Archive for Logistics Trends

MercuryGate’s User Conference 2014 was in New Orleans last week.  MercuryGate, of course, is a best of breed provider of transportation management systems (TMS).  At a conference sponsored by a TMS supplier, you would expect much of the talk to center on the freight savings that can be achieved with a TMS; and this was of course discussed.

royal sonesta no

MercuryGate Conference Location:
Royal Sonesta Hotel on Bourbon Street

But the greatest issue keeping shippers and brokers up at night in today’s market are the capacity issues – the difficulty of just finding carriers that will cover your lanes.  Based on this, a key area of discussion was the role a TMS can play in resolving capacity issues, and some important TMS features that support this.

TMS solutions have routing guides that display the preferred carriers by lane.  In a capacity crunch, you should expect that tenders are going to be rejected more frequently.  Users would be well advised to add more carrier choices on each lane.

But the process of onboarding carriers is not trivial.  A shipper or broker needs to make sure a carrier’s drivers have good safety records, that the carrier has enough insurance, that the company is financially stable, etc. MercuryGate has a solution called Carma (which stands for carrier management). Carma is the most functionally rich carrier management functionality that I have seen (Supplier Relationship Management Functionality Comes to TMS).  And a solution like Carma makes it less onerous to add new carriers and to monitor these relationships over time.

There was an interesting tip made about the use of Carma.  It was suggested that if you choose to never work with a carrier again, do not delete the carrier from Carma.  Leave the carrier in the supplier management solution with a note that they are not a reliable partner and are not be used.  If you delete the carrier, and end up scrambling to cover a load, you could inadvertently end up working with a bad player.

Secondly, the analytics in a TMS can play a role.  One key metric around capacity is the percentage of times the primary carrier on a lane rejects tenders.  If your number one and two carriers on lanes are consistently rejecting tenders, if may be a sign that market conditions have changed such that the rate you signed some months ago is no longer valid.  In this case, you may want to make the number three carrier the primary carrier for that lane, let the number one and two carriers know you are now paying a higher rate on this lane, and add new carriers to the route guide.

Oftentimes when a company cannot cover loads, they tender out to load boards.  But there are risks in dealing with carriers you have not worked with before, and if time is short, working through the full due diligence carrier process might be problematic.  MercuryGate has a product called FreightFriend that can be useful here.  This solution stands midway between a broadcast tender and a load board.

Freight Friend is a private network website for shippers, brokers and carriers. Shippers and brokers post loads that are visible only to the carriers they trust – their “friends”. Carriers post available capacity and regular lanes to one web site, knowing that only their shipper or broker “friends” can see and utilize them. Full radius based searching and matching functionality seamlessly connects the right loads with the right trucks.

Finally, optimization has a role to play.  Fewer loads tendered probably means fewer loads rejected and less scrambling.  Optimization helps companies more fully load their trucks, combine loads, and drive fewer total miles.  Continuous move functionality is a form of optimization that becomes increasingly important.  If you have a carrier taking your goods to Florida, where backhaul opportunities are limited, that is a load very likely to be rejected by multiple carriers.  But if you can link the drop off to a pickup of a load in the adjoining state of Georgia, that tender becomes much more interesting to a carrier.

No one at the conference thought that the capacity issues could be resolved in less than two to three years – driver shortages, equipment sell offs, and tougher regulation make this the toughest market many shippers have seen in their lifetimes.  Shippers will be prioritizing service over savings for the foreseeable future, and they need systems that help them do this!

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ROI is Driving TMS Growth

ARC Advisory Group conducts an annual analysis of the global transportation management systems (TMS) market. The research process includes the analysis of large amounts of information and interviews with executives from numerous TMS software companies. The process concludes with the publication of ARC’s TMS Global Market Research Study, which analyzes the market shares across numerous categories of the leading TMS suppliers. Aside from the market share analysis, the study looks at the trends that are driving and/or inhibiting growth in the TMS market. As simple as it sounds, this year’s study confirms that the ROI achieved from implementing a TMS is the biggest factor in the market’s growth.

When a shipper decides it needs to improve its transportation performance, it typically attempts to achieve this by either buying a transportation management system (TMS) or outsourcing transportation planning and execution to a managed transportation services (MTS) provider.

