Note to CEOs (Part 3): Committed to reducing your rising freight costs? You must be kidding!
The increased focus on freight is putting pressure on transportation and logistics executives who are responsible for managing their company’s freight budget.
By Mike Regan, Co-Founder
Initially Published in Logistics Management on July 12, 2018
Knowing is not enough; we must apply. Willing is not enough; we must do. -Johann Goethe
In case you missed my transportation notes to CEOs Part 1 (Don’t fail to plan!) and Part 2 (Your people need you!), let me set the stage: Since the beginning of 2018, the Wall Street Journal has run over 70 articles about how the current freight market is negatively impacting supply chains and corporate earnings. Between January and April, 148 CEOs in the S&P 500 cited transportation and supply chain issues as having a negative impact on profitability. This increased focus on freight is putting pressure on transportation and logistics executives who are responsible for managing their company’s freight budget.
I’ve seen this first hand. Based on my conversations with over 100 CEOs and presidents, every single one of them has expressed concerns about how rising freight costs are affecting their company. And almost every one of them has said that reducing their freight cost is a top corporate priority.
So here is a significant challenge: CEOs out there know they have a problem, and these CEOs say they are willing to take action, but practically speaking, very little is actually being done to positively change their situation.
This is consistent with what I have heard for years. Company presidents tell me that reducing freight costs is a “top priority” and that they are “committed” to achieving this objective. But when they say those words, I have to ask: “Are you truly serious about reducing your freight costs?” 99% of the time, their answer is “Yes!”
Then I ask: “Do you have a game plan that addresses how you will make this happen?” All too often the answer is; “No.”
If that’s your company, you are experiencing the “You must be kidding!” phenomenon.
Several years ago, I heard a consultant give a presentation about this phenomenon. It begins when a senior level executive identifies a problem that is hurting their company. Intent on fixing the issue, the executive states that they are “serious” and “committed” to finding a solution. But, interestingly enough, one or two years later, the problem remains.
Upon seeing this, the consultant will ask the executive, “If you were serious when you said you were committed to solving this problem, why does it still exist?”
After getting through the excuses, there (hopefully) comes a moment when the executive realizes that they’re kidding themselves. Good intentions don’t count. And having knowledge of the problem and the will to solve it is insufficient. Intelligent actions are required in order to solve problems.
A leader can talk about solving a problem, but unless they hold their team accountable for creating a plan and then commit the resources to implementing it, then, in the words of this consultant, “they must be kidding” themselves.
If you want to avoid kidding yourself and prove that managing freight costs is a high priority, then consider the following questions:
Does my company have a written a Transportation Spend Management Plan?
Has my company accurately identified and documented the cost drivers and major issues affecting our freight budget?
Have we quantified the necessary financial and human resources to address these issues and are we willing to commit these resources over a sustained period of time?
Are we willing to get the help and support we need to address these issues and solve the problem?
If the answers to these questions are, “No,” then you are kidding yourself.
So, if that is the case, here are some proven steps to consider:
Make sure you clearly understand the freight/supply chain issues affecting your organization.
Assess where we are at today in terms of being a transactional versus strategic shipper?
Identify a Team Champion responsible for building a Transportation Spend Management Plan that identifies the goals, steps, and processes that will be used to manage freight costs.
Commit the resources that are required to implement the plan.
Identify the metrics and milestones that will create documented accountability, monitor how the project is progressing, and set a schedule for receiving regular updates.
These are the things successful organizations do to reduce their freight costs.
Over the past few months, I have been conducting C-Suite Reviews for numerous companies. These reviews outline the factors that are driving rates up in 2018 and help executives understand what to expect in 2019. As part of this review, we facilitate discussions among the team members that helps them determine savings opportunities.
It’s been an eye-opening experience. Some companies have been proactive and are taking strategic actions to minimize the negative impact from the current marketplace. Other companies are just kidding themselves. They say that controlling transportation costs is a high priority, but truthfully, they’re not dedicating the time or resources to accomplish that objective. They are transactionally focused, reacting to the market forces and hoping better prices magically come their way. But we all know that hope is not a strategy.
If controlling transportation costs is a high priority for your company, then prove it! Commit the time and resources necessary to implementing a comprehensive Transportation Spend Management Plan that meets the challenges of today’s transportation marketplace.
Or as an “updated” Goethe might say: “We must apply. We must do. We must stop kidding around!”