The Role of Transportation in Supply Chains and Business

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(29:13 - 31:14) That's a lot of what we're going to be doing in here. And so these things are going to have names like network rationalization and skew rationalization and consolidation and building a customer service policy. Things of that nature. The next factor I want to get into here is that transportation is not out there in isolation. I was teaching in Japan last year and we had a lot of the heads of supply chains for major corporations in Japan and maybe this was totally rude in their culture. I don't know. There was a sofa in the lecture hall there. I stood up on the sofa. I did take my shoes off and I said transportation does not exist just to reduce cost. And I said it like three times. Transportation does not exist just to reduce cost. Transportation can be too efficient. We did a project with one of the big automotive companies a few years ago. One of the recommendations we made to them is that they hire a third-party logistics company to help them reduce transportation costs because that 3PL was already running in a lot of those lanes. They had negotiated good volume in those lanes and at least on paper it looked like it was about a 15 million dollar a year savings. That sounds good. So said yeah like that recommendation. We started down the road. Things were working pretty good and two years later I actually heard about it. I said that our client had fired the 3PL. So I got on the phone. I called the head of the business unit. I said I heard you fired those guys. So what's up with that? He said they were saving us too much money. (31:16 - 37:55) I was like whoa. Can you say that one more time? He said yep they were saving us too much money. I said wait and I've known him for a long time. I said wait a second. Okay what's the real story here? He said here's what was going on. He said they thought our whole gig in here was just saving money. So what they were doing is they were missing pickups and deliveries in an effort to keep saving money and we told them from the very beginning and we wrote this into the contract that the most important thing in here is making the schedule. Make all the pickups and make all the deliveries because the 15 million as compared to the 200 million was penny wise dollar foolish. I'll tell you one more example with this and then we'll get into the slides here. We're working with another client, a retailer. They have the lowest distribution cost per unit of any retailer in the country. I knew this because we've done the benchmarking around it and they call us about doing a project with them and here was the nature of the project. Let's suppose you're the vice president of distribution. You get a raise, a bonus, send your kids to Harvard or whatever. If you can keep lowering that distribution cost per unit.

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