Logistics Viewpoints

A complete analysis of logistics trends, technologies, and services

This Week in Logistics News (October 28 – November 1, 2013)

Just for Fun | By •

From the family room, I heard my 11-year old son crying in the kitchen being consoled by my wife. I assumed it was related to something that had happened at school that day.

I was right about the school part, but wrong about the reason.

In science class that day, the teacher was trying to get a point across to the class, and in her attempt to relate it to something the kids could understand, she said, “it’s like the tooth fairy, and none of you believe in the tooth fairy any more, right?”

I don’t remember how old my son was when he lost his first tooth, but that was the night Toothy came for the first time, not long after he fell asleep. She took his tooth from underneath the pillow, left behind a dollar bill and a handwritten note thanking him for the tooth, and then she came back to bed and kissed me goodnight.

“Do the other guys know?” my son asked in between sobs, meaning his siblings. “I don’t think so,” my wife said. “Well, I don’t want them to know, and I’m not going to tell them,” he said, and he hugged his mom, head against her heart, and the two of them remained embraced like that for some time, as I walked by the kitchen to get the other kids ready for bed.

Later that night, the Red Sox won the World Series, and my son was there with me, jumping around, and fist-pumping, and smiling like the players on the field. “Look at them, they’re like little kids,” I said pointing at the television, and my son just smiled watching the players pile on top of each other near the pitcher’s mound, “I know,” he said with glee, “I know.”

In other news this week…

Con-Way this week reported 2013 third-quarter net income of $30.6 million, up almost 21 percent from Q3 2012. The company’s Menlo Worldwide Logistics group reported revenue of $380.5 million, down 11.0 percent from Q3 2012. However, net revenue, which excludes purchased transportation, increased 8.2 percent in the quarter compared to the previous year. Commenting on Menlo’s results, Con-way’s president and CEO Douglas W. Stotlar said:

“Menlo is implementing several large new projects, which have contributed to growth in net revenue while also having an adverse impact on operating income. As these projects become fully operational, we expect their negative impact on operating income to subside. Despite the expected margin improvement from these projects, increased employee costs and IT investments [emphasis mine] may constrain Menlo’s income growth next year.”

It’s interesting how companies refer to money spent on employees as “costs” while money spent on technology are “investments.” Maybe I’m reading too much into it, but with the growing importance of finding and retaining talent in the logistics industry, we ought to change our perspective and actions with regards to the people side of supply chain management. And in fact, Menlo is investing in people, in developing supply chain and logistics talent, as another press release issued this week shows.

The financial press release also provided some perspective on the truckload market: “Con-way Truckload recorded a slight increase in revenue for the third quarter while operating income declined, reflecting a weak demand environment and cost headwinds [emphasis mine].” And with Hours of Service (HOS) starting to impact productivity and driver turnover on the rise, those headwinds are bound to pick up in the weeks ahead.

Need some justification to invest in route optimization and telematics technology? According to UPS, a reduction of just one mile each day per driver over the course of a year saves the company up to $50 million annually! Obviously, few other companies compare with UPS in terms of fleet size and scope of operations, but many fleet operators have the opportunity to save tens or hundreds of thousands of dollars per year by replacing their spreadsheets and manual operations with optimization technology.

The savings number came from a UPS press release issued this week announcing the launch of its route optimization software known as ORION, which stands for On-Road Integrated Optimization and Navigation. Here are some details from the release:

The rollout of ORION will optimize 10,000 delivery routes by the end of the year, reduce miles driven and reinforce UPS’s sustainability efforts

 

ORION consists of more than 250 million address data points. The sophisticated software combines customer’s shipping requirements with customized map data the company has compiled to provide UPS drivers with optimized routing instructions that meet service-level requirements, while reducing miles driven

 

ORION is the result of a long-term operational technology commitment, more than a decade in the making. To gather the necessary data, UPS operations research scientists began piloting telematics technologies with the installation of advanced GPS tracking equipment and vehicle sensors in 2008. The integration of these technologies allows UPS to capture data related to vehicle routes and performance and driver safety. The driver’s handheld mobile device and telematics technologies combined with custom mapping data and ORION algorithms provide more efficient routes for UPS drivers.

