In the driver’s seat

Merchandise managers, no matter how tuned into consumer demand for products that sell, have long been at the mercy of dock workers, truck drivers, and all the myriad other links that make up the transportation systems that deliver the goods. Any interruption in deliveries threatens to blow their opportunity to get products in front of customers when they expect customers to be most willing to pay full price.

Although many retailers have tried to gain control over the coordinating of shipments from multiple suppliers, reaching that control has been

illusive. For the most part, managing shipments has been under the control of the suppliers themselves. And retailers complain that even the most responsive and cooperative suppliers often don’t forward notices of exactly what they are shipping until after a truck is loaded and on its way, leaving retailers with a short lead time in knowing which actual products are coming before they arrive.

That lack of coordination often leaves merchandise managers with little time to make alternate plans for promotions and displays if a shipment arrives with products different from what they had ordered. That’s enough to make retailers want to take over responsibility for shipment of their products. And it’s what web-enabled transportation management systems are allowing more retailers to do. “This is one of the defining trends now in retail transportation and logistics,” says Jeff Woods, senior analyst with Gartner Inc. “It’s what retailers have long recognized but have never been able to manage.”

Thanks to the ability of web-based TMS applications to share real-time updates on shipments, retailers and suppliers are able to coordinate efforts like never before. And it’s not only the retailer’s and supplier’s transportation managers who may be on the same web page sharing information, but also other players as well, including the carriers and distribution centers and merchandise managers.

The results—in lower shipment costs and more accurate and timely deliveries of goods—can amount to quick returns on investment, experts say. Transportation accounts for 6% to 10% of the cost of goods, presenting retailers with an appealing cost-cutting target. Even more important for many merchants, improving inbound flows of goods can result in lower inventory levels and faster turns of merchandise. “I’ve seen paybacks in as little as six months,” says John Fontanella, analyst with AMR Research Inc.

At the same time, more retailers are realizing they can maximize their benefits from web-based transportation management systems by taking the lead away from suppliers in operating them. Whether they run a system on their own web server or subscribe to a hosted application, retailers like Stage Stores Inc. are realizing substantial savings in transportation costs while assuring the right products get to the right stores on time. “It puts us in control of when shipments are coming in and how much we pay for them,” Tina Laube, director of transportation and logistics, says. Stage Stores, which uses a hosted transportation management system from application service provider Shippers Commonwealth LLC powered by technology from RedPrairie Corp., operates 360 stores under the Stage, Bealls and Palais Royal brands.

Stage isn’t alone in realizing the benefits to be gained from taking control of transportation with web-based transportation management systems. “The motivation is all on the part of the retailer, because they want to get the volume play in controlling costs,” says Erv Bluemner, vice president of product development for RedPrairie.

Under traditional freight systems, suppliers would arrange and pay for transporting goods to a retailer’s distribution center, then add freight charges to the merchant’s bill. Until now, retailers remained outside of freight management, figuring it was easier to leave it up to suppliers. “In the past, it wasn’t a foregone conclusion that the retailer could do any better than the supplier in managing freight,” Fontanella says. “But this added visibility in web-based systems totally changes that.”

Web-based transportation management systems enable retailers to confirm what’s coming into the distribution center earlier in the ordering process. This allows them to

—route shipments through the most advantageous carrier method;

— compare shipment data with purchase orders, which enables them to assure accuracy and plan for exceptions;

— regulate flow of trucks to distribution centers and stores, which can also help distribution center and warehouse managers better plan worker schedules.

It also gives merchandise managers more control of their flow of goods and of their purchasing budgets.

Indeed, the control and flexibility granted by new web-based transportation management systems can directly impact a company’s profit margins, experts say. The problem, from the retailer’s perspective, is that suppliers often use freight as a profit center, Woods says. Suppliers with the highest volumes and most effective shipping departments can profit from volume discounts in shipping costs after charging retailers full price, he says.

