Eighteen months ago many logisticians welcomed online logistics exchanges as the next saving grace in supply-chain efficiency, a tool that would stimulate substantial savings in transportation expense - the largest single element of supply-chain cost - while boosting capacity utilization for carriers. Today, most companies avoid being labeled with the "exchange" moniker, and some businesses that are thought of as "players" in this space offer little or nothing in the way of load-matching services.
So what happened? "Last year organizations began to realize that the exchange model was not necessarily a liquidity model," says Mike Bittner of AMR Research, Boston. "There was a real question as to whether companies could survive with that model." Basic industry numbers help explain why. Approximately 80 percent of freight is moved under long-term contracts, which means that under the best of circumstances, only 20 percent of a shipper's freight would be available for bid in a public market at any given time. While that still is a significant amount in the aggregate, the market is very fragmented. Moreover, carriers dislike the exchange concept because it seems designed to disrupt customer relationships and appears to be one more way to beat down prices.
Recognizing these realities, many vendors have started to transform themselves from an exchange to more of a transportation platform and application service provider (ASP), says Bittner. "Providing a broader suite of applications is a much more viable model," he adds. "Companies are starting to gain traction because prospective customers see a better value proposition, not just an exchange service for spot buys."
"A year ago we had exchanges launching nearly every three days, largely because, in essence, a person could put a web wrap around an access data base, then launch as a transportation exchange," says Jim Ritchie, CEO of Transportation.com, Overland Park, Kan. "We had decided early on that although it was a lot more expensive to build a real-time collaborative exchange environment, that's what the customers wanted."
The plight of FreightWise illustrates the critical need for broadened service. A pure transportation exchange, FreightWise launched last year with the backing of the Burlington Northern Santa Fe Railroad, Canadian National and General Electric and was supported with Manugistics technology. Its purpose, says the Gartner Group, Stamford, Conn., was to "reduce costs through competitive pricing, better use of assets through load matching, and asset and inventory visibility."
The problem, says Gartner, is that "nobody came." FreightWise ceased operations last month, saying that it may re-launch later as a platform for private e-markets. If so, it will be following the direction of others in this market space. Indeed, with a few notable exceptions, the exchange concept seems not so much to have gone away as to have gone private.
Logistics.com is a good example. Exchange-type services are at the core of this Burlington, Mass.-based company, but it leverages the 80 percent of freight that moves under negotiated contracts. Once a shipper signs on, Logistics.com establishes connections with the shipper's facilities and with its core carriers. Customers then use Logistics.com's OptiManage suite of hosted software products to tender and manage their freight shipments.
Benefiting Both Sides
OptiManage includes three modules: Selector, Capacity Finder and Market Finder. Chris Caplice, vice president of product management, explains that these work in concert according to escalation rules set by the shipper. Selector determines the best carrier for the load and offers the shipment electronically. If the carrier refuses the offer or does not respond in a set amount of time, the shipment goes to Capacity Finder, which launches a private auction to other carriers on the shipper's approved list. If a bid is accepted, the deal closes automatically. If not, Market Finder kicks in, where carriers can employ dynamic pricing to bid on shipments.
"The idea is to give shippers access to carriers across the globe."
On a strategic level, Logistics.com offers OptiBid Network, software that enables shippers and carriers to collaboratively see how their networks meld when negotiating contracts. By identifying complementary areas of capacity and demand, contracts can be forged that benefit both sides. "We can help shippers lower their total transportation costs by coordinating and collaborating strategically with their carriers and setting up a long-term contract plan," says Caplice. "When you set up a plan that is good for both sides, refusal rates on shipments drop dramatically." The first fully installed customer of Logistics.com used to have two to three people working on closing tenders that were refused on first offering, he says. "Now 86 percent close within an hour, all automatically, and that is an average that includes the Christmas season. This means those two to three people can be working on something more productive." Other available services include tools for managing contract compliance and measuring carrier performance.
Logistics.com primarily is focused on domestic trucking, though it also can handle ocean and air cargo. Logistics.com launched in October 2000 with a major consumer-packaged goods manufacturer as its first customer. It is in the implementation stage at three others companies.
