Executive Briefings

To Gain Competitive Advantage, 3PLs Tackle the Challenge of IT

Logistics service providers are split on the question of whether to buy software off the shelf, or build it internally. To be competitive, they should decide quickly-and dump their outmoded equipment.

By definition, logistics service providers (LSPs) are on the cutting edge of the outsourcing movement. But when it comes to information technology, they're not all quite so advanced.

"LSPs are at the same point manufacturers were a decade ago-burdened with proprietary, outdated and non-scalable systems," says Adrian Gonzalez, director of ARC Advisory Group's Logistics Executive Council, in a recent report. Mid-sized companies are particular laggards on the IT front, he says.

One might think that LSPs, also known as third-party logistics providers (3PLs), would have state-of-the-art systems for managing their clients' freight. In the world of logistics, information is just as important as physical goods. But LSPs face some unique problems, says Gonzalez. Many have grown through acquisitions, and are saddled with multiple, incompatible systems. Their legacy software can't grow with the business, as manufacturers, distributors and retailers flock to the outsourcing model. Moreover, big LSP customers often require the use of their own systems for transportation, warehousing and order fulfillment. That prevents the vendor from creating a coherent IT environment that can serve all its customers. As a result, Gonzalez says, most companies rate the IT capabilities of LSPs as "average at best."

Things are changing, Gonzalez says. LSPs are waking up to the need for more sophisticated IT offerings. In years past, they had more work than they could handle. New business arrived through word of mouth, customers flooded the market with requests for proposals, and there was little need for advertising. More recently, as the business has matured, LSPs have caught their breath and begun thinking about high-profile ways to boost profitability. And that means acquiring IT systems that are scalable, flexible and highly efficient.

Another reason for the shortfall in IT capabilities was the lack of suitable products from outside software vendors. Finding no systems that could manage logistics in a complex, multi-client environment, LSPs were forced to build their own. But that, too, is being corrected. Today, independent software vendors offer a wide range of warehousing, transportation, and trade-management systems for third parties. Some treat the market as a vertical specialty, alongside high-tech, consumer packaged goods, discrete manufacturing and the like. Their message to LSPs: IT prowess is both a necessity for doing business, and a weapon for achieving competitive advantage.

Ozburn-Hessey Logistics, based in Nashville, Tenn., recently set out to acquire a "tier one" warehouse management system, says chief information officer Bob Spieth. Before that, it picked up a modern transportation management system. And next on the shopping list is software that will create a "dashboard" for customer management, through the establishment of key performance indicators (KPIs).                                   
Ozburn-Hessey obtained its WMS through a contract with software developer Zethcon Corp. The vendor built what amounted to a proprietary system that met the LSP's need for flexibility and customer responsiveness, Spieth says. The tool was necessary because of Ozburn-Hessey's heavy involvement in warehousing on behalf of multiple industries. Currently the company operates 93 warehouses, totaling some 19 million square feet, in a mixture of dedicated and multi-user facilities.

Ozburn-Hessey took a different approach to acquiring a TMS. It chose an off-the-shelf product from G-Log, whose Web-based software meshed well with the company's varied client base and allowed it to manage approximately 300 truckload and 20 less-than-truckload carriers. The system includes supply chain event management, alerting users to shipments that are off schedule, Spieth says.

For the dashboard and KPI system, Ozburn-Hessey has returned to the do-it-yourself approach, building the software atop its WMS and TMS applications. The basic technology, which Spieth describes as relatively straightforward, came from a company that Ozburn-Hessey acquired. The system should be up and running with its first three customers by the end of this summer, he says.

The Visible Supply Chain
Schneider Logistics, headquartered in Green Bay, Wis., places a premium on achieving visibility throughout the supply chain, says Vava Dimond, vice president of product management for parent company Schneider National Inc. Full knowledge of shipment status allows companies to lower their logistics costs and reduce inventory. "It's about putting all of the pieces together," she says. "We're continually working on how to translate information into something that makes sense to the customer."

