Executive Briefings

CTM: Collaborating To Weed Out Transportation Inefficiency

With a re-energized effort under way to formalize Collaborative Transportation Management, lots of people are looking at ways to make carriers part of the collaborative process.

Collaborative Transportation Management (CTM) sounds suspiciously like one of those "buzz" phrases that marketing MBAs dream up to infuse new life into aging concepts. Isn't transportation by its nature collaborative? And hasn't transportation management long been a business staple?

The answer to both those questions is "yes," but adding the "C" word to transportation management is not just another exercise in hyperbole - at least not among those who take it seriously. And it is taken very seriously by folks involved with the Voluntary Inter-industry Commerce Standards association (VICS), the group that promulgates standards for implementing Collaborative Planning, Forecasting and Replenishment (CPFR), as well as other processes impacting the flow of product and information through the retail supply chain.

Transportation was recognized as the "missing link" in the CPFR process in 2000. "You can't have replenishment without transportation," says Dawn Russell, assistant professor of business logistics at Pennsylvania State University, who was involved in early VICS research on CTM. "You must physically move the goods and transportation planning needs to be looked at as part of the order."

"The transportation process and the fulfillment process really are the culmination of every business relationship a company has," adds Douglas Metcalfe, director of transportation solutions at Irista, a supply-chain execution vendor based in Milwaukee, Wis. "Everything a company does is about getting products to the customer, so it is a very important part of the process."

VICS established a transportation subcommittee, first as an adjunct to the Logistics Committee and later as a subcommittee of the CPFR Committee. A pilot program involving Wal-Mart, Procter & Gamble and J.B. Hunt Transportation, while limited, demonstrated that that there is value to be gained from including carriers in the collaborative loop. But then the subcommittee "stagnated for two years," according to its new chairman, Joel Sutherland, senior vice president of logistics provider Transplace, Plano, Texas. Sutherland agreed to take over leadership of the subcommittee earlier this year and, by all accounts, has re-energized the group. Partial evidence of this was a separate track on Collaborative Transportation Management at this year's Council of Logistics Management conference - a group that Sutherland previously led as president.

"We have put together an objective for CTM," Sutherland says, adding that the subcommittee also is defining a CTM process framework. He stresses that collaborative transportation management is bigger than any single process for eliminating inefficiencies, such as cooperative efforts between shippers and carriers to build continuous moves. "The continuous move issue has gotten a lot of press," he says, "but CTM needs to be viewed holistically. It's about identifying and eliminating all inefficient transportation processes among all the parties involved, so we now are asking, 'What and where are those inefficiencies?'"

One clearly is the time drivers spend waiting at shipper and receiver locations, which was found in a 1999 study to average 33.5 hours per week for dry vans. With changes in the hours-of-service rules for drivers coming in January 2004, it is essential that "we get our hands around this," Sutherland says. "We simply have to minimize waiting time."

RedPrairie, a developer of transportation and other execution software based in Waukesha, Wis., recently introduced a collaborative product to help shippers better deal with this issue by optimizing the scheduling of dock appointments. "Our dock-door appointment tool understands facility operations and constraints and optimizes in a way that levels out the work load for the facility," says Erv Bluemner, product manager. Carriers are included via an online portal, through which they can request an appointment time. The system is designed to respond with a time that will result in the shortest wait period and still meet both parties' requirements, Bluemner says. This product was developed at the specific request of a large customer and is now being rolled out generally.

An End to Invoices
Another area of inefficiency is in the settlement process, says Bill Pritz, vice president of transportation solutions at Logility, a supply-chain software vendor based in Atlanta. The traditional way this has been done involves the carrier sending a freight bill, the shipper comparing the amount billed with information in its system and, if there is a discrepancy, paying a different amount. The carrier then sends a balance due notice, which the shipper must process, and on and on. "That is a big waste of time and money," says Pritz. Some shippers and carriers have agreed to do away with bills, letting the shipper's TMS rate the shipment and pay automatically. "But then the auditing burden falls on the carrier," which has probably already given a discount to eliminate some of the paperwork, says Pritz. "And the carrier then has the burden of auditing the shipment," he adds. "So the question was, what could collaboration do if the parties really sat down and talked about how to streamline this process."

