September 30, 2008, 12:00 AM

Driving Up Margins

How web-based transportation management helps retailers get around the rising cost of fuel.

With 80 tractor-trailers a day heading into a network of 10 distribution centers-and another 84 heading out to more than 2,700 U.S. retail locations-PJ Food Service Inc., the subsidiary charged with managing freight for the Papa John’s pizza chain, has good reason to worry with fuel costs topping $4 per gallon.

“The biggest problem now is managed transportation costs with fuel at $4-plus per gallon,” says Susan Kinder, director of operations services for PJ Food Service, a wholly owned subsidiary of Papa John’s International Inc.

But instead of sweating out rising costs and squeezed profit margins for the retail chain, PJ Food Service is on track to lower overall operating costs by 5% this year over 2007, Kinder says. And it’s not because the expanding pizza chain is shipping less goods. Papa John’s has begun implementing a web-based transportation and supply chain management system that is radically changing how the company moves goods into and out of its distribution centers, Kinder says. “This is a completely new way to look at our business,” she says. “We’ve made a paradigm shift.”

Riding the web wave

Papa John’s is riding a wave of Internet-enabled technology that is putting retailers in the driver’s seat of transportation management. Built with broader use of XML and web-enabled service-oriented-architecture, transportation management systems are providing retailers with more ways to view and control the movement of goods into their distribution centers as well as into their stores.

“Retailers are now taking control of freight heading inbound to their distribution centers from suppliers,” says John Fontanella, a supply chain analyst with research and advisory firm AMR Research Inc.

Through the web-enabled integration in these systems, retailers are gaining more control of several areas: the ability to choose the most efficient, fastest and least expensive mix of transportation rates, routes and delivery times from multiple carriers including air, ocean, rail and truck; the ability to leverage historical and benchmarked data to determine which particular carriers and routes, or which combination of them, provide the best service; the ability to better manage the transport of shipments into distribution centers and, ideally, also from distribution centers to stores or to consumers’ addresses.

For many experts, the improved web-enabled integration built into today’s transportation management systems are finally bringing about long-promised capabilities. For instance, it’s now possible to connect in real-time to the logistics management systems of multiple carrier partners as well as to a retailer’s complementary own systems for purchase order processing and inventory and supply chain management.

Beyond the hype

“Transportation visibility has been hyped for years, but actually getting information in a coordinated fashion has happened more in the past year and a half,” says John Blanchard, director of transportation services, TranSystems, a third-party logistics provider for retailers including Crate and Barrel, The Home Depot and Frankel Shoes. “Now we can really look at inventory in transit because we have integration with all third parties, including freight forwarders and steamship lines as well as truck carriers.”

Indeed, transportation operations have a particular need for web-enabled technology used to integrate systems that can be far-flung across international supply chains, experts say. “In transportation especially, you’re relying on outside partners to supply information, including manufacturers in China and all the links in the supply chain including a 30-day ocean transit,” Blanchard says. “By the time the product gets half-way, the demand for it may have spiked in certain areas. The retailer may have wanted the product delivered to one place when it left China, but to another place by the time it arrives in a U.S. port.”

Having web access to a transportation web portal lets the retailer share information with carriers on not only when product will arrive, but also to instantly instruct carriers to deliver goods to a different distribution center closer to current demand or even arrange for a drop-shipping service direct to a particular store. The web portal makes the information available simultaneously to the retailers and its carriers and suppliers.

Up-to-date data

Just as important, however, web-enabled transportation management systems can automatically pull up-to-date internal data from a retailer’s store sales and warehouse inventory records to better plan the loading and routing of trucks. By knowing where particular products are needed throughout a retailer’s network of distribution centers and stores, retailers and suppliers can better coordinate the loading and routing of trucks to move the right goods to the right destinations in the most direct and least costly way.

Likewise, near-real-time transfers of the purchase orders retailers send suppliers, and of the order confirmations and advanced shipping notices suppliers send back to retailers, help each party to share and respond to more useful information. When dealing in high volumes of shipments, retailers and suppliers can get buried in such communications, which can take time to pull out of a large number of messages included in traditional EDI systems that typically send messages in batches.

If a retailer needs to update a purchase order to change quantities or delivery dates, or if a supplier needs to change its promised delivery dates, a web-based transportation management system simplifies the transfer of individual messages to a common web portal as well as through alerts to cell phones and e-mail systems, enabling each party to make immediate changes to how products will be shipped. “Retailers and suppliers can now better plan with real-time data,” Blanchard says. “You don’t want a 200-pound weight change in an order after a truck has arrived to pick up products.”

Multi-channel strategy

Modern transportation management systems are also bringing valuable new insights to multi-channel retailers for factoring delivery costs into the profit margins of each channel, experts say.

“A lot of this involves micro-strategy and multi-channel performance,” says Russ Hill, senior director of retail, consumer products and distribution at Business Objects, a business intelligence company owned by enterprise business software provider SAP AG, which offers business intelligence technology with its transportation management software. “Retailers today are strategically pulling in information related to their customers and transportation costs.”

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