Most of Schneider's software is homegrown. That's not unusual for a provider whose parent is the nation's largest truckload carrier. Affiliated with a company owning substantial transportation assets, the logistics arm is well acquainted with the ins and outs of shipment tracking. And since it operates no warehouses, Schneider has no need for a full-fledged WMS of any kind.

Much of the company's technology, especially the TMS package, is necessary to doing business as a third party, says Dimond. But other aspects of IT can offer strong competitive advantage. Schneider's Collaborative Visibility Network (CVN), built upon the company's SUMIT suite of supply chain execution software, manages logistics transactions from supplier to final delivery. It includes shipment rating, optimization, transportation and supplier management.

In the automotive sector, for example, Schneider is alerted the moment a customer asks its supplier for a specific order. The LSP can immediately respond with the appropriate equipment, maximizing the use of truckload moves for multiple orders to lower freight costs. Through the use of advance ship notices (ASNs), the receiver knows exactly when the truck was closed at point of origin, and when it is scheduled to arrive.

Schneider deployed its first version of the software in April 2001, after an extensive search failed to turn up any outside vendors that could do the job. Since then, it has introduced multiple updates, and has even had requests to provide its system as a standalone piece of software, attached to other TMS applications.

Dimond says the company is constantly reviewing its options. Currently it is discussing whether independent software vendors might provide certain capabilities, especially in the area of international transportation management. It hopes to make a decision within 12 to 18 months.

The IT programs of Ryder Logistics, Miami, are guided by a supply chain strategy group, made up of representatives from both the business and technology sides of the house. They decide which systems get funded, eliminated or altered, says Kevin Bott, vice president of supply chain solutions technology services.

Ryder already has the requisite systems for transportation, warehousing and supply chain event management, much of it developed in-house. Recently the company built the Transportation Intelligence System, a Web-based visibility, reporting and data-warehousing tool for shipment planning and procurement. Through TIS, customers can obtain information on all of their shipment moves being handled by Ryder.

This year, Ryder is developing a corresponding data tool for warehousing activities. And it's in the second phase of a project to deploy radio frequency identification technology. The first involved creation of a basic library of all applicable software and hardware. In the next stage, Ryder will integrate RFID into its WMS processes.

Ryder built its Logistics Management Suite (LMS), covering inbound materials management, internally. The tool allows the vendor to synchronize shipments from multiple suppliers for just-in-time delivery to customers. It performs optimization analysis and determines how frequently to visit various suppliers. And it maintains a master database on the physical attributes of all production parts, in order to optimize loading, sequencing and scheduling to the plant.

Completing the circuit is Ryder's homegrown system for managing outbound transportation, serving some of the nation's largest retailers. It features software for order processing and carrier management, as well as the supply chain event management tool known as Ryder Online.

Ryder Goes Outside
Ryder doesn't rule out the use of outside software providers. Its planning and optimization tool comes from i2 Technologies Inc. And for warehouse management, Ryder relies on two additional independent vendors: Manhattan Associates, whose PkMS software manages the operations of large, highly mechanized facilities, and Optum, Inc., whose V3 system is used for all other warehouse locations. (Optum picked up V3 through an acquisition, and was itself acquired by Click Commerce earlier this year.)

Ryder will next look to implementing software to manage shipments on a global basis, to ensure that its various locations around the world are fully integrated. The resulting system must be able to handle multiple languages, including the complexities of Chinese writing, Bott says.

Technology is only one part of the picture, he says. Ryder works to ensure that people and processes are also in synch. "The technology has to work right," he says. "Otherwise it's an expensive waste of money."

Caterpillar Logistics Services has had to scramble to acquire the systems needed to accommodate annual growth of around 10 percent. Today the logistics division of Peoria, Ill.-based Caterpillar Inc. spends more than $1bn on freight and handles around 1.5 million shipments a year. Roughly two thirds of its sales are generated by Caterpillar itself, the big maker of construction and mining equipment.

