Transportation Management: What does that even mean?

I’m frequently asked whether a company should insource or outsource transportation management. My question back is: Should we first discuss every process involved with managing transportation? In order to answer this question, companies must first understand all the components of effective transportation management.

Carrier management

The first course of business is securing the carriers and rates for all modes to develop a complete routing guide. For most companies, the selection of carriers is an ongoing process as opposed to facilitating a single procurement event on a regular cadence.

Carrier management also encompasses the ongoing administration of the carrier base, which includes ensuring adherence to insurance requirements and other regulations, claims administration, and performance monitoring via regular business reviews and reporting.

Order management

This is the collection of information containing the products that need to be transported either from specified origins and destinations. This information also includes products dimensions and/or weights, as well as service constraints such as delivery time windows. This process, along with the following two, comprises the core functionality of a transportation management system (TMS).

Shipment planning

This is the process, whether via a TMS or manually, that converts orders into shipments. The objective is to combine orders into shipments in such a way that minimizes overall costs while adhering to the service constraints required by the suppliers/customers.

Shipment execution

The shipments developed during the planning process are then tendered to carriers, ideally in compliance with the routing guide developed during the carrier management process.

Event management

Now with the shipments on the road, rail, or water, there’s a need for “track and trace” functionality. Logistics management is often enticed to have up-to-date visibility to the progress of all shipments in real time.

Active tracking is not only more expensive than passive tracking, it’s ultimately too time consuming and useless. An exception management approach, obtaining visibility to those shipments not tracking for on-time arrival, is the preferred method.

Revenue billing

Now it’s time to pay the providers of these transportation services. For insourced transportation, brokers and carriers are paid for the agreed linehaul charges, fuel and any assessorial charges incurred.

Freight bill payment and audit

The linehaul, fuel and assessorial charges are now compared against the agree-upon rates in the routing guide. After the comparison is complete, the payment is either settled based on the agreed-upon payment terms or disputed with the carriers.

Performance reporting and business intelligence

The reporting process is necessary to ensure transportation is operating efficiently both a cost and service perspective. Routing guide compliance, on-time performance and other relevant metrics, compared to an agreed-upon set of goals, should be monitored on a continuous basis.

As for the insource versus outsource decision, there’s no right or wrong answer regarding the preferred path. Like every other component of a business, it’s a strategic decision whether to establish transportation as a core competency. To further muddy the waters, businesses don’t need to make an all or nothing decision with transportation.

For example, companies like Walmart and Williams- Sonoma consider procurement a strong competency. Other companies may possess a strong pool of auditors in which freight bill payment and audit is easily included.

First develop the strategy, then determine whether all, some, or none of these transportation processes are a strong organizational fit. 

Brian Fish is a graduate of Georgia Tech. Brian has more than 30 years of experience in transportation and supply chain, including the last six years with St. Onge Company. He has worked in a variety of roles, including supply chain network design, fleet routing and scheduling solutions, start-up operations, consulting services, and supply chain optimization software solutions.