So the Christian Science Monitor tells us we can now reap the benefits of “the Uberization of freight” – a company called Freightos “is poised to revolutionize the trillion-dollar freight industry, introducing the same efficiency and transparency that Priceline brought to consumer travel.”
I suspect the boys at Freightos will do very well. They shouldn’t even be in business.
They will do well because the typical P&L has a line that accurately sums up the purchase price for material; and it has a line that accurately racks up the cost of freight. But it has no line that tells management the cost of buying too much stuff and dealing with excess inventory. And it has no line telling us just how much missed shipments cost. Those things, if they are tracked at all, are tracked via ‘non-financial metrics; – days on hand, on time delivery, schedule attainment, and the like – and we all know that if we can’t put a ‘$’ in front of a number t is not as important as those numbers with ‘$’s’ in front of them.
That is why we buy stuff in staggering quantities to get price breaks; and ship them in truckload and container load quantities to keep freight costs down, and then build warehouses, hire people, buy racks and forklifts and install big computer systems to hold all of the stuff we bought so cheap that we didn’t need.
Taking any operation in isolation and ‘optimizing’ it out of context with the end to end process is not only dumb, it is often dangerous. Just ask all of the outfits whose business depends on Christmas sales how that is working out for them. The slowdown of the west coast ports has wreaked havoc on the best laid plans of those who thought buying container loads from Asia and peddling those goods for Christmas was a good idea. “Halfway through the fourth quarter, shippers are increasingly concerned about the ability to keep retail shelves stocked during the holiday season.”
The root of the problem is naïve faith in incomplete accounting data, and a serious lack of comprehension of the lessons Dan Jones and Jim Womack tried to teach us in Seeing the Whole; and Eli Goldratt’s admonition that local optimization does not lean to global optimization.
Freight cost is not something to be optimized. It is a data point to take into consideration in optimizing the supply chain. Having a separate freight department and rewarding the folks in it for driving down freight costs without regard for the downstream consequences of their ‘optimization’ is a formula for mediocrity.
But pursuit of mediocrity is the norm in companies that are all in on old school accounting principles, and there are enough of them to assure the “Uberization” of freight costs will be a grand success.