IT-enabled supply chain management in logistics

The Internet has been widely adopted in the transportation and logistics industries—primarily as a means to offer customer service and sell products. DEEPAK SHIKARPUR explains how SCM and IT-enabled logistics can benefit the transportation and logistics industries

Around the mid-nineties, various factors began to change the role of logistics in major corporations. Quality initiatives, ERP and re-engineering forced enterprises to evaluate entire processes, rather than individual components. Supply chain management (SCM), the integrated control over goods, information, and money, followed.

SCM is an attempt to develop a unified process by which goods and services would be produced for customer sale and consumption. SCM and IT-enabled logistics together are not merely considered an opportunity to minimise cost—but they can also be developed into a major source of corporate profitability.

Commercialisation of the Internet, initially business-to-consumer, spawned online shopping. Search engines metamorphosed into portals, adding content, shopping, and other items. Finally, e-business came into full force with online auctions leading the way. E-business exists along two dimensions. The first dimension defines the parties: B2B (business-to-business), or B2C (business-to-consumer). The second dimension defines the transactional nature. Here there exist several categories of service types—buy-side and sell-side. Sell-side servers are electronic storefronts and catalogues that manage the purchase process from the selection of items through payment. Buy-side servers provide the capabilities for purchase orders to be entered and fulfilled. Usually there are well-established business rules that are incorporated into e-business applications.

Sell-side e-business

The Internet has been widely adopted in the transportation and logistics industries to provide sell-side e-business—primarily as a means to offer customer service and to ‘sell’ products. Almost every transportation company offers its customers the ability to log on to their website to make bookings, or to track and trace shipments. Many of these initiatives were developed for fairly simple reasons. When a customer opts to visit a website, instead of calling the service centre, the company usually benefits, as the transaction requires no paid employee. This not only represents a cost saving, but also eliminates the risk of any unfavourable customer/employee exchange.

Sell-side e-business obstacles

Despite the promise, transportation carriers have had trouble utilising e-business solutions to fulfil customer supply chain expectations. The primary problem involves tracking and tracing. Customers want to know the exact location of their shipment and to be alerted if the time-definite delivery is threatened. This problem can manifest itself in two forms: the shippers and the intermediate carriers. If a shipper wishes to track an individual shipment, he must go to a Web page for each carrier or logistics provider. Multiple shipments therefore require constant movements between Web pages.

Three problems result from this type of set-up. First, the shipper must match carriers to shipments prior to tracking, which is sometimes complex and difficult for the customer. Second, carriers usually allow tracking from either the equipment ID or their shipment ID. Carriers do not always retain the unique shipment ID that the customer utilises (i.e., purchase order, lot number, customs file, Renban number, etc). In some cases, this makes it almost impossible for a customer to locate the shipment for tracking. Third, and perhaps most important, the customer lacks a single point of focus. All of this leads to problems for customers. E-business has not delivered value to them and, as a result, their supply chain suffers. Some transportation movements are intermodal—they involve more than one carrier and different modes.

Buy-side e-business

Although sell-side e-business may define the manner in which services are provided, buy-side e-business will determine the ultimate configuration of the market and industry survivors. Forrester Research estimates that e-business transactions will double every year, reaching $1.3 trillion by 2003. (This sum increases tenfold if traditional electronic data interchange transactions are included. While most new transactions are Internet-based, the embedded base of EDI over private networks is expected to remain in place for many years.) Most industry focus has been on the business-to-consumer (B2C) market in the form of initial public offerings and market
valuations.

There has been great interest in which portions of the transportation and logistics industry will benefit from this new form of distribution. Despite all this publicity, 90 percent of this market is business-to-business (B2B). Buy-side e-business is compelling to businesses for the economies that seem apparent. It offers convenience, timeliness, and choice that may not always

be available. In many cases, multiple vendors offer sales to multiple customers. Although e-business is still in its infancy, some companies have already generated significant savings by moving their purchasing to the Internet. This can also be a means by which 3PLs (third-party logistics players) can assure themselves an adequate, cost-effective supply of underlying carrier transportation capacity. While they show promise, buy-side transactions are not largely employed amongst transportation carriers. Many carriers seem to think they are engaging in e-commerce if they have a Web page showcasing their newest equipment. This is not the case, and they are overlooking a multitude of opportunities.

Marketplace e-business

The growth of buy-side e-business in the transportation industry is similar to—but more accelerated than—the development of other areas of the industry. Early on, logistical operations involved a complex chain of transportation transactions, a large number of participants and handoffs, and a multitude of redundancies and reworking.

What will the future bring?

Many wonder what the advent of the Internet and e-business will mean to the transportation and logistics industry. A large number of carriers fear that technology will cause further depression of rate levels. This is a valid concern. Internet auction sites have usually yielded two types of results. For products, the price can sometimes rise, but for services, the price frequently has been driven down (perhaps reflecting the ‘perishable’ nature of services). In today’s transportation market, the cause is not so much e-business, but basic microeconomics. If supply exceeds demand, prices will fall. E-business sites will not cause rates to fall further than they would—but they may cause rates to fall faster. Better communication and information in the marketplace will allow prices to achieve market equilibrium more quickly.

E-business penetration can be determined by supply and demand, in addition to market aggregation and intermediation. A market with a few major carriers (e.g., six major railroads) will be harder to penetrate than one with numerous carriers (e.g., 50,000 interstate truckers). Transportation markets with well-established (transportation) intermediaries (i.e., consumer products) will be easier to introduce to e-business solutions than markets that do not traditionally rely on intermediaries (e.g., domestic bulk commodities). Shippers will be forced to consider their options carefully. If they suspect that demand is close to, or exceeds supply, they will want contracts for most of their expected traffic. But if they suspect that supply will exceed demand, they will want to buy most of their capacity on the spot.