FreightMatrix, a subsidiary of i2 Technologies, Dallas, also concentrates on the 80 percent of freight movements that are pre-planned and pre-negotiated, though it can enable spot market transactions, using a shipper's pre-approved carrier list or any of the 550 carriers to which it is connected. "Our business model is to use i2 and other best-of-breed software to allow a shipper to create a privately branded marketplace that has the look and feel of that shipper, but in a shared hosted environment so they are paying a fraction of what they would pay if they tried to host the solution themselves," says Craig Clark, vice president. Shippers choose the services they want to use and pay on a transaction basis.
Clark emphasizes the breadth of FreightMatrix's solution and the depth of i2's financial backing. "We offer a proven software solution with demonstrated value and we have a plethora of different services with a common integrated workflow," he says. "A company would have to join several exchanges to duplicate the services they can get from us." These services include both planning and execution and cover virtually every aspect of logistics.
At the execution level, "what shippers typically want is automation," says Clark. "They want online tendering, online order acceptance, online track and trace at the SKU level, online bill of lading, and automatic rate and pay so they can eliminate invoicing, freight bill payment and audit."
Online bid collaboration is an optimization area with significant savings potential, says Clark. Shippers are able to give carriers visibility to traffic on all of their lanes simultaneously, so carriers can respond in a way that gives them the best efficiencies, which translates into lower rates. "Carriers can see where they can build continuous moves or obtain backhauls on lanes where they have equipment moving for other customers," says Clark. In the past, they had to bid on each lane separately and may only have gotten one of three legs, so they would end up with empty backhauls. "We can point to customers that have saved between 6 percent and 15 percent of their annual truckload spend using just this tool," he says.
FreightMatrix can handle all modes and has partnered with Capstan for international trade solutions, but it expects most early business to focus on domestic trucking. However, it is moving aggressively to establish a global network by setting up operations and/or partnering with vendors in other countries. "The idea is to give shippers access to carriers across the globe, so they can tender freight and get it moved under one technology solution anywhere in the world," says Clark.
FreightMatrix's first customer is Kmart. It expects to have 20 customers operating private logistics marketplaces over its network by the end of this year. The company also is targeting the 152 e-marketplaces powered by i2's TradeMatrix platform. A slimmed-down version of FreightMatrix is being offered to these customers as "additional services" on a pay-per-use basis.
Companies that still focus on the public aspect of their exchange operations also are conscious of the need to add broader services. NTE, Chicago, was long known as the National Transportation Exchange, but changed its name so that it wouldn't be categorized as only that.
John P. Martin, senior vice president of sales and marketing, notes that NTE's investment in information technology over the past six years exceeds $34m. "A lot of companies cannot afford IT tools like those offered by Manugistics and i2 and CAPS," says Martin. "We have these tools, and our data center has three levels of redundancy plus an external disaster recovery capability off site."
Level Playing Field
For its public exchange customers, NTE acts a bit as an equalizer by enabling a Fortune 500 company that ships a fair amount of freight to get the same kind of discount that maybe a Fortune 50 company might get, he says. "And from the carrier side, we're a zero-cost-of-sale way for them to find freight." NTE doesn't charge carriers for using its web site, though it extracts a small fee from each shipment.
NTE sees its sweet spot in the market as those companies with annual revenue in the $100m to $500m range that are still saddled with analog processes and that battle in the marketplace without sophisticated ERP or web systems. NTE's mission is to find backhaul opportunities with trucking fleets like those of Sherwin Williams and United Parcel Service along the 25 specific corridors the company has targeted, then post and match that capacity. "Our ideal customer is someone in those corridors who has palletized or otherwise made it easy to handle freight," says Martin. Carrier participants can limit the amount of time they are willing to spend out of route in order to get shipments. Shippers and carriers alike are pre-qualified, so there's no reneging by carriers or phantom loads by shippers, and NTE customers know their goods are being handled by carriers with adequate insurance and good operating records. Many of the private fleet outbound moves are milk runs scheduled days or weeks in advance.