Caterpillar Logistics needed to cope with record shipment volumes as well as shortages of key commodities such as steel, according to Mark Voudrie, strategy integration manager. Seeking to implement a single instance of TMS on a global basis, the logistics arm was overwhelmed by data from a multitude of prospective software providers. It ended up choosing i2 because of the vendor's willingness to tackle network modeling, negotiations and execution. "We were asking for things that weren't proven on a widescale [basis]," Voudrie said at i2's recent Planet 2005 user conference in Phoenix, Ariz.

The company quickly learned that it was unrealistic to expect its entire $1bn-plus freight program to be managed on a single system. Caterpillar's freight business was too varied in terms of customers, locations and modes to be squeezed into one TMS, Voudrie said. The company has nevertheless launched an ambitious IT project, acquiring modeling, bidding, transportation management and optimization tools from i2. It plans to implement new systems at 18 client facilities in 18 months.

All of that technology adds up to reduced spending on transportation and a means of attracting new business. i2's Transportation Modeler, said Voudrie, "is our most effective sales tool."

Software Vendors' View
For LSPs seeking new systems today, the primary concern is flexibility, says Chris Heim, president of HighJump Software, Eden Prairie, Minn. In addition, he says, vendors need to give their customers visibility into inventory, shipments in transit and order status. From an LSP perspective, that means ensuring that information is easily available to its owner, yet secure from all other eyes.

A modern WMS "is almost table stakes today," says Heim. Warehouse space is a commodity, but third parties can add value in the form of ancillary services such as kitting and packaging, and new technology such as RFID. Much of the responsibility for RFID compliance, under mandates dictated by large retailers such as Wal-Mart Stores and Target Stores, Inc., is falling on the shoulders of LSPs, he says. Unlike traditional shippers, a third party can spread the cost of adopting RFID technology across multiple customers.

LSPs have tended to craft a large portion of their IT programs internally, Heim says. In the past three to four years, however, he has seen a move toward packaged software. Fulfillment Systems Inc., an LSP focused on the direct-to-consumer market, recently purchased HighJump's Supply Chain Advantage suite to ease its transition to business-to-business fulfillment. FSI drew on HighJump's WMS and management visibility applications, to help its customers manage inventory and point-of-sale programs.

Supply Chain Advantage integrates with FSI's order-entry system, allowing customers to place orders and monitor inventory online. The system supports the movement of product on a just-in-time basis, Heim says.

How Mature Is Your IT Program?
Information technology is one of six success factors developed by ARC Advisory Group to determine the maturity and performance levels of logistics service providers. But what constitutes an "innovator" among LSPs today, as opposed to a mere "leader," "performer" or even "laggard"? In a recent report on LSPs and IT development, Adrian Gonzalez, director of ARC's Logistics Executive Council, cites eight characteristics to aid in benchmarking and selecting the right LSP. According to Gonzalez, the true innovator:

1. Has a well defined and documented IT strategy and roadmap;

2. Utilizes open standards and is migrating toward service-based architectures;

3. Has highly integrated systems, with mirrored data centers and a redundant, secure infrastructure;

4. Has rationalized the number of systems used company-wide;

5. Has ensured that more than half its IT investments are innovation-related;

6. Can introduce process enhancements or new services in a matter of weeks;

7. Provides a variety of Web-based client collaboration tools, including visibility to global orders, shipments and inventory; and

8. Can demonstrate that more than 98 percent of its data is timely, accurate and complete.

Other success factors in ARC's LSP Maturity and Performance Model: service diversification, client diversification, operational performance, financial performance and brand management.


Any warehousing system designed for 3PLs must be able to identify the ownership of materials in a multi-client facility, says Tom Kozenski, vice president of product marketing with RedPrairie Corp., headquartered in Waukesha, Wis. Each client must be matched with its corresponding inventory, a job that RedPrairie's WMS can fulfill at the pallet, barcode and case level.

LSPs require a similar level of detail for billing. They need to relate cost to individual clients based on such measures as pallets received, cartons labeled and pieces picked. The WMS figures the proper amounts, creates invoices and submits the data to the client's financial system.

It must also account for the myriad ways in which LSPs invoice their customers. "This is one of the more challenging areas for software developers," says Kozenski. "The billing system has to be highly configurable."

