When a shipper decides they need to significantly lower their freight spend while maintaining or improving on time deliveries, there are two main paths forward. They can implement a transportation management system (TMS); or outsource transportation planning and execution to a logistics service provider (LSP).
Over the years, ARC has done a number of studies (market size, ROI, functionality) on TMS. This year we are kicking off a similar set of studies on transportation managed services suppliers and the solutions they provide.
Within the TMS market, the largest suppliers (SAP, Oracle, JDA) provide not just TMS, but a suite of supply chain or even enterprise solutions. For many customers, this more holistic approach is a key selection criterion.
Similarly, within managed transportation services market, a more holistic approach that bundles transportation services with customs clearance, warehousing, inventory and other kinds of services has been a driver of some of the biggest outsourcing deals. Logistics Viewpoints sponsors Menlo Worldwide Logistics and Ryder are prime examples of this approach, although OHL, Exel and other LSPs play here as well.
Randy Tucker, the President of Contract Logistics at OHL, is a firm believer in integrating warehousing and transportation for their customers. By approaching these services together, better efficiencies in both domains, as well as better performance in on time deliveries, can be achieved. For one large beverage provider, they manage the end to end supply chain. They have key milestone visibility to shipments on the water, when those shipments will hit the port, and the intermodal links. Their forward carrier planning is integrated with warehousing so they can insure that when the goods “hit the door and are unloaded” at the warehouse, they will have the allocated space prepared for an optimized inbound process. And of course, the bulk of cost in the warehouse is spent on labor. Forward visibility into when the goods will arrive allows for more optimum staffing decisions. Further, this high degree of visibility allows the beverage manufacturer to practice postponement strategies. They can wait to allocate the supply until later in the process after demand signals have become firmer. Finally, because they are providing integrated services for this customer, when exceptions do occur, such as a truck attempting to make a final leg delivery being snowed in by a storm, it is easier for them to secure product from an alternative warehouse in this client’s distribution center network and make an emergency shipment then if they were not managing the end to end process.
OHL is using MercuryGate as their TMS to optimize the freight moves; the TMS is integrated to their internally developed warehouse management system for this client.
Tommy Barnes, President of Con-way Multimodal, talked to me about a couple of customer engagements they have in this area. Menlo is the division of Con-way and Tommy is also in charge of managed transportation services at Menlo. He mentioned that for one large truck manufacturer based in Illinois the services extend to demand planning, cash-to-cash management, planning on where suppliers should be located to support the plant, and finally supplier risk mitigation services. Within transportation, the services include robust intermodal planning and execution out of Mexico. Menlo runs all of these services out of their Aurora, Illinois control tower where they have standardized on Oracle’s Transportation Management (OTM) solution.
Integrated solutions can also apply to international supply chains. For a consumer goods company, they support inbound shipments from Asia, customs clearance through partnership agreements, movement of goods into distribution centers or cross docks they run, the outbound routing of those shipments through a control tower, and monitoring of the final delivery to the retailer.
And finally, both Tommy Barnes and Randy Tucker mentioned the additional value that being involved in the demand management allows. Randy mentioned that for one large customer they run hourly inventories and optimize where in the warehouse network inventory needs to be stored. From Tommy’s perspective, the further upstream a LSP can get, and the more visibility and control they can get over the demand management process, the more value they can bring to the table.
In short, the value proposition of large LSPs can go far beyond optimized transportation – or warehousing for that matter – to include end to end process optimization.