It took NTE five years to gain critical mass and liquidity in the exchange business, says Martin, with an extra push coming in the past six months from rising fuel prices and a softening economy. Carriers have become noticeably more eager to fill their backhaul, he explains. "There used to be an emotional floor where carriers would say 'no way, no how will I take a load for less than 94 cents a mile.' Now, many of these same carriers quietly are accepting spot prices they wouldn't have listened to a few months ago."
Transportation.com also is committed to playing a larger role in web-based supply-chain management, while maintaining its exchange services. "Load-matching and the transportation exchange environment is not the Promised Land for us," says CEO Ritchie. "We're interested in managing transportation solutions for shippers."
"Many carriers quietly are accepting spot prices they wouldn't have listened to a few months ago."
However, there's not a lot of value in creating an environment that is only shipper-centric, he adds. "We think the winning strategy is to provide value-added products and services for the carrier and at the same time manage the shipper's transportation." Transportation.com has three basic business models: a pure software play where a company takes Transportation.com's technology and uses its own people to execute; a model where the customer utilizes Transportation.com's technology and Transportation.com provides the back office systems and tools, such as freight bill audit and payment services, claims management, and procurement of carrier rates; and a third model where the customer outsources their entire transportation department and Transportation.com uses its tools and back office processes and people to manage the transportation. "From a business perspective, that's the Promised Land," Ritchie adds.
Ritchie's ideal customer is a shipper with revenues of $500m or less. "That customer cannot afford to spend a lot on technology in their transportation and logistics group, because any extra capital they have, they'll spend in their core business," he says. "They also can't afford to attract and retain world-class logisticians to help with the management of that activity. For these companies, we can really add a lot of value."
Nistevo, Minneapolis, Minn., is taking a very different approach to the concept of matching capacity with demand. Nistevo's model, unlike anything else in the market, is based on having shippers form communities to share shipping plans in order to find backhaul efficiencies and reduce costs. "About one-fifth of trucks out there are moving around carrying air and that costs about $30bn a year," says Rick Parker, vice president of marketing. "I think we have captured a model here that can dig deeply into that $30bn inefficiency."
Communities, which are enabled by Nistevo's collaborative, hosted application, typically include five to six shippers, though customers can belong to more than one group. A proprietary optimization engine, called Network Builder, helps a company find its best partners by scoring and ranking lane matches. At a recent meeting of members, Nistevo's data base identified 12 million potential matches. An example of a potential match may be a high-tech manufacturer in California and a consumer-packaged goods manufacturer in the Midwest. "There is no reason you can't send a dry van out with Wheaties and back with computer parts," Parker says.
In a real-life example, Fort James Paper and General Mills each were running trucks between the East Coast and the Midwest several times a week. By combining their routes and giving the scheduled runs to a single carrier that dedicated trucks to the business, they are able to save $731,000 a year.
For less regular shipments, an exchange feature allows shippers to dynamically match backhaul loads.
Other services offered by Nistevo include online contract negotiation and contract management. "One of the problems shippers have is contract leakage, or people buying off contract," says Parker. "We help eliminate that."
Nistevo is growing rapidly. It already has 20 major companies signed on and expects to have 30 more by the end of this year. It started in the consumer packaged goods industry, but now is moving into chemical, bulk and high-tech. Customers include General Mills, Nabisco, Georgia Pacific and Agilent Technologies.
About 600 carriers have been brought into the system by these shippers. The revenue stream comes from shippers, who pay an annual subscription based on the number of locations they are shipping to and from and the number of users they have.
GoCargo, New York, launched as a pure exchange, but over the past 18 months the company's focus has shifted to the logistics software market where it now concentrates its efforts in the ASP environment, says Chief Executive Officer Eyal Goldweger.
"We originally were a pure exchange offering a global spot market for cargo capacity, but in the course of our market research we identified as a very attractive opportunity the providing of IT tools to manage the strategic procurement of logistics services," says Goldweger. "The traditional strategic procurement process for logistics contracts is extremely manual and time-consuming, as it usually involves activity over several months and senior executives from the shipper side." Twenty to 30 carriers may be involved, and the various players must exchange highly complex spreadsheets and data throughout the contract process. As data from a variety of sources moves between parties, it gets translated, de-segregated, examined, re-aggregated and reformatted, often on a floppy disk, a costly, error-prone process.
