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How Valuable Is Your Freight Provider?

Tue, 02/14/2012 - 4:09pm
Joel Hans, Managing Editor, Manufacturing.net

2011 was a difficult year for the supply chain. In March, the earthquake and tsunami in Japan devastated both the country’s populace and its capacity to produce the goods so many others rely upon. In the weeks following the disaster — as the country struggled to unfold itself from the rubble — it became clear that the supply chain was falling apart as well.

Add to this the continued economic depression in America, and the global business climate became the “perfect storm” for additional and unforeseen complexity for U.S. manufacturers. Countless businesses found themselves unable to source the necessary parts for their products and scrambled to find new avenues in their supply chain.

If nothing else, the tragedy in Japan has taught the manufacturing industry a valuable lesson on how badly things can go wrong. And they haven’t taken that mandate lightly — manufacturers around the globe have been awash with new thinking on how to manage a global supply chain that is, despite better technology, still remarkably delicate.

These changes can be seen readily in the relationships between manufacturers and the freight providers that deliver goods on both the inbound and outbound ends of a production line. Manufacturers are asking their freight providers to provide their insight into how they can escape future supply chain disruptions, and in many cases these firms are more than happy to respond.

This trend, just one part of business continuity planning, is a showcase for how manufacturers are more commonly utilizing outsourced services to get their work done. In many cases, freight providers are more than happy to step up to the plate.

The downturn

There’s no question the recession has been a difficult obstacle for manufacturers to overcome. It’s been tough on the freight companies too, and at times, the relationship between the two has become strained under the pressure to keep costs down. Tommy Barnes, President of Con-Way Multimodal, says, “If you look at the last couple of years, it’s been survival. What’s happening is that what used to be a strategic partnership between providers and manufacturers has eroded to be more commoditized, and very much cost-driven.”

Barnes argues that the manufacturer-freight relationship had become a transactional one, without much benefit for either side. Both businesses simply wanted to weather the recession and emerge without having sunk too far into the red. The freight companies needed to diversify, according to Barnes, and cut back on costs, even if that meant delaying shipments. Once-strong relationships become strained

Matt Hannah, Industrial Manufacturing Segment Marketing Manager with UPS, saw manufacturers struggling with the loss of talent as well. He says, “Their expertise was lost during the secession, either through attrition and not replacing that individual, or because that individual retired early. When the transportation person retired, what we may have seen was the individual who took over that role … they didn’t have that level of expertise.”

That loss of talent has hit organizations hard. Because they have less people on the plant floor — or in the offices — who know how the complexities of their businesses work, they have to rely more upon outside services. The outsourced maintenance industry has seen a wild increase in business because of this trend, and freight providers have seen the light as well. They’re more than ready to provide more value, as long as their customer knows how to ask.

Freight as consultant

Value-added services from freight companies began in the downturn as a “point of entry for doing business,” according to Barnes. The practice began in what he calls the “transactional” phase of the relationship, during which both sides began to more aggressively pursue cost-cutting measures. He says, “What we’re going through now is called supply chain transformation. Over time, that (added) value becomes standard protocol.”

Hannah says that UPS has been pushing these consulting-type interactions with their customers for years, and that most other freight companies have followed suit. Over time, the connections have become critical to their customers. He says, “Now we’re having customers pick up the phone and say, ‘All right, here are our what-if scenarios. We need you guys to sit down with us and figure out what the transportation sourcing cost would be out of this country.’ We’ve been developing that expertise for years.”

UPS is even engaging with the U.S. Commercial Service, an arm of the Department of Commerce’s International Trade Administration, to help provide manufacturers with new avenues for their goods. Hannah says: “When customers say, ‘We’re really interested in finding additional markets for our goods,’ we can put them in touch with their local representative from the U.S. Commercial Service. They’ll sit down with the customer, and determine what kind of business they’re in.”

Understandably, this is often new territory for manufacturers when it comes to their freight providers. But both Barnes and Hannah are confident that the purely transactional dynamic will change — it needs to change. More complexity in the supply chain necessitates more thought, often beyond what’s capable from a single organization.

By connecting customers services — whether from within the company’s own knowledge base or from a group like the U.S. Commercial Service — freight companies provide more value. Also, the more complex the global supply chain gets, the more valuable their own expertise becomes, and they’re looking at manufacturing as a great potential partner in the coming years. Events like the earthquake and tsunami in Japan will undoubtedly happen again. So, the faster the exchange becomes knowledge-based, instead of transaction-based, the faster both parties can find.

How to get more

Of course, the fact that freight companies are providing additional value means little if a manufacturer doesn’t know how to access it. And when it comes to how a manufacturer should approach the development of this new relationship, it seems that Barnes and Hannah agree: Just ask.

Because they supply manufacturers with their goods, freight providers want partners with solid business continuity plans. When the worst-case scenario becomes a reality, they can keep producing, which means continued freight business. Barnes says that when a customer approaches Con-way about these types of services, “We’re going to look at their network through our central solutions team and determine what’s best for the potential customer and how we can best drive value into their organization. Value can be defined as business continuity, a high service level, or inventory management.”

This could be a priceless addition to your current services if you’ve experienced a loss of talent like what Hannah described. Many describe business continuity as the necessary planning to ensure a production line doesn’t get shut down in the event of a natural disaster, but it can also involve the retention of knowledge. With the highly-skilled older generations retiring in ever-increasing numbers, many manufacturers would find a great deal of value in a freight company that has that knowledge built in.

Hannah made a comparison between retail companies and manufacturers when explaining why more should be looking toward these services for additional insight into their supply chain. He says that manufacturers are “years behind retail” when it comes to dealing with these major supply chain issues. Fortunately, freight’s extensive relationships with major retail customers have taught them a good deal about how to mitigate risk.

There may come a day when your freight provider calls you up with an offer on how your business could collaborate on a better supply chain management strategy. But why wait? Anyone in the supply chain business knows that disasters don’t wait until next year to strike. Just because Japan was hit in March doesn’t mean another disaster couldn't hit the West Coast tomorrow, and then China the month after that.

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