September 1, 2005, 12:00 AM

Shifting Gears

Retailers move to web-hosted transportation management systems

Holiday Diver Inc. operates seven marine supply stores specializing in scuba and snorkeling gear, all in Florida, but when it comes to information about product deliveries to its stores, it shares some of the same needs--and problems-- as Meijer Inc., a grocery and general merchandise chain with 150 stores in five states. If the wrong products are delivered to particular stores, or delivered in the wrong quantities or at the wrong time, it can mean forfeited sales and disgruntled customers in multiple locations. "If it`s the supplier`s fault, we assess them $25 per box for mis-shipments, but the real problem is that we have lost a sale and have unhappy customers," says Chuck Whiteman, vice president of Holiday Diver.

Retailers have long struggled to gain more control over deliveries into their distribution centers as well as to their stores and directly to consumers, but often are frustrated by their lack of input into the routing and scheduling set by multiple shippers and carriers. That has left them without information on what will actually arrive at the destination until a truck has docked and unloaded. If the shipment turns out to have the wrong merchandise because of a routing or loading error, a store could be left with empty shelves or an understocked promotion. "We can get a store`s entire season`s worth of merchandise from a vendor in one delivery, so we need to know what`s coming in and when," Whiteman says.

Better customer service

Moreover, the nature of multi- channel retail competition and customer expectations today require retailers to have information on shipment status readily available. "You can`t provide good customer service, especially in a multi- channel environment, if you don`t have access to shipment status," says Beth Enslow, vice president of enterprise research at research and consulting firm Aberdeen Group Inc., who specializes in delivery and shipments.

At the same time, the old way of getting that information--through non-stop phone calls and faxes among a retailer`s transportation managers, suppliers and carriers-- is no longer acceptable in many organizations, where transportation managers must devote more of their time working to get sufficient carrier capacity at the lowest rates. "Retail transportation is in a cost-pressured environment today," Enslow says, noting that increases in fuel and other costs forced delivery rates to rise an average of 6% for retailers last year, with some merchants seeing their rates up as much as 19%.

Further squeezing retailers is the fact that steep competition prevents them from letting retail prices absorb transportation expenses. "They no longer have the luxury of passing on transportation costs to consumers in the current competitive environment," Enslow adds.

The right mix

The answer to many retailers` transportation problems lies in getting the right mix of control and visibility in the movement of delivery trucks, experts say. But a roadblock for many is a lack of resources, both financial and staff-related, to devote to transportation fixes. Retailers are more concerned about dedicating their capital and IT departments to expanding and improving their stores and web sites, experts say. "Logistics is pretty low on corporate IT priorities," Enslow says.

The combined pressures of needing a more effective transportation management system to support customer service and merchandising and dealing with restricted resources are moving more retailers to subscribe to hosted transportation management systems, experts say. The hosted applications provide real-time visibility into shipments, as well as the flexibility to exert more control over routing and scheduling when contracts permit it, while limiting capital outlays.

The emergence of hosting

Although licensed web-based transportation management systems can offer even more of the same type of benefits of visibility and control, they still require IT staffs to build network connections between a retailer and its suppliers and carriers. "That`s why many retailers still don`t have connections with carriers," Enslow says.

Hosted transportation management applications have emerged in recent years with the promise of letting retailers and their suppliers and carriers access the same system through web browsers without having to build network connections. But though the retail industry initially looked upon hosted applications as a low-functionality option intended for small and mid-sized companies with limited resources, the applications have since emerged as more universally applicable tools. "Large enterprises are looking at hosted applications, too," Enslow says. "They`re saying, `This model is great for us.`"

Large retailers like to keep close to their vests anything that gives them a competitive advantage, and many believe that creating more efficient transportation of goods is one of the ways they can compete better. So many are unwilling to disclose what they`re doing.

But one transportation manager for a major retailer said privately that the hosted application his company is using offers no noticeable difference in the level of functionality and network security when compared to more traditional licensed applications that sit on a company`s own servers.

Meijer, which declined to be interviewed, is using a hosted transportation management system from LeanLogistics Inc., according to LeanLogistics vice president of business development Jeff Potts. Before deploying LeanLogistics` On-Demand TMS, Meijer relied on a daily report that showed which purchase orders were not yet received at the intended distribution center, but without any further details on shipment status. "So they`d be wondering why a carrier didn`t get in on time," Potts says. "Today, they can see when carriers are making an appointment for pick-up at a supplier, and get two or three days` advanced visibility to see if a shipment will be late or not. If it`s a carrier issue, they may be able to get a different carrier, or if it`s a supplier issue, they could source from a different supplier."

At Holiday Diver, Whiteman says a hosted transportation tracking system provided by Fedex Corp. will help his stores avoid the kind of inaccurate deliveries that can leave some stores without critical seasonal supplies while leaving others overstocked with the wrong merchandise.

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