Supply Chain Digest’s Dan Gilmore recently spoke with Transportation Management expert Hal Feuchtwanger, Managing Director, Global Logistics at i2, on several themes related to Transportation Management and technology. The discussion below is taken from the SCDLetter on Transportation Management, which is available at www.scdigest.com/Trans_Management.php, along with a wealth of other resources.
Gilmore: What do you see as the biggest drivers of the long-term transportation strategies in companies today?
Feuchtwanger: There is certainly a degree to which that answer depends on the size, scope and complexity of each company’s operations. Globalization has obviously been a key business driver for many companies, and has created a number of unique challenges relative to transportation planning and strategy.
With oil prices between $100 and $150 a barrel for more than half of 2008, and resultant transportation costs exploding, many global shippers were forced to take a harder look at their production and/or sourcing strategies. While this didn’t represent a pure transportation strategy, per se, it did mean that transportation now had to be considered within the context of a more holistic supply chain planning and design process. And while oil prices have fallen back more recently, expect the price of oil to be a key determinant for many company’s broader transportation and supply chain strategies.
The second relationship that oil will have to transportation strategy, somewhat irrespective of price, will have to do with GHG emissions and regulatory mandates. Carbon footprint reporting and cap and trade regulations are already established throughout much of Europe. Most experts suggest that it’s only a question of when (versus if) similar regulatory actions will make their way to North America. Many leading American companies aren’t waiting and are already taking action to reduce their carbon footprint, either independently or through voluntary initiatives like the EPA SmartWay partnership.
The other key transportation strategies that are relevant to virtually all companies, but that have been complicated further by globalization and other changing industry dynamics include: service provider partnerships, organizational design/skills/ alignment and technology adoption/deployment models
Gilmore: What are some of the biggest changes you have seen over the past 3-5 years in terms of how companies think about and deploy TMS?
Feuchtwanger: The first significant change, for multidivisional/ multi-national organizations particularly, has been the notion of adopting a single, global logistics platform across the enterprise. Many of these companies have autonomous operating units; by division, region, country, etc., and in some cases these individual business units selected and implemented the TMS solution of their choosing, if they chose a solution at all. At an enterprise level the result frequently became a jumble of niche vendors, often with local relationships and localized solutions.
More of these companies are now seeing the value, particularly with advancements in SOA-based architectures, of selecting a single global logistics platform. From an implementation, training and IT maintenance perspective, the benefits seem intuitively obvious.
But the added value of an SOA-based solution is that it offers the business units flexibility to adapt and extend the solution, based on unique operational or ‘localized’ business requirements. In fact, the unique integrated workflows, data model extensions and UI customization capabilities that our SOA architecture enables would probably be a ‘big change’ entirely worthy of its own discussion.
Perhaps the other most significant change has been the growth in adoption of on-demand solutions and supporting managed services. While we signed our first hosted i2 FreightMatrix customer roughly nine years ago, it’s only been in the past 2-3 years that that business has really taken off. And there has been a very natural evolution in that business as it’s grown. In addition to offering our TMS solution in a traditional, on-demand hosted environment (which is where we started) we now offer a full complement of managed services, e.g., logistics engineering, transportation procurement, EDI on-boarding, etc., all staffed by a highly skilled team of experienced logistics professionals. And our FreightMatrix customer list now includes household names like Michaels Stores, Procter & Gamble, Sony, Tempur-Pedic and others. It is the single fastest growing segment of our business.
Gilmore: Right now, the logistics environment is highly dynamic. How does a TMS help companies be more flexible in transportation management?
Feuchtwanger: Flexibility and agility are indeed becoming tantamount to survival in this dynamic and rapidly changing business environment. Logistics solutions must increasingly be designed and deployed to enable companies to evaluate and adapt their business in anticipation of change, and modify and enhance their systems at the speed of business change. Evaluating and adapting for potential business changes, particularly those that will materially impact your supply chain, requires a flexible supply chain modeling/design capability. Many companies have already deployed these solutions as part of a recurring (often annual) network design process; however, increasingly these solutions are being utilized on a more continuous basis; in some cases to analyze either one-time or tactical adjustments, or in other cases as part of an ongoing contingency planning process. These solutions can help companies analyze and respond to numerous business changes related to carrier/modal shifts, inventory imbalances, sagging customer demands, and a whole host of other more tactical business changes.
Being able to quickly modify and enhance a company’s systems has historically been a more challenging proposition. But with the advent of SOA-based architectures, it has become a reality for many leading companies. The beauty of SOA-based technology is that it provides companies all the richness and stability of best-in-class ‘packaged’ solutions, with the speed and flexibility to quickly adapt these solutions based on unique (and changing) customer and/or business requirements.
Gilmore: Cross company collaboration on transportation - will it ever really gain traction?
Feuchtwanger: It certainly seems like there’s been more ‘buzz’ on this topic recently. For many of those who have tried in the past (and frequently failed) the argument often seems to have been that it was not generally a failure of technology, but a failure of will, operational requirements and/or agreement on shared savings. In many cases these were even an issue between two divisions within the same company.
