Building the Perfect Load
Logistics IT providers are helping shippers, carriers, 3PLs and consignees create cost savings with little capital investment thanks to innovative load planning applications. From better asset utilization to increased compliance, load planning software creates efficiencies before shipments enter the transportation stream.
Have you ever lugged groceries home from the store, struggling to get as many bags as possible through the door in as few moves as possible without dropping or breaking anything? Perhaps with a little foresight you might be able to consolidate your groceries so that you have fewer bags to carry, better weight distribution, a more secure container for handling breakables, and greater quality control over perishable items. This precludes additional benefits such as less time loading and unloading, less physical stress carrying extra bags, and greater cost savings for your supplier.
Now consider moving these "small" efficiencies from the checkout counter to the loading dock, where the margin for error is greater, where broken promises—not eggs—are cause for concern, but where cargo can be consolidated and optimized, with even greater yields farther down in the supply chain.
The Automation Revolution
Logistics IT providers are helping shippers, carriers, and 3PLs achieve cost savings with little capital investment thanks to new and innovative web-based load planning applications. But despite the advantages of technology, many carriers, and conceivably even more shippers, still use manual processes to consolidate loads.
Among trucking companies, 72 percent still prefer using manual methods for load building, according to a Sept. 2001 survey conducted by the Logistics Institute at Georgia Tech. This anomaly can partly be attributed to simple economics. Carriers spending more than $10 million a year were more likely to invest in commercial or customized software (54.9 percent) than those with expenditures less than $10 million (17.3 percent).
For smaller carriers and shippers, the potential return on investment (ROI) on an automated load planning system is negligible. They just don't have the financial leverage, notes Charles Polach, director of operations at Logistics Management Solutions (LMS), an information-based third-party logistics provider headquartered in St. Louis, Mo. "Small companies have little profit margin so they can't invest in technology if it's not going to reduce their head count."
Another reason for this disparity is that shippers who move only one type of product, or have only minor variation in their shipments, have little need for a load configuration system. This paradigm, however, is changing.
"One problem in adopting load planning software is that many companies are convinced they are already doing a great job," says Roy Jonker, president of MagicLogic Optimization, a Vancouver, Canada-based load planning software developer. "But load planning software usually can consistently outperform even veteran load planners, often with 10 percent better utilization."
The added incentives of web-based technologies, in turn, are spurning an evolutionary transition, as automated systems supplant manual processes.
"Often companies have a professional load diagrammer, a guy who has been there 20 years, who knows the ins and outs of loading and draws the diagrams by hand," says Ken Stevenson, president of TransPack, a load planning software provider located in Spring House, Pa. "These companies are looking to automate a manual process. In a lot of cases they're trying to come up with an automation tool before their diagrammer retires."
"For IT providers, delivering an application to shippers who can use diagrams to load trucks the way you tell them to is a real challenge," says Stevenson. "Every company does it their own way; every product is different. The product mix changes over time, so it's a moving target. You can develop a system that is effective today, but a year from now it may have to be adjusted to accommodate a new product line, or an acquired company."
Some companies use configuration models merely as a guide for planning loads; others load trucks strictly according to diagrams. "There's a dividing line between shippers who use the software as a planning tool and shippers who actually want to take the load diagram out to the docks and expect cargo to be loaded according to these diagrams," adds Stevenson. "A lot more companies are doing the former than the latter."
The automotive industry, for example, has traditionally used load planning software as a tool for estimating asset utilization and costs, notes Stevenson.
"Twice a year automakers have new models to deal with and they have to present a bid package to carriers to renew contracts and get new contracts. As part of that bid package they have to say, 'We've looked at what a carrier's daily billed requirements are and we've estimated that we can load everything that it needs for this particular factory in four truckloads. Here is a set of diagrams that shows what those four truckloads look like.'
"To the best of my knowledge, however, no company in the automotive industry uses load planning on a daily basis," Stevenson says. "They only use it as a planning tool to come up with good estimates so they can figure out the routing and how many truckloads a delivery will take."
By the very nature of their makeup, however, some commodities lend themselves to a more proactive application of load-planning strategy. In the insulation industry, for example, "the goal is to fill every square inch of the truck," says Stevenson. "Shippers operate at a low margin and it is a competitive business. Because insulation is a commodity item, these companies are anxious to bring transportation costs down as low as possible. Shippers who can increase load efficiency are thrilled."
The Four Cs
Among less-than-truckload (LTL) and truckload (TL) carriers, load planning can essentially be broken down into three components—consolidation, cost optimization, and collaboration—says Polach.
Given the growing concern of security and safety in the trucking industry, and the potential benefits load planning may afford consignees, shippers, carriers, and 3PLs, compliance can be considered a fourth element. Here's a look at each component.
Consolidation. The purest form of load planning is "the allocation of items to a container so that the resulting loading is safe, operationally feasible, and provides an optimal balance between maximum space utilization and ease of execution," says Jonker.
Load planning is really just a series of consolidations, notes Polach. "If a shipper can consolidate two LTL shipments to make a full truckload, or match a partial LTL shipment with a truckload that has space, he optimizes the order set."
Cost Optimization. With carriers marginalized by fluctuating fuel prices and increased safety and security expenditures, shippers have to look elsewhere to reduce costs. Load planning applications provide ample opportunities for shippers to reduce costs before shipments even enter the transportation stream. But to use this technology effectively, shippers need to know what and where their available resources are.
"What is the order set? Does the cargo have to ship today? If this is your order set, and it has to ship today, no matter what you do, the freight has to move," says Polach. "Your job is to determine the most cost efficient way to move this freight and maintain the desired service."