One way would be for the shipper to send the carrier a spreadsheet every week of each shipment it rated that week. The carrier then could import that report into its internal system and compare it with a comparable report to find discrepancies. The carrier could click on these shipments on the shipper's report to see details -- what discount was used, what weight and cube was listed, whether it was a mileage rate or a contract rate and so on. If there was still disagreement, then the parties could talk and work it out, but the number of issues to deal with would be greatly reduced. "This avoids paper and it avoids bad blood," says Pritz. "CTM is really about bringing the carrier into the relationship so that things are not done just for the benefit of one party - the shipper."

Another big issue for carriers and for the CTM subcommittee is empty miles. In the truckload sector, 20 percent of trailer miles are empty, says Sutherland.

Building continuous tours is one way to reduce empty mileage. Another is to take control of and optimize inbound transportation, which traditionally has been controlled by suppliers and charged back to buyers.

Conversion of inbound freight terms from prepaid to collect requires collaboration among buyers, suppliers and carriers, says Sutherland. and is critical to enabling other key process initiatives that deliver CTM value. The ability to combine a view of both inbound and outbound freight movements enhances opportunities for enterprise-wide savings, he says.

Sutherland reports that Transplace customer AutoZone converted 77 percent of its inbound to freight collect. By combining that action with cross-dock consolidation, dock appointment scheduling and better communication with partners, it reduced LTL inbound shipments from 85 percent to less than 2 percent. As a result, average transit time dropped from seven days to one and a half days and transportation costs were reduced by more than 20 percent.

Because AutoZone had better visibility and confidence in deliveries, inventory costs also plummeted, dropping to half the previous level. "In addition, the integration of inbound and outbound logistics has enhanced supply-chain visibility and provided AutoZone with a 25 percent increase in utilization of their private fleet," says Sutherland.

Software developer G-Log, Shelton, Conn., similarly is helping companies manage their entire transportation network from a single central location, using the internet to communicate with carriers, 3PLs and other service providers. DuPont, for example, manages multiple logistics service providers and hundreds of carriers and forwarders with just one instance of the G-Log's GC3 software. This is possible because of an integrated technology platform that allows users to treat transportation as a single, unified, collaborative process, regardless of mode or geography or whether freight is inbound or outbound, says Mark Johnson, vice president of marketing at G-Log. It is the only software used by every business unit throughout DuPont's massive enterprise, he says.

"What we are starting to see is that companies are designing into their supply chains the flexibility needed to take advantage of this type of collaboration," he says. "The capability was there, but when you are dealing with a static process, the reaction among users is, 'so what?' You have to have the flexibility to respond and react to the information you get from collaboration in order to derive value."

Sharing Forecasts
Deriving value is made easier if carriers are included in the process early on, at the forecast stage, so that they get an advance view of customers' upcoming capacity requirements. This sharing of forecasts is, in fact, one of the fundamentals of collaborative transportation management.

"Traditional transportation management has a planning aspect, but it is operational planning, dealing with real orders that have a due date and that typically leave little time for optimized planning," says Pritz. CTM starts earlier, with the retailer and manufacturer or supplier agreeing, in some form, on a forecast and then sharing that forecast with the carrier. This can be done through a CPFR process, but not necessarily. "It might be some other forecasting process or even a sales and operations planning process," he says.

Once the carrier has an order forecast, which typically has been consolidated into shipments, it can bring that information into its planning or optimization application says Pritz. "This is not what will actually be shipped, but it gives everybody a heads-up, because we do have promotions and seasonality and new products." This early view, he says, allows the carrier to anticipate with much greater accuracy how much equipment a customer will require during a given period. "Then they can better prepare for that, rather than getting in the normal world down to a day or two before and realizing there was an increase in requirements and having to scramble and oftentimes not be able to meet the business need."

Russell, at Penn State, notes that this advance view has a "trickle down" effect. Carriers typically do whatever is necessary to meet the requirements of major customers like Wal-Mart, she says, but that sometimes comes at the expense of other customers. "One of the CTM pilot project findings was that J.B. Hunt was able to satisfy Wal-Mart's needs with less running around and also without impacting other customers," she says.