Some retailers now like the idea of exerting more control over shipping as a way to boost their own profit margins through lower shipping costs and increased full-price sales. “Retailers may not get revenue directly from controlling freight, but they can realize massive cost reductions and improve profit margins,” he says.

Gaining visibility

At Stage Stores, merchandise buyers now receive reports on not only what will arrive, but also what their actual cost of goods will be. And that puts them into a better position to plan their next purchases because they know what products are not covered in the coming shipment and they know how much money is left in their spending budget. “It gives them visibility so they know what shipment receipts are coming in, what the distribution center will charge them for, so they can manage their budget that’s open to buy more products,” says Laube. “Before, they had no idea even if a vendor was shipping or not.”

“In most retailers’ experience, advance ship notices come in late in the process after a shipment has been sent, so it gives the retailer very little time to react and do any planning when exceptions occur,” says Tillman Estes, senior director of product management for Manhattan Associates Inc., a provider of supply chain execution systems. And exceptions to orders can result in lost sales when retailers have little time to take alternative measures, such as substituting different apparel fashions or promotional items for expected products that a supplier can’t deliver on time.

Real-time alerts

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.

Data connections

IRCE 2008 Conference Multi-Media CD-ROM

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.

Retailers must also assure that all of their suppliers are capable of participating in a web-based system, though Laube and others say this has been easy to accomplish. Stage worked with Shippers Commonwealth to get all suppliers connected to the web application within a few days. Because participants need only a browser and limited training to use the hosted application, suppliers as well as carriers can quickly take part in the system by updating their shipment data on the web. Transportation management systems usually come with carriers already listed in a connected database.

Even many truck drivers will input data on route status through a web-connected laptop or PDA, though other drivers as well as some small suppliers still phone or fax data to an agent or company employee who enters the data to the web. Training materials for supplier participation is e-mailed to them and the systems can be learned within a few hours, experts say.

Before it implemented its web-based transportation management system for inbound freight, Stage Stores communicated with suppliers through a weight-volume matrix, under which it would direct them to ship via certain types of carriers according to the weight of the shipment. Small deliveries would ship through parcel services like FedEx or UPS, and larger shipments would go through either less-than-truckload or full-truckload carriers. But with hundreds of suppliers, Stage rarely benefited from the most efficient mix of shipments. “Without the web, it would be impossible,” Laube says.

Now, with its web-based transportation management system, Stage can view all available shipments from 213 vendors on a web page and find the best mixture of consolidated shipments, saving on shipment costs while exerting more direct control over which shipments are flowed into its distribution center and when. That gives Stage instead of its suppliers the opportunity to save on shipment consolidations and volume discounts. For example, if it views on the web that three suppliers in the same region each has a shipment that could ship via less-than-truckload, or LTL, it will find a carrier that will consolidate all three on one truckload. The RedPrairie system on Shippers Commonwealth’s server uses algorithms to recommend the optimal routes and carriers for shipments from multiple suppliers, Laube says.

Integrating WMS and TMS

An added benefit, aside from cost, of consolidating LTL shipments into full-truckload shipments is that it results in fewer trucks crowding a distribution center, making it easier for drivers and dock workers to keep shipments moving. “So the idea is combining the two, getting more products to stores more frequently without actually sending more trucks on the road more often,” Bluemner says.

Stage realizes significant savings in cutting down on LTL shipments this way, though Laube, citing corporate policy, declines to specify the savings. RedPrairie notes that, in general, shippers that rely on a large number of LTL shipments can save about a third of shipping costs by consolidating shipments on full truckloads.

Moving forward, more retailers are expected to begin integrating transportation management system and warehouse management system to provide even more visibility into what can and will be shipped. Stage, which implemented a web-based warehouse management system earlier this year, has cited transportation management and warehouse management integration as one of its next projects.

“Now, our distribution center managers manually go into our TMS to see what shipments are coming in and to plan their payroll,” Laube says. “We’ll automate the flow of that information into our WMS, enabling our distribution managers to get automated reports on what’s coming in.”

