NOTE: This article was originally published on the DC Velocity Blog Logistics Problem Solving on June 30, 2017.
Logistics strategy has evolved over the past few years. Today, taking a strategic approach to logistics management has never been more important or more attainable.
After the great recession, carriers took a serious look at costs and started to rationalize their pricing. This put a lot of pressure on shippers as the old strategy of yelling louder at their carrier was no longer effective to reduce costs. This created a big need in the market that has been filled through the advent of cloud computing, which allows large amounts of data to be collected and stored easily and inexpensively. The trend is now towards being data-driven with the data dictating the strategies. As a result, shippers essentially have gone from subjectively strategic, using strategies based on hunches, to objectively strategic with strategies driven by data.
Moving Strategies from Your Head to Your Loading Dock
Most companies have lots of logistics strategies in their heads but not many in place. What keeps them from implementing these strategies and incorporating them into operations? The most common barrier is fear. There is fear of implementing a strategy that may fail because they don’t quite have all the data needed to ensure that the strategy is correct. And then there is fear of a lack of IT resources. Often, strategies require IT support and involvement. In many companies, this support is as rare as a unicorn.
The first step to create an effective strategy is to base it on facts. In order to do this, you need clean standardized data that provides unbiased information which will allow you to become data-driven. This lets you accurately diagnose the issues that you are experiencing with your logistics.
Look Before You Leap
Once you know the issues, you can develop strategies and simulate or model the potential strategies before you actually deploy the chosen strategy. One of the most important steps to creating effective strategy is testing it. Having a way to simulate your strategy using your clean standardized data allows you to find any unintended consequences of your strategy before you implement it. These unintended consequences most likely will prevent you from reaping the intended benefits of the strategy. For example, what if your strategy will only work if you added a day to the freight’s transit time and you know that you can’t do that? Better to see this before you implement the strategy than after.
Measure and Monitor for Success
Once the strategy is deployed, make sure you are measuring the proper values to provide the required operational transparency to ensure you are successful. Consultants or outside help can provide excellent insight when developing strategies. The challenge is making sure the consultant you bring in is truly objective. Ask yourself, are they talking us into a strategy? Or is the data influencing our decision? If it’s the data, then you are working with the correct consultant.
Governance is crucial. A lack of governance can actually cause a strategy to not work quite right. Often companies implement a strategy and don’t monitor it because they do not have a governance layer in their logistics solution. If you can’t measure and monitor the strategy in real-time, it doesn’t take long for the profit leaks to remove any value that you hoped to gain with the strategy.
The advent of cloud computing has opened new opportunities for shippers to be objective about their logistics strategy. With clean, standardized data, strategies can now be developed and tested prior to deployment to avoid unintended consequences. Your greatest logistics problems can now be solved with data-driven strategies.