Collaboration. To facilitate these consolidation and cost optimization challenges, transportation providers need to have full visibility of everything that is going on inside and outside their operations.
Often, the only way shippers can reduce costs is to find out how they can better utilize the space on a truck. If there are limited opportunities within a company's own operations, then the alternative is to look elsewhere, literally beyond the "four walls" of its own distribution facility.
"Imagine two different shippers out of the same geographic market passing through a new destination," says Polach. "In a collaborative environment, if they each have an LTL shipment, it makes sense to combine the two and hit both destinations. The difficulty is splitting the bill. Without the assistance of a third-party provider it is difficult to do."
Load optimization and planning tools provide the necessary technology and infrastructure to identify and facilitate these cooperative arrangements, and in effect, give shippers with mutual routing plans and shipments motivation to utilize each other's assets. This, however, demands a great deal of collaborative effort, outside of IT integration, to make it possible.
Compliance. Perhaps the greatest untapped potential of load planning software is using it to help transportation providers comply with tighter loading and unloading regulations and enforcement. Carriers today, in particular, shoulder much of that responsibility.
"There has been more focus on compliance, particularly when shipping hazardous materials," says Tracy Meetre, director of information technology at LMS. "This enforcement, however, comes from the carriers that are actually hauling the goods. They are paying more attention to the bill of lading and the legal information regarding hazmat contained on the document. The carriers are the ones being scrutinized about the bills of lading while their trucks are on the road.
"The fact that carriers are subject to high insurance premiums due to hazmat, and simply being a carrier in today's world—thus equating to rate increases to the shipper—means that load planning and transportation cost reduction tools will be in high demand," adds Meetre. "If shippers cannot leverage or reduce their carrier rates due to fuel and industry issues, such as Sept. 11, then they will need to do more consolidations and develop collaborative initiatives to meet cost-savings goals."
Load planning software developers such as LMS are taking these new demands in stride and building applications that can accommodate hazmat shipments.
"Our load planning software does take into consideration if a shipment is hazmat," says Meetre. "The optimization engine then takes into account the nature of the product and through product compatibility rules will determine what shipments can and cannot be consolidated. Most of the load planning software tools available do take hazmat into consideration."
As collaboration becomes the expectation and not the exception, it's likely shippers, 3PLs, and even consignees will realize the added benefits of using load planning applications to facilitate compliance
—whether shipping hazmat or not.
Of more relevance to the consignee is the use of load planning software as part of the ordering process, says Jonker. "More and more orders are being optimized for loading, and the load plan is being sent as part of the order. Companies that do this effectively transfer control over the loading process back from the supplier to itself. And control is money."
"When you ship to rural America there's not always a lot of freight coming in the other direction," says Mike Marzano, manager of logistics systems at Monsanto, the St. Louis, Mo.-based agricultural and chemical solution provider. As a result of these geographic constraints and growing concerns over inefficient "deadhead legs" in its trucking operations, Monsanto began looking for an innovative way to create more backhaul opportunities and better utilize equipment assets.
The crux of Monsanto's problem lay in the lack of communication between its network of distribution centers and carriers.
"Monsanto operates multiple facilities across the Midwest and each one of these plants has its own local trucking companies," says Polach. "Instead of coordinating between each other, these trucks were passing each other in the night, delivering multiple products."
To create a more collaborative environment for its shippers and carriers to operate in, Monsanto decided to implement a continuous move program that would consolidate and match loads to eliminate roundtrip miles, empty miles, and deadhead.
"We embarked on a five- to six- month review of web-based software providers who we felt had the opportunity to meet our needs around continuous moves," notes Mark Baxa, U.S. logistics package operations manager for Monsanto.
At the time, Monsanto was doing off-line management manually and it was a cumbersome process. Looking for a system that could automate its existing processes, Monsanto asked LMS and other software vendors to develop a tool that could eventually give it continuous move capability, shipment by shipment.
"We selected LMS for two reasons," says Baxa. "One, for its internal competency around Monsanto's business process because it was already present here from a third-party logistics standpoint working the tactical part of our freight transaction; and two, it already had a base tool in place capable of adapting to what we wanted to do."
Working with Monsanto's existing system, LMS installed LoadMatch—a proprietary load matching component of its web-enabled transportation management system, TOTAL—within 30 days and with minimal implementation costs. Using LoadMatch produced immediate results, significantly increasing the division's load match opportunity and contributing to an average transportation cost savings of 15 percent on tendered, matched shipments.
The program currently entails 38 domestic shipping points and is used by 32 Monsanto plants. Monsanto employees run shipping data through LoadMatch to uncover continuous-move opportunities and generate instant reports.
The web-enabled system allows Monsanto's plants to operate independently of each other, but it also gives each facility visibility into the entire network so it can track shipment activities, identify load matching opportunities, and consolidate loads for more efficient movements. Having the capacity and visibility to load a truck in both directions has given Monsanto an opportunity to be more efficient in its route planning.
"If a shipper pays a roundtrip rate from point A to point B, and another shipper has a load from point C back close to point A, we can load the truck both ways instead of having the truck run empty," says Polach.
"In theory we would like to not only go out and back with a load but go out, reload and go to another destination," adds Marzano. "The continuous move would be more than our traditional two legs."
Presently, Monsanto is utilizing LoadMatch to optimize shipments among its own network of carriers. But, in time, it hopes to take advantage of working with carriers and shippers outside its own operations.
"We have gotten our transportation costs down as low as we can, and we really have to watch and manage our carrier base so that we continue to create win-win situations," adds Baxa. "We see load planning opportunities as a way for Monstanto to do that in the future."