Transportation & Logistics Analysis - Global Trade

The structural organization of transport: from decentralization to integration

June 04 2019

Two opposing forces are always at play in a company (purchasing, production, sales): centralization creating opportunities for economies of scale and standardization on the one hand, and decentralization to promote close client relationships, agility, and singularity. The transport industry is no stranger to these questions.

The supply chain industry can be divided into several processes, whose number varies depending on which school of thoughts you ask. Some of these processes, like “cost to serve” or “demand planning” are now common expressions in the industry.
These processes refer to basic functions (transport, storage, planning, purchases...), broken down in three categories:

  • Strategic (purchases, logistical framework), for long term activities (over 1 year long)
  • Tactical (planning, forecasting), for medium term activities (1 to 3 months)
  • Operational (transport, storage), for short term activities (less than a week)

Warehouse location: a necessary compromise

The more time a company has to carry out a service, the further away it can be from a client, thereby making centralization possible. But the contrary isn’t always true. Warehouse location is a function of the average delivery time, as written in the agreement with the customer. So, it’s a compromise between cost and the reliability of the deadline. These past few years, we’ve seen movement towards centralized warehouses at the national, and even European level. For example, all of the Lapeyre group deliveries now leave from the city of Mer, in the Loir-et-Cher region, thereby replacing its previous system where deliveries left directly from the manufacturing plants’ warehouses.
However, for certain activities, or certain stages in the supply chain, players still have a to have a dense warehouse networks, as shown on the figure below, with strategic locations, close to the clients, to ensure proper reactivity. This is specifically applicable to urban distribution systems, which e-commerce and the issue of the last mile propelled to the center stage.

The culture of decentralization among carriers

Carriers usually organize their activity around one or several agencies. Each one is made up of a base, to which drivers and non-driving personnel (operators, billers, mechanics, etc.) are attached.

The operational, tactical, and strategic rules used by the agencies among them determine whether the management style is centralized or decentralized. Therefore, if the agencies strictly obey the rules of a central unit, they’ll be defined as highly centralized, and if they’re completely autonomous, they’ll be defined as highly decentralized. And there is a whole range of systems between the two ends of this spectrum.

Deep changes underway

Historically, considering the nature of their work, and their culture, carriers have preferred giving most of the responsibility to the agency, thereby making it autonomous and decentralized. However, deep changes are currently modifying this habit. Two factors played a large role in centralizing transport organization:

  • Firstly, the high level of competition among European road transport players has created tremendous pressure on prices. Carriers have looked for ways to lower their costs, mostly by creating economies of scale on external purchases, and by optimizing fleet management.
  • Secondly, the rise of onboard high-tech devices has created a major shift in the industry. The birth of the smartphone, on-board computer, track and trace, and now real time journey, fuel consumption, and driving mode monitoring have sharply decreased driver autonomy. And the unforeseen consequence is a weakening of local decision centers. Recording data on the cloud, rather than on local servers, also contributed to diminishing the importance of local touch points.

When looking at the figures for French transport published by the OPTL (Prospective Observatory for jobs and skills in the Transport and Logistics industry) for 2017 versus 2011, we see that the decrease in the number of operators, in terms of proportion of personnel has been higher (minus 18%) than the decrease in the number of drivers (minus 13%). Although this trend is attributable to the fact that most of the growth in the road freight industry is occurring in Eastern Europe, the concentration of transport organization can also be pointed out as an important factor.

The rise of digital platforms

The new digital platforms are positioning themselves as a way to cut out the middleman. Whether they are marketplaces or specific digital tools (e-cmr, e-maintenance, track&trace, etc.), they are all trying to provide direct matchmaking services between the sender, the recipient, the driver, and the payer.

They rely on:

  • Automation and standardization,
  • Speeding up processes,
  • Transparent communication between players.

By simplifying administrative procedures, taking out all the bottlenecks hindering the flow of information by making it available to all, they eliminate all the middlemen and foster a centralized organization of transport.

These new platforms also create a very high volume of data, which they make available to their clients via APIs (application programming interface). Company data lakes are always looking for new sources of data, so the transport aspect of things could become part of a broader supply chain ecosystem. As Johanna Von Geyr, Partner at ISG, puts it in an article published on ITProPortal, “having readily available data will create value add by changing the decision process in real time”.

This is the dawn of a new paradigm, where transport operations aren’t centralized or decentralized, but rather fully integrated to a multi-player supply chain network.

In short

The structure of transport first shifted from decentralized and autonomous operations to a centralized organization. The movement first started by taking some responsibilities away from the drivers and continued with the local centers. This was due mostly to price competition and was made possible by technological advances that penetrated the whole industry, unlike what is often said.

Additionally, the improved data collection and analysis possibilities open up the way for a new step. When looking at it from this angle, we can see that the new digital platforms are simply the next step in the evolution of transport, rather than a completely new era. Transport organization will now be closely connected to the cloud and move in harmony with other operation types in the supply chain.

Photo credit: Image par Schwoaze de Pixabay 

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With more than 20 years of experience in the international supply chain, William works as a road transportation expert for Upply. Entrepreneur by nature, he has successively worked in operational and functional management among various industries, such as chemistry, automotive and building materials; alternately shipper and service provider.
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