Web-based transportation logistics is driving the cost out of products
By Paul Demery
Retailers are beginning to see that improving logistics systems is a way to
boost their levels of cash. Thanks to web-based systems that give more visibility
and control of the movement of freight, logistics are becoming crucial cost
centers that may add more to the financial bottom line than the products being
sold. “In many cases, the information on a shipment is more important than the
shipment itself,” says Tim Minahan, vice president of supply chain research
for Boston-based researchers Aberdeen Group Inc. “If you know what’s going on
with freight, you can pool different shipments and save a lot of money.”
Family Dollar Stores Inc. is learning that lesson. Web-based efficiency is
hitting the road for discount retailer Family Dollar, which is deploying web-based
logistics software from Global Logistics Technologies Inc. to maintain real-time
visibility of truck movements. The system enables Family Dollar to slash shipping
costs by consolidating shipments into fewer truckloads. “This system will pay
for itself within 12 months,” says James W. Burns, vice president of transportation.
Automatic allocation
Family Dollar is moving away from a system under which it must gather information
on freight movements directly from several third-party logistics providers,
which makes it difficult to consolidate shipments to its chain of more than
4,500 stores in 41 states. With its G-Log Global Command and Control Center
logistics application, or GC3, from Global Logistics, Family Dollar will directly
track reports of freight movements from each of its logistics providers, Burns
says.
Based on shipping parameters Burns and his staff enter into the GC3 system,
such as requiring trucks to run at 85% full, the system will automatically allocate
truckloads to maximize capacity in each vehicle, resulting in fewer trucks carrying
the same overall amount of material, Burns says. Family Dollar still has the
option to manually override the system to optimize shipments, he adds.
On average, delivery trucks travel empty about 50% of the time, Minahan says.
According to a 2002 study he co-authored at Aberdeen, “Logistics Resource Management:
Managing the Flow of Business,” companies that implement web-based logistics
systems can save up to 15% of their freight costs. Aberdeen also estimates that
logistics typically account for 10-20% of the final cost of a finished product.
Tony Cianci, vice president of strategic accounts for G-Log, notes that companies
that use G-Log logistics systems usually manage more than $25 million a year
in freight costs.
Family Dollar’s vendors and logistics providers also access the web-based
GC3 system, where they receive shipping instructions. They also input shipment
updates into the system, allowing Family Dollar to check if shipments are on
schedule and carrying the correct products and quantities as set forth in the
purchase order. Family Dollar will continue to send its vendors complete purchase
orders through EDI or fax, but by entering crucial P.O. shipment data into GC3
through an automatic feed from its Retek Inc. merchandising system, it will
enable vendors to acknowledge and verify that information in real time through
GC3.
Without GC3, Family Dollar would often not receive key shipment information—such
as the actual ship-from location, and the freight’s weight and volume—until
the freight arrived at one of its 15 distribution centers. And as with the retail
industry in general, purchase order information often is inaccurate or misinterpreted,
leading to deliveries of the wrong goods or at the wrong time or place. “Often
what’s ordered is not what’s shipped,” Cianci says.
Ready-to-ship reports
Among the first uses of the GC3 system by hundreds of Family Dollar’s suppliers,
will be to send via the web “ready-to-ship” status reports, an online version
of advance ship notices. Vendors and carriers will enter information to verify
shipment data so that Family Dollar can see in real time what’s being shipped,
from where and at what time of departure and expected arrival—giving it the
information it needs to control movements.
If there
are interruptions during transit, carriers will update the system, allowing
Family Dollar to view updates on their computer screens as well as receive automated
alerts through e-mail, pagers or cell phone connections. “The alerts were a
key thing,” Burns says, “because a major problem is being able to alert the
right people when action needs to be taken.”
Vendors and carriers enter data directly onto one or two web pages in the
GC3 application, a process they learn from reading a few pages of e-mailed instructions.
Cianci notes that many truck drivers these days will enter the system from mobile
computers, though some still call in the information to their home office, where
it’s entered into GC3.
If demand from its stores changes from the time a purchase order is issued,
Burns says, Family Dollar can use the G-Log system to alert shippers and carriers
to re-route shipments to different distribution centers as necessary.
One of the major advantages web-based logistics systems offer over their non-web
predecessors is their ability to share supply communications with several people
in multiple departments. So unlike earlier non-web-based transportation management
systems, Family Dollar’s GC3 system will make information from suppliers available
to merchandising and marketing managers as well as distribution managers. “The
system will monitor the path of the retailer’s purchase orders through the entire
procurement process, alerting logistics and merchandising personnel of potential
problems before they occur,” Burns says.
Beyond the beta
Family Dollar will also use the visibility and event-tracking capability of
the GC3 system to better measure how well suppliers are performing. “I’m looking
forward to managing vendor compliance, if they’re shipping the right products
in the right quantities within the window set by the purchase order,” Burns
says.
Burns declines to say what Family Dollar is paying for its GC3 system, but
Minahan notes that deployment of such technology can run over $1 million, depending
on the size of an organization and the scope of its distribution network. On
the low end, they can cost tens of thousands of dollars if installed on a company’s
own network servers, or about $200,000 if hosted by an application service provider,
he adds.
Web-based logistics systems first appeared about four years ago, but were
used mostly during the first two of those years in test cases by early adopters.
Now they’re becoming more widely accepted, Minahan says. “You’ll see more and
more of them, absolutely,” he says.
As in other emerging technology markets, web-based logistics systems got an
early push from a new crop of small, agile technology vendors, including such
companies as Arzoon, CarrierPoint, Cleartrack, Clicklogistics Information Network,
GT Nexus, Logistics.com and Nistevo. But now more established players among
the supply chain and transportation management technology markets are also developing
web-based logistics, serving to confirm that the market is here to stay, Minahan
says. He cites web-based logistics development from established supply chain
vendors i2 Technologies Inc. and Manugistics Group Inc., and from major ERP
vendors such as Oracle Corp. and SAP AG.
Aberdeen projects that money spent by all industries on web-based logistics
resource management systems will grow steadily over the next several years,
climbing from $5.6 billion last year to $9.6 billion in 2005. Aberdeen includes
in its definition of logistics resource management several supply chain areas,
including event management, contracts negotiation, transportation management
and inventory management.
Small fry first
At Family Dollar, the G-Log GC3 system is being deployed in the first quarter,
during which two G-Log staffers will be on-site to train the retailer’s personnel
in how to use the system, including how to set parameters for optimal freight
movements. Burns says he expects a smooth transition. “Nothing good is easy,
but the implementation and training for this is much easier than anything else
I’ve seen,” he says.
By the time GC3 is completely deployed in April, it will have a large number
of vendors participating, Burns says. The retailer will first consolidate the
high number of truckloads that arrive from smaller retailers, for which Family
Dollar arranges and pays for shipment transportation. Then it will begin consolidating
shipments from larger vendors, such as Procter & Gamble, which arrange and
pay for their own shipment transportation. These larger vendors then tack their
freight costs onto the price of the goods.
With his new visibility into P&G’s freight movements, Burns will be able
to reallocate some of its truckloads when P&G’s carriers call him to schedule
deliveries to Family Dollar distribution centers. “We’ll remove some of the
transportation cost from the cost of goods,” he says.
paul@verticalwebmedia.com
