The Evolution of Inbound Logistics--Inbound's Early Adopters: Survival of the Fittest
It is said that mutation drives evolution. For decades, the practice of traffic management was largely push-driven. But during the 1970s, something happened.
For a few practitioners, the flow of transportation changed direction, going exactly the opposite way. Push mutated into pull. Soon after, Inbound Traffic Guide magazine materialized, recognizing the paradigm shift from traditional push-oriented ideas.
Following demand signals, controlling inbound transportation, and targeting the needs of the stateside consignee were heretical concepts that defied prevailing business orthodoxy—transportation and purchasing departments making decisions in silos. But the time was ripe for counter-cultural thinking.
The 1980s marked the beginning of the transition from the industrial age to the information age. This was the leading edge of a new, rapid technological era, auguring the mainstream acceptance of computerization and globalization.
Deregulation of the airline, motor carrier, and railroad industries created an environment of increased competition, paving the way for new market entrants.
This influx of new blood, and the development of innovative technologies, provided incentive and opportunity for transportation, warehousing, and distribution companies to differentiate themselves, push the envelope in developing value-added services, and compete for business in new, counter-intuitive ways.
These forces also unshackled the shipper community by giving them more creative options for moving product across modes and around the world.
Consequently, the idea of third-party logistics providers capable of helping businesses expand control of their transportation and distribution operations—domestically and globally—began to take hold, setting in motion a supply chain reaction that reverberates loudly today.
In 1989, the fall of the Berlin Wall served as both a literal and symbolic reminder of increasing free trade, emerging consumer economies, and new offshore targets for enterprising U.S. businesses.
At the same time, stateside consumers became increasingly captivated by low-priced quality imports, forcing U.S. manufacturers to look farther afield for less-expensive sourcing and manufacturing locations.
By 1990, globalization was in full swing. Recognizing these changes, Inbound Traffic Guide magazine broadened its editorial scope and changed its name to Inbound Logistics. Why?
It was a matter of cause and effect, according to the editor's letter in the July 1985 name-change issue: "We are broadening our editorial content to cover transportation as it relates to other industrial functions. 'Logistics' more aptly describes the inbound transportation buyer's broadened responsibilities."
Why inbound logistics? That same question has served as both mission statement and dangling carrot for believers and skeptics alike during the magazine's 27-year history.
Gradually "why" was replaced by "how," as the reason and rationale behind "demand-driven logistics" became evident in the innovative ways transportation and logistics service providers and practitioners envisioned and approached supply chain management. Inbound Logistics magazine, and the theory and practice of inbound logistics, grew as these tales of change surfaced.
Tracing the Legacy
The case studies we have pulled, probed, and published since our inception serve as important mile-markers for the evolution of inbound logistics. Tracing this legacy entails turning back some pages, and turning over some old stones.
From our archives we have selected articles that show the progression of inbound logistics from early adoption to mainstream recognition.
These snapshots illustrate demand-driven best practices across myriad industry verticals, disciplines, and even literary genres.
As we have purposely left them in the context of their time, these articles illustrate how adopting demand-driven practices helped business logistics managers cope with global, economic, and technological changes.
Demand-driven logistics and, in turn this magazine, have evolved as change agents—exposing the deficiencies of siloed decision-making, while expounding the efficacies of cross-functional activity and collaboration within and beyond the four walls of the enterprise. This vision is apparent in the following articles.
So to answer the lingering question why inbound logistics?...keep reading.
March, 1987 | A Systems Decision Spurs NutraSweet Dreams
Transportation management systems (TMS) have necessarily evolved with the needs of shippers and consignees, and today they feature a laundry list of functions and vertical-specific capabilities.
But 20 years ago the idea of a "computerization system" that simply aggregated freight billing information and provided intra-enterprise visibility to that data was a remarkable breakthrough for companies such as NutraSweet:
When the Food and Drug Administration (FDA) finally approved NutraSweet for consumer use in 1981, following a lengthy 17-year process, it created a welcome, if daunting, task for the sugar substitute producer—figuring out how to catch up with a backlog of demand.
This challenge became even more complicated as the FDA began approving more uses for NutraSweet in applications such as carbonated beverages.
