To gain complete control of your logistics costs, you need to use the right solution and systems both with regard to processes and IT support. This text is intended to illustrate a few alternative solutions and discuss their pros and cons.
A number of steps must be completed in order to achieve what we call “business control” (i.e. the possibility to turn cost control into a competitive advantage). This way, it is possible to view the logistics function as its own profit center in competition with external logistics suppliers. To achieve “business control”, you first need to leave the “lack of control” position by visualizing your logistics costs and their distribution, and then continuing to go from “reactive control” to “proactive control”.
At this point, you can start using current information and statistics to compare alternative scenarios and choose the right logistics arrangements and suppliers actively and continuously. What do your opportunities look like?
Alternative solutions to achieve cost control
Based on Primelog’s experiences of working with companies that want to gain control of their logistics costs, there are some commonly-occurring alternatives to do so.
- Using an ERP system. It is natural to expect that you can obtain information on your logistics costs from the ERP system (such as from the accounts payable ledger and/or the order module). But what does your ERP system know about how transport invoices relate to individual shipments or products?
- Using expert consultants. There are many extremely knowledgeable logistics consultants who can dissect your logistics network and find out what drives costs. But what would the total cost be if you want continuous follow-up instead of a one-time effort?
- Using a Business Intelligence (BI) system. The BI tool helps a lot with business data that needs to be analyzed, twisted and turned. But does your company’s BI developer have the extensive logistics skills needed?
- Using a transportation management system (TMS). Naturally, TMS systems are specialized to the transport aspect. They are also often well-integrated with your ERP system and the transport companies. However, there are many variations of TMS and not all of them keep track of costs.
Choose the right solution for cost control
In other words, there are many ways to gain cost control. Each one has its own pros and cons. We have summarized them in the following table.
|ERP system||You already have it. It has information about orders and invoices.||It cannot allocate transport invoices to orders/products efficiently. Expensive adaptations are required to achieve an acceptable solution.|
|Expert consultant||Highly skilled in logistics. Can achieve the result you want.||Cost per time (not continuously). Manual process, difficult to repeat in an exact manner.|
|BI system||Easy to use. Able to twist and turn data.||Requires a considerable amount of customer-specific development and maintenance. Requires logistics skills.|
|TMS||A package solution that was initially designed for transport data. Integrated with your ERP system and transport companies.||You need “yet another system”. It may not be capable of handling freight invoices/logistics costs.|
Our recommended alternative for cost control
When you look at the pros and the cons of the various alternatives, some requirements for an ideal solution are clear. Accordingly, we recommend using a carefully selected TMS that is capable of handling complex logistics arrangements and rates. If you cannot manage to dissect the complex pricing models in the industry – with rates and additional fees – and connect these to the running of your logistics operations, your only have a small chance of gaining full control. The kind of TMS that is suitable for this purpose should be more than merely a booking tool or a “track and trace” tool, and it should also offer a user-friendly user interface for follow-up.
A small, simplified list of requirements would be as follows:
- The provider/supplier must have profound logistics skills
- It must be easy to monitor and analyze costs by twisting and turning data and ideally, it should also be possible to simulate various scenarios.
- It should be easy to implement the solution within operations and for the IT department
- The cost of the solution must be reasonable and foreseeable, an investment that pays for itself over time
Requirement 1 (logistics skills): This is met by the expert consultant and the TMS supplier. However, whether or not the ERP provider and the BI developers have the profound logistics skills needed is questionable.
Requirement 2 (usability): This is primarily met by the BI system, but some TMS systems also have an embedded BI module that behaves just like the one the company had developed.
Requirement 3 (implementation): To some extent, this requirement favors the ERP system, which is well known and established in the business (even if certain ERP projects have a tendency to be hard). If you choose a TMS system, then you need to choose the right one (e.g. one supplied as a cloud-based service over the Internet (Software as a Service, SaaS)).
Requirement 4 (cost): This final item favors TMS, at least if you look at the total cost versus useful life. The TMS system already has embedded logistics skills, and the development costs are divided between all the supplier’s customers, as opposed to a solution that is specifically developed for you (i.e. an adaptation of an ERP or BI system). As opposed to an IT solution, it is difficult to estimate consultant services’ long-term return on investment because these services must be carried out anew each time a new analysis should be prepared.
What should I do now?
The challenges of implementing a new IT system should be taken seriously, but while there are pitfalls, there are also roads that are strong enough for travel. Your personnel must be convinced that potential new procedures will benefit them and the IT department must be convinced that it is a trustworthy IT system. Feel free to read our guide for additional information about what your IT department should consider when selecting a TMS system.