Dynamic Inbound Routing in the Retail Supply Chain

Manhattan Associates (an ARC client) recently briefed us about its transportation management system (TMS). One of Manhattan’s large retail customers, who must remain anonymous, selected its TMS solution in part to help them more optimally manage dynamic inbound routings.

As we wrote about last week in “Manufacturers Tackle Inbound Transportation,” many companies, especially retailers, have launched initiatives to take greater control of their inbound transportation processes. JCPenney, for example, was one of the pioneers in this area. Retailers are using EDI 753 (“Request for Routing”) and EDI 754 (“Routing Instructions”) transaction sets to better allocate inventory from their distribution centers (DCs) to the stores that need it most. They are also substituting static routing guides with optimal load building tools. The net benefits include reduced inventory and transportation costs, as well as fewer shipments of inventory between DCs.

You can read the previous posting for an overview of the “Ready-to-Ship” process. Today I just want to add some more details.

When a supplier receives the routing instructions (EDI 754), they need to reconcile the information they receive with what was originally communicated on the purchase order, as well as pick the order, apply a UCC-128 label, and physically ship their products within the defined time window. If a shipping destination has changed, they must have a system in place to not only find the specific cartons that are being rerouted, but also relay this information back to the retailer on the Advanced Shipping Notice (ASN).

Producing an incorrect 753 or ASN, or failure to comply with the instructions in the 754, can result in charge-backs and can lead a supplier to be less preferred.

For suppliers that ship high volumes to retailers, it makes sense to automate the process of dealing with routing changes. They will need an EDI solution that can highlight and reconcile differences between their POs, 753s, 754s, and ASNs. The ability to pre-populate fields in subsequent EDI messages is also important. Finally, this EDI solution should be integrated with their warehouse and transportation management solutions. 

Companies with paper-based warehousing solutions, which are not real time, will have a very difficult time meeting these requirements. They will have prepared the Bills of Lading and labels for the shipment, and have already applied the labels to the cartons. Then the 754 will cause them to find the cartons, reprint the labels, recreate the bills of lading, and relabel the cartons. 

This program is not necessarily “all pain and no gain” for the supplier. Bob Ball, the EDI Administrator for Hi-Tec Sports, noted in a message board that “the way it works [for us] is when our Shipping Department had an order that weighs 4500 lbs or more, [the shipping department] would have normally called JCPenney for routing instructions. Now they just do it using the 753. This tells JCPenney that an order is due to be shipped, please clarify the routing [and which carrier to use].”

If a retailer’s use of 754s causes their suppliers to build more inefficient loads, in the long run this will drive up the retailer’s costs. Suppliers, at least those with accurate supply chain cost data, will eventually raise their prices to reflect their higher costs. This is one reason why it makes sense for a retailer considering such a program to have a robust TMS solution that allows them to build efficient loads.

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