One of my predictions for 2013 was that we would see increased adoption of alternative fuel vehicles. And back in May, I wrote that we’re getting closer every day to reaching the tipping point for greater adoption of natural gas long-haul trucks. An article in the Wall Street Journal this week shed some light on the growing momentum. Here are some excerpts:

Operators of some of the largest U.S. truck fleets, including Lowe’s, Procter & Gamble, and United Parcel Service are accelerating a shift to natural gas fueled trucks [emphasis mine], betting on new engine technology that promises to drop the cost of shifting from diesel fuel.

Long-distance trucking companies, like Con-way, Schneider National, Swift Transportation, and Werner Enterprises are testing compressed natural gas and liquefied natural gas powered trucks as they awaiting more powerful engines and a nationwide fueling and repair infrastructure. Higher initial cost for vehicles, scant natural-gas vehicle suppliers and fuel availability have been impediments.

 

Still, trucking companies see longer term benefits. Ryder Systems, one of the largest buyers of trucks in the U.S., is quickly adding natural gas to its 50,000-truck fleet [emphasis mine], but just how fast it will grow depends on how much truck prices come down and how fast fueling stations pop up, said Scott Perry, vice president of supply management, for Miami-based Ryder. “I think 10% to 20% is realistic,” within five years. “But we still have to see about all the variables.”

As Bill Lee, Vice President at Breakthrough Fuel, said in the mega session I moderated at last week’s CSCMP Annual Global Conference, companies need to think more strategically about managing the energy that is used to move product to market. And while natural gas is a growing factor, it’s important to keep the bigger picture in mind — that the energy footprint is more diverse and dynamic than ever before, as the picture below that Bill shared with the audience exemplifies. 

Source: Presentation by Bill Lee, VP at Breakthrough Fuel
Source: Presentation by Bill Lee, VP at Breakthrough Fuel

And with that, have a happy weekend! 

Song of the Week: “If So” by Atlas Genius



Note: Menlo Worldwide Logistics and Ryder are Logistics Viewpoints sponsors.

This Week in Logistics News (September 30 – October 4, 2013)

Retail | By •

Is it ironic that the U.S. government partially shut down on Tuesday, the same day I was scheduled to give a talk on collaboration? I’m thinking of sending my representatives in Congress a copy of the book Getting to We, written by my friends Kate Vitasek and Jeanette Nyden — and also inviting them and all members of Congress to participate in my upcoming conversation with Kate and Jeanette on Talking Logistics. You never know, it might help.

While the stalemate continues in Washington, things keep moving forward in the world of supply chain and logistics.

There were lots of omni-channel and e-fulfillment stories in the news this week. Manhattan Associates announced the latest release of its Omni-Channel Customer Service software that enables a retailer’s customer service representatives (CSRs) to “see customer transactions across all selling channels, allowing them to swiftly search using any piece of customer or order information, service inquiries across all touch points and convert the sale with products from any channel.”

Meanwhile, USA Today published an article highlighting how Walmart, Best Buy, and other “brick-and-mortar” retailers are moving quickly to enable ship-from-store capabilities. Here are a few excerpts that caught my attention:

“Some people talk about Amazon with their 100 distribution centers, God bless them. We have 2,600 distribution centers,” said Gap Chief Executive Glenn Murphy, referring to the apparel retailer’s network of Banana Republic, Gap and Old Navy stores.

 

Shipping online orders from Best Buy stores could generate an extra $5.8 billion in sales and $168 million in profit next year for the company, according to [estimates by Gary Balter, an analyst at Credit Suisse].

 

Already, 10% of the items ordered on Walmart.com are shipped from stores and the majority of those packages are delivered in two days or less, according to the company.

And you wonder why so many software vendors are hot and heavy over omni-channel retailing? For some added perspective on this topic, check out my conversation with Eric Morley and Will O’Brien, former supply chain executives at leading retail companies, where they share their insights and advice on the supply chain and logistics challenges associated with omni-channel fulfillment and what it will take for retailers to succeed in this new environment.