To meet this escalating demand, by 1986 NutraSweet was operating three facilities in the United States—two that manufactured product and one that supplied ingredients to one of the plants. At each facility, the company had one person responsible for managing inbound transportation.
"Everyone had experience, did a good job, and got competitive rates," says Carol Linnean, NutraSweet traffic analyst. "But no one knew what anyone else did, how he or she did it, and why carriers were chosen. There was no common vehicle—except the telephone—with which to communicate."
As a result, the company was inefficiently using its $5-million transportation budget, leaving about $100,000 in carrier discounts on the table, according to Linnean. "We were not able to see transportation as a complete picture," she says.
So Linnean began looking for a computerized system that could manage the transportation function, and specifically control inbound and outbound costs.
After a lengthy search and much due diligence, which included input from various departments, NutraSweet selected CITIPRO, a transportation system manufactured by Citicorp Management Logistics, to aggregate information and coordinate communication among its three facilities.
By automating freight payment and creating an electronic portal for transmitting shipment information via IBM's information network, the CITIPRO system enabled NutraSweet's three facilities to have visibility into the entire transportation network.
And the advantages were quickly evident, observes Patricia Frakes, superintendent of receiving and distribution at NutraSweet's Augusta, Ga., plant.
"A Midwest motor carrier recently opened a terminal in Augusta. I was able to negotiate a 40-percent discount with them," she says. "The CITIPRO system lets me transmit that information to its database so that my colleagues at the other NutraSweet plants can enjoy the same discount.
"In the past each plant fended for itself," Frakes adds. "Now we can see what the other plants are doing."
July, 1992 | From Pier to Plate in 36 Hours
Integrating purchasing and transportation functions are key components of managing inbound. When quality concerns became problematic for Red Lobster, it took back control of purchasing and found a transportation partner that was up to the task:
In 1981, Red Lobster began introducing fish into its restaurants by allowing individual franchises to source "fresh catch" locally. In so doing, the company lost control over the consistency and quality of product its restaurants were serving.
To rectify the situation, Red Lobster organized a national purchasing program out of its Orlando, Fla., headquarters, using a regional supply distributor to make weekly deliveries.
This way, restaurants could call in their supply needs to Red Lobster's Orlando office; then management could place orders with approved suppliers and use regional supply distributors to make weekly deliveries by truck.
In time, however, this over-the-road inbound system did not allow the company to quickly or efficiently scale supply according to need—for example, delivering West Coast catch to East Coast restaurants in case of a shortage.
Red Lobster then turned to Emery Worldwide and its dedicated network of planes and ground fleet to expedite fish shipments twice a week via air, so that shipments arrived in restaurants in less than 36 hours from point of origin.
With the new inbound system, restaurant managers still maintain control over what they order and corporate management retains control over suppliers and product quality.
With the rollout of a new Electronic Data Interchange (EDI) system to facilitate order fulfillment from restaurants to vendors, and plans to integrate this system with Emery's network, Bob Joseph, director of purchasing for General Mills, Red Lobster's parent company, envisions a future of paperless billing that will likely surpass the $100,000 savings already achieved by eliminating key-punch order-taking.
February, 1994 | The Picture of Health
When election time rolls around, health care reform is a hot-button topic that receives lots of attention—and few results. But 14 years ago, New York City's St. Luke's-Roosevelt Hospital took it upon itself to become a model for reform. Partnering with an outsourced logistics provider to manage inbound delivery of medicine and supplies became the perfect band-aid for swelling operational costs:
Until a year ago, the materials management system of Manhattan's St. Luke's-Roosevelt Hospital Center, the nation's fifth-largest hospital, lagged way behind its high-tech diagnostic and therapeutic capabilities.
Getting hospital people and logistics people to be partners was a big challenge. But with the assistance of third-party logistics provider GATX Logistics, that's just what St. Luke's-Roosevelt did. And in the process it saved $2.5 million in annual spend.
From the beginning, the hospital decided to use a professionally managed off-site distribution center to provide efficient delivery of thousands of different items directly to nurse's stations, operating rooms, and laboratories at its two hospital sites.
At the time, only 30 percent of ordering was being handled through the office channels of general supply and central stores. Nearly 11,000 items were ordered independently by nursing stations.