According to ARC Advisory Group research, among those shippers that successfully achieve significant reductions in freight savings, TMS and MTS perform roughly the same. However, when you look at the proportion of respondents that achieved negative results (increased freight costs) or no improvement in their freight spend; TMS appears to be the less-risky investment.  Further, when it comes to net savings (after all fees are paid to the service provider), TMS appears to perform somewhat better.  On the other hand, when it comes to service improvements, MTS is the clear winner.

TMSSo where do these net savings come from? Primarily, a TMS can save companies money by lowering their freight spend. Based on ARC TMS survey data, respondents indicated freight savings of approximately 6 percent with the use of a TMS application. Of these savings less than 25 percent of the net savings were absorbed by the TMS for the majority of respondents. These freight savings can be attributed to lower cost mode selections, better routing, and better procurement negotiations.

A contributing factor to these savings is the evolution of TMS products themselves. The TMS product set continues to improve with new forms of optimization, mobility enhancements, improved usability, and better analytics.  Multitenant solutions continue to offer some distinctive capabilities that many companies find attractive. Aside from the freight savings, TMS products are providing numerous other benefits, including improved customer satisfaction, warehouse efficiencies, new delivery capabilities, inventory reductions, and cash flow improvements.

As the product sets of TMS providers have improved, so has the sophistication of MTS providers. In fact, until recently, one of the leading complaints about MTS providers was that their technology was not good enough.  As these providers overcome that barrier, potential TMS customers may increasingly choose the managed services path. TMS and MTS providers will continue to make enhancements and improvements to their offerings. As the core product sets continue to become more sophisticated and offer better tools, shippers will be able to better optimize their routes and lower their freight spend. The end result is an improved ROI for shippers, which will continue to fuel the growth of the TMS market.

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ARC was briefed by Mike Mulqueen of Manhattan Associates on their transportation management (TMS) product. Mike is a Senior Director for Product Management at Manhattan. What I found most interesting was a short conversation we had about the carrier capacity crunch and the role various supply chain software solutions can play in improving matters for shippers.

I wanted to dig deeper on Mike’s thoughts around the capacity crunch so I asked Mike if he would be open to being interviewed. He was.

Steve: When I talk to transportation professionals that work for shippers, the capacity crunch is what they say is keeping them up at night. I gather you are hearing the same thing.

Mike: Absolutely. The capacity issues that we are seeing are most prevalent in the long-haul, truckload segment of the market. Like any market, trucking will respond to the realities of supply and demand, but today, the asset based trucking companies are not yet convinced that they can profitably add capacity, even as demand for their services increase. Trucking executives I hear from are concerned about an active regulatory environment that has reduced productivity of their operations and promises/threatens to do more. They continue to have great difficulty in recruiting and retaining qualified drivers, and the cost of tractors and trailers continues to rise for those companies that even have access to the capital necessary to expand their businesses.

Therefore, we are in a situation where trucking companies are in a position to be much more selective for whom they haul freight. For shippers, this means that they must understand the levers that impact the profitability of their transportation service providers. If you don’t, it can be an expensive proposition. A recent study from MIT’s Center for Transportation and Logistics showed that freight rates can increase by nearly 15 percent when shippers have to purchase service outside of their primary carriers. This became apparent earlier this year to shippers when spot market rates hit all-time highs.

Steve: So what is the solution?

Mike: One way for shippers to ensure they have capacity is to pay higher rates, but as you can imagine, that is not a shipper’s first choice. Instead, we see a lot of shippers focusing on how to change their business processes in order to be “carrier-friendly.” This means the development and implementation of process improvements that make carriers want to haul their freight.

Some of these process changes can be pretty simple. One of our shipper customers has developed a program to ensure that driver facilities are clean, comfortable and well-maintained while also allowing drivers to use their yard if they are out of hours. Driver attrition approaches nearly 100% for long-haul trucking firms and the cost of hiring and training new drivers typically exceeds $5000 / driver. Therefore, shippers that treat their carriers’ drivers respectfully are given preferential treatment.

Additionally, we are seeing shippers look to alternative methods to transport freight that are less reliant on long-haul trucking. Intermodal has grown dramatically over the past decade as service has become much more reliable. We are also seeing a heightened interest in converting one-way truckload freight to dedicated contract services. A dedicated fleet is a good way for shippers to lock in capacity, but it comes with the risk of paying substantially more for transportation if the dedicated assets are not well utilized. Often times both intermodal and dedicated services are provided by the same transport providers that are providing one-way services, so shippers should work with their carriers to understand the full breadth of offerings and align their shipping needs accordingly.

