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Look Before You Leap: Avoid Unintended Consequences with Your Logistics Strategy

By Shannon Vaillancourt | 08/04/2017 | 6:44 AM

What do you do if your logistics strategy is just not working? While there are ways to reverse course after a faulty strategy is deployed, you must first admit it was faulty. This never happens. It is much better to look before you leap and test against historical data before you deploy.

Testing is not only a good idea, it is crucial to developing a logistics strategy. It’s the key to avoiding unintended consequences. Without testing you are not going to know the full impact of the strategy, positive or negative, until it is deployed. Once the strategy is deployed, even though it may be negatively impacting some areas, it will be much harder to make changes to it.

When Standardized Data is not Standardized Data

To simulate potential strategies prior to deploying a strategy requires data. But it’s more than having data, it has to be the right data. This data needs to be complete, clean and standardized. We oftentimes see companies that have lots of data and usually it is the correct data but it’s not clean, standardized data. What happens then is they standardize the data by (incorrectly) removing data that isn’t in agreement with the entire set. We hear things like “that was a one-time expense” or “that load was an anomaly and that’s why it cost so much.” By standardizing in this way, the completeness is lost and the analytics are now subjective which usually leads to justifying the strategy that a person wanted to deploy. Using a clean, standardized dataset that is complete should guide your strategy or even prescribe your strategy instead of being dissected to justify the strategy.

Simulating the strategy on the historical dataset prior to deployment is the most accurate way to test. By applying the strategy to a clean, standardized and complete historical dataset, the company will see the exact effect their new rules will have. They can then compare these results to how they were performing historically to understand the financial impact, customer service impact, and any operational impacts the strategy will have. If the simulation reveals any negative impacts to the historical dataset, the company can change or modify the strategy to avoid those. 

Sins of Omission

When developing strategy, what you exclude is as important as what you include. The omissions are always related to the exceptions that occur on a daily basis. When using incomplete data where the exceptions were removed because they were deemed to be unusual shipments, the results of the analysis are also applied (incorrectly) to the exceptions. For example, if 5% of your shipments require expedited freight, this could account for 20% of your overall cost. Let’s say the company’s freight spend is $10 million, and the incorrectly cleaned and standardized data represented the remaining 80%, you would be analyzing $8 million. If the analysis of the strategy reveals a 10% savings and that is applied to the entire spend of $10 million, the company would expect to save $1 million. The reality is they would save only $800,000 because the strategy doesn’t apply to the $2 million in expedited freight.

Another example I’ve seen of unintended consequence is when a company creates a new way to price their freight such as changing the rate base for LTL. They model the results and find huge savings, sign the new contracts with the carriers, then try to deploy the rates to find out their system can’t support it. I’ve seen a 15% savings turn into a 15% rate increase. This would have been prevented if tested with the same constraints that exist in production on clean, standardized and historical data.

Do Not “Set and Forget”

“Set and Forget” does not apply to logistics strategy. After a strategy is tested and deployed, there is still more work to be done. You have to make sure you have a solid data foundation in place that maintains the data-driven approach. This is the governance layer that provides real-time reporting and alerting to ensure that you are achieving your goal and it is made up of two pieces:

1) Savings KPI—measures the “old” rate compared to the “new” rate and

 2) Lost Savings KPI—measures the compliance to the new strategy by showing the financial impact of shipments that didn’t follow the new strategy. The goal is to have zero lost savings which means you are maximizing the strategy.

Only Complete, Standardized Data Makes the Grade

The most important step to take prior to deploying a strategy is testing. But to make the grade and provide the insights you need to avoid unintentional consequences, the strategy must be tested against complete, clean and standardized data. This allows you to create a strategy that creates the savings you’ve been looking for.

Are You Strategic about Data-Driven Logistics Strategy?

By Shannon Vaillancourt | 06/30/2017 | 6:57 AM

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.

Objectively Strategic

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.  

Do Your Logistics Problems Need a Consultant?

By Shannon Vaillancourt | 06/02/2017 | 7:38 AM

Every company has logistics problems. The most common problem that I hear companies want to solve is understanding how compliant they are with their own routing guide. This includes both outbound and inbound freight. The second most common problem is looking for ways to cut their freight cost.

Many companies will try to solve their logistics problems internally, but for a variety of reasons, they never quite get solved completely. Not surprisingly, the two most common problems that never quite get solved with internal resources, are the same as above.

If you are facing these problems within your company, it is time to find a consultant.

Stale, Incomplete Data Is a Problem in Problem Solving

What keeps shippers from solving these problems? Usually it’s the data. Many times, the shipper goes to their IT department to get the data they need to run an analysis to find out how compliant they are or to look for strategies to lower their spend. The data IT provides is typically stale and no longer relevant (months behind), or it has to be cleansed because a large portion of the data is not accurate, so it is removed. This always leaves the shipper with a partial view of their current reality which often mutes the extent of any opportunity to actually solve the problem.

If you find yourself working with data that is stale or incomplete, you can neither accurately diagnose or solve the problem. It’s time to find a consultant.

Consequences of Not Solving Problems

While there is a cost of bringing outside resources on board, the cost of not solving these problems or of solving the wrong problem can be significantly higher.

For example, a routing guide compliance problem could present itself as a carrier billing issue. Say a particular lane should have its freight hauled by carrier A, but instead, carrier B is used. When the freight invoice from carrier B is received, the shipper may have an exception in their payment process because they don’t have a rate for carrier B. Instead of solving the real problem—wrong carrier used to haul the freight—the shipper gets approval on the freight invoice to pay the carrier. This problem can cost a shipper an additional 5% to 10% in freight, which can equate to a few hundred thousand dollars, or even a few million dollars depending on the volume of freight moving down a particular lane.

