192 ASCET | Collaboration

The job of moving goods from where they are made to where theyare needed is a 24/7/365 job. Transportation consumes 5.5 per-

cent of the U.S. gross domestic product, and approximately the sameproportion of a company’s sales revenue.1 These percentages havedeclined somewhat for U.S. customers of transportation since theindustry was largely deregulated in 1980. A deregulated environ-ment has dramatically intensified competition among carriers suchthat they must either run an efficient operation or close their doors.While efficiency improvements are abundant over the past twodecades, there still remain significant opportunities for furtherimprovement. Trucks still run empty a large percentage of the time,generating both operating and opportunity costs for the carrier anddriver. Waiting to load and unload shipments consumes 33.5 hours

of a driver’s time each week, on average.2 Drivers frustrated withlong, unproductive waits are easily tempted to abandon the carrierin favor of another, causing driver turnover ratios to hover at around100 percent each year. Revised hours-of-service regulations thatwent into effect in January of 2004 will further impact the hoursavailable for operation and how drivers will use their on-duty time,exacerbating the problems of poor utilization and inefficiency.

Service implications of transportation are also significant.Transportation service represents a major component of order leadtime – the time that elapses from order placement until the goodsare ultimately delivered to a customer. Also, much of the variabilityin order lead time is attributed to variation in transit times. The crit-icality of good service is never more apparent than when a truck

Joel Sutherland is senior vice president at Transplace, a global third-party logistics company, where he currently chairs the Collaborative TransportationManagement committee for VICS, the Voluntary Interindustry Commerce Standards Association. He holds a B.S. from the University of Southern Californiaand an M.B.A. from Pepperdine University. Thomas J. Goldsby is an assistant professor of marketing and logistics at The Ohio State University. Dr. Goldsbyhas held logistics positions in both the public and commercial sectors and has served as a consultant to manufacturers, retailers, and logistics serviceproviders. Theodore P. Stank is the John H. Dove professor of logistics at the University of Tennessee at Knoxville. His research focuses on the strategicimplications and performance benefits associated with best-practice logistics and supply chain management concepts. Dr. Stank is a co-author of 21stCentury Logistics: Making Supply Chain Integration a Reality. (This paper reports the results of work developed by the CTM Committee of VICS.)

Leveraging Collaborative TransportationManagement Principles Joel Sutherland, Thomas J. Goldsby, and Theodore P. Stank

Collaborative transportation management can bring trading partners and transportation serviceproviders together for the sake of win-win outcomes.

193Collaboration | ASCET

breaks down, runs into inclement weather, or a preferred carriergoes on strike or, worse, goes out of business. With more compa-nies operating on a just-in-time basis, there is less room for error inthe delivery process.

Given these concerns, it has never been more important for com-panies to work together to eliminate inefficiencies, reduce cost, andensure excellence. In most instances there is only so much that a single member of the supply chain can do to resolve the problemsnoted above. It is not surprising, therefore, that collaboration amongpartners in a supply chain has become a topic of great interest formany and an essential element of company strategy for others.Collaboration is not easy, and it involves much more than simplecooperation. It requires that all companies engaged in a collabora-tive initiative work actively together as one toward common objec-tives, sharing information, knowledge, risk, and profits/benefits inan agreed-to, consistent fashion for all participants. Collaborationentails understanding how other companies operate, how theymake decisions, and what is important to them. All parties involvedmust benefit or it is not true collaboration.

We’ll define and outline a process for bringing trading partnersand transportation service providers together for the sake of win-win outcomes among all parties. In addition, the business case foradopting the process, termed collaborative transportation manage-ment (CTM), will be presented.

Defining and OutliningCTM is a holistic process that brings together supply chain trading part-ners and service providers to drive inefficiencies out of the transportplanning and execution process. The objective of CTM is to facilitateinteraction and collaboration between the principal parties to the trans-portation component of the supply chain – shippers, carriers, receivers,and secondary participants, such as third-party logistics providers (3PLs)to improve operating performance by eliminating inefficiencies.

