January 30, 2003, 12:00 AM

Web-based transportation logistics is driving the cost out of products

Logistics can add significantly to the end cost of a product. Now Family Dollar Stores is using web-based transportation logistics to drive cost out of retail goods and improve margins.

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.

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