How much advance notice is needed is an issue still being debated. Sutherland says that Transplace works with a number of retailers who are able to give them three to five days advance notice of actual shipments. "We have in our system the cube, weight, stackability, mixability etc. of the freight, and that gives us time to see opportunities to build truckloads ... in effect, to turn random capability into dedicated capability. If you don't have that time you can't optimize effectively."

The challenge for the CTM committee is determining the added value between three to five days and longer horizons, he says. "We know there is a curve, but we need more information. If you get 90 percent of the value with only three to five days, then do you really need more?"

If not, then CTM may be implementable without a CPFR-type process. "If a company has exposure to CPFR, then certainly they have the culture or mindset to implement Collaborative Transportation Management," says Sutherland, "but I don't think CTM is hard-wired to CPFR." That is one of the reasons Sutherland and his subcommittee are "trying to understand if we should be a standalone committee" of VICS, coordinating with both the Logistics and CPFR Committees. "We are pretty darn big all on our own," Sutherland says.

On the CTM continuum (see chart), the biggest value comes when a third-party is involved that can blend the freight networks of multiple shippers. "Even if you are a large company, you are limited by the realities of your network," says Sutherland. "There may be reasons for keeping transportation management in-house, but think of the benefits if you could combine your freight with that of other retailers and manufacturers that use the same equipment and have compatible freight. This is what we call consortium collaboration, and is at the top of the chart."

A version of this is what Nistevo, Eden Prairie, Minn., is doing with companies like Land O' Lakes, General Mills and Georgia Pacific. "The big news is that this works," says Rick Parker, executive vice president. "We are now moving more than 3million shipments a year and our customers are saving millions of dollars."

Lane Density
Nistevo facilitates communications among its network members and helps identify routes that can link up to form continuous tours. By offering these guaranteed full loads to a carrier, Nistevo is able to get better rates and the carrier gets better use of its equipment. Nistevo also manages the day-to-day execution.

"Clients allow us to take their lanes and put them through our specialized optimization engine to identify potentially good routes," says Parker. An ideal collaborative tour is around 2,800 miles or a one-week run, has six to 11 legs and involves two to four companies, he says. The shippers jointly agree on the tours and Nistevo sets up the route in its system and negotiates with an approved carrier. Each company knows its own rate, but not that of any other participant. The key to this plan is density of freight on select lanes. "You have to have a lot of volume on the network," says Parker.

Using networks to enable collaborative activities also makes sense and will be part of CTM in the future, says Irista's Metcalfe. "Our focus is very heavily on defining business rules and managing how physical execution takes place. We would like to see other providers who will push the data out to all the trading partners, maybe a hosted service of some kind, because it doesn't make sense for every provider to make all those connections - that is a massive undertaking. So we see a hybrid scenario where we will focus on the execution piece that we do well and partner with others who have the collaboration applications."

Schneider National, Green Bay, Wis., is acting as both a logistics and information third-party in the automotive service parts industry, where it has a dominant role. When automakers like General Motors send purchase orders to Tier I suppliers - an order to purchase 2,500 fenders from Delphi, for example - Schneider receives a copy of the PO and posts it to a web site where it is available to smaller suppliers further down the chain who might be impacted. Product manager Pravin Nair says more than 6,000 suppliers are active on the network.

Transportation procurement is another important piece that, with a CTM approach, also leads to more continuous moves and higher equipment utilization. The bidding and tendering application offered by Manugistics, for example, enables invited, pre-qualified carriers to view the lanes a shipper is putting out for bid online, says Chris Verheuvel, vice president of solutions consulting at Manugistics, Rockville, Md. The lane information typically looks out 12 to 18 months and is based on historical and forecasted data. "There is a pre-bid time where carriers can analyze lanes we've posted - volumes, per week, per month, etc. - and query the system to look more closely at lanes they want to bid on. Then we run the bid, typically over a period of three days." This gives the carriers enough time and information to put together continuous movements where they make the best use of their resources, Verheuvel says. "They can build package bids - I will give you this rate over here if you give me a minimum of so many shipments over there - that kind of thing."

There are a lot of individual examples of collaboration out there, Sutherland says, and the challenge for the subcommittee is to document them. "We need to capture that information and we have people working on that - going out and documenting the metrics and processes. We have the skeleton, and now we are putting meat on the bones."