"Providing a means of standardizing the data transfer lets people change their focus from data management to information management, and they can spend their time making decisions as opposed to managing spreadsheets," says Goldweger.
GoCargo's solution is NaviPact, a proprietary software program designed to facilitate the data management of strategic logistics procurement by allowing shippers in a collaborative way to compile their global volumes from across multiple users and multiple business units in order to quickly build a draft of the contract they require. NaviPact also enables the electronic exchange of thousands of line items of global contracts between a shipper and its dozens of carriers, says Goldweger, and allows all parties to simultaneously share in privacy all the contract information provided at a uniform web station and collaborate when appropriate.
"In essence, we provide a uniform operating system under which a manager can compare highly complex proposals, sort and search and manipulate the data in many ways, and ultimately build the contracts very quickly," says Goldweger. "Our overall theme is process savings, so carrier and shipper executives operating at multiple locations and in different time zones can focus on the sale and procurement process instead of managing spreadsheets."
GoCargo targets NaviPact at the high end of the market and offers customers a range of tiers and pricing schemes. The company is working toward a complete product suite, including decision-support tools that will enable the management and execution of those contracts.
"Providing IT tools to manage strategic procurement of logistics services was very attractive."
Seattle-based nPassage enables "private collaborative communities originating with the shipper for their transport web," according to Alan Van Boven, president. Shippers who sign onto the service bring in their carriers and use the nPassage hub to communicate with them and to coordinate and buy transportation services. Shippers typically save up to 50 percent in transaction costs, says Van Boven. "Most of that savings comes from efficiencies generated through online documentation, avoiding the phone/fax tag game that is still the dominant way most people manage their freight today."
The history of these transactions has proved to be a valuable asset to shippers, says Van Boven. "We keep what we call a message history, which is a log of all the dialog that takes place around an individual transaction. Our clients tell us it is helpful to be able to instantly go in and get the entire history of communications with all parties and see it all in one shot. They can quickly draw conclusions from that."
Order of Priorities
Shippers write management rules so that certain shipments are automatically tendered to designated carriers. If that carrier refuses the load, it is offered to others in a descending order of efficiency, or the client might ask the system to search for the best rates for a particular route and service level.
Van Boven says nPassage has "a small but core number of shippers" currently using the service and it is starting to target the 3PL market. It handles trucking and air freight and has partnered with NextLinx for international trade logistics capabilities.
Transplace.com of, Plano, Tex., is a merger of traditional transportation 3PLs and the use of web-enabled communications technology, according to Joel Who, senior vice president. "The web is just a much more efficient way of communicating and transacting some business, specially for our small carriers that don't have the ability or the financial backing to go EDI," he says.
Transplace maintains an internal exchange to achieve efficiencies when managing freight on behalf of customers. "We have a window of opportunity that allows us to shop the market a little bit for competitive rates, and we use our own internal exchange to do that," says Who. More than 6,000 carrier partners have access to the exchange and use that link to get a piece of the approximately $1bn freight bill Transplace manages on behalf of customers that include J.C. Penney, AutoZone, Office Depot, Weyerhauser and Georgia Pacific. That freight pie should grow considerably now that Transplace has joined forces with Transora to bring a broad range of transportation and logistical services online, Who says. Transora is an e-marketplace formed by more than 50 companies in the consumer packaged goods industry.
Transplace brings two critical value propositions to its members. First, it focuses on converting prepaid shipments to collect by unbundling the cost of transportation from the cost of the product and more efficiently managing that inbound. Second, by providing its contract carriers with continuous sequential moves, Transplace achieves another 5 percent to 10 percent savings that no one else can deliver, says Who. "We enable our customers to dramatically reduce inventory and smooth out their supply chain so they can better manage their labor, their facilities and their capital investments."
Celarix, Cambridge, Mass., was founded two years ago by CEO Evan Schumacher, who previously worked as global logistics manager for retailers StrideRite and LA Gear and as a consultant for KPMG. He sees connectivity and collaboration as being key to the "centralized, vendor-neutral global logistics solution" that Celarix provides.