The CTM process is designed for application to both inboundand outbound transportation flows. As such, both the shipper andthe receiver can perform some of the steps in the CTM businessprocess, while other steps are performed individually by either theshipper or receiver. Typically, the party that is ultimately responsible

Given these concerns, it has never been more important

for companies to work together to eliminate inefficiencies, reduce cost, and

ensure excellence. In most instances there is only so much that a single

member of the supply chain can do to resolve the problems noted above.

Select CTMPartners

KeyActivities:

Step 1:PartnerSelection

Step 2:PartnerEngagement

Step 5:DeterminingNext Steps

Step 3:Benchmark

Step 4:Pilot Testing

• Establish criteria for selection

• Evaluate and select potential partners

• Identify potential benefits and opportunities of a CTM collaboration initiative with selected partners

• Meet with selected partners to review benefits and propose a course of action

• Establish/agree on key metrics of performance for each participant

• Benchmark current performance vis á vis each agreed-to metric

• Define root causes of success or failure

• Meet to agree on a proposed course of action moving forward

• Define and gain agreement to a test pilot, e.g.: _ Proposed changes in operations _ Duration _ Expected results/ targets

DefineJoint Next

Steps

Engage CTMPartners

PilotBenchmark

CurrentPerformance

Figure 1 Five Steps to CTM Implementation

Leveraging Collaborative Transportation Management Principles

for the carrier relationship/contract would be responsible for thesteps. Participants collaborate by sharing key information aboutdemand and supply (e.g., forecasts, event plans, expected capacity),ideas and capabilities to improve the performance of the overalltransport planning and execution process, and assets, where feasi-ble (i.e., trucks, warehouses). CTM begins with an order/shipmentforecast (which may or may not be generated by a collaborativeplanning, forecasting, and replenishment [CPFR] process), andincludes capacity planning and scheduling, order generation, loadtender, delivery execution, and carrier payment. The CTM process iscomprised of three distinct phases.

Strategic Phase Strategic phase defines the front-end agreement to collaborate. Thefront-end agreement formalizes the period of time in which therelationship is valid. The agreement also defines the scope of the rela-tionship between the parties to determine which process steps are tobe performed, what data will be shared, and how that information willbe communicated amongst all parties. The agreement should specifythe goals of the relationship (e.g., reduce cost by X percent, increaseon-time delivery by Y percent), define freight terms, geographic scopeof the partnership, and distribution strategies to be utilized. It shouldalso specify the party that will manage the carrier and/or 3PL relation-ships, delineating who is responsible for rout-ing decisions and payment remittance, freightterms (who pays for and controls the move),which products are included, the locationsinvolved, the types of shipments that will beincluded and the exception management pro-tocol. Finally, the agreement should delineatethe manner in which expected benefits will beshared.

Tactical Phase Tactical phase defines the process flow forplanning purposes, beginning with the cre-ation of a product/order forecast. The prod-uct/order forecast is rolled up and extended toa shipment forecast using predetermined loadbuilding strategies (i.e., aggregation or consol-idation). The shipment forecast should beshared with all parties in the relationship to pro-vide an advanced look at anticipated shippingvolume. Upon receipt, carriers review shipmentforecasts and measure their ability to supportthe projected volumes with equipment. If a car-rier is unable to meet a requirement(s), then all

parties fall back to the exception management protocol defined in thestrategic component of the CTM process model; for example, chang-ing delivery requirements on some of the shipments, using alternativecarriers, or using a public marketplace/exchange for coverage.

