipments with more accuracy and with less effort. They can also lower their operations costs by means of optimized loading (to get better fill rates) and by reducing empty run miles and wasted time.

Best Practices for Transporters

The unique nature of the goods transport business calls for unique features in a TMS. Transporters deal with many organizations, so they need to have a system to which all of these organizations have access to perform everyday transactions.

Best practices related to goods transportation can be divided into six parts: 1) supply chain management (SCM), 2) billing management, 3) key performance areas measurement (KPAM) management, 4) key account management, 5) quotation management, and 6) fleet management.

1. Supply Chain Management

Transporters need to understand their clients’ requirements and to be an integral part of their clients’ supply chains. They should help their clients achieve the desired visibility level of inventory during transit, as well as reduce transit times, maintain service levels, and reduce transportation costs.

Transporters can devise innovative ways to achieve many of these goals. Technologies such as global positioning systems (GPSs) and general packet radio service (GPRS) can be used to track the location of a vehicle during transit. This will help in achieving better customer service and in making changes in planning at the receiving warehouse (such as appointment scheduling, unloading, put away, etc.) on the fly. Route and load optimization features will assist with route selection to reduce transit times and empty miles run, as well as optimize loading to lower transportation costs.

Providing 95 percent or more visibility during transit can help transporters’ clients reduce their overall inventory levels, and thus save in operations costs. Many times, a vehicle can be loaded at 100 percent volumetric capacity, but it could still be at less than 50 percent in terms of weight capacity. Similarly, sometimes a vehicle is 100 percent full in terms of weight capacity, but less than 50 percent full in terms of volumetric capacity. In these situations, the load planning features of a TMS can help achieve optimized capacity of use of the vehicle. Using load consolidation, which means using opportunities for loading vehicles during return trips, will help transporters’ clients reduce transportation costs.

2. Billing Management

Transporters need to ensure that there are no delays in the payment of their bills. Each bill for each activity they perform must be accurate, and they should ensure no opportunity is lost to bill every activity they carry out. They need to have checks and alerts so that bills are created and presented to clients on time, thereby minimizing payment delays. In addition, transporters need to have an activity-based accounting system so they can bill accurately for each and every activity. They can pass a percentage of the cost savings from reduced operation and transportation costs on to their clients, which will help to maintain a happy and loyal clientele.

3. KPAM Management

Each client of a 3PL service provider signs a service level agreement so that key performance areas can be defined and measured in order to rate the provider’s quality of the service. These agreements differ based on the needs of each client. A TMS with KPAM capabilities should be able to define and measure the agreed-upon key performance areas.

4. Key Account Management

Transporters and 3PL service providers have some major clients for whom they create dedicated customer service, marketing, operations, and accounting teams. In many cases, a team may be comprised of members from different divisions so that all the client’s needs are met through one channel, and the client does not have to deal with several people for a single area or issue.

Another aspect of key account management is that all the client’s needs related to logistics are met by one service provider. For this, the service provider may offer these services itself, or it may procure these services from other service providers to create a single window through which it provides all services to the client.

5. Quotation Management

By using seasonal or historic costs and by comparing rates, transporters can provide accurate quotations to clients. Quotations can take into account opportunities for consolidation, load optimization on equipment, and any other cost-saving measures so that the transporters can pass the cost savings on to their clients, potentially ensuring more business from these clients.

6. Fleet Management

By performing a complete and accurate cost analysis (equipment purchase cost and equipment operations cost) and revenue analysis (revenue realization from equipment being used for the fulfillment of certain orders over a certain period of time), transporters can find out which vehicle types are more profitable and which ones are not. It may be discovered once profit-loss calculations are done that some vehicle types are, in fact, incurring losses. This analysis can help transporters keep a mix of profitable vehicle types in their fleet in order to optimize their margins. Vehicles that create loss for the transporter can be modified to make them profitable (for example, one transporter modified its motorcycle-carrying trucks to accommodate 110 motorcycles instead of the truck’s original capacity of 81 motorcycles).

Recommendations for Transportation Service Providers

Today, most clients are concerned about visibility in the transportation of their goods, reduced transportation times, and fewer hassles in the transportation of their goods and in their SCM. They are also keen to outsource many business processes connected to transportation-, warehousing-, and logistics-related activities so they can focus more on their core business.

Transporters not only have to think about how to deal with their customers well, they also have to think about how to manage their own internal processes properly in order to keep their bottom lines in check. For a long time now, transporters and other 3PL service providers have been operating on thin margins; the time has now come for them to improve their operating environment. By providing better supply chain and transportation management capability, transporters can provide better visibility to their clients, as well as reduce transit times. By providing a single window for all logistics services, they can remove many obstacles from their client’s logistics operations. Such measures will also add much value to the services offered by these service providers.

By taking the actions above to ensure clients are satisfied, transporters have the opportunity to add value to their services by providing new service offerings, thereby increasing their business. Some business lines offer better margins and growth rates, such as express service, warehouse management, consulting services for creating new supply chains or for streamlining existing supply chains, and providing software as a service to clients. Transporters can also improve their bottom lines by bettering fleet management, billing management, and key account management capabilities. By managing and excelling at both customer-facing and internal processes, 3PL service providers have a greater chance of surviving the difficult reality of their business climate.

Recommendations for Transportation Software Vendors

Many of the needs of transporters and SCM service providers are unique. Software vendors would do well to understand these requirements and to develop software features that address these needs. For instance, at the shipment tendering process, players include the client, the broker or fourth party logistics (4PL) service provider, and the transporter. Which player should view what information is a crucial decision, as much of the information is confidential. A TMS should be able to take care of this aspect in addition to providing configuration options to change workflows in the process, depending on client needs.

Similarly, the service provider needs to bill clients for all transportation-related activities. Billing rates will be different for different activities and for each client. Likewise, billing for different equipment used to perform activities will vary. TMS software should provide billing functionality for all of these aspects.

TMS software should also be capable of integrating with any kind of third party software system, as service providers need to have information exchange capability with their clients and their partners. The system should also have interfaces for handheld devices, as employees of these service providers need to work in the field, and they need to constantly exchange information with the core system.

About the Author

Ashfaque Ahmed is a seasoned consultant and business analyst in many areas related to supply chain management (SCM). He has worked with many large and medium size clients in the retail, distribution, transportation, and manufacturing industries. Ahmed is the founder of Supply Chain Management Consulting Group (www.scmconsultingonline.com), and has also started a blog at www.learn-scm.com. Ahmed holds a BA in engineering and an MBA in information systems. He can be reached at ashfaque.ahmed@scmconsultingonline.com.

For more information and to start your own custom solution comparison, please visit

TEC’s Supply Chain Management Evaluation Center.

 
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