On the transportation side, the LSP's software must be able to calculate
freight charges for each client. That seemingly simple exercise can get complicated when a single trailer carries the freight of multiple shippers. What's more, LSPs tend to vary the amount of markup over base cost, so that one trailer can generate a variety of formulas for assessing final prices-all of which a TMS must be able to manage.

When shopping for software, LSPs value configurability, ease of deployment and low cost, says Kozenski. "They don't want to come back to the vendor every time they have a new customer." A good system will allow the vendor to build interfaces between new clients and the existing software.

As for the question of internal development versus acquiring outside systems, "the conversation has died down to virtually nothing," Kozenski claims. With all of the requirements for technology and compliance confronting LSPs today, "why would anyone want to build something internally when you can get it off the shelf?"

Your System or Mine?
The debate continues over whether an LSP should deploy its own logistics software or utilize that of its major clients. Ronald Riggin, chief technology officer of WMS and business intelligence vendor MARC Global, in Atlanta, cites the case of a major pharmaceutical company that imposed its system on an LSP partner. Many companies, he says, believe LSPs have not done a good job of providing consistent performance data to their customers. They mandate the use of their own applications in order to achieve better visibility of shipments and inventory.

For their part, LSPs don't always want their clients to know about a little hiccup in the supply chain, especially if the shipment ends up arriving on time. But both sides can be satisfied by a good event-management system, coupled with business intelligence, Riggin says.

A good supply chain execution suite, he says, consists of three layers. The first involves the ability to execute basic transactions in warehousing and transportation, and is easily fulfilled by LSPs. The second, an optimization engine that accounts for multiple systems so that one process isn't optimized at the expense of another, is more problematic for individual shippers. In the past, says Riggin, corporate silos have made it difficult to view the supply chain from a high-level perspective. LSPs, in serving multiple clients, are in a better position to understand the need for systems integration.

LSPs are less advanced in providing the third layer, business intelligence. The key, says Riggin, lies in knowing what's happening in the supply chain at all times, and being able to avert any potential disruptions.

One of the biggest challenges faced by LSPs today is the increasingly global nature of supply chains, says Eric Nilsson, senior director of solutions management with Chicago-based SSA Global Technologies. Even big third parties with international scope have tended to adopt disparate software, depending on the needs of specific markets. SSA offers a single system to manage LSP activities in multiple locations around the world.

SSA's larger customers are looking to the vendor for network design and optimization tools, providing a high-level view of their entire operations. The result is better planning system-wide, says Wilson Rothschild, SSA solutions marketing manager. Providers in emerging markets, meanwhile, tend to be more asset-based and are interested in basic tools such as WMS packages.

The globalization of supply chains, driven by a greater emphasis on offshore manufacturing in countries such as China, has boosted the need for more complex systems, says Nilsson. And that might spur LSPs to replace homegrown software with more comprehensive tools developed by outside experts.

Not so for Logistics Management Solutions, the St. Louis, Mo.-based LSP. It has continued to develop its own IT systems, based on technology acquired from the software vendor Insight some seven years ago, says Tracy Meetre, director of technology solutions and integration. LMS touts its ability to perform detailed load control on customer shipments, ensuring that goods move at the lowest possible cost.

LMS turned again to its own staff to develop a state-of-the-art TMS. Independently created systems were too focused on single clients, Meetre says, and were difficult to configure to LSP needs. "We wanted a low-cost, high-speed implementation," she says. "We weren't going to get there with those models."

Today, LMS deploys the do-it-yourself system with major shippers, including some of the world's largest chemical companies. One big selling point of the software was its ability to perform continuous truckload moves, Meetre says.

By maintaining complete control of software code, LMS doesn't have to worry about rights and licenses, she says. And it can react more quickly to changes in the marketplace. Still, the vendor remains flexible in its approach to IT. It is considering the acquisition of a WMS, but probably won't develop the software internally. "That market's a little bit more mature than some of the TMS technology," Meetre says.

