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In the world of transportation management, the words "best" and "basic" don't have to be opposites. For WMH Tool Group Inc., a best practice is one that addresses some of the most fundamental problems in transportation, such as soaring fuel prices and manual processes for routing and documentation.
WMH, with its heavy reliance on trucking, is not alone in feeling the pain from higher gas prices. But the company's plight was magnified by the recent acquisition of three other businesses, and an accompanying surge in shipment volume.
Headquartered in Elgin, Ill., WMH was formerly known as Jet Equipment and Tools. In 2003, as part of Zurich, Switzerland-based Walter Meier Holding AG, it was combined with three other companies-Performax, Powermatic and Wilton Machinery. Today, WMH is a major supplier of woodworking and metalworking equipment, offering everything from hand tools to large lathes and milling machines.
Along with the new companies came a whole new series of potential headaches. Jet's old transportation system, particularly its method of routing shipments, had been highly manual, says traffic manager David Pinson. At a time when fuel costs and overhead were soaring, automation seemed an obvious way to control transportation expense.
In early 2005, WMH went live with the transportation management system (TMS) software known as FreightLogic, from Pinnacle Distribution Concepts. Today, the Web-based application is called HighJump Transportation Advantage, Pinnacle having been acquired by HighJump Software in July of 2006. Whatever the product's name, it has transformed the way by which WMH manages carriers. Before, its manual system could only handle routing by state. Now, says Pinson, it can plan by ZIP code.
Documentation is easier, too. To initiate the shipping process, WMH used to print delivery notes, correct each one where necessary, confirm that it had the right routing instructions and payment terms, then print pick tickets. Today, delivery notes are conveyed electronically to the HighJump system, which routes shipments according to the lowest-cost carriers, customer exceptions and other key business rules.
With automation has come a rise in demands for service. "Everybody is expecting it as fast as they can get it," says Pinson. "Turnaround time has to be quicker." At the same time, transportation has become more complex, with smaller and more frequent shipments, and a growing reliance on drop-shipping to cut costs. WMH is even bypassing distributors in some cases, shipping product directly to the end user.
Benefits of the system were quickly felt. Within a year, says Pinson, WMH had reduced its overall shipping costs by 7 percent. Part of the savings came from combining shipments that were destined for a common location over the course of a day. (WMH moves around 900 shipments a day out of its 400,000-square-foot distribution center in LaVergne, Tenn.) Pinson intends to make further use of that practice in the second year of running the software. He also expects a drop in overall freight costs versus sales from 5.8 percent to around 5.45 percent. "It has given us a tool to negotiate with carriers better," he says. "And it keeps our increases down."
Jon Kuerschner, vice president of applications with Minneapolis, Minn.-based HighJump, says the vendor was drawn to the Pinnacle product in part because it was offered in a hosted version. More and more, he says, companies are moving away from the traditional licensed model of transportation software, with its high deployment and maintenance fees. Many of those infrastructure costs are now being borne by the application provider, which can offer the same system, with regular updates, to multiple customers from a common location.
Integration of various types of execution software is another best practice that is emerging within the transportation sector, Kuerschner says. Up to now, companies have deployed separate systems for warehouse, transportation and order management. Often the output of one system will have a negative impact on the others. For example, a warehouse management system (WMS) might dictate a picking procedure that streamlines operations within the facility, yet results in higher transportation expense or inefficient use of carriers. With vendors like HighJump offering both kinds of software, companies can take a broader view of their operations.
The results can vary depending on customer demand. During periods of high shipping volume, the system might be geared toward getting product out the door as quickly as possible. When things slow down, it can call for the consolidation of parcels into money-saving less-than-truckload (LTL) quantities.
New systems are also doing a better job of maximizing carrier capacity. HighJump offers the ability to calculate the actual cube of a load, allowing companies to pre-build pallets and make better use of trailer space. One HighJump user claimed a 10-percent savings in the use of available space within 48-foot trailers.
The 'Best' for 3PLs
Logistics providers are also embracing best practices on behalf of their shipper customers. Pittsburgh Logistics Systems Inc. (PLS), headquartered in Rochester, Pa., specializes in serving the metals, lumber and building materials industry. It recently supplemented a proprietary TMS with off-the-shelf software from Waukesha, Wis.-based RedPrairie Corp.
PLS's in-house application is known as eflatbed.com. Its name suggests the system's main orientation-transportation by flatbed trucking-but the tool also manages thousands of Web-based auctions for movements by other modes.
PLS can automatically dispatch loads to a pre-defined carrier base. Still, the home-grown application wasn't enough to meet PLS's transportation-management needs. It wanted a means of conducting detailed mode and route optimization on behalf of customers. Having decided not to build such capability itself-despite the presence of an in-house IT department-PLS reached out to RedPrairie.
