In its second-largest acquisition, Amazon buys the company for $970 million.
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As suppliers and carriers enter data on shipments into web-based transportation management systems, retailers’ transportation managers, distribution center staffs and merchandise managers can check the TMS web page for updated reports and receive automated alerts through e-mails to personal computers or handheld devices. One of the more immediate benefits to retailers is that, with real-time access to this information, they can better plan for shipments into their distribution centers for forwarding to stores. And they can do it without phone calls and faxes among suppliers, carriers, retail transportation managers, distribution centers and merchandise managers.
“In this way, retailers can maximize turns on merchandise rather than over-buying, and avoid having either too little or too much inventory,” says Travis Parsons, executive vice president and founder of supply chain technology provider One Network Enterprises Inc., which recently changed its name from Elogex.
With good visibility of what’s coming into a distribution center, retailers can better plan for cross-docking, for allocating warehouse space and for scheduling dock workers around peak periods of incoming truckloads from multiple suppliers. Through cross-docking, retailers transfer loads from one truck to another for immediate shipment to stores, without having to keep those goods in the warehouse. With web-based visibility showing that, say, cotton v-neck sweaters are on their way to a distribution center, the retailer can cross-dock them onto trucks headed for stores in need of cotton v-neck sweaters.
Scheduling trucks and dockworkers is becoming more important as suppliers and carriers as well as retailers are being pressured to operate as efficiently as possible. “You may have 20 to 30 trucks lined up at your distribution center, so you have to make sure you have an appointment plan that gets carriers in and out as fast as possible so as not to clog up your yard,” Estes says.
He adds that carriers will become even more sensitive to moving trucks more quickly through distribution yards early next year when new federal limits on drivers’ hours take effect. The new rules will cut the number of hours drivers can be on duty each day to 14 from 15. “They won’t have as much flex time to sit around and unload at distribution centers, so carriers will want to keep their drivers moving,” Estes says.
Pulling this all off demands the universal visibility of web-based systems, experts say. “The idea is to understand your overall network model, and all potential sources of retail goods,” says Bluemner of RedPrairie. “This is where life gets really interesting, because you can look at the cost of transportation, distance, availability of stock levels for each supplier, then have the opportunity to go in and plan accordingly.”
While the overall benefit of this technology is becoming more apparent to retailers, it also creates a sharp change in merchants’ relationships with suppliers that can require new levels of negotiations and diplomacy. Some suppliers, for example, may balk at handing over transportation management to a retail partner in order to retain particularly advantageous routes.
Dan Dershem, president of Lean Logistics, a provider of hosted transportation management systems, says he once worked with a large consumer products supplier who would divide some delivery routes among multiple suppliers. One route had several small retailers and one large merchant that, because it accounted for half the truckload, paid a high enough fee to make up for the cost of driving to the smaller merchants. “That supplier would fight like mad to keep control of transportation for that large retailer,” he says.
Retailers’ management of inbound freight also requires a new level of teamwork that, at least at first, can make some suppliers uncomfortable or at best ambivalent about working with a retailer-driven freight system, Fontanella says. “The feeling is mixed,” he says. “Suppliers are concerned that the right shipping equipment is used, and that pick-ups are on time.”
Retailers taking the lead in managing transportation also need to take into account the freight allowances that suppliers tie to merchandise prices, experts say. A supplier who manages transportation typically sets the cost of shipping as a freight allowance within the total price. If the retailer decides to directly pick up a particular order, it’s credited that freight allowance.
But in some cases, a supplier will discount the freight charge under market rates as a way of offering a more competitive overall price for the delivered merchandise. So if a retailer takes control of overall freight management, it needs to check that the full amount of freight allowances were deducted from the price of merchandise, Dershem says. “Logistics managers need to work closely with the merchandise buyer to make sure the supplier is giving the right quote on merchandise,” he says.
To make transportation management most effective, retailers and suppliers need strong data connectivity for sound transfers of purchase orders, ready-to-ship notices and other business documents, so that they can base their shipping plans on accurate information that match shipping orders with original purchase orders. Some companies may rely on existing EDI or Internet EDI networks, though hosted applications from transportation management vendors like Lean Logistics, One Network Enterprises and Manhattan Associates, and integrators like Shippers Commonwealth, provide such data communication services as a part of their package offerings.
The demand for solid data communication with business documents to support TMS is already leading to changes in the vendor market. Global eXchange Services Inc., a major provider of EDI and Internet EDI, for example, recently acquired TMS provider Celarix Inc., enabling Global eXchange to offer transportation management technology that’s closely integrated with a data communication service. “The value of shipment visibility data is greatly enhanced when it shares the same platform with order and procurement transactions,” AMR’s Fontanella said in an advisory note about the Global eXchange-Celarix deal. Global eXchange and Celarix services are also available through partner Manugistics Group Inc., which provides an extensive suite of transportation management software.