Finally, we are seeing shippers and carriers moving much more aggressively to “drop-trailer” programs. These programs enable carriers to simply drop trailers at a shipper’s yard and have them loaded or unloaded by the shipper company. This enables the carrier’s driver to quickly return to revenue generating activities (i.e. hauling freight) without having to wait for warehouse operations to process the trailer. While the carrier does have to increase their trailer inventories to support these programs, the cost of drivers waiting to be loaded or unloaded, especially considering the new HOS rules, far exceeds the cost of the extra trailers.

Steve: How can transportation management software help shippers cope with the capacity situation?

Mike: Shippers are exploring different ways to move their freight. Therefore, a TMS must make the most efficient use of all transport options at the shipper’s disposal, be they full truckload, intermodal, LTL or fleet. As long-haul truckload rates rise and capacity tightens, a TMS with strong optimization capabilities will naturally flow more shipments to alternative modes of transport where possible.

However, once the mode decision is made, a TMS offers other capabilities valued by carriers. It will automate and standardize communication flows between shippers and carriers. This reduces both data errors as well as labor costs for both the shipper and carrier. The TMS also ensures that carriers are assigned loads based on agreed upon commitments and given the necessary latitude, will balance those commitments so as to not overwhelm a carrier on any given day. Advanced TMS systems also have the ability to send short-term volume forecasts to carriers so that they have time to react when surges or lulls in demand become evident.

Finally, a TMS becomes a repository for a great deal of information that can be used by shippers to identify opportunities to improve their operations. For instance, by integrating with a yard management system, the TMS gains visibility into driver dwell times (i.e the amount of time the driver is at the shipper’s facility). Inefficient yard operations are a significant drain on driver and asset productivity and those shippers that are unable to turn around drivers quickly are going to have great difficulty getting carriers to haul their freight or will be able to do so only at premium rates.

Steve: The shipper-carrier relationships tend to be very cyclical. One year the shipper is up, the next the carrier. Is there any reason to think that the current capacity crunch will continue for an extended length of time?

Mike: I believe there is. The last big capacity crunch we had was in 2004-2005. To your point, it was short lived and we quickly moved back to a period of excess capacity.   However, all signs point to this capacity situation being fundamentally different. There just is no quick and easy way to solve the driver shortage problem. Long-haul truck driving is a demanding job and there are just not enough people willing to do it, given the compensation levels in place today. The over-capacity situation of 2006-2008 was remedied by the Great Recession, which culled a great deal of capacity from the system. The subsequent weak recovery has given shippers a false sense of security, even as more capacity has been drained from the system as an increasing number of trucking companies have shuttered their operations. However, as we begin to see signs of stronger economic growth, the demand for capacity will intensify. Ultimately, higher rates are inevitable, but shippers can mute the impact by implementing carrier friendly processes that are designed with an understanding of basic trucking economics.

Steve: Thank you very much for taking the time to talk to me.

Mike: Always a pleasure Steve, thank you for the opportunity.

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The hottest trend in supply chain management is omni-channel. Five years ago it was shelf-level collaboration. But really, these initiatives should be seen as mutually reinforcing.

Omni-channel is retailing is based on providing consumers with a better shopping experience by leveraging both stores and the e-commerce channel. The idea is that a customer should be able to go to a store, see something they like, and order it for home delivery; or order the item online and pick it up at a store; etc. There are many different product flow paths that cross sales channels that are possible.

In a survey we completed last year, the top three reasons retailers are moving towards omni-channel initiatives are to increase sales (77.9%), increase market share (73.0%), and improve customer loyalty (69.7%).

Now let’s turn to shelf-level collaboration, also known as demand driven supply chain. Here the primary goal is for consumer goods companies to leverage downstream data, particularly a retailer’s point of sale data, to achieve a better in stock position on the store shelf to the benefit of both themselves and the retailer they are collaborating with.

However, one thing connects traditional shopping and new omni-channel buying paths: product availability. If the product is not available through the channel of choice, the customer may move on to another retailer that can fulfill his or her order. That means lost sales, market share, and less customer loyalty.

While many brick and mortar retailers are seeing quickly growing revenues from e-commerce, and stagnant or declining same store sales (as Walmart has been reporting in the US), traditional store retail is still the great majority of sales. Thus, shelf level collaboration between consumer goods companies and retailers should be considered foundational to omni-channel!