Regardless of where they acquire software, LSPs large and small are working steadily toward improving their IT offerings. Many operate on extremely thin margins, says Gonzalez, "but there's a recognition that, unless they invest, they're not going to be competitive."

By definition, logistics service providers (LSPs) are on the cutting edge of the outsourcing movement. But when it comes to information technology, they're not all quite so advanced.

"LSPs are at the same point manufacturers were a decade ago-burdened with proprietary, outdated and non-scalable systems," says Adrian Gonzalez, director of ARC Advisory Group's Logistics Executive Council, in a recent report. Mid-sized companies are particular laggards on the IT front, he says.

One might think that LSPs, also known as third-party logistics providers (3PLs), would have state-of-the-art systems for managing their clients' freight. In the world of logistics, information is just as important as physical goods. But LSPs face some unique problems, says Gonzalez. Many have grown through acquisitions, and are saddled with multiple, incompatible systems. Their legacy software can't grow with the business, as manufacturers, distributors and retailers flock to the outsourcing model. Moreover, big LSP customers often require the use of their own systems for transportation, warehousing and order fulfillment. That prevents the vendor from creating a coherent IT environment that can serve all its customers. As a result, Gonzalez says, most companies rate the IT capabilities of LSPs as "average at best."

Things are changing, Gonzalez says. LSPs are waking up to the need for more sophisticated IT offerings. In years past, they had more work than they could handle. New business arrived through word of mouth, customers flooded the market with requests for proposals, and there was little need for advertising. More recently, as the business has matured, LSPs have caught their breath and begun thinking about high-profile ways to boost profitability. And that means acquiring IT systems that are scalable, flexible and highly efficient.

Another reason for the shortfall in IT capabilities was the lack of suitable products from outside software vendors. Finding no systems that could manage logistics in a complex, multi-client environment, LSPs were forced to build their own. But that, too, is being corrected. Today, independent software vendors offer a wide range of warehousing, transportation, and trade-management systems for third parties. Some treat the market as a vertical specialty, alongside high-tech, consumer packaged goods, discrete manufacturing and the like. Their message to LSPs: IT prowess is both a necessity for doing business, and a weapon for achieving competitive advantage.

Ozburn-Hessey Logistics, based in Nashville, Tenn., recently set out to acquire a "tier one" warehouse management system, says chief information officer Bob Spieth. Before that, it picked up a modern transportation management system. And next on the shopping list is software that will create a "dashboard" for customer management, through the establishment of key performance indicators (KPIs).                                   
Ozburn-Hessey obtained its WMS through a contract with software developer Zethcon Corp. The vendor built what amounted to a proprietary system that met the LSP's need for flexibility and customer responsiveness, Spieth says. The tool was necessary because of Ozburn-Hessey's heavy involvement in warehousing on behalf of multiple industries. Currently the company operates 93 warehouses, totaling some 19 million square feet, in a mixture of dedicated and multi-user facilities.

Ozburn-Hessey took a different approach to acquiring a TMS. It chose an off-the-shelf product from G-Log, whose Web-based software meshed well with the company's varied client base and allowed it to manage approximately 300 truckload and 20 less-than-truckload carriers. The system includes supply chain event management, alerting users to shipments that are off schedule, Spieth says.

For the dashboard and KPI system, Ozburn-Hessey has returned to the do-it-yourself approach, building the software atop its WMS and TMS applications. The basic technology, which Spieth describes as relatively straightforward, came from a company that Ozburn-Hessey acquired. The system should be up and running with its first three customers by the end of this summer, he says.

The Visible Supply Chain
Schneider Logistics, headquartered in Green Bay, Wis., places a premium on achieving visibility throughout the supply chain, says Vava Dimond, vice president of product management for parent company Schneider National Inc. Full knowledge of shipment status allows companies to lower their logistics costs and reduce inventory. "It's about putting all of the pieces together," she says. "We're continually working on how to translate information into something that makes sense to the customer."

Most of Schneider's software is homegrown. That's not unusual for a provider whose parent is the nation's largest truckload carrier. Affiliated with a company owning substantial transportation assets, the logistics arm is well acquainted with the ins and outs of shipment tracking. And since it operates no warehouses, Schneider has no need for a full-fledged WMS of any kind.

