Online transportation systems drive control of inbound freight (Extended Version)
David Hannon, News and Transportation Editor -- Purchasing, 11/21/2002 2:00:00 AM
Inbound logistics has always had its own set of issues and its own process owners that make it a whole different challenge to manage internally. Because of that, many organizations have not applied technology to inbound freight, making it a great opportunity for efficiency and cost savings.
At many purchasing organizations, inbound shipments just appear on the dock when they get there. Buyers have little control over when and how the products are shipped and see little opportunity to streamline. But the visibility provided with Internet-based transportation management systems provides a wealth of new information that can help buyers better decide where and how to consolidate inbound shipments for potential savings.
“[Buyers] weren’t able to control and consolidate inbound shipments until the Internet,” says Don Ratcliff, CEO of Atlanta-based transportation technology developer Velant. “To send a truck out to a supplier to fill with freight, you had to know when the shipments would be ready at the supplier. A lot of inbound load consolidation is only possible because of the Internet. And the bigger the company, the bigger the opportunity there is in controlling inbound shipments.”
But visibility via the Internet cannot come without centralized data and therein lies the real secret to controlling and optimizing inbound freight. Ratcliff says in the 1980s the transportation industry moved to more decentralized planning systems on PCs with spreadsheets. But the Internet brings the focus back to a centralized planning model, giving internal and external users access and input to the same centralized plans.
The actual process of centralizing an inbound spend can open a lot of eyes in an organization as well. Ratcliff says many companies just do not have their arms around the inbound spend and there are too many other areas that have a higher priority because of the lack of inbound visibility. He also feels the newer decision-based optimization systems require more advanced technical users than the logistics organization may have in-house.
“When you go to centralized computing in more sophisticated ways to solve problems, there is a big decision component and that requires more sophisticated technology and users to do it well. With an Internet-based technology you don’t need as much sophistication at the end user as you did with PC-based technology. But the Internet puts the planning centrally and that is where the technology sits and you need sophisticated users there,” says Ratcliff.
Internet-based transportaion applications developed today are much more user friendly than in the past and the average transportation manager can run the systems effectively. It’s no coincidence that improvements in online purchasing systems are pacing along with increased control of inbound freight.
“Initially our projects were getting a foothold in the transportation and distribution groups,” says Travis Parsons, president and CEO of technology provider Elogex of Charlotte, N.C. “Now, we see more interest from purchasing organizations because of the visibility we’re creating in inbound transportation.” Parsons says improved inbound visibility allows buyers to know when a shipment will arrive and if that shipment needs to be supplemented with other purchases prior to its arrival.
Adrian Gonzalez, analyst with ARC Advisory Services in Dedham, Mass., says more transportation systems providers are seeing opportunities and developing interfaces and capabilities that purchasing managers can use to integrate shipping information into ERP or more purchasing-friendly systems to link orders with shipments.
“Historically, a lot of companies have focused on the outbound side with TMS systems,” says Gonzalez. “The inbound piece always fell under purchasing and the contracts they set with suppliers. Most purchasing managers didn’t have an understanding of transportation—they just wanted an all-inclusive price. When you look at how to initiate a successful inbound program, you need the buy-in of the purchasing organization.” For both companies, there was resistance from purchasing because they felt, ‘Why mess with it?’ But there is a chance to make it much better. It takes an organizational change to have all transportation fall under the same vice president with the same metrics internally.”
Experts agree that improved visibility of inbound freight is a catalyst for collaboration between supplier and buyer. “It improves the buyer/carrier relationship through improved accuracy and ability to track service levels,” Parsons says. “Everyone sees the same data and performance metrics and that improves the carrier relationship.”
And with that collaboration comes less concern about total “control” of freight. The amount of inbound freight a purchasing organization controls should depend more on what lanes and shipments make sense. It is not necessarily a case of the greater the control, the greater the savings.
But while the excitement grows over Internet-based transportation systems, there is still some skepticism from shippers after watching so many dot.coms and public exchanges fail. Fueling those fears have been the financial difficulties of major transportation technology providers like Manugistics and i2 Technologies. Ratcliff points out that many of the companies that started as online transportation exchanges have moved into providing execution and planning systems of some sort via the Web.
“I think the transportation industry got off on the wrong foot in the Internet with the exchanges,” says Ratcliff. “There was a lot of effort and venture capital money and developers investing in more than 100 transportation exchanges out there at one time and when none were successful, it left people with reservations regarding Internet-based transportation systems. It was almost counterproductive. It created the sense that maybe the Internet-based transportation system was not a great idea, which is untrue.”
The savings touted by some early movers in retail like Wal-Mart in controlling inbound freight has set a high bar in terms of savings. But Gonzalez says competing head to head with the largest company in the world is the not way to go about it.
“You have to compete by truly changing the rules. Many times, the big players aren’t collaborating with partners; they are coercing them. That just shifts the cost upstream and makes the big retailers look good, but the cost shows up in the prices eventually. To compete, you have to get the cost out of the system with collaboration.”
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