Collaborative Transportation Management (CTM) sounds suspiciously like one of those "buzz" phrases that marketing MBAs dream up to infuse new life into aging concepts. Isn't transportation by its nature collaborative? And hasn't transportation management long been a business staple?

The answer to both those questions is "yes," but adding the "C" word to transportation management is not just another exercise in hyperbole - at least not among those who take it seriously. And it is taken very seriously by folks involved with the Voluntary Inter-industry Commerce Standards association (VICS), the group that promulgates standards for implementing Collaborative Planning, Forecasting and Replenishment (CPFR), as well as other processes impacting the flow of product and information through the retail supply chain.

Transportation was recognized as the "missing link" in the CPFR process in 2000. "You can't have replenishment without transportation," says Dawn Russell, assistant professor of business logistics at Pennsylvania State University, who was involved in early VICS research on CTM. "You must physically move the goods and transportation planning needs to be looked at as part of the order."

"The transportation process and the fulfillment process really are the culmination of every business relationship a company has," adds Douglas Metcalfe, director of transportation solutions at Irista, a supply-chain execution vendor based in Milwaukee, Wis. "Everything a company does is about getting products to the customer, so it is a very important part of the process."

VICS established a transportation subcommittee, first as an adjunct to the Logistics Committee and later as a subcommittee of the CPFR Committee. A pilot program involving Wal-Mart, Procter & Gamble and J.B. Hunt Transportation, while limited, demonstrated that that there is value to be gained from including carriers in the collaborative loop. But then the subcommittee "stagnated for two years," according to its new chairman, Joel Sutherland, senior vice president of logistics provider Transplace, Plano, Texas. Sutherland agreed to take over leadership of the subcommittee earlier this year and, by all accounts, has re-energized the group. Partial evidence of this was a separate track on Collaborative Transportation Management at this year's Council of Logistics Management conference - a group that Sutherland previously led as president.

"We have put together an objective for CTM," Sutherland says, adding that the subcommittee also is defining a CTM process framework. He stresses that collaborative transportation management is bigger than any single process for eliminating inefficiencies, such as cooperative efforts between shippers and carriers to build continuous moves. "The continuous move issue has gotten a lot of press," he says, "but CTM needs to be viewed holistically. It's about identifying and eliminating all inefficient transportation processes among all the parties involved, so we now are asking, 'What and where are those inefficiencies?'"

One clearly is the time drivers spend waiting at shipper and receiver locations, which was found in a 1999 study to average 33.5 hours per week for dry vans. With changes in the hours-of-service rules for drivers coming in January 2004, it is essential that "we get our hands around this," Sutherland says. "We simply have to minimize waiting time."

RedPrairie, a developer of transportation and other execution software based in Waukesha, Wis., recently introduced a collaborative product to help shippers better deal with this issue by optimizing the scheduling of dock appointments. "Our dock-door appointment tool understands facility operations and constraints and optimizes in a way that levels out the work load for the facility," says Erv Bluemner, product manager. Carriers are included via an online portal, through which they can request an appointment time. The system is designed to respond with a time that will result in the shortest wait period and still meet both parties' requirements, Bluemner says. This product was developed at the specific request of a large customer and is now being rolled out generally.

An End to Invoices
Another area of inefficiency is in the settlement process, says Bill Pritz, vice president of transportation solutions at Logility, a supply-chain software vendor based in Atlanta. The traditional way this has been done involves the carrier sending a freight bill, the shipper comparing the amount billed with information in its system and, if there is a discrepancy, paying a different amount. The carrier then sends a balance due notice, which the shipper must process, and on and on. "That is a big waste of time and money," says Pritz. Some shippers and carriers have agreed to do away with bills, letting the shipper's TMS rate the shipment and pay automatically. "But then the auditing burden falls on the carrier," which has probably already given a discount to eliminate some of the paperwork, says Pritz. "And the carrier then has the burden of auditing the shipment," he adds. "So the question was, what could collaboration do if the parties really sat down and talked about how to streamline this process."