Much of the company's technology, especially the TMS package, is necessary to doing business as a third party, says Dimond. But other aspects of IT can offer strong competitive advantage. Schneider's Collaborative Visibility Network (CVN), built upon the company's SUMIT suite of supply chain execution software, manages logistics transactions from supplier to final delivery. It includes shipment rating, optimization, transportation and supplier management.

In the automotive sector, for example, Schneider is alerted the moment a customer asks its supplier for a specific order. The LSP can immediately respond with the appropriate equipment, maximizing the use of truckload moves for multiple orders to lower freight costs. Through the use of advance ship notices (ASNs), the receiver knows exactly when the truck was closed at point of origin, and when it is scheduled to arrive.

Schneider deployed its first version of the software in April 2001, after an extensive search failed to turn up any outside vendors that could do the job. Since then, it has introduced multiple updates, and has even had requests to provide its system as a standalone piece of software, attached to other TMS applications.

Dimond says the company is constantly reviewing its options. Currently it is discussing whether independent software vendors might provide certain capabilities, especially in the area of international transportation management. It hopes to make a decision within 12 to 18 months.

The IT programs of Ryder Logistics, Miami, are guided by a supply chain strategy group, made up of representatives from both the business and technology sides of the house. They decide which systems get funded, eliminated or altered, says Kevin Bott, vice president of supply chain solutions technology services.

Ryder already has the requisite systems for transportation, warehousing and supply chain event management, much of it developed in-house. Recently the company built the Transportation Intelligence System, a Web-based visibility, reporting and data-warehousing tool for shipment planning and procurement. Through TIS, customers can obtain information on all of their shipment moves being handled by Ryder.

This year, Ryder is developing a corresponding data tool for warehousing activities. And it's in the second phase of a project to deploy radio frequency identification technology. The first involved creation of a basic library of all applicable software and hardware. In the next stage, Ryder will integrate RFID into its WMS processes.

Ryder built its Logistics Management Suite (LMS), covering inbound materials management, internally. The tool allows the vendor to synchronize shipments from multiple suppliers for just-in-time delivery to customers. It performs optimization analysis and determines how frequently to visit various suppliers. And it maintains a master database on the physical attributes of all production parts, in order to optimize loading, sequencing and scheduling to the plant.

Completing the circuit is Ryder's homegrown system for managing outbound transportation, serving some of the nation's largest retailers. It features software for order processing and carrier management, as well as the supply chain event management tool known as Ryder Online.

Ryder Goes Outside
Ryder doesn't rule out the use of outside software providers. Its planning and optimization tool comes from i2 Technologies Inc. And for warehouse management, Ryder relies on two additional independent vendors: Manhattan Associates, whose PkMS software manages the operations of large, highly mechanized facilities, and Optum, Inc., whose V3 system is used for all other warehouse locations. (Optum picked up V3 through an acquisition, and was itself acquired by Click Commerce earlier this year.)

Ryder will next look to implementing software to manage shipments on a global basis, to ensure that its various locations around the world are fully integrated. The resulting system must be able to handle multiple languages, including the complexities of Chinese writing, Bott says.

Technology is only one part of the picture, he says. Ryder works to ensure that people and processes are also in synch. "The technology has to work right," he says. "Otherwise it's an expensive waste of money."

Caterpillar Logistics Services has had to scramble to acquire the systems needed to accommodate annual growth of around 10 percent. Today the logistics division of Peoria, Ill.-based Caterpillar Inc. spends more than $1bn on freight and handles around 1.5 million shipments a year. Roughly two thirds of its sales are generated by Caterpillar itself, the big maker of construction and mining equipment.

Caterpillar Logistics needed to cope with record shipment volumes as well as shortages of key commodities such as steel, according to Mark Voudrie, strategy integration manager. Seeking to implement a single instance of TMS on a global basis, the logistics arm was overwhelmed by data from a multitude of prospective software providers. It ended up choosing i2 because of the vendor's willingness to tackle network modeling, negotiations and execution. "We were asking for things that weren't proven on a widescale [basis]," Voudrie said at i2's recent Planet 2005 user conference in Phoenix, Ariz.

