Taking Real Control of Your Costs with a Control Tower StrategyPosted by: Josh Bouk
A Strategic Guide to Organizing the Foundational Tech and Processes Needed For Best-in-Class Control Tower Capabilities
Most people think of aviation when they hear control tower. The all-seeing, center of operations that keeps countless airplanes in the sky at any one time, flawlessly managing hundreds of variables, unexpected influencers and course correcting as needed to guarantee on-time and on-budget arrivals and departures. It’s an analogy that also serves extremely well in the global logistics supply chain, where an unprecedented 2020 completely disrupted the supply chain like no other year or event, decimating carrier capacity and shipper budgets alike and creating market conditions and pricing impact that we’re still dealing with today. In fact 2021 has fast become a year to recalibrate not simply the near term budget transportation spend that was of critical importance during budgeting in January, but our overall strategic approaches we put in place over the entire year to secure capacity, manage cost, mitigate risk and control the overall total “cost to serve."
In both aviation, as in transportation logistics, success is all about total visibility – across the entire operation: every vehicle, every route, every mode and the market variables that impact all of those. In this month’s Road Ahead we look at one of the strategic approaches companies with mature supply chain operations undertake to create total supply chain visibility in the quest for continuous improvement of cost control and operational management. Control Towers, as in aviation, are a centralized hub of operational processes and technologies that allow the collation and analysis of real-time data to help organizations align everything they do with their business goals, drive greater efficiencies and achieve success. Migrating to this approach can be a time-consuming and intensive endeavor, but well worth the effort. If you are considering adopting this strategy in 2021 and beyond or looking for ways to optimize a current Control Tower, there are some key steps to consider in creating an appropriate, high functioning tech stack and the complementary processes required to get the very most out of the efficiencies and operational learnings the best Control Tower strategies deliver. Let’s take a closer look.
Why Do I Need a Control Tower?
Let’s go back to our aviation analogy to answer this foundational question. Imagine you’re a passenger about to take a trip and you’re looking for an airline ticket. We all know there are countless variables that affect both the experience of getting the best result (a ticket) and the efficiencies of the process along the way. Many are visible – airline selection, class of seat, seats available (supply and demand), time and date of travel, and so on. But there are also invisible, or hidden variables too. The pricing algorithms airlines use, re-selling of capacity, discounts and limited time sales. Should we go airline by airline and compare, or is it better to go to a comprehensive, multi-faceted and integrated provider with access and analysis expertise for all of those visible and hidden factors? In this instance, orbitz.com or other flight aggregators, is the control tower – the centralized, real time data system that collects, collates and analyzes all data points in near real time, enabling the best and least expensive result.
In logistics and transportation, it is even more challenging to see and understand the countless variables and complexities in a supply chain that stretches across the globe dealing with tens of billions of shipments a year from thousands of carriers - most of whom operate on inconsistent and disconnected systems plus the complications and challenges of sometimes incompatible shipper systems (ERPs, WMS and TMS). Add to that the many complexities, variables and inconsistencies encountered across international borders, custom brokers, lanes and modes of transportation and it’s easy to see how cost-management is essential for success, and total visibility across the supply chain from end to end is the foundation on which success is built. A Control Tower gives you that transparency – which just as critically, enables the setting and monitoring of global standards from your carrier partners so you can manage those relationships and negotiate and maintain the best terms along the way to drive visibility, control and compliance.
Building the Foundations of a Best-in-Class Control Tower
STEP ONE: ORGANIZE AROUND SIX PILLARS OF CAPABILITIES
It used to be that shippers believed a single-source global provider – like SAP or Oracle, for instance – could provide one, unified solution for all control tower capabilities, but modern thinking in the industry has evolved rapidly to deal with the many challenges of global logistics. Best in class Control Tower strategies now marry together a suite of solutions consisting of the most effective technologies, systems and even expertise provided by third party partners that are integrated into a seamless network to deliver high quality data collection, analytics and reporting on processes, partner management, overall performance and spend management and evaluation for every leg of the supply chain from manufacturing to end customer. These can be selected by category excellence, track record or the specific technologies and experienced partners that help meet the specific challenges and often complex conditions that can exist from region to region, between borders or that are particular to modes or lanes of transportation. As you begin the process of building a Control Tower strategy, think in terms of two key steps: 1) Critical capabilities – what are the processes and systems to be mastered across my operation, and 2) what are the unique operational needs and variables at each leg of the product journey?