Three Questions to Evaluate Logistics Software

This type of problem, and the inability to accurately diagnose or solve the real underlying problem, is typically caused by not having three things: 1) standardized data, 2) relevant data, and 3) insight. These are three things that a consultant should be able to provide.

Of course, a consultant is only as successful as the logistics software that is used. The most important questions to ask when evaluating a consultant’s software is how will their software provide these three things:

  1. Standardized data—how is the data going to be standardized and cleansed? The answer should be no data will be removed and any non-standard data will be fixed so as to ensure a complete picture.

  2. Relevant data—how close to real-time is the data going to be? The answer should be near real-time with data being presented within 24 hours. The sooner you see a problem, the easier it is to fix, and the greater the value.

  3. Insight—how actionable will the data be? The answer should be there will be alerts telling you in real-time when something is happening right now that needs attention, and analytics should tell you why it happened.

There is a fourth question that should be asked of the consultant. Are you going to talk the shipper out of doing anything? To this the answer should be, “No, the data will drive all the decisions.” There should be no need for a consultant to have to convince a shipper to do anything, because the data will reveal the solution. A consultant’s job is to help the shipper obtain standardized, relevant data and provide insight to interpret the data. As I wrote in my last blog, the consultant should be enhancing your ideas to take them from good to great, and the software should allow you to do this quickly and easily. This type of collaboration will allow you to improve outcomes and leverage your logistics as a competitive advantage.

Five Traits to Look for When Choosing a Logistics Consultant

By Shannon Vaillancourt | 05/05/2017 | 12:38 PM

Shippers continually face challenges, some of which seem to resist resolution. Oftentimes bringing an experienced logistics consultant onboard provides a different perspective, just what is needed to overcome a particular challenge. However, before committing to a logistics solution to support your in-house logistics, look for these five traits when choosing a logistics consultant.

In-house Software Offers More Customization than 3PLs

First, it is important to understand the differences between managing logistics in-house with consulting and software support, or outsourcing to a 3PL. Engaging a logistics consultant with software tools deployed in-house can provide shippers many advantages over a 3PL. The logistics consultant provides additional intellectual horsepower that many shippers think they are getting from a 3PL, but usually are not. Coupling the logistics consultant with in-house logistics management allows a shipper to leverage logistics as a competitive advantage. By controlling the way the software is deployed, it can be tailored to their exact needs.

Using a 3PL instead of software deployed in-house often results in a shipper receiving about 80% of what they really need. Because a 3PL is built to serve a wide range of customers, they are not quite able to truly customize their service to fully meet a shipper’s needs. So challenges never quite get completely resolved; strategies never quite work as expected. What it comes down to is shippers need to take control of their logistics, but in a more agile way. This leads to innovation and this innovation is what creates competitive advantage.

Take Control of Your Logistics

A logistics consultant guides the shipper to take full control of their logistics by selecting and deploying the right software. When choosing the provider, the first step is to talk with them to see if they understand what you are trying to accomplish. They should be able to show you real-word examples of solutions they have created for the problems that you have. RFPs and canned presentations don’t provide enough detail to see if the provider can deliver the solution you’re looking for, or rather the solution that will allow you to overcome the challenge at hand. Many shippers have told me that they’ve never seen a system fail in a PowerPoint presentation. Discussing actual scenarios and how solutions were implemented are invaluable during your selection process.

Five Traits to Look for When Choosing a Logistics Consultant

Here are five traits to consider as you evaluate potential logistics consultants and software providers.

  1. Good Listener
    Is the logistics consultant really listening to the shipper or are they only good at listening to their own voice?
  2. Transparency
    The consultant should be backing up all of their recommendations with cold hard facts that can be verified by the shipper.
  3. Directness
    The logistics consultant should have very clear recommendations. The old adage “the customer is always right” does not apply here. Sometimes the customer is wrong. The logistics consultant must ask the right questions to truly understand the problem to ensure their recommendation will solve the underlying problem, and not just a symptom.
  4. Real Solutions
    Does the logistics consultant have more than ideas? Do they have software solutions that can be implemented to solve the problem at hand?
  5. Technical
    Does the consultant own the IP for their software solutions, or are they using another company’s canned software? Customized solutions cannot be obtained with software that cannot be customized.

A warning sign that your problems will not be solved with a particular provider is when the consultant or software (or both) is too formulaic, too standardized, or lacks flexibility. If it feels like you are always trying to fit a square peg in a round hole, this is not a fit. You shouldn’t have to adapt your business to what the consultant is saying, or how the software works. Instead, the consultant should be enhancing your ideas to take them from good to great, and the software should allow you to do this quickly and easily. This type of collaboration will allow you to improve outcomes and leverage your logistics as a competitive advantage.

The opinions expressed herein are those solely of the participants, and do not necessarily represent the views of Agile Business Media, LLC., its properties or its employees.

About Shannon Vaillancourt

Shannon Vaillancourt

Shannon Vaillancourt, president and founder of RateLinx, is a thought-leader and speaker on customized logistics management software and consulting. Since launching the company in 2002, Shannon and his team have helped shippers solve their most stubborn logistics challenges. The RateLinx solution standardizes order, shipment, invoice, and track & trace data into one dataset to allow shippers to procure, process and pay less for freight. Without internal IT support, RateLinx integrates with any ERP/WMS/TMS leveraging big data and providing analytics for increased visibility to solve freight management problems with actionable Integrated Shipping IntelligenceSM.



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