One way would be for the shipper to send the carrier a spreadsheet every week of each shipment it rated that week. The carrier then could import that report into its internal system and compare it with a comparable report to find discrepancies. The carrier could click on these shipments on the shipper's report to see details -- what discount was used, what weight and cube was listed, whether it was a mileage rate or a contract rate and so on. If there was still disagreement, then the parties could talk and work it out, but the number of issues to deal with would be greatly reduced. "This avoids paper and it avoids bad blood," says Pritz. "CTM is really about bringing the carrier into the relationship so that things are not done just for the benefit of one party - the shipper."

Another big issue for carriers and for the CTM subcommittee is empty miles. In the truckload sector, 20 percent of trailer miles are empty, says Sutherland.

Building continuous tours is one way to reduce empty mileage. Another is to take control of and optimize inbound transportation, which traditionally has been controlled by suppliers and charged back to buyers.

Conversion of inbound freight terms from prepaid to collect requires collaboration among buyers, suppliers and carriers, says Sutherland. and is critical to enabling other key process initiatives that deliver CTM value. The ability to combine a view of both inbound and outbound freight movements enhances opportunities for enterprise-wide savings, he says.

Sutherland reports that Transplace customer AutoZone converted 77 percent of its inbound to freight collect. By combining that action with cross-dock consolidation, dock appointment scheduling and better communication with partners, it reduced LTL inbound shipments from 85 percent to less than 2 percent. As a result, average transit time dropped from seven days to one and a half days and transportation costs were reduced by more than 20 percent.

Because AutoZone had better visibility and confidence in deliveries, inventory costs also plummeted, dropping to half the previous level. "In addition, the integration of inbound and outbound logistics has enhanced supply-chain visibility and provided AutoZone with a 25 percent increase in utilization of their private fleet," says Sutherland.

Software developer G-Log, Shelton, Conn., similarly is helping companies manage their entire transportation network from a single central location, using the internet to communicate with carriers, 3PLs and other service providers. DuPont, for example, manages multiple logistics service providers and hundreds of carriers and forwarders with just one instance of the G-Log's GC3 software. This is possible because of an integrated technology platform that allows users to treat transportation as a single, unified, collaborative process, regardless of mode or geography or whether freight is inbound or outbound, says Mark Johnson, vice president of marketing at G-Log. It is the only software used by every business unit throughout DuPont's massive enterprise, he says.

"What we are starting to see is that companies are designing into their supply chains the flexibility needed to take advantage of this type of collaboration," he says. "The capability was there, but when you are dealing with a static process, the reaction among users is, 'so what?' You have to have the flexibility to respond and react to the information you get from collaboration in order to derive value."

Sharing Forecasts
Deriving value is made easier if carriers are included in the process early on, at the forecast stage, so that they get an advance view of customers' upcoming capacity requirements. This sharing of forecasts is, in fact, one of the fundamentals of collaborative transportation management.

"Traditional transportation management has a planning aspect, but it is operational planning, dealing with real orders that have a due date and that typically leave little time for optimized planning," says Pritz. CTM starts earlier, with the retailer and manufacturer or supplier agreeing, in some form, on a forecast and then sharing that forecast with the carrier. This can be done through a CPFR process, but not necessarily. "It might be some other forecasting process or even a sales and operations planning process," he says.

Once the carrier has an order forecast, which typically has been consolidated into shipments, it can bring that information into its planning or optimization application says Pritz. "This is not what will actually be shipped, but it gives everybody a heads-up, because we do have promotions and seasonality and new products." This early view, he says, allows the carrier to anticipate with much greater accuracy how much equipment a customer will require during a given period. "Then they can better prepare for that, rather than getting in the normal world down to a day or two before and realizing there was an increase in requirements and having to scramble and oftentimes not be able to meet the business need."

Russell, at Penn State, notes that this advance view has a "trickle down" effect. Carriers typically do whatever is necessary to meet the requirements of major customers like Wal-Mart, she says, but that sometimes comes at the expense of other customers. "One of the CTM pilot project findings was that J.B. Hunt was able to satisfy Wal-Mart's needs with less running around and also without impacting other customers," she says.