Gartner introduced the concept of the Six Capabilities Pillars in a Control Tower Strategy, to address this first step for companies looking to organize their processes in order to understand and assess the different capabilities they require within the technologies that support their business operation. The six pillars include:
- Process management
- Analytics and reporting
- Logistics planning
- Event management
- Carrier management
- Solution development and customer service
Across every pillar, look to answer the most critical questions. Do we have the in-house capability (or outsourced through a trusted partner), and do we have the technologies baked into processes that afford best in class operation? Are we collecting the kind of rich, real-time transportation spend management data across every leg of the supply chain that enables informed, data-driven decisions in a timely and cost-saving manner and helps you manage partner performance and compliance? Are we using tools, or working with partners that can help us set and track performance KPI’s and drive continual improvement? With every answer, we are solving for efficiencies, reduction in cost-to-serve (CtS) spend of logistics and searching for improved performance opportunities.
STEP TWO: OPTIMZING EVERY LEG OF THE SUPPLY CHAIN
Think about this. Despite the many variables in the field, in principle, almost all supply chains share much of the same DNA or characteristics. Main legs include:
Leg A: Raw material to manufacturer
Leg B: Finished goods to distribution
Leg C In-market distribution to first paying customer (wholesaler / distributor)
Leg D Final mile product channel distribution (retail, consumer DTC, government)
Leg E Reverse logistics and circular economy
However complex the product journey, breaking it down for analysis into these key stages can greatly systemize efforts to optimize. In most cases, raw materials must be transported and shipped to the point of manufacture. Finished goods need to be transported from the plant to a market distribution center for warehouse storage. And then distribution begins. To a centralized wholesaler and shipped again, or to local market retailers, or increasingly with the e-commerce boom, directly to the consumer. That’s four shipment stages, each fulfilled by carrier partners, to timeline or deadline requirements with additional market conditions and variables affecting performance and cost every time, and a fifth stage for reverse logistics.. And all are linked and reliant on the other, with implications.
Last year is a classic example of how legs of the supply chain are inextricably linked and how damage to one can create down-chain impacts that need to be addressed quickly. Covid-19 meant a rapid increase in ocean-blank sailings and cancellation of airline routes meant shipping capacity plummeted while rates skyrocketed. If plants can’t receive timely raw material supply, then manufacturing slows or stops; if warehouses can’t find carrier capacity, they can neither receive goods nor ship products to retailers and consumers. All of which has service delivery and cost implications across the supply chain that if not addressed, eventually damage brand and company reputation.
In looking for ways to optimize every leg of the supply chain, it’s essential to have a clear, data-driven picture of what’s occurring, what’s impacting performance and what the necessary course corrections or immediate action steps must be. Your Control Tower technologies and/or partners must be able to deliver data reporting across seven key business functions that repeat at every leg of the journey:
- Data Setup (Product in ERP, WMS – weights, dimensions, requirements)
- Receipt of fulfillment trigger (sales order)
- Consolidation and optimization of loads (wherever possible)
- Select Carrier and Book Transport (at manufacturing site or DC)
- Ship Load and Manage Exceptions
- Receive Product and generate POD (Proof of Delivery)
- Confirm Freight and Pay Invoice (Needs Pre-Audit Process)
Expected Outcomes from Optimized Technologies
What can – or should – you expect from this deep down in the details exploration and analysis of every business function at every step of the supply chain, across every capability pillar within your organization? Quite simply, when it’s done right, a firm hold on the reigns, a clear and far-sighted vision of the road ahead and an early warning for obstacles and landscape shifts along the way.
Data when seamlessly collected, systemized, analyzed and reported in a timely and actionable manner across the supply chain can drive impressive operational change - and, in the case of Freight Audit data, for instance, manage and mitigate both unexpected cost variances from your plan as well as levied accessorial charges across your network.
When building Control Tower capabilities choosing proven technologies and partners that have deep category and functional expertise, it’s possible to move beyond the limitations of past Control Tower one-stop-shop thinking and create a properly integrated tech stack of complementary technologies and the foundational practices that now deliver true end to end visibility. Like an aviation flight controller, this puts you in a position to manage everything in the air, gain a clear sightline to the horizon and prepare instantly for gathering storm clouds. That can mean determining the best rates on a lane from origin to destination during RFP tendering and contract negotiation. Or monitoring and managing opportunities for shipment consolidation across all modes using multiple carrier partners around the world and provide lead time accuracy, so goods are shipped when maximum or increased capacity means rate reductions. And as all of that takes place, your control tower technologies will help you monitor, rate and rank your carriers’ individual performances for improved forward planning well into the future.