But if you ask me, here’s the press release I’m really dying to see: “Company X Launches Mobile Omni-Channel Social Networking Solution in the Cloud.” It would be the supply chain software equivalent of Taco Bell’s Chulapa Supreme.

Moving on, there was plenty of news from the 3PL front this week. C.H. Robinson announced that it has enhanced its anti-cargo theft strategy “by joining CargoNet® to provide customers with a proactive approach to strengthening security around sensitive and high value product freight.” According to the press release:

CargoNet is centered on a national database and information-sharing system managed by crime analysts and subject matter experts. By providing coordinated incident communications, recovery support, and deterrence measures, CargoNet helps its members prevent cargo theft and improve chances of recovery. CargoNet members benefit from an extensive law enforcement network of more than 120,000 officers and agents spanning more than 9,000 agencies in the United States and Canada.

Earlier this year I wondered if we were reaching the tipping point in natural gas trucking, and this week Ryder provided another data point by announcing that its fleet of 320 natural gas vehicles have surpassed 15 million miles. “We believe natural gas is the most viable alternative fuel solution for commercial trucking because it is clean, efficient, cheap, and abundant,” said Ryder Chairman and Chief Executive Officer, Robert Sanchez in the press release.

Energy is playing a more strategic role in supply chain management, and natural gas is a big part of the story. If you plan to attend the CSCMP Annual Global Conference later this month, make sure you attend the Mega Session I am moderating Wednesday morning, October 23, on Mega Trends Impacting the Supply Chain where energy will be one of the discussion topics.

Finally, an interesting article in CNNMoney about a Citi analyst based in Taiwan named Kevin Cheng who was allegedly “pressured into giving up what he knew [about Apple’s supply chain] by aggressive traders who had got wind of a rumor and wanted his take on it before the news reached the market.” There are many takeaways from this article, but here’s my main one: The financial community is finally recognizing what we’ve known all along — that a company’s supply chain strategy and performance are weaved tightly with its business plan and financial results.

And with that, have a happy weekend!

Song of the Week: “The Royal We” by Silversun Pickups



Note: C.H. Robinson, Manhattan Associates, Menlo Worldwide Logistics, and Ryder are Logistics Viewpoints sponsors.

Guest Commentary: 3PLs are the Secret Weapons in the e-Fulfillment Arms Race

Guest Commentary | By •

In his 1997 book The Innovator’s Dilemma, Harvard Business Professor Clayton Christensen introduced the term “Disruptive Innovation,” which describes how certain novel products or technologies can enter a market sector, defy market norms, and ultimately unseat well-established market leaders.

Today, third-party logistics providers (3PLs) are participating in the disruptive innovation of a whole category: the one-stop shop. In the ‘90s and early 2000s, one popular big-box retailer took a strong hold of this market sector by using cutting-edge logistics to gain an advantage in selection and pricing; however, the only place they didn’t apply their logistical prowess was their online division. With a bricks-and-mortar presence in virtually every U.S. zip code, it didn’t seem necessary. And in the early days of online shopping, consumers were wary of using credit card numbers online, web stores were skeletal, and shipping took forever.

But now, secure sites are the norm, product lines are endless, and delivery times are faster than ever. As a result, online-only retailers are now vying to become the ultimate one-stop shops — and the bricks-and-mortar mainstays have taken notice. As this particular retailer and others struggle to catch up, the veterans of the e-fulfillment space are focused on leading in a few areas they know to be crucial: speed of product to market, on-time delivery to the customer, reliability, and scalability. Their secret weapon: the 3PL.

Speed to Market

When an e-fulfillment retailer needs to launch a new product intended for a fleeting trend or a season, delays translate to lost opportunity and lower profit margins. Relying solely on in-house resources, it can take an e-fulfillment retailer nine, ten, or even twelve months to procure space, implement systems and technology, staff a new warehouse, receive product, and begin servicing a new product line.

A 3PL, on the other hand, can help an e-fulfillment retailer fully stand up an operation or logistics center and begin shipping product in a fraction of that time — often in as few as 60 days. Because 3PLs bring on-demand access to sophisticated logistical systems and technology, scalable warehouse space, and the guidance of the leading experts in worldwide logistics, e-fulfillment retailers who choose to partner with a 3PL can launch a product months ahead of the competition, gaining access to valuable untapped pools of potential consumers.