The "next level," in the words of Jim Ruiz, PLS's vice president of business development and logistics engineering, was RedPrairie's DLx software. It gives PLS an optimization capability that was previously attainable only through manual processes, or by piggybacking onto customers' load-building and consolidation systems.
For clients that might currently be shipping small order quantities via LTL, PLS can now offer an alternative. Many items in the building-materials business are prone to damage when moving by LTL, forcing shippers to spend extra money on protective crates. DLx identifies orders that can be consolidated onto flatbed trucks, provided the shipper has some flexibility in its delivery windows. If so, the system shows the savings that would be derived from the use of flatbeds, which don't require crating and may offer better freight rates in the bargain.
Event management is another critical feature for PLS. Currently, shippers can check on the status of their loads whenever they want. But PLS intends to start pushing alerts-either as e-mails or pop-up windows if the shipper is logged into the system-when a carrier veers off schedule. Yet another DLx feature that PLS intends to deploy will allow the company to customize workflows, for such processes as load-building, dispatching and dock scheduling, according to the unique needs of each shipper.
Companies are looking for "holistic" transportation software that will allow them to manage everything through a single system, says Dan Vertachnik, senior vice president of RedPrairie's global transportation group. The days of stand-alone applications for fleet-management, parcel shipments and international are numbered, he said, although software vendors are just beginning to pull those elements together into a coherent offering. Shippers want the flexibility to shift product between modes, according to the needs of the moment. Today's small-package shipment might be tomorrow's LTL consignment, or vice versa.
At the same time, companies are consolidating transportation at load-control centers, often serving multiple divisions. That strategy calls for a higher level of optimization technology. At a basic level, it necessitates the use of a single transportation system company-wide.
IT applications are becoming more unified as well. In the past, says Vertachnik, enterprise resource planning (ERP) systems have attempted to make key transportation decisions early in the process. By the time an order reaches the TMS, planners have little leeway in their choice of mode, carrier and route. By better integrating the TMS with upstream systems, companies have more control over execution, and can adjust to last-minute changes. A related best practice is the use of "predictive arrival," whereby companies forecast their needs well in advance, then re-optimize at the time of execution, Vertachnik says.
Facing the Future
The adoption of best practices in transportation is no academic exercise among self-styled industry "leaders." Given recent trends in the movement of goods to market, it's an imperative. Lisa Hebert, a San Francisco-based partner at Accenture, notes growing pressures in the form of higher fuel costs, driver shortages and equipment availability. The recent surge of business from China, which has brought many ports, railroads and truckers to a virtual standstill, is only a warning of things to come. In response, companies have begun casting about for ways to cut transportation expense, slash inventories, increase carrier and routing options, boost the overall reliability of their supply chains and improve customer service.
Despite the proliferation of TMS software, many applications have had "a very rudimentary capability," Hebert says. They offer static views of a user's carrier base, without the ability to distinguish by lane and equipment type. Newer versions incorporate more complex planning algorithms. Carriers, too, are becoming more sophisticated about managing their equipment, to make better use of a limited asset.
Most top-tier software vendors have that capability today, but full customer acceptance will take time. "It's just the regular adoption curve," says Hebert.
Another key strategy, she says, is the greater reliance on dedicated fleets. Companies can no longer depend on getting the right kind of equipment from common carriers during crunch times. The bigger ones are asking their providers to set aside assets for their exclusive use. That's hardly a new concept, but it appears to be gaining in popularity, as shippers plan against peak-season congestion. "It's like a private fleet, without the cost and overhead," says Hebert. Some companies are recommitting themselves to actual private fleets, although the dedicated option offers the same guarantee of drivers and equipment, while removing the need for direct, day-to-day fleet management.
In a time of mounting uncertainty, it's no surprise that companies are looking to gain better control over their operations. One idea that's catching on fast is tighter management of the entire transportation spend. Manufacturers, distributors and retailers with distant suppliers are taking over the responsibility for inbound transportation. They're telling vendors which carriers to use, which routes to follow and how much to pay.
One way to make that switch is to convert freight terms from prepaid to collect, says Prashant Bhatia, senior director of product management with Atlanta-based Manhattan Associates. One of the vendor's clients in Australia is in the process of imposing factory-gate pricing, giving it control over the goods from point of manufacture.
The strategy means more responsibility for the consignee, but it can also yield big benefits. The buyer gains better visibility into the entire shipment process, says Bhatia. It might even find that the supplier was paying too much for freight, or worse, deliberately padding the bills as a back-door means of inflating profits. Still, making the switch is no easy task. It requires new management processes at both the supplier and buyer ends. "It involves resetting expectations," Bhatia says. "It changes how the two companies are going to interact."
