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FAQs (Frequently Asked Questions) On Transportation Optimisation

FAQs (Frequently Asked Questions) On Transportation Optimisation

Following are some of the frequently asked questions (FAQs) on transportation optimisation that we have encountered in our speeches, workshops, seminars, and other forums.  Feel free to ask more questions if your particular question is not answered below. 

Table of Contents

FAQs - (Frequently Asked Questions) on Transportation Optimisation

Why do so many people confuse between supply chain management and transportation Cost optimisation?

As the concept of supply chain management became increasingly popular in the mid 2000's or so, many companies renamed their transportation departments as supply chain management 'department'. This happened without understanding the difference between the two activities - where transportation department carries out an essential function role while the supply chain team carries out the cross functional integration role.

Having renamed the transportation (or logistics) department as supply chain, the roles, functions and expectations from the personnel did not change much. In fact they were never upskilled in any significant manner. Most companies still expect them to perform essentially logistics management or transportation management functional role, and most of these people expect and do so. 

That is the reason why so many people confuse between supply chain management and transportation cost optimisation. 

What is meant by transportation management systems (TMS) why is it so important? 

TMS suites often include all activities and functions related to transportation in the company. These include professed capability to optimise across multiple modes of transportation, paperless execution, freight accounting with auditing or self-pay functionality, tactical modelling, strategic planning, procurement and sourcing. With supply chains becoming increasingly globalised, transportation management solutions must grow to include global logistics capabilities, which are essential factors in understanding your cost-to-serve metrics.

Optimising transportation management has become essential for companies in today's more fluid, global, omnichannel world. Reduction in freight costs continues to be a primary driving force for investing in Transportation Management Systems (TMS), but securing capacity and upscaling the overall transportation operating efficiency are becoming strong motivators in a growing volatile marketplace.

What are Some of the pulling factors For transportation optimisation Systems?

When companies hear about the fantastic supply chain results achieved by some the real-life leaders in cross-functional integration and optimisation, they become aware and keen to bring the same type of supply chain results into their company.

Unfortunately, in their company, due to the reasons discussed in Q&A1 above, this desire to improve supply chain management takes the form of a drive towards transportation optimisation - likely using an off-the-shelf transportation optimisation system.

The following are the main pulling factors in transportation optimisation:

  • Controlling Cost
  • Embracing Omni-Channel
  • Meeting Multi-enterprise requirements
  • Utilising data to improve operations

What is the advent of transportation optimisation?

Some of the earliest algorithms in operations research come from attempts towards optimisation of milk-runs and other such routing problem using linear programming, integer programming and other similar heuristics. Here is one academic paper among thousands summarising similar attempts from the beginning. 

What are some of the more visible practical applications Of Transportation Optimisation?

For a real life case study where a three week modelling exercise saved a company excess of $3 Million per year - read our story of man vs machine on this website. 

Google maps and its routing capability evolved out of these models and sophisticated order fulfillment and routing capabilities have been baked into many of these modeling software by now. 

 How Old Is The Drive To Build TMS?

The mathematical calculation ability and programs have existed for a long time but the computing capability to do it in real time and be able to guide humans travelling at high speed have only become available in the last 20 years or so. 

Can you explain some of the most popular algorithms, Methods and heuristics of Transportation optimisation?


Without knowing the exact location of the source and destination of a particular movement, it is not possible to optimise the route. At one time geo-tagging was much more important than route calculation and optimisation for the simple reason that if we do not accurately know these locations.

Linear programming:

An easy way of optimising results where there is a linear relationship between the variables, and the optimisation function can be clearly defined. There are several other conditions and constraints that need to be met in order to successfully find a viable result using linear programming. You can optimise for minimum miles, minimum costs, or even maximum profits - depending on how you optimise the solution using linear programming. 

Integer Programming:

A better form of linear programming where additional constraints are put on the mathematical equations in order to find a better viable solution. 

Dynamic Programming:

Dynamic programming is a recursive algorithm. Details are covered in this tutorial. If you are mathematically inclined go through the included tutorial to get a good idea of the finer points of these and many other algorithms. 

