Keeping tabs on trucks: Retailers move
to web-hosted transportation management systems
By Paul Demery
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.
Although all
of its seven stores are in Florida,
Holiday Diver serves sharply
different markets in different parts of the state. Stores in the northern section, between Orlando and the Georgia border, cater to technical scuba diving enthusiasts who explore northern Florida's freshwater springs and caves with oxygen tanks and wet suits, while stores in Key West and other southern areas cater more to leisurely cruise-ship buyers of apparel and light-weight snorkeling equipment, Whiteman says.
Because Holiday Diver drop-ships from suppliers to its stores, it has limited time to prepare store managers for what will arrive and when, a challenge heightened by the fact suppliers rarely deliver exactly what the retailer ordered. "It's rare that a shipment is identical to a purchase order," Whiteman says.
The ripple effect
Holiday Diver's suppliers usually fax pre-shipment invoices to the company's headquarters in Dania Beach, Fla., then Holiday Diver loads a shipment notice into its networked merchandise management system for the recipient store to view. But there are times when deliveries
arrive before a store manager
receives and views the shipment
notice, and sometimes entire shipments wind up at the wrong store, which could leave heavy scuba-
diving equipment taking up space in the wrong location. In one case, a shipment of scuba-diving gear--which can run from $450 to $1,500 per package--arrived at a store expec-ting apparel and snorkeling masks. "It created a rippling problem," because two stores had the wrong merchandise at the beginning of their selling seasons, Whiteman says.
Now, Holiday Diver is training
its employees to use the InSight shipment tracking system from Fedex, which the carrier provides at no extra charge over its shipping fees. "InSight will allow store managers to see shipments at least a day before it shows up at a store," Whiteman says, adding that managers will receive automated delivery alerts in e-mail.
Holiday Diver will realize three main benefits, he adds. Stores will be better able to schedule employees to have enough people on hand to receive deliveries, and they'll have more time to prepare selling floors for incoming merchandise, a crucial step since each store has limited storage space. Perhaps most
important, Whiteman says, Holiday Diver will be able to re-route wrong shipments before they arrive at the wrong store.
Through InSight, which is part of Fedex's Ship Manager service, Fedex makes available through web browser access the status of shipments as they are scanned at multiple shipping points, including international routes, says Jose Li, consultant in retail industry marketing
for Fedex. "If a shipment is stuck in Customs, we alert you that there's a problem there," Li says. In addition to being able to track the time and location status of shipments at multiple points in the delivery process, Holiday Diver will be able to view specific details entered by its suppliers into the InSight system on what they actually shipped, Li adds.
Plugging the drain
Providing shipment status information to internal retail managers is a key benefit offered by transportation management systems, experts say. "Access to shipment information by internal retail departments is where the real value is," Enslow says, noting that a recent Aberdeen study found that to be the top reason companies were upgrading their transportation management systems. "At three out of four companies, when managers have a question about shipment status and cost, they have to pick up the phone and call the transportation department," she says. "That's a huge drain on productivity, because transportation managers have to be focused on
getting enough capacity for shipments and reducing costs."
Hosted applications, she adds, serve this need better than do licensed applications, which weren't designed to serve as information-sharing hubs universally accessible by merchandise managers, retail buyers, customer service reps and others who need instant information on shipment status.
Even hosted applications, of course, require some integration work. LeanLogistics takes four to 12 weeks to connect with a retailer's purchase order system as well as with suppliers' and carriers' shipment order systems, depending on the number of companies, Potts says. The integration enables its users to match the details of what's being shipped to what was requested in purchase orders. Training, however, with many users opting for a self-training software module, generally takes an hour or less, he adds.
As hosted applications become more popular, however, retailers find more suppliers and carriers already integrated into them. "We're starting to see a lot of overlap of carriers," Potts says. "When we bring in a new shipper, we're already networked with 30-40% of their carriers."
Other benefits
In addition to retailers not having to build point-to-point connections with suppliers and carriers, hosted applications also offer benefits such as best practices shared among subscribers learning how to better collaborate with suppliers and
carriers, Enslow says.
Some companies opt for a hosted system to bide their time before deciding on a licensed
system, leaving doubt over the long-term plans some users may have for hosted technology. Indeed, licensed systems from providers like i2 Technologies, Manhattan Associates and Descartes Systems Group Inc. continue to offer some advantages for shippers with special needs, such as the ability to manage zone-
skipping, the bulk-shipping of goods to a regional hub to realize the best shipping rates.
But shippers should expect
further improvements in technology
offerings, as both hosted and licensed vendors fight to keep their share in a market that's beginning to blur the lines between vendor offerings, Enslow says. I2 and Descartes also offer hosted versions, though these systems tend to be not as easy to connect with multiple carriers and shippers, Enslow says. In addition, Manhattan Associates offers a hosted system it acquired from Logistics.com. "LeanLogistics and others will have to enhance their value propositions and take even better advantage of their networks than they do now," she says.
The purely hosted providers are already on the right track, she says. Nistevo Corp., for instance,
has been building expertise in helping to manage shipments across multiple shippers, carriers and retailer destination points, so that trucks can pick up partial loads at each of several suppliers and deliver them to multiple
destinations. "That can help carriers keep rates down, with savings
usually of 5-15%," Enslow says.
Stuck trucks
Another hosted service, One
Network Enterprises, has been pushing into integrated transportation
and replenishment management to better coordinate deliveries based on when particular categories of products are needed in stores. This has helped retailers such as supermarket chains, which get frequent deliveries from a large number of trucks that get backed up at distribution centers, to better coordinate deliveries and reduce the amount of time truckers have to wait in loading yards. "In the grocery industry, it's been horrific to get trucks in and out of yards quickly--it can take several hours," Enslow says. "By being able to smooth out replenishment activity, it's attacking a root cause of a problem in transportation. It's setting a new performance bar for grocers."
LeanLogistics has developed an expertise in helping retailers and suppliers better collaborate with carriers to smooth out delivery schedules and avoid rate hikes. By using LeanLogistics to share demand
forecasts with carriers several weeks before scheduled deliveries, retailers
and suppliers can get better
assurances from carriers that they'll maintain steady rates and have the trucking capacity to meet expected delivery dates. "This is mostly about making sure carriers have trucks available, which is a huge issue now for companies," Enslow says.
LeanLogistics also recently upgraded its On-Demand system in version 4.4 to offer a way of tracking the ongoing value of trucks and other assets for retailers who operate their own fleets. The On-Demand system costs about 0.75%-1% of a user's freight costs, plus initial implementation fees. For a user with annual shipping costs of $5 million, for example, the On-Demand would cost about $50,000-$60,000, Potts says.
As competition continues
to drive improvements in
transportation systems, the number of options in both hosted and licensed transportation management systems available to shippers is presenting users with a broad range of options for both near-term and long-term strategies, Enslow says.
"Now's a great time to
upgrade transportation, because there's a very stable set of vendors to evaluate in on-demand or licensed areas," she says. "There are plenty of hardened solutions out there."
paul@verticalwebmedia.com