The company quickly learned that it was unrealistic to expect its entire $1bn-plus freight program to be managed on a single system. Caterpillar's freight business was too varied in terms of customers, locations and modes to be squeezed into one TMS, Voudrie said. The company has nevertheless launched an ambitious IT project, acquiring modeling, bidding, transportation management and optimization tools from i2. It plans to implement new systems at 18 client facilities in 18 months.

All of that technology adds up to reduced spending on transportation and a means of attracting new business. i2's Transportation Modeler, said Voudrie, "is our most effective sales tool."

Software Vendors' View
For LSPs seeking new systems today, the primary concern is flexibility, says Chris Heim, president of HighJump Software, Eden Prairie, Minn. In addition, he says, vendors need to give their customers visibility into inventory, shipments in transit and order status. From an LSP perspective, that means ensuring that information is easily available to its owner, yet secure from all other eyes.

A modern WMS "is almost table stakes today," says Heim. Warehouse space is a commodity, but third parties can add value in the form of ancillary services such as kitting and packaging, and new technology such as RFID. Much of the responsibility for RFID compliance, under mandates dictated by large retailers such as Wal-Mart Stores and Target Stores, Inc., is falling on the shoulders of LSPs, he says. Unlike traditional shippers, a third party can spread the cost of adopting RFID technology across multiple customers.

LSPs have tended to craft a large portion of their IT programs internally, Heim says. In the past three to four years, however, he has seen a move toward packaged software. Fulfillment Systems Inc., an LSP focused on the direct-to-consumer market, recently purchased HighJump's Supply Chain Advantage suite to ease its transition to business-to-business fulfillment. FSI drew on HighJump's WMS and management visibility applications, to help its customers manage inventory and point-of-sale programs.

Supply Chain Advantage integrates with FSI's order-entry system, allowing customers to place orders and monitor inventory online. The system supports the movement of product on a just-in-time basis, Heim says.

How Mature Is Your IT Program?
Information technology is one of six success factors developed by ARC Advisory Group to determine the maturity and performance levels of logistics service providers. But what constitutes an "innovator" among LSPs today, as opposed to a mere "leader," "performer" or even "laggard"? In a recent report on LSPs and IT development, Adrian Gonzalez, director of ARC's Logistics Executive Council, cites eight characteristics to aid in benchmarking and selecting the right LSP. According to Gonzalez, the true innovator:

1. Has a well defined and documented IT strategy and roadmap;

2. Utilizes open standards and is migrating toward service-based architectures;

3. Has highly integrated systems, with mirrored data centers and a redundant, secure infrastructure;

4. Has rationalized the number of systems used company-wide;

5. Has ensured that more than half its IT investments are innovation-related;

6. Can introduce process enhancements or new services in a matter of weeks;

7. Provides a variety of Web-based client collaboration tools, including visibility to global orders, shipments and inventory; and

8. Can demonstrate that more than 98 percent of its data is timely, accurate and complete.

Other success factors in ARC's LSP Maturity and Performance Model: service diversification, client diversification, operational performance, financial performance and brand management.


Any warehousing system designed for 3PLs must be able to identify the ownership of materials in a multi-client facility, says Tom Kozenski, vice president of product marketing with RedPrairie Corp., headquartered in Waukesha, Wis. Each client must be matched with its corresponding inventory, a job that RedPrairie's WMS can fulfill at the pallet, barcode and case level.

LSPs require a similar level of detail for billing. They need to relate cost to individual clients based on such measures as pallets received, cartons labeled and pieces picked. The WMS figures the proper amounts, creates invoices and submits the data to the client's financial system.

It must also account for the myriad ways in which LSPs invoice their customers. "This is one of the more challenging areas for software developers," says Kozenski. "The billing system has to be highly configurable."

