Does your TMS help you to smartly select transportation carriers?

For most shippers, having a reliable framework or mechanism in selecting the best transportation routing and mode of transport options is just a halfway battle to achieve cost-efficient transportation operation. The other half is about selecting credible transportation service providers (TSPs) or carriers to deliver the goods. Selecting credible carriers is not simply by choosing the cheapest ones, because other factors such as their maximum capacities and on-time delivery service should also be taken into consideration. This may not be a problem if transportation planning is conducted with a complete manual intervention by transportation planners or associates where they check carrier rates in the system, call the carrier to confirm available capacity and so on. That way you still can entrust your planners that they will always select the best available carrier.

But what if you envision that your transportation management system (TMS) should be smart enough to automatically select carriers not only based on cost, but also based on your other predetermined rules? Imagine with that kind of ability you can introduce touchless transportation planning and hence, give your planners more opportunities to engage in other aspects of transportation. This approach is basically no-brainer to increase productivity within your transportation team or even supply chain group in general.

SAP Transportation Management (TM) is built with several standard features to smartly choose carriers for your shipments. A few of Novigo clients have chosen to one or two of those features while many have gone all out with practically all available approaches within SAP TM. It is true that data maintenance could be a challenge when you implement those approaches but it is offset by the accuracy of TMS to select carriers based on your rules and ultimately by the increase of your productivity.

Figure 1. Factors and features that may influence selected carrier(s) in SAP TM

Let’s start with the simplest feature, which is carrier priority. Priority can be defined as a complement of carrier rate or completely overwrite the rate. This is the approach that will be best used when you know for sure which carrier to be prioritized or when you have a dedicated carrier for a particular transportation channel. For example, supposed you have three carriers with calculated rates for a shipment going from you plant in Nevada to a distribution center in Texas as follow:

Carrier A is obviously the cheapest, but SAP TM can instead select carrier C to haul the shipment if you define carrier C as the number one priority for this channel. This is an example of overwriting the rate with priority. You basically state a hard rule that carrier C will always be used for this transportation channel regardless of the cost. In the real world, carrier C might be your dedicated carrier or a carrier that you can most rely on forgiven their capacity, on-time delivery service and familiarity with this channel.

If you decide that priority should be defined as a complement of carrier rate, one way to do that is by multiplying carrier rates by each given priority. Check the below figure. Carrier C is still the selected carrier but carrier B, which is still not essentially the cheapest, comes the next in line of selected carrier. There is a sense of uncertainty when you opt to use this approach, that you are not convinced carrier C will always be available to haul shipments from Nevada to Texas. Thus you want to ensure if carrier C is not available, the system will choose another carrier that you can still rely on based on their track records (in this example is carrier B that you define as second priority).

There is no evidence which of those two approaches above are more frequently used since they are based on business needs or practices that are different amongst companies and industries. However, the set up in SAP TM for both approaches are very flexible which means that you can have variety of rules in different transportation channels. In our example above, carrier C is the preferred one for shipments from Nevada to Texas but for different sets of origin and destination we can have other carriers as the favored ones.

Another feature SAP TM has is business share. In simple words, this is a way to assign a number of shipments to several carriers proportionately. Business share is defined by percentage of shipments that carrier can or should haul at given periodic basis. That can be daily, weekly, monthly or even yearly shares. Take example previous example where we have four carriers servicing our transportation channel from Nevada to Texas. Supposed we define each of them has 25% business share and there are 20 shipments per week for that channel. Thus each of them will get 5 shipments to deliver for that channel in a week. Business share does not have to be equal amongst carriers. You can define one of the carriers to have majority of the shares based on your business needs so then shipments will be again assigned proportionately.

Weekly transportation orders or shipment requests do not come at the same time, and they are generally planned in first-come-first-serve basis. So how can we be sure that the system will proportionately distribute the shipments to the carriers based on the defined shares as transportation orders coming up? Well, that is exactly what SAP TM does. It records past carrier assignment and use that historical data to do future carrier selection so at the end we will have a proportionate carrier assignment as defined in the business shares.

Figure 2. Example of business share maintenance in SAP TM

If we combine the use of carrier priority and business share together, carrier with higher priority will get a privilege of getting earlier shipments assigned to it first. Then SAP TM will distribute later shipments to less prioritized carriers as the shipments come to proportionate carrier assignment as per target share. This is aligned to most common practice that our preferred carrier(s) will have their capacity fulfilled as soon as possible, and we assign residue or excess if any to less prioritized carriers. Figure below may explain this concept using simple example. In a week supposed a shipper has 20 shipments for particular transportation channel. That number is built up based on daily shipment volume, which is different on each day. When the system cannot evenly distribute the shipment based on the target shares, it will prioritize high priority carrier to get the early loads, and assign later shipments to other carriers whose shares are not yet satisfied. It sounds like a simple math but this is essential especially if you are trying to strategize your carrier assignment mechanism using business share approach.

Transportation Allocation (TAL) on the other hand is quite similar to business share, except it uses a hard count in terms of the minimum or maximum number of shipments carriers can haul in certain period. For example if your first priority carrier states that it can haul maximum 5 shipments per day, then SAP TM will no longer assign your preferred carrier with new shipments after its capacity has been met. Instead it will select your second priority carrier until its capacity is met and so on. Another example is when you have contractual obligation to use a carrier for minimum 3 shipments per day. This can be achieved by introducing minimum number of TAL for that carrier, so the system will first satisfy that rule and then move on with other rules or constraints. Same with business share, the use of TAL is often combined with carrier priority or even also with the business share.

Figure 3. Example of weekly TAL maintenance in SAP TM

So what’s next for shippers?
Clearly, the benefit of having a TMS that can help you to smartly select your transportation carriers is a no brainer. This opens an opportunity to go completely automated for your transportation planning (many people call this ‘touchless planning’) that will surely increase productivity and give your transportation team chances to work on other critical aspects in transportation, such as tracking, dispute management and strategic freight procurement.

Nobody would deny that building rules that can fully satisfy your business needs require extensive analysis and exercise. You really need to evaluate your transportation historical records to make the most of this opportunity. Sometimes, this leads to building your transportation strategy from scratch or even reworking the existing. But the benefit you will acquire once the rules are fully established will pay off the time you spent during the preparation, so you would likely see it as an investment instead. Our clients with our guidance often go extra mile with these standard SAP TM features. Some of them have introduced more advanced business share and allocation rules that inter-dependent to each other, for example by having business share rules on state level and allocation on city or county level. Using SAP Enterprise Portal framework, a few other clients have given their carriers access to update and control their transportation allocation count that have changed previous habit of daily calls to confirm truck  availability. This is critical for their nature of industry where securing transportation capacity is very competitive.

Whether you already have a TMS in place or do not have one for now, let’s think it through again if you have won the full battle to achieve cost-efficient transportation operation. Think about the opportunity for improvement that is still hidden somewhere, and do not be discouraged by the challenge you may face because it will get settled up eventually. With experience in SAP TM implementation in different industries around the globe, Novigo are the experts to help you identify that opportunity and guide you to maximize the benefits of using SAP TM for your transportation business. If you have inquiries about the topic presented above or other questions related to our service, do not hesitate to contact us.