Most retailers recognize that an omni-channel initiative is a multiyear project. Rather than doing a big bang project and trying to enable all potential multi-channel flow paths simultaneously, they pick one or two that have the greatest ROI and focus on them initially. Ironically, most appear to be ignoring the path to product most often used by customers – i.e. go to the store, take it off the shelf, buy it, and take it home. Of all paths to the customer, this one is apt to have one of the largest ROIs.

A few years ago, ARC did a strategic report on shelf-level collaboration that examined the ROI of these projects. The average in-stock position at grocery stores was 92 percent. 98 percent in-stock was achieved across various consumer goods/retail collaborative efforts. There was substantial incremental profit improvement for non-promoted items for the consumer goods company. For promoted items, moving from 85 percent in stock to 95 percent were the improvements that we were seeing. The profit improvements for promoted items was even higher. We were looking at ROI from the consumer goods companies’ perspective, but retailers can also expect to gain substantially, particularly since the consumer goods companies were doing much of the heavy lifting around these projects.

Empty Shelves Mean Lost Profits

Empty Shelves Means Lost Profits

I’m beginning to think that many retailers have put the cart before the horse. They should not abandon their omni-channel initiatives, but if they have not fixed their in stock problem at the shelf, they should fold a shelf-level collaboration project into the omni-channel initiative and prioritize that flow path appropriately.

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There has been a lot of talk lately as it relates to “last mile” deliveries, and how retailers can delight their customers at the actual moment of fulfillment. As more retailers venture into the omni-channel space, last mile has taken on more importance. Two behemoths have taken center stage in the battle for perfecting (or at least improving) the last mile for customers: Amazon and Google.

For many people, Amazon is the end-all, be-all for their shopping needs. With nearly 60 (and counting) distribution centers in the United States, Amazon can fulfill orders quickly to nearly every square inch of the country. With Amazon Prime, and its $99 a year price tag, customers can receive these orders in two days, guaranteed. But two day delivery isn’t the only perk of Prime. Amazon Prime customers have access to a growing catalog of e-books, and streaming digital music and video, including a new partnership with HBO.

Amazon Fresh

But controlling the last mile is more important than ever. So Amazon is rolling out its own fleet of delivery trucks. These trucks become a true competitor to UPS and FedEx, which will surely miss the Amazon business. For Amazon, it adds control over the last mile, and who is actually delivering the merchandise to customers. It also creates some additional flexibility into delivery timeframes, which can increase customer satisfaction. At the same time, it offers a way to reduce shipping costs, which have been increasingly as a larger percentage of revenue every year since 2009.

GoogleEnter Google, and its desire to play in the last mile game. Google’s model is different than Amazon. Google does not have distribution centers around the country, nor does it want to. Instead, Google contracts directly with local stores to provide same-day delivery (mostly). The advantage for Google here is that it can keep adding new partners without worrying about inventory carrying costs. As part of Google’s Shopping Express, customers can sign in through their Google account, use their Google Wallet to pay for the purchase, and select a delivery timeframe. Overnight deliveries are offered in select areas where same-day delivery is not offered.

There is also a third option for retailers to deliver their goods to the end consumer, without going the traditional route of using UPS, FedEx, or USPS: crowdsourcing. Crowdsourcing has taken off in recent years. Companies like Uber and Lyft are changing the livery market, and making life more challenging for traditional taxi companies. Crowdsourced hospitality sites like Airbnb and VRBO are changing the way people travel. And now retailers can jump on the bandwagon too.

Companies like Deliv and Kanga are expanding delivery options for retailers. Deliv, for example, uses an API to create a same day shipping option for e-commerce customers. At check-out, there is a new question – “would you like this order delivered?” The price for same day delivery is the same as standard 3 – 5 day delivery in most cases. The big thing for retailers is to ensure safe delivery of the merchandise. That’s why these companies have a rigorous screening process prior to certification, including background checks, interviews, insurance coverage, and vehicle checks.

The last mile is the last chance retailers get to influence the final leg of the customer experience. Offering same day delivery to customers is one more way to leave them with a good taste in their mouth about the experience as a whole. Amazon and Google have entered into an arms race to roll out their own fleets to provide this last touch-point. And while customers have taken notice, so have enterprising minds. The rise of crowdsourced options for the last mile is the next logical step in ensuring quick, efficient deliveries. It also shows that consumers are willing to pay for same day delivery. In those markets where Google and Amazon do not offer same day delivery, the opportunity for a crowdsourced model is huge. And as these models grow, it will be interesting to see how Amazon and Google respond. Will they turn to innovation mode or acquisition mode? Only time will tell.

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