5 Burning Questions
Complicated questions abound in the supply chain industry and some weigh more heavily on logistics professionals than others. To find answers to some recurring quandaries, Inbound Logistics put some of the industry's top experts on the hot seat and fired away.
As supply chains expand beyond conventional limits and expectations, and penetrate further into new global frontiers, the threshold for exchanging and rationalizing information has stretched as well. Technology offers an interface to connect disparate supply chain partners and facilitate information sharing and communication.
Yet despite, and conceivably as a result of this global connectivity, even seemingly benign questions are now cast in a hazy light.
For example: How does a shipper find capacity? In a closed-loop vacuum, say between a distribution center and a retail store, this query is easy to understand and answer.
But throw into the equation offshore outsourcing, secondary and tertiary sourcing strategies, multiple intermodal hand-offs, and the myriad logistics partnerships necessary to ensure timely and cost-efficient cargo movement, and this question grows increasingly complex.
Why? Simply, there are more points of contact, equally as many perspectives, and so more room for conjecture.
Ask a shipper, a consignee, a 3PL, and a carrier the same question and you might get four different answers. While businesses may feel compelled to streamline this communication process in hopes that their partners come to similar conclusions, and therefore a shared vision, differences in opinion have value because they offer objectivity that fuels more effective solutions.
In a similar vein, Inbound Logistics solicited a diverse group of industry representatives—from shippers to service providers to academics—to answer five burning questions relevant to today's supply chain. Each observer offers a unique perspective that will perhaps illuminate a prying concern in your business or at the very least stoke further debate.
Collaborative discourse goes a long way to filling in gaps in an ever-expanding global supply chain—which only raises another burning question: Does true supply chain collaboration exist? Read on and find out.
1. How can shippers find capacity?
Barry Mulkay, director of procurement and carrier operations, PepsiCo
The basic quest for truckload capacity is relatively easy if you are willing to pay a premium. Most shippers, however, want premium capacity and service at competitive pricing. The key to this question then is, how do you find quality capacity?
By "quality capacity" I mean capacity that provides shippers with timely service at pickup and delivery points, and is cost-competitive based on unique freight characteristics—such as drop and hook, consistent volume, or seasonal surplus.
In the transportation world today, incremental capacity availability is slim at best. Shippers need to be concerned that they are not merely swapping capacity between other shippers or between point-to-point fleets and dedicated fleets.
Shippers operating private fleets should focus on basic productivity techniques to alleviate the capacity crunch. First, they should weigh adding more drivers and trucks against more effectively utilizing the assets they already have.
Private fleets, for example, can increase driver productivity by reducing the amount of time drivers spend on non-driving activities such as loading, unloading, dwell time, and paperwork.
This is a critical consideration for the industry as we try to reduce the exorbitant driver turnover rate that currently exceeds 100 percent per year. If we address this issue and cut the turnover rate in half, we can add 50,000 drivers' worth of capacity, not to mention reduce expenses related to advertising, recruiting, driver training, accidents and injuries, and unhappy customers.
Second, shippers should revisit transportation efficiency basics and consider some important questions:
- Are they using the largest trailers allowed?
- Do their trucks reach the maximum payload?
- Are drivers running the fewest miles possible and minimizing stop-offs where economically prudent?
- Are they hitting the 80,000-pound maximum weight levels and can they obtain permits for greater weights?
- Are they utilizing longer-length vehicles where legal?
- Can they use lightweight tractor-trailer combinations to increase payloads?
Shippers pay the same amount of money for a half-loaded truck as they do for a fully loaded truck, so they may as well get their money's worth. All these factors, if accounted for, reduce the need for capacity and ultimately create available capacity at a competitive price.
Once businesses shore up the basics, they can explore other options that deliver efficient capacity, such as dedicated fleets, company fleets, and collaborative efforts with other shippers and carriers.
These strategies eliminate a key waste component of transportation—empty miles. Connecting networks can eliminate empty mileage, provide committed capacity, and yield equal or better service at a reduced cost per unit or pound.
Collaboration, however, is an over-used word today, especially when applied to the transportation environment. It is easier said than done.
