The Changing Supply Chain: It Takes More Than Trucks

supply chain
By Deborah Lockridge, Editor in Chief

In 1932, the Brown family started National Hauling with one truck. Today the New Jersey-based company, rebranded as NFI, offers regional truckload, drayage, intermodal (including refrigerated containers), dedicated fleets, warehousing, cross-docking operations, packaging, and global logistics.

NFI is an example of how the trucking industry is changing, reinventing itself to take advantage of changes in the supply chain – how products get from the supplier to the consumer.

“If you don’t have these other supply chain services to offer, you might miss opportunities,” says Joe Roeder, president of NFI Logistics.

Just 50 years ago, the U.S. supply chain was pretty simple. Most goods were manufactured and consumed on our shores. A lot of distribution was regional.

In the 1970s, containerized shipping made it easier to move cargo across the oceans. Global supply chains emerged in the following decades, fueled by cheap oil, and continue to evolve and change today.

Today’s supply chains are longer and more complex, involving worldwide networks of sourcing, manufacturing and consumption. Transportation costs are going up, thanks to high fuel prices and other factors. Efficiency in transportation is paramount. Supply chain professionals have become more important and more sophisticated, employing technology to optimize complex and ever-changing combinations of transportation modes.

These changes have prompted many trucking companies to expand their services to better meet their customers’ transportation and logistics needs.

“As a result, it is becoming more and more difficult to apply historical terminology such as LTL, TL, parcel, etc., to individual service providers,” notes John Langley, clinical professor of supply chain management at Penn State University.

Langley explains that many providers of logistics and transportation services are trying to “become a more meaningful component of their customers’ overall supply chains. In effect, this is a vertical integration into the business of the customer.”

We’ve also seen the growth of third-party logistics. These companies, which may or may not have trucks of their own, allow shippers to outsource part or all of their transportation planning.

Entrepreneurs

Some of the top names in the trucking business got that way because they were entrepreneurs who took a chance on the chaotic environment following deregulation in 1980. Today that same entrepreneurial spirit is driving trucking companies to diversify.

Today’s big transportation companies “have the flexibility to adjust to ever-changing customer expectations and the nature in which we need to move freight, whether that’s intermodal, truckload, LTL, etc.,” says Darren Miesner, director of operations for third-party logistics provider Transplace.

As NFI’s Roeder says, “Most company leaders will tell you, it’s grow or die, and just having a couple trucks out there no longer keeps the competitive edge in play.”

However, he says, “It takes capital and resources and a great deal of entrepreneurship.”
At C.R. England, it’s a similar story. “There’s a lot of entrepreneurial spirit that’s part of our makeup, says President Chad England. The company today has about 30 different business units related to transportation. They offer long-haul and regional truckload freight, dedicated fleets, logistics, intermodal, LTL, international freight forwarding, and more.

He warns fleets of the potential dangers of getting pigeon-holed in one segment. “You never know when the macro economic dynamics will change and put your business model in jeopardy,” he says. “The more diverse you are, the safer you are in the long term.”

Old Dominion Freight Line had been offering container drayage since the mid-’60s in addition to its main less-than-truckload business. But in the late ’90s, when David Congdon became president, the senior management team put together a strategic plan to build the company.

“The vision of the plan was to be the premier transportation company in domestic and global markets served,” explains Chip Overbey, senior vice president of marketing and strategic development. To do that, he said, they realized the company needed to build its brand and also its product offerings. From there they developed OD-Domestic, OD-Global, OD-Expedited and OD-Technology. Over time, offerings have been added to respond to the requests of the marketplace.

Most recently, the company has been expanding its global offerings in the Pacific container arena. Its new “Pacific Promise” program gives businesses standard guaranteed transit times and simplified rates from 13 Chinese or Taiwanese ports to any U.S. destination. The offering also includes port-to-door tracking of all shipments – a service many providers do not offer.

“We realize that as a supply chain provider we are operating in a global economy,” Overbey says. “In order to be fully participant in the global supply chain you must have offerings that provide value and speed.”

It’s not just the for-hire fleets that are changing in response to today’s more complex supply chain. The private fleets operated by shippers are changing, as well.

The changing role of the private fleet

There seem to be two schools of thought when it comes to private fleets in this new supply chain environment:

1. Shippers increasingly are deciding that transportation is not their core competence and that they’re going to outsource that job, typically to one or more third-party logistics providers.

2. As the supply chain has gotten more complex and transportation more expensive, shippers are paying more attention to their transportation options than ever as a differentiating factor.