On the transportation side, the LSP's software must be able to calculate
freight charges for each client. That seemingly simple exercise can get complicated when a single trailer carries the freight of multiple shippers. What's more, LSPs tend to vary the amount of markup over base cost, so that one trailer can generate a variety of formulas for assessing final prices-all of which a TMS must be able to manage.

When shopping for software, LSPs value configurability, ease of deployment and low cost, says Kozenski. "They don't want to come back to the vendor every time they have a new customer." A good system will allow the vendor to build interfaces between new clients and the existing software.

As for the question of internal development versus acquiring outside systems, "the conversation has died down to virtually nothing," Kozenski claims. With all of the requirements for technology and compliance confronting LSPs today, "why would anyone want to build something internally when you can get it off the shelf?"

Your System or Mine?
The debate continues over whether an LSP should deploy its own logistics software or utilize that of its major clients. Ronald Riggin, chief technology officer of WMS and business intelligence vendor MARC Global, in Atlanta, cites the case of a major pharmaceutical company that imposed its system on an LSP partner. Many companies, he says, believe LSPs have not done a good job of providing consistent performance data to their customers. They mandate the use of their own applications in order to achieve better visibility of shipments and inventory.

For their part, LSPs don't always want their clients to know about a little hiccup in the supply chain, especially if the shipment ends up arriving on time. But both sides can be satisfied by a good event-management system, coupled with business intelligence, Riggin says.

A good supply chain execution suite, he says, consists of three layers. The first involves the ability to execute basic transactions in warehousing and transportation, and is easily fulfilled by LSPs. The second, an optimization engine that accounts for multiple systems so that one process isn't optimized at the expense of another, is more problematic for individual shippers. In the past, says Riggin, corporate silos have made it difficult to view the supply chain from a high-level perspective. LSPs, in serving multiple clients, are in a better position to understand the need for systems integration.

LSPs are less advanced in providing the third layer, business intelligence. The key, says Riggin, lies in knowing what's happening in the supply chain at all times, and being able to avert any potential disruptions.

One of the biggest challenges faced by LSPs today is the increasingly global nature of supply chains, says Eric Nilsson, senior director of solutions management with Chicago-based SSA Global Technologies. Even big third parties with international scope have tended to adopt disparate software, depending on the needs of specific markets. SSA offers a single system to manage LSP activities in multiple locations around the world.

SSA's larger customers are looking to the vendor for network design and optimization tools, providing a high-level view of their entire operations. The result is better planning system-wide, says Wilson Rothschild, SSA solutions marketing manager. Providers in emerging markets, meanwhile, tend to be more asset-based and are interested in basic tools such as WMS packages.

The globalization of supply chains, driven by a greater emphasis on offshore manufacturing in countries such as China, has boosted the need for more complex systems, says Nilsson. And that might spur LSPs to replace homegrown software with more comprehensive tools developed by outside experts.

Not so for Logistics Management Solutions, the St. Louis, Mo.-based LSP. It has continued to develop its own IT systems, based on technology acquired from the software vendor Insight some seven years ago, says Tracy Meetre, director of technology solutions and integration. LMS touts its ability to perform detailed load control on customer shipments, ensuring that goods move at the lowest possible cost.

LMS turned again to its own staff to develop a state-of-the-art TMS. Independently created systems were too focused on single clients, Meetre says, and were difficult to configure to LSP needs. "We wanted a low-cost, high-speed implementation," she says. "We weren't going to get there with those models."

Today, LMS deploys the do-it-yourself system with major shippers, including some of the world's largest chemical companies. One big selling point of the software was its ability to perform continuous truckload moves, Meetre says.

By maintaining complete control of software code, LMS doesn't have to worry about rights and licenses, she says. And it can react more quickly to changes in the marketplace. Still, the vendor remains flexible in its approach to IT. It is considering the acquisition of a WMS, but probably won't develop the software internally. "That market's a little bit more mature than some of the TMS technology," Meetre says.

Regardless of where they acquire software, LSPs large and small are working steadily toward improving their IT offerings. Many operate on extremely thin margins, says Gonzalez, "but there's a recognition that, unless they invest, they're not going to be competitive."