Speed to the Customer

Today, e-fulfillment storefronts compete heavily with their bricks-and-mortar counterparts for the sale of ordinary, everyday goods. For example, while a consumer has the option of driving to their local store to pick up, say, dog food or a rake, they may have little interest in making the drive or battling the weekend crowds at their nearest shopping center. So if an e-fulfillment company can promise that shopper a package on their doorstep within 48 hours, they might be willing to say, “Okay, that’s not too big of a deal — I can wait a couple of days.” However, if the delivery time is two weeks, they’ll probably get in the car.

Unless the product can’t be found elsewhere, that one- to two-day delivery window tips the scale like no other factor. For an e-fulfillment retailer, it makes sense to partner with a 3PL, gaining access to their operational resources and the physical assets necessary to promise a two-day turnaround.

Scalability, Agility, and Leadership — the Keys to Long-term Success

Since reliable delivery times are at the core of an e-fulfillment company’s value proposition, a lot rides on the ability of any 3PL entering this space to deliver both with scale and dependability, and without eroding service or quality.

So before entering this space, it is crucial for a 3PL to have the management and operational depth to ensure a flawless implementation and ongoing operations solution. To achieve this, they need to bring the right technology, assets, and people. The 3PL’s capability to scale material handling equipment, IT infrastructure, warehouse space, and other operational assets is critical to the enablement of a successful operation. Coupled with temporary labor provider relationships, the 3PL can bring a fully staffed and operational DC quickly into the fold.

Most importantly, 3PLs in this space need to bring a strong consultative influence, including the introduction of proven infrastructures, operational resources, and Lean principles. It’s not warehouses or trucks, but rather the ability to replicate processes across an entire network — and quickly — that singularly qualify 3PLs to smoothly scale these operations up or down. And when they do it well, they cement their place alongside the e-fulfillment customer, pivoting to outpace each new shift in the ever-changing marketplace.

Lonny E. Warner, is Vice President of Operations, Technology and Electronics Logistics Services, at Menlo Worldwide Logistics. Warner has been with Menlo Worldwide Logistics and its parent company Con-way Inc. for more than 20 years in both operations and sales capacities. In his current position, Warner is responsible for the continuing growth and management of Menlo as a leader in managing hi-tech company supply chains. He previously served as vice president of sales and marketing responsible for all aspects of the company’s sales and marketing activities. He had served as director of global business development since 1997.

Guest Commentary: Moving Parts: Effectively Managing the Aftermarket Auto Parts Supply Chain

Automotive Industry | By •

When an automobile parts dealer or a business in the auto service parts retail network makes a request to its suppliers to fulfill an order, there is an expectation that the right component shows up at the right place, in the right time frame, at the right cost. After all, at the end of the line in this complex supply chain fulfillment cycle is a customer with a vehicle waiting for a repair part. That customer has the choice of going to a dealer’s service department, or an independent shop in the service parts retail network. The complexities of the aftermarket auto parts supply chain and the physical movement of millions of individual parts made by manufacturers around the world demands flawless execution at every link to satisfy that customer.

Accurate and timely visibility, process expertise and understanding the intricacies involved in managing the physical movement of goods and inventory are some of the acute challenges within the aftermarket auto parts industry. In order to win the business of a car owner, both dealers and the automotive service parts retail network must overcome these challenges and position themselves as the most attractive option. A third-party logistics provider (3PL) can address these issues and help implement solutions that allow a dealer or retailer to win in this continual competition for customers.

With parts crisscrossing the globe, one of the benefits of working with a 3PL is gaining the ability to offer assurance of a part’s status at any point in the supply chain. This is where visibility is critical. 3PLs provide an accurate view of the flow of inbound and outbound goods. Driven by continual technology investment, the accessibility of as-it-happens information is increasing by the day. By extension, the availability of supply chain information has altered the aftermarket auto parts landscape. The ripple effect of on-demand information continues as customer expectations surrounding status updates have also increased. The bar is constantly being raised regarding the importance of the reliability and efficacy of that information.

