Digital Transformation: Supply Chains Face Many Challenges
Freight routing has become a strategic challenge for major European companies, who must continuously provide better, more rapid delivery to their customers and end consumers. Within this framework, managing their supply chain is critical, as it will significantly affect sales relationships and CSR policy, and thus, in the end, the organization’s credibility and profitability.
Freight Road Transportation, operating upstream and downstream from logistics, has enormous potential for optimization. But, the organizational structures of major shipping companies are rooted in old patterns from which they struggle to escape. Are they now mature enough to make a transformation, and to make the structure of their transport plan leverage for competitiveness?
Companies are facing new challenges
While B2B customer expectations — and those of B2C consumers — are increasing, companies must respond to this by delivering with greater speed and agility.
Knowing how to respond to peaks in activity requires being able to rapidly organize production, sales, logistics, and distribution. In fact, such peaks imply deliveries in tight flows, where the slightest delay has repercussions throughout the chain.
Even though responding to demand imposes an increasingly sustained pace — and thus increasingly developed resources — companies are facing the challenges of optimization, as they must now rationalize their own costs to become more efficient, and thus more profitable.
A single means to respond to this: increased cross-departmental operation and better — more agile and fluid — collaboration among the company’s various silos.
Additionally, the transformation context in which companies are operating today is intimately linked to the new challenges of responsibility. Consumers, governments, and institutions now expect organizations to be socially, societally, ecologically, and economically transparent.
This requires producing accurate, detailed CSR reports, as well as being able to demonstrate approaches undertaken and their contribution to improving the company’s environmental record.
Behind the apparent constraint of such a transformation hides a real opportunity to improve performance. Companies that successfully make this transition will give themselves the means to be future leaders in their industry.
The supply chain is the cornerstone that must make it possible to best orchestrate the company’s various functions.
In fact, it has the necessary resources to allow for better synergies among various silos, especially by centralizing and standardizing data flows that circulate throughout the company’s value chain.
This central role gives it a new place within the company. The supply chain shifts from support function to transverse function, coordinating the various business lines and restoring the customer to the center of the process.
This can be seen within major European groups: in particular, we can see the appointment of Chief Supply Chain Officers (CSCOs) to executive committees. The various business lines are changing and digitizing… The transformation of the supply chain is now well under way, and has been so for several years.
Road transport must still change
But the road freight transport sector must still start to change. And that is far from being obvious. In fact, we ask logistics to be increasingly dynamic while Transport Tenders remain rigid and fixed.
The way shipping companies purchase transport is now outdated and reveals the wall that freight transport players are faced with today. The Tender model based on a race to the lowest price no longer works and creates significant failures in regular flows, a significant number of which end up on the spot market.
On the need to change its relationship with carriers
Additionally, by persisting in wanting to carry out transport solely on the basis of the lowest price, shipping companies run another risk: that of no longer being attractive to carriers.
As Manuela Reis, Head of Carrier Relations at Fretlink, explains, “Currently, securing a transport plan inevitably involves ensuring that suppliers will continue in operation.”
In fact, it is important to meet the conditions required to be seen as a “shipping company of choice” by one’s suppliers. This requires paying carriers on time and at a fair price, so that they can earn sufficient margins, but also ensuring that they can operate under the best possible conditions upon pick-up and delivery, so that these stages are not an obstacle to arriving at the next shipment.
By ensuring this, and by valuing their know-how and service quality rather than imposing a low price on them, major shippers can thus capture the interest and loyalty of carriers, whose capacity is highly coveted now.
Hidden costs are significantly underestimated
Faced with a problem of cascading subcontracting, most major shippers are gradually losing control of their flows. This leads to a lack of transparency over operation and lower service quality with late-delivery penalties accumulating, as well as increasingly frequent use of the spot market to find missing capacity, where prices are exploding.
Rather than getting to the root of the problem and profoundly rethinking the traditional tender, shippers are attempting to improve the existing system by accumulating solutions that do not communicate with each other, and by establishing dedicated teams to manager these failures on a daily basis.
The lack of cooperation and of a unified vision between buyers and those who carry out the transport plan within organizations reinforces the difficulty in optimizing quality and the actual cost of managing road freight transport for companies even more.
In the end, the purchasing grid is exceeded significantly and hidden costs — especially those for late-delivery penalties — become difficult to control. Thus, while the company is attempting to improve its efficiency in all activities, these dysfunctions hold up everything and prevent the supply chain from operating at full capacity.
A global innovation, in response to a global market problem
To respond to these challenges, major European supply chains are now seeking a way to secure, coordinate, and optimize their transport plans.
That is what Fretlink offers, by bringing together major supply chains with regional carriers and by assisting everyone in collaborating, through a new data-driven organizational standard.
However, the Fretlink vision represents a new roadmap for shippers. While they may be used to dealing with failures, we explain to them that with a transport plan safeguarded upstream, these simply won’t happen anymore. The innovation required to solve problems in the sector is not in addition to a multitude of existing processes: it is a disruptive innovation.
This transformation of practices and models will force shippers to change their organizational structures, methods, and processes. This is neither neutral nor trivial, and that is why a step-by-step process must be used.
The true challenge is to support this transformation of organizational structures. Fretlink does not provide a turnkey solution; a real acculturation process must take place around its methods and solution. Therefore, initiating a change is at the core of the Fretlink value proposition.
Just as Rome was not built in a day, the new road freight standard will not become the norm overnight. However, the Fretlink founders and teams believe in the only way forward, and that the transformation is imminent. It’s already happening and bringing operational excellence to the major supply chain players in Europe that have put their trust in Fretlink.
To talk with our teams and learn more about our services, go to www.fretlink.com