"To have a high-performance e-supply chain, you have to be connected to all your trading partners, inside and outside the enterprise," he says. Celarix customers include Williams Sonoma, Sharp, Ciba and Warner Brothers.
Celarix's goal is to provide via a web-hosted environment all the tools a customer needs to manage logistics, from order entry to delivery. "Every time the customer writes a purchase order in their enterprise application, we file that information to a factory somewhere in the world and to their transportation vendor," says Schumacher. Electronic updates track the order through its life cycle, enabling visibility at the SKU level. Customers determine which events they want to monitor and how they want to receive exception alerts. Execution tools include online transportation booking, landed cost calculations, online contract negotiations with existing carriers, contract compliance management, exception management, and performance monitoring and reporting.
With global coverage, Celarix connects to vendors in every mode and to customs brokers, freight forwarders and freight payment companies. "Connecting people requires commitment, but it is really about understanding what information to get and how to get it," says Schumacher. "That is our domain expertise, and you can't teach that."
ShipLogix, Hudson, Ohio, provides collaborative transportation management through an ASP model. "We saw the two greatest strengths of the web as providing a whole new way to do the collaborative type activities and as enabling the hosted software model, which dramatically changes the whole economics around software," says Tom Escott, president.
The ShipLogix solution focuses on strategic sourcing, shipment planning and shipment execution. A web-based request-for-quote product allows shippers to collectively assemble freight for bid, distribute it to various carriers, then use the collaborative aspects of the software to answer questions and receive responses. Other management tools include freight rating, landed cost calculations, tendering orders, tracking and tracing, proof of delivery and invoicing. As with other applications, shippers set escalation rules for shipment tendering and can designate when and how exception alerts are to be sent. "In building our system we put a tremendous amount of work in what we call customer profiling, in which customers set up business rules that apply to the way they actually want to work," says Escott. "That is at the core of an ASP model. If shippers didn't have the ability to set their own flags and switches, you would have to customize the software for each customer and that would put you right back to a packaged software solution." ShipLogix currently has 10 customers either in contract negotiations or pilots and it expects to double that by end of year. Its services are available domestically in the U.S. and Europe.
Arzoon, San Mateo, Calif., is targeting the transportation operations of very large multinational companies with its Transportation Management Trading Network, a web-native system that uses standardized processes and work flows to connect all trading partners involved in the movement of freight, across modes, systems and international borders. CEO Farid Dibachi says Arzoon's target customer is complex, global and has an annual freight bill of at least $100m.
"To have a high-performance e-supply chain, you have to be connected to all your trading partners, inside and outside the enterprise."
He emphasizes that Arzoon is not an exchange but "an enterprise software company." The goal, he says, is to save customers money on their transportation bill in six ways: by enforcing inbound compliance, enforcing regulatory compliance, eliminating maverick spending, aggregating and consolidating loads, reducing freight payment and audit costs, and optimizing transportation procurement.
"We are bringing together some traditional transportation management functions, along with other pieces that traditionally don't belong to TMS and aggregating them into one elegant solution," says Dibachi. Inbound compliance is perhaps the most interesting piece of this solution. It is designed to ensure that suppliers ship goods on the carrier and under the contract designated by the customer. McKessonHBOC, one of Arzoon's first customers, is using the network to help manage more than 4,000 inbound vendors going to 34 distribution centers.
Dibachi is so certain of the savings Arzoon can generate that it offers customers a choice: pay a software license fee of approximately $2m or give Arzoon half of the first year's savings. None of Arzoon's six customers has taken the percentage option.
Customers don't have to install the software. They can have Arzoon host it for a small per-transaction fee in addition to the license fee, but Dibachi emphasizes that Arzoon does not make money from transactions. With license fees, he says, the company has to put down a couple of million, "so you know you are getting someone strategic in the organization to make the decision." This assures that the company will have the commitment to hang in there long enough for savings to materialize, he says. Still, he insists the typical ROI is only six months.
Dibachi plans to have 15 customers by the end of this year, each at or near the top of its industry sector. "By the end of 12 to 18 months, we not only will have a few very happy customers, we will have figured out how to play in different verticals," he says.
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