How much advance notice is needed is an issue still being debated. Sutherland says that Transplace works with a number of retailers who are able to give them three to five days advance notice of actual shipments. "We have in our system the cube, weight, stackability, mixability etc. of the freight, and that gives us time to see opportunities to build truckloads ... in effect, to turn random capability into dedicated capability. If you don't have that time you can't optimize effectively."

The challenge for the CTM committee is determining the added value between three to five days and longer horizons, he says. "We know there is a curve, but we need more information. If you get 90 percent of the value with only three to five days, then do you really need more?"

If not, then CTM may be implementable without a CPFR-type process. "If a company has exposure to CPFR, then certainly they have the culture or mindset to implement Collaborative Transportation Management," says Sutherland, "but I don't think CTM is hard-wired to CPFR." That is one of the reasons Sutherland and his subcommittee are "trying to understand if we should be a standalone committee" of VICS, coordinating with both the Logistics and CPFR Committees. "We are pretty darn big all on our own," Sutherland says.

On the CTM continuum (see chart), the biggest value comes when a third-party is involved that can blend the freight networks of multiple shippers. "Even if you are a large company, you are limited by the realities of your network," says Sutherland. "There may be reasons for keeping transportation management in-house, but think of the benefits if you could combine your freight with that of other retailers and manufacturers that use the same equipment and have compatible freight. This is what we call consortium collaboration, and is at the top of the chart."

A version of this is what Nistevo, Eden Prairie, Minn., is doing with companies like Land O' Lakes, General Mills and Georgia Pacific. "The big news is that this works," says Rick Parker, executive vice president. "We are now moving more than 3million shipments a year and our customers are saving millions of dollars."

Lane Density
Nistevo facilitates communications among its network members and helps identify routes that can link up to form continuous tours. By offering these guaranteed full loads to a carrier, Nistevo is able to get better rates and the carrier gets better use of its equipment. Nistevo also manages the day-to-day execution.

"Clients allow us to take their lanes and put them through our specialized optimization engine to identify potentially good routes," says Parker. An ideal collaborative tour is around 2,800 miles or a one-week run, has six to 11 legs and involves two to four companies, he says. The shippers jointly agree on the tours and Nistevo sets up the route in its system and negotiates with an approved carrier. Each company knows its own rate, but not that of any other participant. The key to this plan is density of freight on select lanes. "You have to have a lot of volume on the network," says Parker.

Using networks to enable collaborative activities also makes sense and will be part of CTM in the future, says Irista's Metcalfe. "Our focus is very heavily on defining business rules and managing how physical execution takes place. We would like to see other providers who will push the data out to all the trading partners, maybe a hosted service of some kind, because it doesn't make sense for every provider to make all those connections - that is a massive undertaking. So we see a hybrid scenario where we will focus on the execution piece that we do well and partner with others who have the collaboration applications."

Schneider National, Green Bay, Wis., is acting as both a logistics and information third-party in the automotive service parts industry, where it has a dominant role. When automakers like General Motors send purchase orders to Tier I suppliers - an order to purchase 2,500 fenders from Delphi, for example - Schneider receives a copy of the PO and posts it to a web site where it is available to smaller suppliers further down the chain who might be impacted. Product manager Pravin Nair says more than 6,000 suppliers are active on the network.

Transportation procurement is another important piece that, with a CTM approach, also leads to more continuous moves and higher equipment utilization. The bidding and tendering application offered by Manugistics, for example, enables invited, pre-qualified carriers to view the lanes a shipper is putting out for bid online, says Chris Verheuvel, vice president of solutions consulting at Manugistics, Rockville, Md. The lane information typically looks out 12 to 18 months and is based on historical and forecasted data. "There is a pre-bid time where carriers can analyze lanes we've posted - volumes, per week, per month, etc. - and query the system to look more closely at lanes they want to bid on. Then we run the bid, typically over a period of three days." This gives the carriers enough time and information to put together continuous movements where they make the best use of their resources, Verheuvel says. "They can build package bids - I will give you this rate over here if you give me a minimum of so many shipments over there - that kind of thing."

There are a lot of individual examples of collaboration out there, Sutherland says, and the challenge for the subcommittee is to document them. "We need to capture that information and we have people working on that - going out and documenting the metrics and processes. We have the skeleton, and now we are putting meat on the bones."