Supplies were hoarded and no accurate aggregate purchasing information existed. Fully $600,000 worth of inventory was unaccounted for annually and 20 trucks a day crowded the hospital's receiving and loading docks.
GATX Logistics immediately came in and revamped the hospital's entire process, implementing a two-bin inventory system within the hospital, while taking over management of a new warehouse and distribution center in the Bronx and equipping it with necessary carousels, conveyors, forklifts, racks, and bar-code readers and scanners.
Now, hospital workers use bar-code technology to record their replenishment needs. With demand signals from the hospital coming into the distribution support center, GATX's software batch-processes the aggregate of orders, compares it to the inventory on the pick line, and if necessary, releases additional inventory from bulk storage.
It also calculates the number of totes needed to pack each hospital location's supplies. Then four to five trucks make daily deliveries to the two hospital sites.
Taking the sophistication of the warehouse to the hospital has given St. Luke's-Roosevelt greater visibility and control of inventory, while reducing costs, increasing efficiency, and creating better morale among hospital staff.
May, 1994 | Elizabeth Arden's Wrinkle In Time
Evolving communication and data integration technologies continue to facilitate how global businesses manage their supply chains. In 1994, however, a lone fax machine was the IT enabler that led Elizabeth Arden to radically change its domestic inbound transportation program:
Deep in the historic Shenandoah Valley, Elizabeth Arden manufactures youth preserving skin-care products, cosmetics, and perfumes customers count on to ease the ravages of time and enhance beauty.
Meanwhile the company's logistics managers have created a time machine of their own.
It runs on the power of a humble fax machine and racks up annual million-dollar savings by streamlining domestic and international inbound programs, while expediting delivery of chemical raw materials, glass, cardboard packaging materials, and some finished goods from New York and Europe to its manufacturing facilities in Roanoke, Va., and Puerto Rico.
The idea of using a fax to aggregate and control its inbound logistics program was born out of a simple desire to cut costs, says T.M. "Mickey" White, transportation manager for Elizabeth Arden.
In 1990, Elizabeth Arden's transportation and purchasing staff identified an opportunity to streamline inbound transportation between a cluster of vendors in the New York City area and its manufacturing facility in Roanoke.
Local carriers welcomed the idea when they realized they could eliminate deadhead moves by being more flexible in meeting the cosmetics company's needs.
Elizabeth Arden replaced much of its use of less-than-truckload (LTL) carriers with two truckload (TL) carriers. As a result, in 1993 it consolidated what would have been 2,760 LTL pickups into 976 truckloads.
Those shipments, plus an additional 3,418 LTL shipments, 692 truckloads, and 77 air shipments translated into 32 million pounds of inbound freight.
The fax machine became a critical part of this consolidation transformation. Creating a standard form that specified necessary shipment information allowed vendors to fax documentation rather than phoning it in.
This shift in operating procedure was not without growing pains, however, as some carriers and vendors resisted the new process. Karen Rubenstein, purchasing agent for raw chemical ingredients, tells suppliers that as a customer, she wants good service.
"We want to be able to control our shipping. If the customer is going to be satisfied, this is one element that is important to me."
In turn, some suppliers had to accommodate Elizabeth Arden's needs by changing their own manufacturing and warehousing systems. But the learning curve has flattened as vendors become used to the requirements.
On the domestic side alone, Elizabeth Arden has saved upwards of $500 per truckload, or $450,000 annually. And now, thanks to this success, the company is using a freight forwarder to consolidate inbound shipments from Europe as well.
All because of a fax machine.
November, 1998 | Internet Logistics Hits an Online Drive
In its early years, the Internet gave retailers a whole new perspective on how to connect demand with supply. A novel marketing idea, sound understanding of inbound logistics and supplier management, and a knowledgeable logistics partner helped Justballs! create something out of seemingly nothing:
When Jim Medalia decided to launch an Internet retail store selling sports balls to coaches, recreation departments, and consumers worldwide, logistics was a priority. With no warehouse or retail store, Justballs! was the consumer-facing link between supply and demand.