Getting two shippers to agree on network-sharing is a challenge: How do you connect mutual loads and accommodate production schedules, shipping requirements, and pickup and delivery schedules? More importantly, how do you decide who gets what percent of the savings?
Trust and flexibility are the hurdles that deserve the greatest focus. But once shippers feel good about working with each other, operating challenges seem to work themselves out.
Pepsi Meets the Challenge
At PepsiCo, we have developed several best practices to streamline our use of capacity and deliver the best landed pricing:
Our transportation management system optimizes the company fleet daily to haul all possible loads—finished goods, raw materials, third-party backhauls, other shippers' loads, and carrier/3PL loads. This provides us with the lowest landed costs. In an attempt to reduce our company fleet empty miles, we actively solicit business from shippers and carriers and we similarly provide them with a list of all our empty trucks and frequencies.
We run daily dedicated unit trains from our Florida facility to New Jersey, Ohio, and Southern California; and actively sell empty space on the return trains to Florida.
The launch of "Project 650." We ship roughly 650 loads per week outbound from Florida to various cities throughout the United States via point-to-point carrier. We collaborate with other shippers, carriers, and 3PLs to connect their inbound loads to Florida with our outbound shipments. We utilize our dedicated fleet, as well as other shipper and 3PL capacity, to support this network.
We talk daily with fellow shippers about possible collaborative opportunities such as matching loads.
We have expanded our dedicated fleets to provide committed capacity, improved service, and advantaged costs.
We use lightweight equipment to increase payloads. This improves load factors and reduces capacity needs.
2. What is the next big wave in logistics technology?
Richard J. Sherman, director of global supply chain strategy, Microsoft Corporation
People—not technology—solve problems and address logistics uncertainty and variability across the global supply chain. The next wave of logistics technology will come from the convergence of several emerging technologies that enable people to find, use, and share information to collaborate and resolve supply chain exceptions that occur daily, if not hourly.
A high percentage of logistics decisionmakers' time is spent fighting fires and the new wave of technology will be the fire extinguisher.
Thomas Friedman, in his book The World is Flat, popularized the notion of a "global, web-enabled playing field that allows for multiple forms of collaboration in real time, without regard to geographic distance, or, in the near future, even language." This "flat world" concept is changing the way companies compete in the 21st century, and affects the economies and strategies of businesses around the world.
Companies that understand the advances in Internet capacity, workflow and business intelligence software, automatic identification technology such as RFID, and enterprise applications, will accelerate the maturity of their supply chain and leapfrog the competition.
These maturing technologies enable companies to integrate people and processes to provide real-time visibility and collaboration directly from their desktops across global supply chains.
Off-the-shelf web portal technology transforms traditional personal productivity solutions—such as spreadsheet, word processing, and presentation tools—into extended business applications that integrate with enterprise application processes and data into live collaboration tools, supported by real-time data collection, performance management, analytics, and business intelligence.
Corporate portals, instant messaging, and live meetings enable people around the world to quickly identify problem areas in their global supply chains. Real-time data from RFID-enabled products alerts logisticians to exceptions between planning and execution.
Enterprise search functionality similarly enables logisticians to find and merge structured information from their enterprise applications with unstructured information from departmental spreadsheets and documents.
Real-time analytics provide optimal scenario planning that can be shared with colleagues to manage exceptions and synchronize operations to variability in supply and demand.
Business today demands a people-centered, seamless, synchronized, secure, collaborative supply network that manages the flow of material, operations, and information within and across global business organizations for the purpose of profitably responding to market demand.
The world is flat. Companies that leverage the next wave of logistics technology as their new business platform to connect and collaborate will lead the 21st century.
3. What can the U.S. do to improve transportation infrastructure?
John B. Ficker, President, National Industrial Transportation League (NIT League), and American Society of Transportation and Logistics
The U.S. economy has grown significantly over the past several years, but this explosion has also exposed weaknesses in our transportation system: over-crowded highways, a rail system that struggles to meet growing demand, and ports inundated with cargo from around the globe.