She adds that it took Stage and Shippers Commonwealth only a few days to implement its web-based transportation management system with more than 200 suppliers, and that she expects a similarly quick integration of the WMS and TMS applications.

“If you’re buying a transportation management system or a warehouse management system, you need to think about whether your vendor will also be able to offer TMS and WMS integration,” Gartner’s Woods says.

paul@veticalwebmedia.com

T is for “transportation”

Although there are a lot of benefits from automating and web-enabling transportation management systems, retailers shouldn’t lose sight of the word that leads that rubric: Transportation.

TMS applications can include, or integrate with, carrier sourcing systems to help retailers choose the most efficient shipping methods and routes. Retail chain Linens ’n Things uses a hosted sourcing application from CombineNet Inc.’s CombineNet.com to slash the time it takes to procure carrier services, says Bob Endemann, executive director of transportation.

“Prior to CombineNet, we used manual methods to conduct our bidding, which required three to six weeks of work per event, not including the data preparation,” Endemann says.

The CombineNet application lets a retailer create a bidding page for particular volumes of goods that need to be shipped on certain routes, such as three loads every week of apparel from an importer in New York to a distribution center in Chicago. The bidding page can also present special criteria set by merchandise managers; for example, that orders of glass-topped cookware ship only on air-ride trucks. In addition, the system accommodates conditional offers from carriers, who may modify an offered contract by seeking greater volume or more destinations in exchange for a lower rate, a CombineNet spokesman says.

CombineNet also presents the retailer with data on past rates it has paid on the same or similar shipments, helping it to decide on an award. Once the award is made, details are automatically sent to the retailer’s transportation management system, where the director of transportation forwards the award to the chosen carrier.

Linens ’n Things structured a recent bid in three rounds to accommodate price and non-price criteria, including rates, routes, run schedules, delivery volumes and locations. Within two weeks—compared to the usual three to six—it had the data it needed to make a final carrier selection, Endemann says. “The system has already delivered unprecedented results in one sourcing event alone,” he says.

Smoothing the bumps in the road

Although web-based transportation management systems present retailers with opportunities for substantial improvement in the way goods are shipped to distribution centers and stores, not all aspects of cost-savings and efficiency are easy to come by.

Retailers who take control of shipping may find that, in some cases, they will have to absorb shipping costs for which some of their regular suppliers never charge them. For example, when suppliers ship products in ready-made displays, they may not pass on the extra cost of shipping the display material, preferring to average out the costs. “As retailers take control of their own freight, in some cases they get a surprise,” says John Fontanella, analyst with AMR Research Inc.

It can also take time to learn the best shipping alternatives, such as letting the largest suppliers continue to control shipping in order to benefit from volume discounts. In addition, a retailer needs to learn the particular shipping requirements of individual suppliers, so that, for instance, it doesn’t attempt to consolidate a shipment of dry goods with a shipment that needs refrigeration.

Nonetheless, he adds, retailers that control more of the shipments to distribution centers and stores through a web-based system should benefit as consolidation in shipping results in fewer truckloads that have to be processed. “The net result should be in the retailer’s favor,” Fontanella says.

But cutting costs isn’t always paramount as a goal in taking control of freight, experts say. Some retailers have begun recognizing the fact that taking the lead in managing transportation can result in higher costs when a retailer emphasizes faster and more direct deliveries in order to keep the right merchandise in stores while limiting inventory levels, says Dan Dershem, president of Lean Logistics. But in highly competitive retail environments with short windows of opportunity to sell at full price, faster deliveries often take precedence over freight savings, he says.

It may cost $900 to ship a truckload, but some retailers would rather absorb that full cost if it means they gain more control over assuring that the truck arrives at the right point at the right time. "At the end of the day, a $900 truckload may have $80,000 worth of goods on it," Dershem says. "So retailers want to control deliveries to shorten order cycles, that’s what’s most important."

“Although 6-10% of the cost of goods is transportation, that means the other 90% of cost is the goods themselves,” he says. “That’s where you can realize the most benefit in cost savings and higher profit margins.”