TMS: now made to measure

Logistics Management, June 1, 2004

Three years ago Wausau-Mosinee Paper Corp. was spending about $70 million a year on its outbound truckload shipments. It also was using five different systems to measure motor carriers' performance, making it nearly impossible for the company to use transportation metrics effectively.

"We couldn't answer the simplest questions about our costs, carrier service, and variances within our different markets," recalls Brian Hasser, corporate logistics manager for the Mosinee, Wis.-based paper products manufacturer. Driven by increased competition and the need to "manage the numbers" better, as Hasser puts it, the company began using Nistevo Corp.'s collaborative transportation network to establish consistent, companywide metrics for evaluating and tracking carrier performance.

Today, Wausau-Mosinee monitors carriers' acceptance of loads (the "turn-down" rate), its cost per mile, and other measures in a consistent manner at all 10 of its facilities in six states. Hasser says that's helped the company reduce its overall cost per mile, but high fuel prices and accessorial charges related to the new hours-of-service rules have made it difficult to chip away at freight costs.

Shippers like Wausau-Mosinee have been using transportation metrics to measure their carriers' performance for years, but it hasn't been easy for them to gather, analyze, and utilize the necessary data. That situation has been changing over the last three to five years, though, as transportation management software (TMS) vendors began integrating metrics into their solutions. As a result, it's become easier for shippers to measure carriers' performance in such areas as shipping rates, billing accuracy, service consistency, and pick-up and delivery reliability.

Why Measure?
Why is it so important for shippers to measure their service providers' performance? In his 1998 report, "What About Measuring Supply Chain Performance?," Larry Lapide of AMR Research wrote that the key to ensuring continuous improvement is to "measure, measure, and measure again." Once a company has laid out its roadmap for change, he said, it must develop a set of key performance indicators (KPIs) for determining whether or not it's on track in meeting its objectives.

Six years later those principles still apply, says John Fontanella, vice president of supply chain services for Boston-based AMR. Since then, however, functions that had been planning-driven, such as supply chain execution, fulfillment, and transportation, have shifted to being data-driven thanks to advancements in technology.

"Software vendors are building applications that—given the right kind of data—can help companies make optimized decisions at the point of execution," says Fontanella. "The metrics are critical because they not only reveal how a company is performing, but they also identify root problems within the supply chain."

In the past, for example, a shipper might have committed a certain volume of business to a specific carrier, then allowed that carrier to operate with little oversight. "No one really knew how well carriers were complying with the terms of service," Fontanella says. It's a different story today, he notes: "Thanks to technology, companies are now using key performance metrics to keep a close eye on those carriers' predictability, dependability, and service levels."

"We're moving towards a 'dashboard approach,' with companies gaining real-time views of how well their operations are performing," says Adrian Gonzalez, director of the Logistics Executive Council at ARC Advisory Group in Dedham, Mass. "In the past, such monitoring was handled with paper reports, generated on a daily or weekly basis. Today companies have real-time views that allow them to take action as soon as things start to go out of control."

Metrics not only allow companies to keep tabs on their carriers' performance, but they also help shippers collaborate more effectively with those carriers, says Rod Strata, vice president and general manager of Manugistics' Transportation and Logistics Group. Rockville, Md.-based Manugistics includes performance-measurement capabilities in its supply chain and demand chain software applications.

"There may be cases where a carrier is only performing poorly in one certain lane," Strata explains. "Through collaboration, the shipper and carrier may find out that due to capacity constraints, it's not the right lane that they should be handling for that customer, and they can make the necessary adjustments."

Proper use of metrics also lets shippers "slice and dice" transportation data and gain insights into their overall shipping profile, says David Bennett, principal at EnVista, a Los Angeles-based transportation-cost management firm. That allows them to negotiate better contracts with their carriers in all modes, he adds.

"By taking snapshots of data for moments in time such as peak periods, companies can better forecast carrier and service demands and ensure that there is capacity available in the supply chain to provide for a continuous flow of goods from source point to end user," Bennett explains. "This information can be utilized to establish benchmarks that are critical in holding carriers accountable, which will lead to improved overall performance."

Choose the Right Metrics
For shippers that want to use metrics to get a better handle on their carriers' performance, the good news is that TMS software has made data acquisition less expensive and easier than ever. Instead of collecting data, then, the challenges facing most companies today include selecting the appropriate measures—understanding which metrics to track and what to do with that information once it's been collected—and establishing a realistic baseline on which to hinge future decisions.

Wausau-Mosinee's Hasser, for one, calls that initial learning curve "very big." "We started using metrics two years ago and we're still working through it," he says. "You have to get everyone to agree on what's accurate, and that's not easy to do when there are so many data sources to choose from."

Wausau-Mosinee isn't the only shipper that's still learning to wield performance-measurement tools. In fact, says Gonzalez, most companies either aren't using appropriate metrics, have the right information but fail to react to it in a proactive manner, or are simply unable to manage the high volume of data being created. (See the sidebar on page 46.)

As a first step toward properly using metrics, Gonzalez advises companies not to treat transportation procurement as an "isolated event." Instead, he suggests, they should implement business rules, metrics, and processes that will ensure successful execution and maximize benefits over the life of a transportation contract.

To make that happen, shippers will need to choose their software applications carefully. "Consider TMS solutions that are configurable and capable of dynamically responding to real-time performance metrics and constraints to better leverage your transportation network and spend," Gonzalez suggests.

Future Benefits
It's not just the "here and now" that benefits when shippers use transportation management software to measure carrier performance. Properly selected and applied, metrics can help shippers evaluate carriers and make smarter transportation choices in the years to come, says Kevin Lynch, CEO of the Nistevo Group in Minneapolis. He also foresees shippers utilizing TMS capabilities to tie payments to their service providers to specific events, such as shipment arrivals.

Wausau-Mosinee is one company that expects to reap increasing benefits in the future by establishing transportation metrics now. Although to date the paper manufacturer's gains in controlling transportation expenses have been modest, establishing baseline performance numbers has helped pave the way for future improvements. "When we get new customers, we now have something to compare against when selecting carriers," says Hasser. "We know what we should be paying in a certain market."

For more information, contact us at inforequest@envistacorp.com.