Three ways transportation leaders can revisit their operating model

Transportation leaders need to adapt to accommodate supply chain disruptions, rising operational costs and shifting customer behaviors. 

In brief:

• Transportation leaders must transform business models in order to remain agile in the fast-changing market.
• Strategies include optimizing talent, financial efficiency and tech integration for future growth.

No industry, arguably, has seen the pace, scale and impact of change that transportation has endured over the past few years. From global supply chain pressures and climbing fuel costs to societal changes in both commercial and consumer behavior, transportation leaders have juggled growing challenges. At the top of that list: how to rapidly evolve business models, while minimizing cost, maximizing productivity and delivering consistent customer service amid elevated expectations. While other more nimble industries have embraced varying degrees of progressive transformation of their approaches, transportation and logistics operators have a much larger lift on their hands. But as economic pressures mount and emerging technologies open new doors to fast-tracking optimization, it’s time for the most visionary transportation leaders to reassess how they do business. Doing so comes down to a focus on a fundamental component of every transportation organization: their operating model. If you’re a leader in transportation, or an executive charged with pointing any organization toward a more profitable future, consider these three strategies to reimagine the road ahead.

Three focus areas for transportation operating model transformation

1. Finetune the talent approach

Every business is powered by people. But across the transportation sector, third-party logistics (3PLs) are burdened with labor costs; airlines are managing expensive and high-skilled talent like pilots, crews and air support services; and trucking companies continue to be challenged with attracting and retaining drivers. Other organizations across the transportation sector have bloated headcounts that aren’t balanced by need or business revenue. For all of these, the turn-around optimization needed to set a more efficient course just isn’t possible without thoroughly reviewing and optimizing staffing. Start with these essential measures:

• Invest in the future of your workforce – develop automation where possible to ease day-to-day standardized tasks (especially for back-office personnel), adopting machine learning and services enabled by artificial intelligence (AI) to accelerate experiences for consumer offerings while engaging in SG&A cost reduction – especially in expensive, specialized computing and operating roles. 
• Consider voluntary redundancies as the most direct route to trimming headcount and freeing working capital to allocate resources more efficiently and effectively.
• Consider managed services – can outsourcing more routine back-office functions like HR, procurement, IT and delivery help you get a firmer grasp of your headcount. Doing this can also make the business more agile with fewer business unit entanglements and a readiness for change and growth.

Labor costs for major 3PL operators

(Unit of measure: USD in million)

Source: London Stock Exchange Group (LSEG)¹

Source: LSEG²

3. Rethink tech integrations

The transportation sector can see a great deal more customer friction than other industries, but technology can help organizations put customer experience and satisfaction at the center of their operations. This starts with reviewing and enhancing your customer strategy across all digital and operations touchpoints – especially in light of increased passenger travel. For railways, as an example, prioritizing digital and mobile reservations tools (with robust connections to enterprise booking/planning tools) can be both a major conduit to improved customer satisfaction but also a key source for collected data to enhance operations. Or seeking ways to optimize interline agreements and loyalty programs, like co-branded credit cards, can be simple ways to elevate experience for travelers.

It’s not just transportation and logistics providers that can benefit from enhanced tech. Transportation-adjacent industries can reap rewards too. All should look to data and analytics as a way to optimize current operations but also create a growth tech strategy for the future. Steps in this process include:

• AI integration to help optimize tasks, e.g., crew and route planning and drive efficiencies on a longer horizon with fewer human inputs needed via large-scale optimization algorithms.
• Analytics for objectives and key results (OKRs) and key performance indicators (KPIs) to track both in real time to create quantifiable data for informed decision making and cost reduction with “single-source-of-truth” enterprise data lakes consolidating disparate, disconnected proprietary tools with enterprise resource planning (ERP) systems.
• Technology refinement to conduct a full review of your software footprint. Many transportation organizations have a unique set of data challenges with aging data sources, antiquated mapping and routing tools and an ecosystem of thousands of apps added over time. Define a strategy to consolidate, modernize and simplify with an external resource as needed.

Passenger rail mileage

(Unit of measure: rail passenger miles; miles, monthly, seasonally adjusted)

Source: Federal Reserve Bank of St. Louis³ and U.S. Department of Transportation⁴

Takeaways on transportation leaders revisiting their operating model

Transportation leaders need to take a proactive forward-looking stance and execute the most impactful strategies than can begin to optimize operations, reduce cost to serve and also mitigate risk as they grow. It’s time for organizations to really reimagine and rethink their operations for the future in order to build optimized, AI-enabled and streamlined foundations for future growth. The journey ahead starts with adopting an evolved mindset toward human capital, daily operations and data analytics that can create true customer-centric innovation and a fast-tracked environment for change.