Note to CEOs: Transportation and Supply Chain Issues are Demanding a Place at the Table

5/14/2018

When CEOs from large companies like John Deere, Tyson Foods, and General Mills publicly state that their financial performance has been hurt by increased transportation costs, it gets people’s attention.

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Initially Published in Logistics Management on May 14, 2018

Over the past couple of months, the Wall Street Journal has published several articles that indicate CEOs are “suddenly” discovering that transportation and supply chain issues can drastically impact their profitability. When CEOs from large companies like John Deere, Tyson Foods, and General Mills publicly state that their financial performance has been hurt by increased transportation costs, it gets people’s attention.

If the number of conversations I have had with C-Level executives about transportation and supply chain costs are any indication, these items likely have your attention these days as well. Most of them want to know why their freight costs are going through the roof, and how they can anticipate what’s going to happen next.

These conversations are typically like the one I had just last week with a friend of mine who is the CEO of a midsize company in Chicago. He emphasized that he had two major concerns at the moment: the price of steel and the cost of moving his freight. Since he typically is bidding on projects that will be completed six-to-twelve months out, he needs to accurately forecast these two items. If he estimates too high, he risks losing the project. If he estimates too low, he risks losing the profitability.

Now you may not be concerned with the price of steel, but every business has to include freight as a consideration in their budget. The problem is, for many companies, transportation budgets have long been an afterthought…until now. With freight budgets being blown out of the water in 2018, the C-Suite is suddenly springing into action and searching for answers.

That brings me to the second part of the CEO conversations I have been having, where they begin questioning whether they have the right people running their transportation activities. But the reality is, the logistics professionals within the organization are usually not the issue.

When my friend asked me to assess the associates in his organization, I told him he had the right people on the bus.

“So how do we fix the situation then?” he asked.

“Well,” I told him, “The problem starts at the top.”

As you might imagine, he didn’t like the finger being pointed at him, so he pushed back and told me how important the transportation and logistics areas are to his company. So I pointed out that as an organization I knew was committed to lean principles and documentation, he could probably produce their written plan for managing their transportation spend—just as he had for other areas of the company.

(He couldn’t.)

I asked if he could tell me about the resources he has provided to his logistics professionals, so they could eliminate waste and improve their processes.

(He hadn’t.)

At this point, he acknowledged that transportation indeed had been an afterthought for him and his fellow C-Level executives.

I shared with him that his organization was not unique—again, I have had similar conversations with many company leaders now that transportation issues have hit the C-Suite’s radar screen.

You and your company are likely in a similar situation, and there are two specific things you need to do.

First, gain an understanding of what is happening in the transportation marketplace. If you are interested, I have a presentation I have given to our customers and friends of the firm that I would be happy to share with you (e-mail me at reganmike@tranzact.com for a copy). At a C-Suite level, it summarizes the forces impacting the marketplace, how they are impacting companies’ operations, and what options exist for organizations to more effectively manage their transportation spend.

This leads directly into step two. Our clients have told us the most valuable part of the presentation is that it leads to a healthy intra-company dialogue regarding the facts presented and what they are going to do as a result. These are the conversations that should have been happening all along—look at the current situation as an opportunity to give transportation and supply chain issues the importance they deserve in your organization.

Some of these discussions might be difficult to have, but in the end, your organization will be healthier and more profitable.