The online ball shop owns and manages its own inventory but leaves the task of operating a warehouse to its outsourced logistics provider. With a pedigree in call center and fulfillment operations in the catalog industry, the Jay Group was well prepared to meet Justballs! growing inventory management and distribution needs.
"Currently we have approximately 800 SKUs—about 15,000 units. Because we just opened, our days of supply are minimal. Inventory will be driven in the future by demand at an individual SKU level, and by interaction with our suppliers," says Joe Ruggear, vice president of logistics.
Necessarily, controlling inbound and letting demand dictate supply requirements are critical to the growth of Justballs! business.
"Inbound logistics first gives us the ability to forecast customer demand and to share this information with our suppliers. Second, good inbound logistics management lets us reduce response time from suppliers, allowing for quicker replenishment and fulfillment," Ruggear says.
The Jay Group's competency in managing inventory and transportation dovetails well with Justballs! management of the supply side. For the customer this collaboration is anything but transparent.
When visitors log into the web site, a simple search engine makes finding the right product for the right person an easy task. Then when they want to purchase an item they can electronically submit their order.
Justballs! management picks up orders twice a day, and batches them to the Jay Group, where the orders are matched with inventory in the system. Items are then picked, packed, and shipped. Once the tracking number is created, the customer is charged and receives an email confirmation of the shipment.
Currently, Justballs! order fulfillment is exceeding its ship-within-48-hour service commitment to buyers, but its future goal is to become even faster.
"We want information to move instantaneously from the point of ordering to the fulfillment center, then back to the customer with tracking number and confirmation. This ultimately means quicker service," observes Medalia.
"It will be an evolution to totally integrated, real-time information sharing with our suppliers," he says. "The total process will be integrated from web site to order management to fulfillment and customer database management."
June, 2001 | Strikepoint: A Logistics Tale By Daniel Pollock
The trials and travails of Gan McManus' fictional attempt to save his company and his job by meeting an unprecedented spike in demand for Cornelius footwear was the convergence of fantasy and reality. The overwhelming response we received from readers was proof positive that Gan's real-world peers appreciated the challenges and accomplishments of his heroic undertaking:
Faced with sudden, unprecedented demand for its product, a staid company taking an antiquated approach to transportation gets a clue just how important world-class logistics can be.
There isn't much an 11th- hour conversion to logistics best practices can do now to beat the odds on this "bet the company" gamble—or is there?
Why should you spend your time reading fiction? Because Strikepoint is a celebration of your job. It shows how crucial logistics can be as a change agent, or at least as a way to successfully meet an opportunity crisis.
In many companies, logistics is relegated to obscurity. This story highlights just how important logistics is, and how important your efforts are.
Strikepoint was a long time in the making. About 10 years ago, Inbound Logistics editors had the idea to write the "Great American Logistics Novel."
Why? Because sometimes fiction is more accurate in its depiction of how frustrating and challenging logistics can be.
As editors, we can't always get logistics managers and companies to reveal their inner workings and failings. Eventually, the Council of Logistics Management (now CSCMP) picked up on the idea and commissioned best-selling author Daniel Pollock to write such a novel, the logistics thriller Precipice.
Drawing upon the success of Precipice, we were lucky enough to interest Pollock in writing a logistics novella exclusively for Inbound Logistics readers. Pollock, a former editor with the Los Angeles Times Syndicate and author of the novels Lair of the Fox, Duel of Assassins, and Pursuit into Darkness, spent many months talking to readers and industry experts to accurately depict the challenges, joys, and frustrations of your vocation.
Strikepoint was written to celebrate your job in a way never seen in a trade magazine before. If you haven't already, give Strikepoint a read yourself: www.inboundlogistics.com/strikepoint
September, 2003 | From Factory to Foxhole: The Battle for Logistics Efficiency
Historically, logistics has been used to describe the supply, movement, and support of military operations—and modern business has learned a lot from this legacy. Today, the military is taking a page from the private sector as it develops customer and supplier partnerships to support its troops:
The ongoing transformation of military logistics has significantly extended and transformed the supply chain.
Rather than focusing on traditional port-to-port capabilities, today's military logisticians are getting up to speed thanks to savvy leadership, forward-thinking supply chain initiatives, and best-in-class technology.
