Using Coordination Agreements to Improve Transportation Systems

5 Using Coordination Agreements to Improve Transportation Systems 

Coordinating agreements can be implemented between a shipper and a transport provider to improve performance. Consider a supply chain consisting of suppliers, manufacturing plants, and customer locations. In the original system, suppose each plant runs as an independent profit center, choosing its own transportation. To create scale economies as well as increase the fraction of line and backhaul routes, an alternate system can be implemented to coordinate across locations and with a transport company. Consider the potential impact on the system as it transitions from independent transport choices to a corporate load control center that enables performance improvement. 

There are several companies that face such a transition, especially during establishment of a core carrier program. There is an important difference between centralization of transportation and coordination of transportation. Under a centralized system, a central entity decides how to handle all loads. Under a coordinated system, the load control center offers possible delivery times and defines associated costs, but the individual locations make the final decision. Thus in a coordinated system, individual profit centers decide on the tradeoff between customer service and related costs and revenue benefits. 

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