Clint Dearing, director of operations for contract logistics at third-party logistics provider Transplace, explains that “as things become more complex, it takes more people and more resources to manage it, and sometimes that can take away from shipper’s primary focus, making their product and getting it on the shelves.”

NFI’s Roeder predicts that more companies will collapse their private fleets and go to outsourcing. “If I’m a Fortune 100 company and up to now I’ve been doing transportation myself with my own private fleet, and I’ve got some cash here in my financial statement, why not take that money and instead of investing in a warehouse, why not invest it in equipment that can manufacture my product better, and let someone manage that warehouse who’s good at it and does it for a living?”

However, Gary Petty, president and CEO of the National Private Truck Council, sees private fleets and other transportation options working together in a complementary fashion, rather than an “either-or” situation.

“We see many companies that have all these solutions working together in relative harmony,” Petty explains, “and the private fleet is one component and a very important one, complemented by dedicated or 3PL or even intermodal.”

In fact, Petty says, many companies are focusing on transportation more than ever before. He takes exception to the idea that manufacturers and retailers are saying transportation is not one of their core competencies.

“If it isn’t, why not?” Petty says. In fact, he believes, transportation is hardly differentiated from the product itself. “If you don’t get the product to market at a reasonable enough cost, you’ve missed a competitive opportunity. They’re realizing they’ve got to have expert talent inside the company, making the right decision about what types of transportation work best.”

However, the successful private fleet of today and tomorrow looks rather different from one of the past. These days, private fleets seek out backhauls to use the equipment more efficiently, perhaps even become a profit center rather than an expense. But to compete with for-hire carriers, private fleets have to crunch the numbers.

“Not only do you have to know your cost, you’ve got to benchmark your whole organization against world-class standards,” Petty says. “If you’re able to analyze on a per-run per-day basis your fully loaded costs, you’re going to be able to make the argument for or against using that fleet in any particular lane of business,” Petty says. “Companies that do that find their private fleet is a competitive advantage.”

However, he says, knowing these numbers also means being able to recognize where the private fleet is not the right choice, and that’s just as important. About half of NPTC members have a dedicated for-hire carrier working alongside the private fleet.

Transplace’s Dearing believes there will always be a need in certain markets for a private fleet, but like Petty, sees their complexion changing.

“I think there’s always going to be that need for that customer-service-driven, specialized service. But the true dedicated fleet that goes out and comes back empty, that’s becoming more and more rare.”

What’s right for you?

Carriers say they look at what their customers want as well as what will serve the company. It’s a process that requires keeping up with supply chain trends and customer needs, and in-depth research to determine the suitability of a particular endeavor.

“You really have to keep your ears to the drumbeat,” Roeder says. NFI’s management team challenge themselves to keep up with what’s new and exciting in the world of logistics, and spend a lot of time communicating with customers about their needs. The company has added a customer advisory board to meet with NFI execs a couple of times a year to look into the future.

“If some new trend that might be exciting comes along, we have a tendency to do a real deep dive on it, and if we don’t have the expertise on staff, we go find it,” Roeder says.

At C.R. England, they also keep an eye out for new ideas, then look deeply into each one before making a decision to move forward. Two major criteria are considered, England says: Will the diversification help C.R. England be a stronger company overall, and is it going to be profitable? Many of its new offerings started off slowly and grew over time. Today, he says, “I don’t know if there’s anyone on the refrigerated side that comes close to providing the number of options that we do, and that’s a big advantage for us.”

At Old Dominion, Overbey lists three basic criteria for new initiatives:

1. It has to be a response to customer demand and provide a value to their supply chain.

2. It has to provide opportunities for growth to what the company calls the “mother ship” – the domestic LTL portion of its business.

3. It has to add value to the company’s financial position.

Finding the expertise

Of course, if you’re going to expand into areas outside of your normal area of expertise, you’re going to have to figure out where to find the knowledge needed.

“An expanded menu of services requires a more comprehensive set of management and operational skills – which can be a challenge for some companies,” says Langley.

If your roots are in trucking and you’ve never done warehousing or supply chain engineering, chances are you’re not going to have those resources on staff.

There are two trains of thought on how to go about getting those resources – go looking for people who have that expertise, or grow it from inside.

At NFI, the philosophy is to go out into the market and find people who can bring that expertise to the company. In the case of its customer packaging business, they went out and acquired a company that could provide the design capability they needed.

At C.R. England, they’re more likely to try to build the expertise from within the company. “You want a person that has a capability of doing a good job and leading,” England says, noting that it is easier for someone with the right leadership skills to learn about a different facet of transportation than for someone with transportation expertise to learn to be a great leader.

