Management Accounting

Shipment Fever

Companies want to strengthen supply chains while cutting costs. Can E-logistics deliver?
Scott LeibsSeptember 1, 2001

While there have been some glorious moments in the field of logistics — think of the Pony Express and the Berlin airlift, not to mention St. Nick’s annual trek — on a day-to-day basis, most CFOs will happily let line managers sweat the details. The fine art of getting things from one place to another usually has more to do with crunching boxes than crunching numbers.

But as several recent deals highlight, the emerging field of E- logistics is saving companies money while also helping them streamline and enhance their supply-chain operations. By moving the acquisition of various transportation and related services (which account for 60 percent of the $1.1 trillion that companies will spend on logistics this year) onto the Internet, companies can often find better deals, and in some cases tackle logistical complexities in new ways. With more companies pinning their success on the efficiency of their supply chains, logistics is now a hot topic in the boardroom as well as the warehouse.

In July the logistics arm of retail giant The Limited Inc. said it had saved $1.24 million by acquiring transportation services through the Optibid Network, operated by The network acts as an online exchange, allowing shippers (that is, companies that have goods to be shipped) and carriers to hammer out annual contracts for recurring routes by posting a shipper’s needs and allowing carriers to bid.

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Nistevo Corp., Digital Freight Inc., and other companies offer similar services, which vary by type of transportation and geographic region(s) covered. Nistevo, for example, limits its network to goods traveling by truck in North America. At $450 billion, that’s hardly a niche market, and Nistevo CEO Kevin Lynch argues that by focusing on a mode of transport that handles 85 percent of all goods shipped in North America, Nistevo not only provides the cost efficiencies that a logistics network makes possible, but also helps drive hidden costs out of transportation.” Trucks move goods from point A to point B,” he says, ”and then search for more business. That creates an inefficiency that shippers and carriers pay for, similar to the costs of a line changeover in manufacturing.”

Nistevo’s network not only lets shippers haggle with carriers, it also allows them to collaborate with one another. If one company ships cereal from Minneapolis to Atlanta, for example, and another regularly ships building supplies from Atlanta to Minneapolis, Nistevo provides a forum in which the two companies can find each other and share the costs on that route.

Lynch claims that companies will be quick to adopt such services, because the underlying business process is decades old. ”What two companies once did with 10 trucks,” he says, ”multiple companies can now do with hundreds, because the Web allows you to coordinate and manage a range of relationships.”

Many analysts agree. ”While there has been a tendency to slap an ‘E’ in front of anything pertaining to logistics,” says Chris Newton, a senior analyst at AMR Research Inc., in Boston, ”the Web has undoubtedly created innovative ways for shippers and carriers to work together.”

The lower prices made possible by online auctions attracted the attention of Owens Corning, which signed on with Digital Freight in January. Owens Corning has posted more than 10 RFQs since then, entailing more than 70 million miles of ground shipping. The company must track more than 1,000 truckloads a day, according to Michael Mendoza, global E-sourcing leader, so while lower prices are essential, so too is the ability to save time and monitor the performance of various carriers.” We’ve cut the procurement process from months to weeks,” he says,” and will now extend our use of Digital Freight to additional divisions within OC.”

At most companies, logistics remains largely a manual process. Robert Jackson, COO of Digital Freight, says his firm’s biggest competitor is the three-ring binder, that tried-and-true repository of rates, forecasts, and other shipping data. Scenario planning, in which carriers’ rates are weighed against a host of other criteria, such as the desire to limit any one carrier’s percentage of business in a given ”lane” (or route), can take weeks or even months.

Compaq Corp., which has cut operating expenses to their lowest levels in three years thanks largely to supply-chain improvements, wants to end its reliance on paper. The company has been using since last October to negotiate deals with ocean, air, and land carriers. Tom Day, Compaq’s director of global logistics, strategic direction, and optimization, says that one major advantage of the system is that it captures all relevant information electronically and makes analysis a relative snap. ”That is what technology does well,” he says. ”It increases your awareness of the big picture by capturing data and allowing you to analyze it more effectively.” Technology is only part of the answer at Compaq — Day says the company has also made improvements by holding discussions with the technology and services companies it depends on up front, rather than relying on their responses to RFQs as their sole source of input — but he believes that the use of a procurement network is a first step toward an increasing reliance on E-logistics providers.

Online marketplaces represent just one facet of E-logistics. Nascent software firms have rushed into the space by offering a host of logistics management products in an application service provider (ASP) model, charging customers a monthly fee based on the number of users or transactions. Descartes Systems Group Inc., Global Logistics Technologies Inc., Celarix Corp., and other firms have found success in this market, offering software that requires no capital expense and that has been designed to appeal to workers who may have little or no computer experience. In fact, E-logistics is a notable bright spot in the ASP universe. Wilson Rothschild, a senior analyst at Meta Group, in Stamford, Connecticut, says that because companies’ logistics needs are similar across industries, ASPs can achieve the scale they need to survive.

But survival is far from guaranteed: Competition looms from several quarters. Transportation giants including C.H. Robinson Worldwide Inc. and J.B. Hunt Transportation Services have launched their own ASP spin- offs, as have supply-chain players such as i2 and Manugistics. Rothschild believes that big enterprise resource planning players like SAP, seeing that the field is becoming hot, may team with IT firms such as IBM Global Services and make a splash. And Ryder System Inc., UPS Inc., Penske Truck Leasing, and other third-party logistics players are also looking to augment their asset-based services (they supply trucks, warehouses, and other facilities, allowing companies to outsource most of the logistics function) with technology offerings. The reason? ”Logistics is no longer just about the physical flow of goods,” according to Gene Tyndall, Ryder’s executive vice president for global markets and E-commerce. ”It’s also about the flow of information, cash, and work processes. Information, in particular, is key to streamlining the supply chain, so technology is becoming more important to everyone.”

Logistics is a broad and complex endeavor, and not even the largest players seem inclined to tackle all of it. Alliances and acquisitions will make this space a moving target, which will no doubt frustrate those companies eager to tap its potential. Rothschild says that one benefit of the thriving ASP market is that it allows companies to experiment with E-logistics without making a major commitment. As comfort levels increase, more-complex relationships can be established. That raises the issue of how and when to integrate the functions offered by various players in this space, a job that may be more complex than logistics itself. Supply-chain functions tend to be scattered throughout an enterprise, which is a major impediment to improvement. An embrace of E-logistics will, in the short term, merely highlight that problem, not solve it, but it may save enough money and offer enough improvements to make the pain of more profound changes easier to bear.