In many ways, commercial supply chain managers and military logistics professionals are tackling similar challenges. Some major differences, however, make the military effort more complex and urgent.
"Profit is not our bottom line," explains Allan A. Banghart, director of enterprise transformation for the Defense Logistics Agency (DLA) and a 30-year Navy veteran. "It's the ability to perform in combat."
The DLA is the Department of Defense's (DoD) largest combat support agency, providing worldwide logistics support to the military services, several civilian agencies, and foreign countries. As elsewhere in the U.S. military, the DLA is undergoing major change.
The DLA supplies all the food, fuel, and medical supplies as well as most of the clothing, construction materials, and spare parts for weapons systems for the forces remaining in Iraq during reconstruction.
Two critical components of its transformation are ongoing improvements to customer relationship management (CRM) and supplier relationship management (SRM).
DLA's CRM efforts closely parallel those of a commercial company. "We are trying to add value to the warfighter by providing the right item in the right place at the right time and at the right cost—every time," Banghart says.
DLA's CRM initiative enables this goal. "The CRM effort is designed to provide us with the workforce, processes, and information technology tools to move from a transactional-based relationship to a personal, partnering relationship with the customer," Banghart explains. The initiative also helps DLA act as an integrated member of its customer's team.
On the supply side, its SRM initiative consists of two key components: strategic material sourcing and strategic supplier alliances. "DLA manages 5.2 million items, but 500,000 drive our business," Banghart says. Moving those 500,000 line items to long-term contracts means DLA can assure their availability, quality, and best value.
While these core items are competitively sourced, a number of products handled by DLA—such as tanks, airplanes, or weapons—have only one source.
"We need assured availability, quality, and best value for these items," says Banghart. As a result, DLA has initiated strategic supplier alliances with 30 key DoD sole-source providers.
January, 2007 | Demand-Driven Logistics: Adjusting Focus
At its core, demand-driven logistics is a change agent. So when Eastman Kodak decided to restructure its business footprint and embrace the digital photography revolution, it took an inbound approach to leaning inventory and controlling transportation:
With 80 percent of its business drying up as traditional film made way for digital photography, Eastman Kodak found itself with a unique challenge and opportunity in 2003. Such massive market changes spurred the imaging product manufacturer to dramatically change its business model.
A key element of this transformation is Kodak's new supply chain strategy. As part of the company's plan to free up cash, Kodak decided to move to a demand-driven model, says Michael Cattalani, Kodak's manager of suppliers, logistics operations.
"Demand-driven doesn't only refer to logistics; it is a corporate goal for Kodak," he says.
The goal was to reduce inventory and costs while increasing cycle times. Kodak met these goals, and others, including more effective dock door management and a more reliable, routine logistics structure.
The first leg of Kodak's demand-driven journey was developing a cross-functional team supported by executive management.
"As we started the process, it became clear that we needed key representatives from every division—including manufacturing, purchasing, logistics, and supply chain—on the strategy team," says Ray Garbach, manager, materials management for Kodak.
One advantage was that senior managers "were willing to stick their necks out to improve Kodak's processes," says Garbach. "They also pressed us to establish a backup plan, which is mandatory in this environment."
Kodak produces materials in a nearly just-in-time fashion, so it was able to remove risk and fear from the supply chain, while also working with senior managers to develop contingency plans.
As part of its transition to a demand-driven supply chain, Kodak completely disassembled its less-than-truckload transportation with suppliers. Before, each supplier shipped its goods to Kodak plants.
Currently, Kodak consolidates supplier shipments by geography, making more frequent deliveries to the plants, and uses trucks containing material from multiple suppliers.
In addition, it has standardized supply chain processes across the organization and across suppliers, allowing it to instantly spot abnormalities.
The company also implemented new crossdocking techniques. Instead of storing material not immediately needed on the floor, it is now crossdocked, and shipments to docks are scheduled.
"While we bring goods in from suppliers to the crossdock once or twice a day, we spin out to the factory floor as many as five to seven times per day. This one additional step counteracts substantial steps—including unnecessary storage and retrieval processes—on the other side," says Garbach.
Kodak has seen dramatic improvements from its supply chain overhaul. The company has reduced cycle times by 70 percent in some areas, and has taken inventory out of the system.