Connecting A Missing Link: Transportation Business Intelligence

By Bill Loftis, Principal, Transportation Practice, Chainalytics LLC.

I have found myself drawn into a new area of transportation that deserves a lot more attention – business intelligence. I’m naming it BI instead of metrics because I think it needs a label with more status and importance than metrics provides. BI does that.

But it surprises me that we don’t see more focus on BI in transportation. If any business function deserves business intelligence it should be transportation management. Although admittedly I have a biased perspective, who would question the need to increase the understanding of what drives transportation performance? For one, there continues to be a lot of mystery about transportation. More important, though, is the fact that transportation is by far the greatest cost in supply chain –totaling 61% of the $1,397B logistics market.

Today in this post I want to share a small breakthrough in our work on transportation BI. We have developed a framework from which meaningful performance drivers can be clearly isolated, which is the essence of BI – improved understanding through better use of key information. In later posts I will hopefully report on some relevant findings and successes of this new development.

To begin with, I’ve concluded the reason we don’t see more on transportation BI is because measuring transportation cost is extremely variable and complex. Networks, flow paths, and transportation cost drivers are constantly changing. With so many variables, changing it is hard to grasp what makes a difference. Remember when studying simulation, the key was to only change one variable per scenario? How so in transportation, with so many changing variables? The complexity is so great that even the better transportation management systems (TMS) offer very limited modules that require customization to get value from the metrics.

Let’s be more specific about variability and complexity. Variability means base costs can vary dramatically over short time periods. The current environment offers a good example. In June 2008 fuel was over $4.00 per gallon. In June 2009 it was about $2.40 per gallon. From a rate perspective, we remain in a depressed market, and our benchmarking studies show that rates have dropped 8% since last year. Further, in today’s market spot market rates are actually lower than many contracts.

Transportation is complex. Primary cost drivers vary by industry and by flow path. The question for any individual business is what factors make a difference in driving performance? The answer to this question is often different within the same business. For example, the inbound manager for a retailer will focus on different factors than the outbound manager. For some it is mode, others distance, and others still load utilization. It is difficult to develop fair comparisons because network and flow path complexities result in varied drivers of performance.

So, the real challenge in transportation BI is to find an effective way to:

1. Determine the most important variables
2. Isolate those variables

And this is where we’ve had an innovation.

My colleague Brian Fish has developed a process for determining the most important variables and a two-step BI framework to isolate these variables for analytics. The result is a set of meaningful views that enable managers to spot where costs are out of control. This clever and unique approach utilizes common tools like process flow charts and fishbone diagrams that users can understand. The isolation framework is really cool; it separates costs by lane (from which cost/mile vary tremendously) and then by individual cost drivers like load factor or number of stops. Separating the lane cost from the others is the critical part of this solution. As you well know, the cost of trucking per mile varies dramatically depending on lane. For example going 500 miles into Florida is incredibly expensive vs. coming out 500 miles. Isolating lane costs first takes away a key market variable, enables a much more meaningful view of the other cost drivers.

We are really encouraged about this new innovation and are in the beginning stages of implementing client results from this process. Stay tuned, as we have more to show as we draw on our findings.

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Product Portfolio Management: Is It Time to Offer What The Consumer Needs?

By Jeff Metersky, Vice President, Supply Chain Strategy Practice, Chainalytics LLC.

I have had a couple of experiences over the past month that have made me wonder if now is the perfect time to evaluate product portfolios and eliminate underperforming SKUs. From my observations, it seems that the current economic climate has driven consumers to focus on “basic” items. Variety of colors, different packaging sizes and configurations, or even premium options no longer appear important. But low cost options are.

My first insight happened when purchasing our new car. When we shopped around for our mini-van three years ago there were several body and interior color combinations at all style levels. This time around there was only one interior for each body color and if we wanted a black interior, we had to go with the most expensive model. Surely this would impact their sales. The American consumer loves to have lots of choices. But the impact hasn’t materialized. The dealership has had no observable impact on sales, and the portfolio change has allowed them to manage inventory more effectively and lower overall pricing. In the last three years this manufacturer rationalized their portfolio by reducing the combinations and shaping their demand.

The second experience comes from my recent participation at the Supply Chain Leaders in Action Conference attended by top executives and staff from 50 of the largest companies in the US. Multiple retail and CPG companies indicated that while overall sales were down, sales of “basic” products were fine. Their comments were all similar: too many varieties of product on the shelf that weren’t moving. Exactly how many different colors and package combinations of pens are needed when consumers are buying lowest-cost copier paper in the smallest size possible? I recently read a Wall Street Journal article that supports my observations. According to Ilan Brat, Ellen Byron, and Ann Zimmerman, in the next year, retailers will slice assortments by 15%. This will put pressure on consumer product companies to scale back products and target more effectively. If they don’t, they may be pulled off the shelf altogether.

The current economic climate is a perfect time to rationalize your product portfolio. When demand is down, or even non-existent, removing slow-moving options from your offerings will go unnoticed by your customers. Taking action now will allow you to reduce your complexity, better manage your inventory, and position you to be more effective in shaping your demand in the future. And while it might not be what the consumer imagined, it will be exactly what they need.

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