How Valid is the Drive towards Controlling Cost as a pulling factor in transportation optimisation Systems? 

Thinking logically, there is only one drive for transportation optimisation systems - reducing costs.

These systems are expensive, and have a learning curve. We have built many such systems using common tools for our clients.  In each case they delivered cost savings well in excess of what the client paid for the system. 

Having said that, I would also like to point out that a bulk of transport dollars are wasted in many companies of moving goods that should not be moved, or carried in the inventory in the first place. If you handle that problem first - your transportation costs will plummet significantly. 

We cover this question in full detail in a blog because it is a rather deep discussion worthy of its own contemplation. That is the reason why this question is a very good question. 

How ecommerce driven Omni-Channel acts as a pulling factor in transportation optimisation? 

Service levels are difficult to optimise in an omnichannel age.

Last mile logistics flows tend to extend into the residential areas, requiring a more concentrated application of transportation optimisation. Unfortunately, the last mile is also the most expensive mile of any network - read our blog to get a feel for the topic by typing last mile of amazon in the search bar at the top. 

Why do the Meeting Multi-enterprise requirements act as a pulling factor in transportation optimisation? 

The need for high quality internal and external integration has become a widely accepted requirement across the supply chain - for both inbound and outbound flows, spanning carriers, vendors, 3PLs and customers. Our quick notes on five flows of supply chains explain these drivers in a great deal of detail. 

How the Utilizing data to improve operations acts as a pulling factor in transportation optimisation?

It's one thing to have a common "awareness of events" as items move from overseas onto the ocean, and from sea to rail, inland fleet and on to distribution points at last to the customer.

Since the start of supply chain management it has been critically important to have real visibility into these events and their costs. Best-in-class organisations know that visibility and proactive planning provide maximum flexibility. 

What are Some of the more the critical functions of transportation Management Systems? 

  • Contract and Rates Management
  • Route planning 
  • Service Level Agreement (SLA) Compliance
  • Multi-modal shipment management 
  • Rate/Lane Aggregation and Consolidation
  • Route and stop optimisation
  • Settlements and Financial Payments

What forms the key functionality of Contract and Rates Management module of TMS?

With rates for all carriers and modes in a centralised database, the rating algorithm of the TMS will automatically calculate price and provide cost/service/transit time information for qualifying carriers.

It will capture costs as items move through the supply chain and verify that they comply with contracted amounts.

A sophisticated rating algorithm must analyse all rate types and options to calculate optimal-cost shipping solutions incorporating both inbound and outbound shipments.

Result of this process is Systemic improvements in supply chain effectiveness from automatically planning least-cost, most effective shipments across multiple modes and carriers, spanning rail, truck, LTL, parcel, and intermodal alternatives. 

Why do TMS entail Routing and Service Level Agreement (SLA) Compliance?

To compare contracted rates and terms to the actual rates and terms applied to a shipment, by lane and mode, a systematic compliance management module is required.  

It further ensures fulfilment at the desired level of service level at the targeted cost. The result will ensure that actual shipping execution complies with the plan while taking all constraints into consideration.

This module validates selection of the lowest rate carrier resources that meet extended rates and transit time goals. If needed, alternate modes or carriers can be identified.

Explain the term Multi-modal shipping management? 

Rarely does an international shipment use a single mode of transportation. It is common to combine multiple modes - such as road, rail, ship, road, etc. Everytime the mode changes, the key identifiers of the shipment change at the same time. On the rail it is the rail wagon. On the ship it is the shipping ocntrainer. The cost of shipments are very different, and performance criteria and benchmarks differ by modes. 

It is an art form to configure a multi-modal shipment so that it minimised the costs, minimises the time takes, maximises the product freshness and care, and takes care of all the restrictions and regulations that apply to any particular shipment. 

Algorithms and real time data are both critical, as is the operator knowledge in configuring the shipments. 

What is rate lane aggregation and consolidation of shipments?

There may be savings opportunities by consolidation of multiple shipments with same origin and destination into a single shipment. 