Operational Phase Operational phase defines the process flow for executing the logis-tics process for firm customer orders. This phase leverages previous-ly agreed-upon protocols to plan the orders into shipments using theagreed-upon distribution strategies (i.e., aggregation, pooling, cross-docking, load building, continuous moves) and agreed-upon carrier

assignments. Capacity-constrained carriers will receive electronic loadtenders, and if unable to provide equipment as planned, the agreed-upon exception protocol is employed. As carriers accept the shipmenttenders, appointment is scheduled and shipping/receiving resourcesare reserved. As the shipper prepares and ultimately ships an order,appropriate documentation and information (e.g., advanced shippernotice, shipment status) are generated and transmitted to all partiesin the format agreed upon in the front-end agreement. When excep-tions affecting the overall performance of the partnership occur (e.g.,late delivery is anticipated), the appropriate exception protocol is ref-erenced. Finally, the freight accounting process is activated to ensure

194 ASCET | Collaboration

Opportunities to add value through CTMincreases as multiple shipper networks are

integrated, carriers are connected, andcommunication and execution capabilities

are enhanced.

Level of Collaboration

Valu

e

• Multiple Shippers, Carriers• Third-party Facilitation• Information Hub• Relationship Management

ConsortiumCollaboration

• Shipper, Receiver, and Carrier• Shared Forecast• Committed Capacity• Visibility and Security

Partnership Collaboration

• Transactional• No Visibility

Traditional Vendor

• Shared Forecast by Lane of Traffic• Automated Transactions

Trading Partner Collaboration

Figure 2 CTM Continuum

CTM reduces billing errors and inaccurate communications.

The value added increases as multiple shipper networks are integrated,

connecting a broader sphere of shippers, receivers, and carriers and

enabling enhanced opportunities for communication and improved execution.

195Collaboration | ASCET

that the carrier is paid per the terms of the front-end agreement orfollowing the exception protocol to resolve any discrepancies. A five-step approach for implementation and the key activities associatedwith each step are illustrated in Figure 1.

The Business Case CTM adds value by attacking transportation inefficiencies inherent inmost order fulfillment processes. It reduces the amount of dwell timecarriers experience waiting to load or unload shipments, optimizes theweight and/or volume utilization of transportation assets, and reducesdeadhead miles by better sequencing and routing of transportationassets within a transportation network. Additionally, CTM reduces billingerrors and inaccurate communications. The value added increases asmultiple shipper networks are integrated, connecting a broader sphereof shippers, receivers, and carriers and enabling enhanced opportunitiesfor communication and improved execution (see Figure 2).

If the focus of CTM is on the operational picture expressed daysin advance, improvements are recognized in shipment and carriermanagement (improving asset utilization) and fleet routing andscheduling (improving cycle times and increasing carrier revenuemiles). As the time horizon expands to months or quarters, collab-oration efforts can improve efficiencies in transportation procure-ment and contracting. Finally, with a planning horizon of up to one

year, strategic issues such as supply chain network design, marketgrowth, and transportation planning and modeling can beaddressed in the collaborative network. Annual forecasts can alsoprove valuable in contract negotiations.

Four areas that represent the key benefits for CTM include: capac-ity procurement, inbound management, integrated movements, andtransportation marketplaces.

Capacity procurement enables carriers to anticipate demandmuch better than guessing where and when demands for service willsurface. Improved planning also enables shippers to realize improvedload consolidation, reduce administrative costs, and better leverage itscarrier base nationwide. Participating carriers benefit from increasedvolume commitment, guaranteed lane assignments, process simplifi-cation, and reduced administrative costs.

Inbound management refers to the proactive control ofinbound goods flow and management of transportation by thereceiver of the freight, enabling receivers to reduce transportationcost through inbound consolidation and vendor allowance, andimprove overall lead times and variances to generate greater saleswith reduced levels of inventory.