One new element that’s been added to the equation, however, seems to be the increased focus on sustainable/green logistics. For companies with world class logistics organizations, like PepsiCo and others, there will simply become practical limits to which they can continue to optimize their networks internally. Continued pressures for cost reductions, in conjunction with mandated green initiatives will likely force these companies to look externally, particularly those that have sizable private or dedicated fleets.
Based on these market conditions, expect the call for collaboration to continue to gain momentum. While the final negotiation may still be a direct shipper-to-shipper process, expect many of these ‘like-minded’ companies to work with consortium-based partners for the purpose of consolidating shipment data and modeling network overlays, to identify strategic collaborative opportunities.
Gilmore: What are some capabilities or "modules" in a comprehensive TMS solution people may be less familiar with than the traditional planning and execution functions?
Feuchtwanger: A number of these key capabilities represent logical extensions or integration points into other enterprise solutions. For example, dock level scheduling within TMS enables companies to capture open appointment times, and complete the final step in terms of systematically establishing loading or unloading appointments, as part of a ‘closed-loop’ carrier assignment process. This represents a fairly logical point of integration with companies that use a standard warehouse management system (WMS) to support their shipping and receiving activities.
Another key ‘modular’ capability of a world-class TMS is in the area of freight financials. The process of producing an A/P record for freight audit/payment might be considered a reasonably straight forward process by many; however, it still requires a complete and accurate representation of the load level tariff charges. i2 actually takes the entire freight financials process a step further by creating an A/R record, primarily for use by third party logistics (3PL) providers. Shippers can also utilize this capability, however, to support their G/L postings; calculating internal freight charges based on the company’s unique freight allocation rules. Interestingly, many companies who utilize TMS solutions (even i2 customers) still choose to outsource their freight audit and payment process. The reality is that while companies often choose to outsource this process, generally because it’s seen as a high-touch, low value add administrative function, there are some shippers like Michaels Stores, who have made it both highly automated and highly accurate.
There are examples of other capabilities that (technically) may reside outside of TMS, but should be considered as part of a comprehensive, enterprise class transportation solution. For example, the i2 transportation procurement solution (TBC) is a separate module used in support of the negotiation and contracting process, however, the final bid/award rates can be seamlessly and systematically populated within the tariff engine in TMS. Likewise, i2 Transportation Modeler is a modular desktop solution used for conducting ‘what if’ scenario analysis; however, it has a pre-built integration that can leverage the production tariff engine directly from i2’s TMS.
Gilmore: Logistics costs have come down - is it still fairly easy to justify a TMS?
Feuchtwanger: Transportation rates have been falling recently, notably as a result of generally weak demand and the resulting excess capacity, but it’s still a cyclical business trend and doesn’t ensure that every company has fully leveraged that potential savings opportunity through an optimized procurement event, as part of their day-to-day transportation planning process, etc. Unlike many other IT investments, quantifying the value of TMS, particularly an optimization-driven solution, is typically a fairly straight-forward process. And depending on the size of company and profile of the operation, it can often produce savings in the millions or even tens of millions of dollars; an annuity that flows directly to the bottom line.
The other point is that many companies who are looking to preserve capital may now be able to bypass a challenging capital request and approval process. By deploying an on-demand TMS solution that avoids a traditional license purchase, the monthly subscription cost can often be rolled into the operational expense column, and still have a convincing ROI.
Gilmore: What are the key differences, do you think, between companies that have fantastic results from a TMS deployment versus those that have less success?
Feuchtwanger: The reality is that a TMS deployment is not unlike other IT projects in that the difference between success and potential failure can normally be traced to one or more of the following issues:
- Executive Sponsorship/Support – A lack of executive support often means a lack of accountability. When you’re involving multiple resources from multiple disciplines (Operations, IT, Finance, etc.) you need to have an executive with the wherewithal to ‘shake the right trees’ across each department, particularly if/when deadlines are being missed or obligations are going unfulfilled.
- Commitment of Client Resources – More than just a commitment of time, this also means the commitment of the ‘right’ client resources. Most client resources had full-time duties prior to the project, and the most highly skilled are often the busiest. Project success means ensuring an unwavering commitment of time and energy from the right resources at the right time. And this expectation doesn’t go away once the initial project implementation is complete.
- Momentum of Early Success – Much of this can be traced back to committing adequate time and thought to constructing a smart, logical and workable project plan. If the project plan design is based on totally unreasonable expectations, the project team will often lose faith; develop a lack of concern relative to missed deadlines, etc. Meeting expectations and early successes tend to keep the project team motivated and engaged.
- Culture of Continuous Improvement – Even when a project is initially successful, the perceived value of the solution may be lost over time without a focus on continuous improvement. The most successful companies continue to explore ways to make the solution even better, including the feedback they routinely offer to their provider, which may ultimately be incorporated into future releases.
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