Dealers and other providers in the automobile service parts retail network that elect to navigate the aftermarket auto parts supply chain without the assistance of a 3PL run the risk of losing inventory control, negatively affecting customer service and increasing costs. A 3PL delivers the tools, information, and importantly, the people and process rigor to ensure accurate, timely execution. Most parts suppliers and their dealer or retail networks do not have the expertise to manage their own supply chains. By leveraging the experience and knowledge of a strong 3PL, stakeholders can focus on customer relationships, more efficient and accurate inventory management and increasing sales.

The movement of parts along each stage of the supply chain can also be a challenge. When a parts dealer or retailer needs 500 SKUs of windshield wipers and 50 pallets of mufflers, those parts do not arrive on separate trucks originating from each factory that produces them or distribution center that ships them. A 3PL can bring a robust transportation management solution integrated with technology to coordinate the collection of those parts from their points of origin and provide consolidation services to facilitate the receiving, sorting, repackaging and delivery of those auto parts to a dealer or retailer. Monitoring each stage along the way with timely data will quickly illuminate inefficiencies, identify possible corrective actions and allow for uninterrupted service.

Issues surrounding effective inventory management are also commonly identified as roadblocks to efficiency. By taking advantage of the insight and expertise of a 3PL, dealers and the auto parts retail network benefit from increased transparency, visibility, clear communication and a fuller understanding of what happens at each stage of the supply chain. This information will position dealers and retailers to effectively manage the balance between over-ordering and warehousing unsold stock, and delayed fulfillment due to under-stocked items — both classic outcomes of a lack of timely visibility and rigorous process controls that lead to poor situational awareness and mismanaged inventories.

The aftermarket auto parts industry presents one of the most difficult and complex supply chains to manage. Whether a dealer or retailer needs one pallet consisting of 10 different products, or 100 pallets loaded with 1,000 parts, a 3PL provides the same seamless service. The right 3PL can implement systems that provide critical data integration and in-depth visibility to achieve results with greater efficiency and lower cost than a dealer or automobile service parts retailer can achieve otherwise.

Paul McDonald is Director of Business Development at Menlo Worldwide Logistics, a $1.6 billion global provider of logistics, transportation management and supply chain services. Named to his current position in 2008, McDonald is responsible for sales and marketing activities in Menlo’s Automotive and Heavy Industrial Group. He joined Menlo as a senior manager of operations in 1997.

This Week in Logistics News (June 24-28, 2013)

Pharma & Life Sciences | By •

Another crazy Friday morning, now with the kids out of school, so let’s go straight to this week’s news:

Retailers and small and midsize businesses (SMBs) – the two market segments supply chain and logistics software vendors are hyper-focused on these days. This week, for example, JDA announced enhancements to its workforce management (WFM) and all-channel commerce solutions that enable retailers “to simplify and automate retail execution, as well as unify their associates, to create and deliver a seamless and superior customer experience across all shopping channels while maintaining a consistent brand vision.” You can read the press release for more details, but here’s an excerpt about the enhancements made to JDA Workforce Management:

JDA Workforce Management includes a mobility platform that allows retailers to mobilize their workforce across the enterprise to drive sales, increase employee engagement and reduce time spent on administrative tasks.

 

Available in this latest software release, JDA’s workforce management solution includes the following workforce mobility applications: JDA Mobile Employee Connect, JDA Mobile Operations Connect, JDA Mobile Shift Connect and JDA Mobile Manager Connect. Functionality offered through these mobile applications includes: time and attendance, operations and reporting, dashboards and KPIs for managers, employee shift pickups and swaps for unplanned schedule changes, and more.

Meanwhile, HighJump Software announced that it has updated HighJump Warehouse Advantage Express, its warehouse management system (WMS) specifically designed for small and mid-sized wholesale distribution operations. HighJump Warehouse Advantage Express is built upon the same technology as its tier one HighJump Warehouse Advantage solution. Here are some details from press release:

The HighJump Warehouse Advantage Express WMS is affordably priced for small and mid-sized distribution operations. It provides the key warehouse management features needed to quickly deliver ROI, including the tracking and visibility of inbound orders, directed put-away, variety of picking methods, shipping, directed replenishment and inventory control.

