CARRIER PORTFOLIO MANAGEMENT

INTRODUCTION This article investigates the concept of carrier consolidation and how it impacts the performance measurements of the carrier for measured variables to the shipper. It recommends treating the carrier base as a portfolio of assets, with each carrier contributing unique, strategic advantages to the sum of the whole. For the practitioner, the article offers a technique to graphically analyze and display changes in numerous performance variables. The technique utilizes data available annually from Distribution Magazine to quantify the effect of carrier consolidation. It concludes by applying the model to a case study in which a shipper consolidated its annual business from 14 carriers down to two key carriers; saving in excess of $600,000 annually and reducing transportation expenses by 20% while improving service by 13.9%. Your "Portfolio" of Carriers Shippers seeking cost saving opportunities should consider assessing their current pool of carriers to determine their investment in transportation services. Similar to personal financial portfolios, a shipper has, intentionally or unintentionally, invested their business with a variety of carriers and the performance of these carriers may directly impact the shipper's bottom line. Unfortunately, many shippers tend to operate on a transactional basis and do not consider their on-going relationships. Manage your carriers as you would a personal financial portfolio. Make sure that each component of the carrier portfolio is resident for a different reason and uniquely contributes to the overall portfolio. What holds for personal stock investing also holds for carrier portfolio management. "Select" carriers which offer the most value to your process without redundancy. Efforts to determine and improve standard measurements of carrier quality are lagging approximately seven years behind the efforts of materials suppliers (Minahan, 1996). Most shippers recognize the importance of intangibles in what a carrier offers. The problem is, when intangibles play a part in the selection process, it's often a gut decision (Richardson, 1994). While no one seems to have formalized the process of incorporating intangibles into the carrier selection process, leading companies are starting to develop quantitative ways to measure intangibles (Richardson, 1994). Fifty percent of how UNISYS determines who it will do business with is not price based (Richardson, 1994). Tangible and intangible are a package. Either can cause you to lose a customer (Richardson, 1994). The best way to ensure that carriers provide consistent on-time damage-free deliveries is to take a proactive position in improving carrier quality (Minahan, 1996), The first step is proper selection, or weeding, of the carrier base. Reducing The Number of Carriers When a carrier portfolio is initially constructed, it is not surprising to discover redundancy in the form of replicated geographic coverage or available equipment. The argument for multiple sourcing is an age-old debate pitting single sourcing against multiple sourcing. Architect Ludwig Mies van der Rohe based his architectural designs on the concept that "less is more." This holds in the purchase of transportation services. A key transportation concept suggests that greater volume with a single carrier results in a lower rate. Single sourcing allows a company to aggregate their volumes. It also results in improvements in areas other than price. Becton Dickinson's strategy included reducing the number of carriers and improving carrier management and control. As a result of carrier reduction actions, Becton Dickinson (Thomas, 1993): * Has one carrier interfacing with key customers * Reduced transit time by 15% and cost by 6% * Has a broader geographic coverage by a single carrier * Has less product handling damage * Receives a steady supply of transportation equipment * Received just-in-time loading at distribution centers As their carrier's number one partner, Becton Dickinson receives 97% service versus 94% service for non-partner customers. …