Logistics Cloud Technology is Not About Lower IT Costs

Let me get right to the point. If you think your cloud technology strategy should be focused on lowering your logistics IT costs, you are missing the bigger opportunities. I recommend that no time be wasted in this debate when it comes to cloud-based logistics technology. Instead, focus on new opportunities to transform your business with cloud-based solutions. Here are 5 reasons to think about cloud-based logistics solutions differently than on premise ones.

Enable multi-party processes: Most logistics processes are inter-enterprise, involving the shippers, carriers, logistics services providers and consignees. Better coordination across the parties represents the greatest opportunity for performance improvement because today’s phone, fax or email approaches are slow and highly inefficient. The cloud is a perfect medium for multi-party process solutions because they cannot be “hosted” by a single enterprise and require scale in connected parties to work effectively. That is why we are seeing the emergence of cloud-based multi-party solution providers that act as process brokers or, as recently described by Art Mesher, Entrusts.

Accelerate time to value: Because the pace of business is accelerating, logistics processes are evolving at higher rates, so the actual time to recoup the value from technology investment is getting shorter. Anything that can be done to reduce that time frame helps increase the chance that the planned business value will be achieved. Cloud-based logistics solutions, especially networked ones, shorten the time to value by not only providing the readymade infrastructure, but the pre-existing connections to the parties that will use the solution.

Become more agile: Let’s face it; there are very few enterprises that would claim that their IT operations are their core competency. But these same enterprises would say that IT resources are scarce and many of their IT-enabled logistics opportunities are constrained by the availability of IT resources. So why would you let a non-core competency throttle more important business opportunities? Instead, you should leverage cloud-based logistics solutions to minimize dependency on the internal IT organization to be able to take advantage of business opportunities when they arise.

Create solution portfolio flexibility: Not all IT investments need to be strategic, but a lot of organizations get still get paralyzed by this kind of thinking. When the only choice was on premise solutions with high upfront costs and a drain on scare IT resources there really wasn’t an option to plug and unplug solutions. Cloud-based logistics solutions give enterprises the opportunity to take more of a portfolio play on their IT investments, deciding which ones need to have greater longevity and which ones address tactical needs.

Align costs to value and owner: OK, there is one cost perspective to cloud-based solutions. It’s shifting the investment strategy from upfront capital intensive and IT-centric ownership to the operating budget and business unit. Think of it as a shift from the balance sheet to the P&L. In addition, the costs can be made variable and based upon more logical units of value. This kind of thinking is highly powerful because capital is scarce, traditional IT value quantification is arcane and inaccurate and the ownership of the costs can now be associated with the real users and based upon their actual use.

The real value of cloud-based technology in logistics isn’t simply to have another cost option for getting the technological solutions you need for your enterprise. It is to enable your use of IT to be more transformational. Whether that comes in terms of enabling new business processes, greater agility or financial flexibility, cloud-based logistics solutions enable you to think differently about the value and use of IT.

How have cloud-based logistics solutions allowed your organization to rethink its IT strategy? Let me know.

Who Says You Need to Own the Freight to Control it?

The common convention is that to better manage inbound deliveries you need to take control (ownership) of the transportation. While that may work for higher volume shippers that can consolidate LTL or small package shipments, it is often not practical for companies with large numbers of suppliers or distribution centers. Instead they should focus on better coordination of their suppliers and the suppliers’ carriers to improve delivery visibility and reliability, and even control the flow of goods into the distribution center.

Unfortunately, LTL and small package delivery can be a visibility “black hole” with highly variable delivery reliability and unnecessary days in the PO-to-dock door delivery process. Everyone knows that late deliveries are bad, but early deliveries can cause problems too as the consignee may reject the entire delivery. There are several reasons for these problems:

1. Supplier consolidation is more focused on lowering their delivery costs and generating revenue. Simply put, suppliers will hold or accelerate POs to their bottom and top line benefit at the point that the product is shipped, creating unnecessary delivery variability.
2. LTL and small package carriers also look to drive down their costs and make consolidation and delivery decisions outside of the suppliers’ or consignees’ original delivery intentions. Carriers make money on the aggregation and disaggregation of freight and work across multiple suppliers. They have little if any knowledge of the impact on PO due dates if they hold or try to push the freight to increase their margins, and the supplier doesn’t know it until they are dinged by the consignee for due date noncompliance.
3. The supplier/carrier/consignee delivery process is serial, adding days to the PO-to-dock door delivery process. For instance, carriers won’t attempt to schedule deliveries until they have the freight in hand, even though they know that a supplier shipment pickup request is imminent.

Getting better visibility and control of the PO-to-dock door delivery process involves providing PO and shipment level consolidation visibility to the supplier, carrier and consignee and a multi-party shipment consolidation and dock appointment scheduling solution.

This is exactly what CVS Caremark, a leading retailer did. By providing a portal that allowed suppliers and their carriers to see their relevant POs, they and CVS Caremark could see what would happen to agreed-upon PO delivery dates if either the supplier or the carrier decided to hold or push shipments. Now everyone knows when POs will or won’t make their agreed-upon delivery dates. The total PO-to-dock door delivery lead time has been significantly reduced because dock appointments are made when the supplier consolidates the POs into a single shipment. Carriers can now see and must honor those appointment windows. While this may seem like the carriers have less flexibility, it is more than offset by the carrier having greater visibility to planned shipments and delivery commitments.

As with many new processes there can be unanticipated benefits. For CVS Caremark, this happened when they faced a hurricane in the North East in 2011. For many retailers in these types of situations, there was a scramble to make sure that they had an abundance of the goods their customers need the most – flashlights, batteries and water, for example. Because CVS had visibility to the shipments that were planned or underway, they were able to stop the delivery of nonessential goods and accelerate the delivery of the flashlights, batteries and water into their DCs and to their stores. In this case CVS Caremark was able to answer the imponderable logistics question “How do you control what you don’t control?” through multi-party logistics collaboration.

How successful is your company at managing supplier controlled freight? Have you heard of or seen any best practices to get better control of it? Let me know.