 

The WMS can be deployed in the cloud or on-premise. Companies can purchase only the functionality they need, then add more complex features and modules as needed over time.

On the logistics service provider front, FedEx announced that it is buying 1,900 lightweight, composite-body Reach vehicles from Utilimaster, a division of Spartan Motors. According to the press release, “The Reach van, with its four-cylinder, 3.0-liter Isuzu diesel engine, demonstrates a 35% fuel efficiency improvement over traditional vehicles in the FedEx Express fleet. The lower-weight body design, along with the engine, allows every Reach to significantly reduce fuel consumption and exhaust emissions compared to conventional walk-in vans.” This purchase is part of the company’s efforts to improve the fuel efficiency of its vehicle fleet 30 percent by 2020 (compared to 2005).

One way for 3PLs to differentiate themselves in the market is to specialize — that is, go deep in meeting the unique requirements of a vertical industry. A great example is what UPS has been doing in the healthcare industry — an industry that was relatively late to logistics outsourcing, but is now a growth market (see “Understanding Why Companies Outsource Logistics”). This week UPS launched UPS Proactive Response Secure, “a proactive shipment monitoring and risk management solution…[that] helps ensure time-and temperature-sensitive shipments reach their destinations and guarantees up to the retail value, in addition to other costs, when unexpected events occur – including weather delays.” According to the press release, the solution provides “round-the-clock, 24/7 proactive monitoring and intervention services” and “leverages proactive technology to provide continuous visibility into potential delivery disruptions in near real time to ensure successful product delivery.”

When you consider that a single pallet of a high-value pharmaceutical drug can be worth millions of dollars, UPS must have a lot of confidence in its technology, processes, and people to offer such a guarantee, and I’m sure the cost of the service takes into account the risk the company is assuming.

Last week, I provided my perspective on the future trucking. This week, the American Trucking Associations (ATA) released the latest edition of U.S. Freight Forecast to 2024, which projects an overall increase in freight volumes for all modes of more than 20 percent and an increase in the amount of freight moved by trucks. According to the forecast, overall freight revenue will grow by 63.6 percent to $1.3 trillion annually in 2024 and trucking will see its share of those revenue rise to 81 percent from 80.7 percent in 2012. Truckload volumes will grow 3.2 percent through 2018 and 1.1 percent annually between 2019 and 2024, and intermodal rail will continue to be the fastest growing freight mode, growing an average of 5.1 percent a year until 2018 then slowing moderately to 4.8 percent annually through 2024.

I have a hard time predicting what’s going to happen next month, never mind 11 years from now, especially with so many moving parts involved (the global economy, regulations, geopolitical issues, and so on). But it’s an educated guess nonetheless.

Finally, last October I wrote that the most significant problem facing 3PLs and shippers was a shortage of supply chain and logistics talent. 3PLs are starting to take action, as evidenced by this week’s announcement by Menlo Worldwide Logistics that it has signed a memorandum of understanding with Temasek Polytechnic, a tertiary education institution in Singapore, to establish new scholarship program for students pursuing careers in logistics and supply chain management. Here are some details from the press release:

Under the programme, Menlo has established four annual scholarships of S$2,500 each. The scholarships will be awarded to selected students in their third and final year of study at Temasek Polytechnic who are pursing Diploma in the School of Operations and Logistics Management.

 

The programme includes a three-month internship at a Menlo facility for each scholarship recipient, enabling the students to gain real-world, hands-on experience in logistics operations as they pursue completion of their studies. Upon graduation, and with the recommendation of their internship mentor at Menlo, graduates will be considered for full-time employment opportunities with Menlo.

And with that, have a happy weekend!

Song of the Week: “Don’t Look Back in Anger” by Oasis

Note: HighJump Software, JDA Software, and Menlo Worldwide Logistics are Logistics Viewpoints sponsors.