“Those attributes are more important than anything. If you can add experience in that area, that’s all the better. Sometimes we’ll go out and find somebody that has more experience, and sometimes we’ll teach ourselves.”

The first challenge is making sure you have the expertise. The second is proving you can do it. It’s one thing to hang out a shingle; it’s another thing to convince the customer you can deliver.

“If you’re new into the arena, you have to come to the table with something to entice the customer,” Roeder explains. If you have a long-term relationship with a customer and you’ve done a good job in one area, he says, they will be more likely to give you an opportunity in another aspect of the supply chain.

What about the little guy?

Obviously these types of tactics are difficult if not impossible for a small fleet to implement.

Customers are more and more demanding. Many are shrinking the number of companies they do business with, looking for more one-stop shopping. In some areas, more long-haul freight is being moved to the rails.

What’s a little guy to do?

One possibility is to sign on with a big 3PL, such as Transplace. Transplace, through its network of transportation providers, has the ability to offer shippers one-stop logistics shopping.

“Technology has made it today to where it’s easy for us to do business with a small carrier, specialized carrier, as it is with a large, complex carrier,” says Transplace’s Dearing. “So it gives those small carriers an opportunity to still have access to some of those large customers who are diversifying, and we can assist that carrier by finding that niche where they can fit in.”
Another alternative is to find that niche yourself.

“It is imperative that those smaller companies are able to provide customers with attributes that may not be available from larger providers,” says Penn State’s Langley. “This may come in the form of unique or differentiated service offerings, or perhaps a more highly-customized and customer-focused way of doing business. While the presence of larger competitors makes the stakes much higher for smaller competitors, the smart ones can figure out how successfully differentiate themselves, and thus attract and retain desirable customers.”

The future of the supply chain

As we look forward, globalization, risk mitigation, volatile oil prices, the expansion of the Panama Canal, and sustainability pressures will keep changing the landscape of logistics, according to a 2010 report on supply chain management by Jones Lang LaSalle, which provides supply chain and logistics solutions:

* Globalization: As companies continue to seek out low-cost raw materials and labor, materials will increasingly be sourced in Asia and in Eastern Europe.

* Risk mitigation: At the same time, there’s a trend toward diversifying sources (called “near sourcing” or “right-sourcing”) to minimize the risks of supply chain disruption. Increasingly, risk mitigation strategies include the outsourcing of some supply chain operations to third-party logistics (3PL) providers. Advanced technologies provide real-time supply chain visibility, allowing managers to pinpoint and analyze potential problems. Managers also look to reduce supply chain risk with a system that has access to multimodal logistics hubs with access to truck, rail, intermodal, air and ocean transportation options.

* Volatile oil prices: This is driving companies to reconfigure their supply chain networks to take advantage of increased proximity to customers by multiplying their companies’ distribution facilities. The trend will be to “more/smaller” vs. “fewer/larger,” as when a single, mega-sized national distribution center is either replaced or complemented with a regional hub distribution network.

* Panama Canal: Many believe that the $5.3 billion widening and deepening of the Panama Canal, scheduled to be complete in 2014, will affect supply chains. The larger container ships that will be able to traverse the canal can carry 50% more containers. The Panama Canal widening is driving ore interest in ports in the Southeast and on the Gulf Coast. The eastern and southern port cities are key elements in the risk mitigation strategy of port diversification pioneered by Walmart.

* Sustainability: An IBM survey of chief supply chain officers found more than half have incorporated carbon management initiatives and goals in their supply chain strategies, as well as water management, energy usage and waste management. Transportation companies are evaluated by 25 percent of companies for carbon emissions, energy consumption, and carbon management approach or strategy.

From the August 2011 issue of HDT.

Printer Friendly Version
Email This Story
RSS
Bookmark and Share

Features: Related News

8/18/2011 – The Changing Supply Chain: It Takes More Than Trucks

In 1932, the Brown family started National Hauling with one truck. Today the New Jersey-based company, rebranded as NFI, offers regional truckload, drayage, intermodal (including refrigerated containers), dedicated fleets, warehousing, cross-docking operations, packaging, and global logistics….
More

JOIN OUR NEWSLETTER
I agree to have my personal information transfered to MailChimp ( more information )
Join over 3.000 visitors who are receiving our newsletter and learn how to optimize your blog for search engines, find free traffic, and monetize your website.
We hate spam. Your email address will not be sold or shared with anyone else.