Shippers and carriers are some of the most creative individuals in business, and they respond to whatever challenges are thrown in front of them. They seem to be able to "pull a rabbit out of the hat" to get the right goods to consumers who demand them. But with current projections estimating a doubling of freight growth in the next 25 years, how many rabbits are left in the hat?
The United States can lay claim to the finest transportation system in the world, but dealing with this freight growth will take a new approach from all parties in the supply chain. At the core of this challenge is a word that has become overused, but still remains important: collaboration.
To understand collaboration, it is helpful to look at its origin and meaning. The term comes from the Latin collaborare, which means, "to labor together." It is further defined as the "expenditure of physical or mental effort especially when difficult or compulsory."
We cannot expect or rely on government to provide infrastructure solutions, so shippers and service providers must drive change. Developing effective solutions requires a collaborative effort; all parties involved must be willing to engage each other and be open to compromise.
No silver bullet or magic wand exists that will resolve infrastructure issues. Addressing these concerns requires a multi-faceted approach with four major components:
- Productivity - wringing more out of our existing system to increase capacity.
- Technology - utilizing and implementing proven and new technologies to increase capacity.
- Process improvement - streamlining processes among shippers, carriers, and public sector planners to increase capacity.
- Financing - facing the fact that existing finance methods need to be augmented with creative approaches to build and maintain the capacity needed to move growing volume.
Time and Effort
Industry must be willing to expend time and effort to take on these difficult issues and face the challenge of how to fund infrastructure improvements.
This raises two important questions: Can we develop productivity improvements that benefit the majority of the industry rather than one specific area? Will we achieve compromise or will the reluctance to change be a barrier to success?
Collaboration is at the heart of developing and implementing solutions to meet the country's growing infrastructure needs. NITL encourages industry participants to join us in various local and national efforts—both in the public and private sectors—to address this challenge.
As has often been said: "You are either at the table or on the menu." We must be willing to come to the table and labor together.
4. Why adopt best-of-breed technology?
Charlotte Diener, vice president and general manager of global supply chain management, ON Semiconductor
Managing far-flung global supply chains, shorter product lifecycles, customer demands for ever-increasing functionality and lower costs, intense competition, and the need for better productivity are only some of the challenges corporations face today. Developing innovative solutions to these challenges demands critical thinking from experienced individuals.
Furthermore, every corporation has its own external market and internal culture, so technology solutions must draw on state-of-the-art tools, but be implemented in a manner that fosters user acceptance.
As such, the popular choice among supply chain and logistics professionals is to adopt an enterprise resource planning (ERP) solution so you have "one throat to choke." ERP systems are an effective solution to many, but not all, business problems.
Software implementation must be a collaborative process between the company looking to solve a specific problem, and the software provider looking to offer agreeable solutions.
In many cases, companies do not have the internal expertise to effectively analyze a process, deploy a software tool, and gain user acceptance. Companies, for example, will pay for an ERP solution, but only deploy small portions of its functionality.
A counter approach to meeting these dilemmas is to implement best-of-breed software as a catalyst for change. Best-of-breed solutions providers are experienced at solving problems in one specific area, and they employ specialists with corporate experience solving that particular problem.
ERP systems can be viewed as general practitioners—everyone should have one. But to solve chronic problems, one needs a specialist: a best-of-breed provider.
Best-of-breed vendors provide the software for a specific problem area and the practical experience, process development consulting, and change management assistance to extract the most value from that solution in the shortest time.
Also, it is becoming easier to integrate several best-of-breed providers as the industry moves toward standardized service-oriented architectures for developing new tools.
At ON Semiconductor, we have followed a best-of-breed approach since we began in 1999. We use an Oracle ERP system coupled with i2's planning tools and Manugistics' forecast management software.
We will soon migrate to Manhattan Associates' warehouse management solution. This approach has enabled us to drastically reduce costs, as well as implement tools worldwide within a short time. By re-engineering processes, we have also reduced cycle times, vastly improved customer service, and reaped significant productivity gains.
