The Role of Transportation in Supply Chains and Business

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How do you do that tactically? What types of decisions do you make? How do you get a really low distribution cost per unit? Reduce handling steps. That ought to be in our complexity graph right in here is handling steps. Reduce touch points. Anybody remember the old wishbone offense? Oklahoma used to run, you have a fullback and two halfbacks. So the quarterback can come down here they can either hand it to the fullback or give it to this halfback or pitch it to the other one or run it themselves. And Oklahoma used to gain like 650 yards a game and they never won the national championship. Why? Because you run that thing enough times handling the ball that many different ways you're going to fumble it and that's what happened to them. So you want to take handling steps out as you're going along. But now back to this little situation I've been talking about. If you're head of distribution how do you get a low transportation cost per unit? What do you do? Cube everything up. Make sure the truck is full and they did that. A truck could never leave the warehouse until it was 100% cubed out. From a warehousing standpoint they were doing the same thing by collecting these big batches of orders to make sure big batches were released to the floor of the warehouse so the pickers always had something to do. Now here's the wrinkle. Suppose you're the vice president of retail and your bonus is based on sales per square foot in the store. What's the worst thing that could happen to you? You have nothing to sell and it was happening to the tune of 250 million dollars a year. The transportation was too efficient. They were saving 3 million in transportation and losing 250 million dollars in lost sales because they were starving the stores. That's one thing we want to make sure we avoid going through these four days together is we don't get so caught up in one lane, one route, one cubing algorithm that we lose sight of the supply chain as a whole. So I'm going to spend just a few minutes talking about how transportation fits into the supply chain as a whole. If you look at transportation cost as compared to the other logistics cost which would be warehousing, carrying inventory, a little bit around order administration, what you'll find is it's about half for most companies and for the economy as a whole. It's not the whole thing. What you're trying to do when you set up a supply chain is to figure out the right amount to spend on warehousing, transportation, and carrying inventory. Let me say that one more time. What you're trying to figure out is the right amount to spend, not the least amount to spend, because what's going on in this little pie right here has a lot to do with the sales of the company, the capital that's invested, and the expenses of the company. Every decision you're going to make in supply chain is going to have an impact on revenue, expense, and capital and what you're trying to do with that decision is make the best decision for all three of those working at the same time and that's a theme that'll run through this class. You're not trying to figure out the least amount of spend, you're trying to figure out the right amount of spend and there's this mentality out there.

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