On a broader scale multiple LCL shipments on the same lane could be aggregated into a single FCL/FTL shipment with a much lower rate. 

Both opportunities only exist for alert shippers with accurate TMS and data. 

For an interesting case study read this article - What is the Most Effective Strategy to Massively Slash Shipping Freight Costs? from which the following story is extracted:

Case study - A Mid-Size Business Wasting Money On Freight Costs Due To Careless Shipping Practices

I and my business partner were standing in the warehouse of a mid-size global player in a nice margin business. On the shipping docks were sitting a number of pallets – each half or more full of goods. I asked about the paperwork for one of the pallets and was surprised to be handed a thick sheaf of papers. Right on that single pallet sat more than 50 shipments, all going from one large city to another. Each was accompanied by a consignment note (and a Con. note fee of $35 each). So I asked why they were not being shipping in a single shipment, and distributed by a local courier? Or alternatively, by a inter-city courier covering the entire shipment. “We have always done the things this way” was the answer. I calculated that – just those 4 pallets were wasting at least $3000 in additional freight costs. That was over $100K a month – the practice was changed and the hole plugged straight away.

What is route and stop optimisation? How does it differ from route planning?

Prior to a shipment the route must be planned - including way points, stopovers, transshipment points, modes and transfers. That is route planning.

Part of route planning is route optimisation - something that Google maps does for you automatically every time you ask it for the route. Google optimises for minimum time, but you could just as easily optimise for minimum cost or miles, or maximise certain other objective function - such as revenue. Stop optimisation would also be the part of the same exercise and will need to adjust to the traffic and other on-ground realities once the route starts. 

Explain the terms Settlements and Financial Payments?

At the conclusion of each shipment we must close the loop by paying for it and assessing the success of the shipment. What we must do is to capture and verify the actual freight cost of each shipment, and allocate cost to the appropriate channel, consumer and product. 

Generate a feedback loop that links results back to strategy and tactics. We do it by taking a look at actuals, evaluate how your coordinates and carriers are performing, and implement essential performance indicators that support your whole business.

This often-overlooked functional area is essential for tying the real transportation cost to the shipment and hence the allocation of that freight cost to the orders that were shipped, the channel, and their products.

As a result, we will discover how well the business has done against contract rates, understand rates by channel and customer, ascertain the level of compliance achieved by location and mode.

It leads to continuous improvement and year-over-year benefits.

Why we are qualified to write this list of FAQs on Transportation Optimisation?

VERY FEW PEOPLE KNOW SUPPLY CHAINS LIKE WE DO - retail, beverages, food, milk, dairy, meat, livestock, explosives, chemicals, cotton, rice, graphite, solar power, natural gas, crude oil, fertilizers, electronics, packaging, glass manufacturing, machine parts, automobiles, industrial goods, mining, etc are just some of the industries where boards and executives have benefited from our proprietary knowledge of the supply chains. 

Click on our project methodology above to see how transportation optimsiation is an integral step in each and every project that we have undertaken in the last three decades.

Since when no one had heard of supply chain, our co-founder Vivek Sood has been considered one of the most authoritative professionals in the field when it comes to the subject of supply chain analytics in Australia, Asia, North America, South America and Europe.

 He has written four seminal books about restructuring supply chains to gain massive advantage in business. He also regularly delivers keynote speeches at business schools and conferences such as University of Technology Sydney, Supply Chain Asia, Asian Bankers Forum, APEC Business Advisory Council.

He has been quoted in the authoritative business press and over 100 academic papers written by supply chain researchers around the world. Vivek and his team have examined thousands of supply chains during their projects over the last three decades and helped hundreds of executives build safe, cost effective and sustainable supply chains and careers. 

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Notes on FAQs

Clearly, any such list of frequently asked questions (FAQs) about supply chain can never be fully exhaustive. Neither is anyone, including us, the final authority and arbitrator on this or any other topic. 

You will have your own opinions on many of these topics, and will have many other questions. 

We throw open the comments section to you for your opinions and questions. We will try to address all of these, and the best ones will attract a reward in the form of one of our books, or publications. 

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