Integrated movements aggregate volumes for multiple loca-tions within a company, across divisions, or even across companies.Shippers and receivers benefit from reduced freight costs, an increased

ImprovedProfitability

• CTM enables improved service levels and on-shelf availability across the board• Suppliers and carriers with CTM capabilities become “go-to” parties for major retailer events

• Better communications between partners creates the opportunity to reduce days’ sales outstanding

• The ability for participants to take a systemwide view of supply and demand minimizes unnecessary inventory

• Collaboration facilitates better use of transportation and warehousing assets for all participants, e.g.: _ Continuous moves _ Shared warehousing _ Fewer fixed assets

• Opportunities exist to minimize/eliminate costs associated with miscommunications across the extended supply chain, e.g.: _ Expediting/last-minute shipping _ Poor truck utilization _ Freight bill and shipment administration _ Improved management of cost of inbound goods

Increased Sales

Reduced Costs

InventoryReduction

Improved Days’ Sales

Outstanding

ImprovedTransportation

Asset Utilization

ImprovedBalance SheetPerformance

CTMOpportunity

Comments

Figure 3 Possible CTM Benefits

Leveraging Collaborative Transportation Management Principles

amount of dedicated usage, and improved service. Carriers canimprove asset utilization while reducing empty miles, labor cost, andsales and administrative expense.

Transportation marketplaces refer to online venues fortransportation capacity procurement to better match supply anddemand. Transportation marketplaces provide shippers withimmediate access to capacity that is not normally visible, providingcoverage for unusual load volumes and avoidance of premiumfreight costs. Carriers that make capacity available in transportationmarketplaces enjoy opportunities for additional business, particu-larly for loaded backhauls and capacity that might not otherwise be tapped.

Pilot InitiativesCTM pilot initiatives implemented in various companies and settings in the U.S. since 1999 have demonstrated that the benefitsof CTM are very real and substantial. Documented benefits include: • On-time service improvements of 35 percent; • Lead-time reductions of 75 percent; • Inventory reductions of 50 percent;• Sales increases of 23 percent;• Premium freight cost reductions of 20 percent; and• Administrative cost reductions of 20 percent.

Carriers have recorded equally dramatic benefits from pilot projects,including: • Deadhead mile reductions of 15 percent;• Dwell-time reductions of 15 percent;• Fleet utilization improvements of 33 percent; and • Driver turnover reductions of 15 percent.

The potential benefits of CTM initiatives greatly impact return onassets and investment. Figure 3 illustrates how the benefits reportedin CTM pilots translate into improved profitability and improved bal-ance sheet performance. The increased sales potential and reducedcosts result in improved profitability. Better utilization of transporta-

tion assets, inventory reductions, and the potential for reduced days’sales outstanding yield improved balance sheet performance.

Surprisingly, very little capital investment is required of collabora-tive transportation management. While a sufficient level of informationsystem capability is required to capture and process needed informa-tion, physical assets are generally not required to bring about the resultsof CTM. Rather, the primary forms of investment involve people andtime. Resources and commitment are required to build internal readi-ness for CTM and to create the collaborative culture within andbetween parties.

ConclusionRecent experience with CTM implementation has demonstratedthat the returns far outweigh the investments required, generat-ing significant impact on profitability and balance sheet perform-ance from improved sales, reduced administrative costs, reducedinventory investment, and the like, on the company’s financial posi-tion. In addition, implementation experience has highlighted keydrivers of success, including willingness to share information andjointly manage the process; face-to-face meetings to maintain themomentum of the project and to ensure the quality of the process;and use of third-party providers to enable the interaction amongcompanies in the process development stages and keep theprocess focused. Finally, participants in CTM have recognized thatthere must be a driving motive for all parties involved in the rela-tionship to work together to achieve something greater than anyindividual company acting in isolation could achieve on its own. Tothat end, participants become a committee of equals – there is noroom for lesser members. While the magnitude of each partner’swin will vary, each must find value in the collaboration to ensureits long-term viability. ■

Endnotes1 Rosalyn Wilson and Robert V. Delaney, 14th Annual “State of Logistics

Report: The Case for Reconfiguration,” presented June 2, 2003.

2 Truckload Carrier Association, Dry Van Drivers Survey, June 1999.

196 ASCET | Collaboration

Surprisingly, very little capital investment is required

of collaborative transportation management. While a sufficient level of

information system capability is required to capture and process needed

information, physical assets are generally not required to bring about the

results of CTM.