Guest Commentary: The Advent of the 4PL Model in Upstream Oil and Gas

Logistics Service Providers | By •

Over the past few years, fuel production in the United States has seen a marked increase, largely due to the widespread adoption of hydraulic fracturing, or fracking, whereby pockets of natural gas and crude oil trapped deep in the shale layer far below the earth’s surface are extracted via a horizontal drilled well. During the extraction process, the lower, horizontal portion of the well is perforated and flushed with millions of gallons of fracking fluid, which is water, sand and a lubricating chemical. The sand acts as a mechanism that creates perforations in the shale allowing oil and gas to release into the well and to the surface.

Energy companies entering the fracking market bring vast experience and capability to handle the downstream process, but the more uncharted territory of upstream logistics — the sourcing and organization of assets needed for extraction — has presented challenges. If not expertly managed, this undertaking carries heavy liabilities in the form of high costs, wasted resources, and even safety compliance shortfalls. So to ensure the job gets done right, energy companies are beginning to hire fourth-party logistics providers (4PLs) to manage, oversee, and improve certain aspects of their upstream operations. Below are just a few areas where 4PLs are meeting the needs of this growing industry.

Dispatch Management: It takes hundreds of bulk tankers full of water to fill one fracking well — a demand that even the largest bulk carriers lack the capacity to meet at one time. To fill the gap, throngs of “mom and pop” carriers flock to these wellheads and are rewarded with steady employment. And by necessity, the energy producers have entered the business of dispatch — coordinating the daily movements of hundreds of individual carriers. In the area surrounding any major wellhead, hundreds of these bulk tankers can be found parked on the side of the road, all waiting for direction. They’re paid premium rates by the energy companies to remain nearby and at the company’s disposal, with the flexibility to respond to frequent changes in fresh water sources and wastewater destinations. A 4PL can drastically improve the economics of these situations by taking over the task of dispatch, systematically monitoring the resources, and planning ahead for changing capacity needs. With this guidance, energy companies can be prepared for high-demand times without paying for underutilized assets.

Centralized Systems and Resources: Beyond dispatch, 4PLs are also bringing other traditional transportation management services to these job sites — things like freight audit and payment from a regional control tower. Energy customers also stand to benefit greatly from shared services from a global control tower, and access to a fleet of assets — offerings traditionally associated more with the 3PL model. Consequently, 4PLs that can also deliver 3PL resources have an edge on market share in the upstream energy refinement space.

Inventory Management: An enormous amount of expense goes into materials for a drill site: tens of thousands of dollars for a drill head, and millions of dollars for OCTG (the piping and fitting that goes into the well), as examples. Despite the value of these resources, many companies cannot say with exact certainty what their pipe yards or warehouses contain, let alone what lies beyond the fence line. This is a sizable issue because the ability to account for these high-cost materials has a quantifiable effect on how Wall Street views an operation. 4PLs with expertise in warehousing and inventory management can be invaluable partners here by developing systemic solutions and processes to increase visibility of materials.

Compliance with Safety Standards: Standardizing safety compliance across the array of carriers working at a wellhead is one of the most intimidating tasks for energy companies to take on internally. A 4PL has the direct experience and expertise to drive uniform safety models all the way down to the carrier community. To make this happen, they are augmenting energy producers’ teams with boots on the ground, establishing the baseline compliance level, meeting regularly with carriers, and developing safety programs specific to a wellhead to be monitored, managed, and improved as conditions change.

A Continuous Improvement Approach: Energy companies will rarely use the term “Lean,” but they certainly understand and appreciate the strategic project management that a 4PL brings to the table. By successfully mitigating current problems at the wellhead, preempting emerging ones, and developing systems that add value and drive costs down, the 4PL industry has placed its foot firmly in a door long closed to outside partners.

Whether 4PLs will become permanent players in the upstream remains to be seen, but we do know that in this application, our industry offers invaluable resources that energy companies have only just begun to tap.

Brian Murphy is Director, Business Development at Menlo Worldwide Logistics. During his tenure with Menlo, Brian has helped build out the company’s Oil & Gas market offering and practice. With an extensive background in business development and marketing, Murphy has worked with customers in the logistics and supply chain industry for more than a decade.

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