Leading companies are determined to do a better job of communicating with trading partners generally, says Bhatia. One tool making that possible is a vendor communications portal, which streamlines the whole process of ordering and fulfillment. A supplier can inform the buyer that a requested item is ready to ship. Such confirmation lets the receiver plan for the most efficient mode of transportation. Often that can mean the consolidation of LTL shipments into a truckload move, possibly involving multiple pickup points. The result, says Bhatia, is better allocation of labor, and a closer match between inventory and outbound orders. Carrier portals serve a similar purpose on the transportation side.
The Push to Optimize
Transportation best practices can be deployed for a variety of reasons, including cost reduction, streamlined processes and performance measurement, says Bill Pritz, vice president in charge of the transportation group of Atlanta-based Logility. At the highest level, he sees companies ramping up their use of optimization software to improve the overall planning of freight movements. "That's the biggest area [in which] to save money," he says.
It all starts with the order, Pritz says. Companies must determine the best time to process and enter it into the transportation system. One best practice is to institute a series of order cutoff times so that shippers can plan in discrete waves. Otherwise, they are constantly replanning their selection of routes and carriers.
As to when the order is entered, Logility believes shippers should wait until inventory has been allocated, at least in situations where there is little change in orders. In cases where orders are constantly changing, "it's better to wait until late in the process," says Pritz. Companies might even alter their methods based on particular customers, especially those with a history of making last-minute changes in their orders.
The ultimate goal should be a transportation system that is totally automated, and can perform key processes without manual entry or other types of human intervention, says Pritz. Some Logility customers have automated everything from the initial receipt of loads to load building, route planning, auditing and freight payment. "The process takes place without people doing anything, except dealing with exceptions," he says.
John Murphy, senior director of transportation and logistics with Redwood Shores, Calif.-based Oracle Corp., agrees that TMS systems are expanding well beyond their original purpose. In the beginning, he says, they were focused chiefly on planning, including order consolidation and carrier selection. But a "best-practice" TMS does more than that today. It aids in integrated fleet management, adding what used to require an entirely separate application. Shippers, carriers and logistics providers can take existing transportation assets and use them to support retail promotions and extended forecasts, Murphy says. With data on shipments and equipment residing in one place, users can devise plans that account for both pieces of the puzzle.
Mileage-optimization software is also becoming part of larger TMS packages today, allowing carriers to manage such constraints as new restrictions on drivers' hours of service. The capability is especially useful for dedicated and private fleets, which usually lack the option of looking beyond their prime users when trying to fill equipment.
Dedicated fleet management is being added in stages, says Murphy. Oracle, for one, has already deployed systems that allow users to make the best use of their fleets with the help of historical data. The next steps will come at the tactical level, as carriers try to determine the best placement of equipment, and where they can profitability operate closed-loop lanes.
Transportation applications are moving toward support for shared services, allowing carriers, forwarders or logistics service providers to access shippers' information systems for purposes of planning and shipment visibility, Murphy says. The new systems should do a better job of validating the accuracy of data received from upstream sources.
Many best practices in transportation systems derive from years of experience by the companies deploying them, says Razat Gaurav, vice president and general manager of the Global Transportation and Distribution Group of Dallas-based i2 Technologies. Experienced users have learned to take a phased, value-driven approach to implementation, he says. They are also careful to seek out a high-level executive sponsor, to ensure the project's long-term success.
i2 helps customers devise their own best practices by mapping functions against a "maturity model." It consists of multiple processes at three stages: basic, progressive and world-class. Elements include logistics network design, carrier sourcing and management, transportation capacity planning, packaging and dispatch operations, visibility and event management, and reverse logistics. Companies differ widely in how they score across those categories.
Some best practices cut across categories, says Gaurav. But one apparent constant, he agrees, is the shift from unidirectional contract carriage to dedicated or private fleets. At the same time, shippers are making greater use of logistics service providers with a global scope. Carrier selection criteria, once focused mostly on rates and historical performance, now include such additional factors as capacity, service levels and financial viability.
Other trends fostering best practices include tighter and more strategic relationships between shippers and carriers, as both sides grapple with new constraints on capacity and driver hours, Gaurav says. Such arrangements are likely to lead to more specialized services by carriers, tied directly to detailed metrics for vendor performance.
Companies used to take transportation capacity for granted, Gaurav says. With equipment shortages increasingly common, and fuel prices unlikely to decline significantly, that's no longer possible. Manufacturing is more willing to share its plans with the transportation department. "Now companies want to be more intelligent," he says. "They're planning for capacity well in advance of need."
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