Through continuing relationships with these providers, we continue to improve our processes and tools. We have maintained a state-of-the-art supply chain system by actively participating in the i2 User Group, for example. We share our problems with i2, and serve as a beta site for its new software applications.
Ultimately, different companies at different stages of maturity face varying problems. Finding appropriate solutions—whether ERP or best-of-breed—to a specific problem is the responsibility of management and should never be outsourced.
5. Does true supply chain collaboration exist?
Joel L. Sutherland, managing director, Center for Value Chain Research, Lehigh University; and vice president strategy, Priority Distribution Inc.
Before answering this question, it is necessary to define collaboration. As a supply chain professional actively involved in defining and implementing collaborative solutions for several decades, I have discovered that true collaboration consists of considerably more than cooperation.
All companies engaged in a collaborative initiative must work actively together toward common objectives, and be willing to share information, knowledge, risk, profits, and benefits in an agreed-upon, consistent fashion.
At the operational level, collaboration entails understanding how other companies operate and make decisions, and what is important to them.
Another important clarification relates to the term "supply chain." Because a supply chain consists of so many different elements and moving parts, the focus of a collaboration project can only be on key operational components such as planning, forecasting, replenishment, or transportation. In other words, "supply chain collaboration" is a misnomer.
On the other hand, true collaboration can and does exist when addressing operational components of the supply chain. Take truck transportation for example.
As we all know, the trucking industry faces a multitude of inefficiencies including wasted trailer space, loading and unloading delays, empty miles traveled, excessive freight damage, and high driver turnover.
The only way to address these inefficiencies is for multiple supply chain entities to work together to reduce costs and establish optimal processes for transporting goods. A single supply chain entity—a shipper, receiver, carrier, or 3PL—can only do so much. Collaboration is the answer.
Collaboration in Action
I experienced collaboration in action early in my career while working for Japanese auto parts manufacturer Denso. My responsibilities included overseeing activities such as production planning, inbound transportation, inventory management, distribution, outbound transportation, customer service, and returns management—functions that today fall under the supply chain management category.
Employing the Toyota Production System, Denso built healthy, long-term relationships with all its suppliers and service providers. It was absolutely essential to Denso's success that all trading partners be healthy and successful.
Once companies became qualified partners—which sometimes took years—they understood they were accepting a long-term commitment. The setup was as close as possible to an industry marriage.
Whenever problems arose, all parties worked together to resolve the issue and implement a solution. When devising solutions, we not only considered cost, we looked at the solution's potential impact on partners and the way any alteration affected their roles.
Before adopting any changes, all parties—Toyota, Denso, and suppliers or providers—had to agree and commit to these changes. If any supply chain entity was adversely affected, we'd continue the analysis until we found a solution that benefited all parties in a tangible and fair way.
Why don't more companies adopt this collaborative framework today? The simple answer: because it is hard to do.
Before achieving true collaboration, cultures at collaborating supply chain entities must change and mesh with one another. This collaborative approach is becoming more popular today as a result of increasing transportation challenges. Excellent examples exist within the retail supply chain.
Best Buy and AutoZone, for example, have taken control of their inbound supply chains—once the purview of their product suppliers. In doing so, these retailers are better able to share demand schedules with carriers and 3PLs; plan inbound moves more effectively; reduce lead times; improve on-time pick-up and delivery performance; minimize freight damage; reduce inventory levels; and reduce supply chain costs.
Partnering for Success
While dubious at first, product suppliers have also begun to recognize the benefits of collaborative arrangements, and are embracing this philosophy.
As a result, suppliers reap benefits such as improved scheduling, simplified operations, and stronger relationships with their retailers.
Carriers, in turn, are able to more efficiently schedule pick-ups and deliveries, load fuller trucks, develop regular routes, and increase long-term relationships through collaboration.
Lastly, the retail customer sees benefits in terms of lower costs and greater product availability.
So, ultimately, does true supply chain collaboration exist? Yes, in some functional areas.
The benefits are clear, but the road to collaboration is difficult. To make the necessary changes we need strong leaders who can strategically implement collaborative cultures within their organizations, and lead their supply chain partners down the same path.