Transportation: Delivery Goes Digital

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September 22, 1997

TRANSPORTATION:
Delivery Goes Digital

The growth of the Web compels the transport industry to make basic changes
By Clinton Wilder
IW 500 slug n the age of digital commerce and the Internet, you would think the transportation industry would be suffering. With all those bits and bytes zipping across Internet Protocol networks at the speed of light, you'd likely conclude that there would be less need for the physical transport of products, packages, and people around the world.
You'd be wrong.
In fact, electronic delivery of data about physical products is actually creating more demand for those products. Just ask Cisco Systems, Dell Computer, or Amazon.com. It's generating more business, not less, for transportation and delivery services.
And here's another myth: Collaborative technologies such as groupware and videoconferencing are making good on their long-promised reductions in business travel. Think again. The explosion of Internet technologies, aided and abetted by the booming U.S. economy, has coincided with growing demand for air travel-if only to transport people to all the Internet conferences and trade shows.
Still, digital commerce is forcing fundamental changes in the nature of the transportation business, and IT is at the center of those changes. Freight and package delivery companies are rapidly evolving from transporters of goods to managers of the shippers' entire supply chains, from the assembly line to the customer's loading dock. Offering logistics management is more than the latest buzzword or diversification tactic for transportation companies; it's becoming essential for their survival.
"If you get a third-party logistics manager in between you and your customer, you as the transporter become a commodity," says John Andrews, president of CSX Technology in Jacksonville, Fla., the IT unit of railroad giant CSX Corp. "We're trying not to be disintermediated."
To help achieve that, CSX has developed and deployed Transportation Workstation Net (TWSNet), a Web-enabled application written in Sun Microsystems' Java programming language. It lets CSX customers order, plan, and track their rail shipments on the company's extranet. CSX recently began rolling out TWSNet to 3,000 internal employees, giving them access to the same shipment information on the corporate intranet.
"We call it 'in-transit visibility,' " says Andrews. "Customers are demanding more and more information about their goods. The customer interface to internal systems has become essential and strategic. We're moving toward customer self-service, because in many cases, they can give themselves better service than we can."
No one knows that better than the leaders in package and document delivery, United Parcel Service of America Inc. and Federal Express Corp. The customer interface used to be an 800 number and a call-center employee accessing an internal database. But FedEx, in Memphis, Tenn., and UPS, in Atlanta, changed all that with their well-publicized customer tracking applications on their Web sites.
The applications achieve the goal of improving customer service while reducing customer-support costs, a phenomenon Internet commerce observers call "turning your customer into your employee."
But package tracking is just the beginning. UPS, attempting to rebound from its workers' crippling two-week strike in August, is developing an application that will tell business customers not only the status of their shipments, but also the contents of those shipments and their expected arrival times. "We're trying to move toward delivering information about the package before the package arrives," says Ken Lacy, CIO of UPS. "We're not there yet, but over the next few years, our customers will want to do those things electronically. The information has become more important than the package."
Tailor-Made
UPS has also moved aggressively into logistics and supply-chain management. Its DockMerge service, for example, reduces customers' warehousing needs and expenses by coordinating the delivery of product components to UPS loading docks. For one PC manufacturer, UPS synchronizes the delivery of CPUs from Los Angeles, monitors from Asia, and keyboards from New York to a UPS facility, then packages the components together and ships them to the customer.
That makes UPS intimately involved in the PC manufacturer's supply chain, which is the goal of a logistics provider. The challenge for UPS and all other transportation companies is making the transition from the relatively generic, commoditized delivery business to logistics services that have to be much more tailored to each customer.
"You have to determine where you can have a portfolio of standard services and where you need to tailor a product or service just for one customer," says Lacy. "It's very difficult to have a separate solution for every customer and then support them all."
That's why transportation companies need flexible, cross-functional applications on standard IT platforms. UPS is undertaking a major IT overhaul with just those goals in mind. Standardizing on platforms such as Microsoft Windows NT wherever possible, UPS is trying to simplify its vast IT organization. The company has an annual IT budget of more than $1 billion.
About a year ago, UPS reorganized the IT group into five units built around business processes and under the leadership of five "portfolio managers." These include internal and back-office systems; operational systems; customer automation and external systems (including the Net); business development and marketing; and infrastructure and archite cture.
The goal is to break down the "silos" that once separated what Lacy calls "like systems" such as finance and human resources. "Before, when we went to develop a new system, no one owned the whole process," Lacy notes. "Now, each portfolio manager does own the process, but they have to make a five-year business case before we'll fund any development. It's gotten a lot of people more focused on the bottom line."
Getting a $22 billion company to refocus its IT goals is a huge task. But Lacy's challenge is easily matched by the one faced by Bruce Parker, senior VP and CIO of Ryder System Inc. in Miami. It's one thing to talk about logistics management, but Ryder is completely reinventing itself as a logistics services provider while exiting the slow-growth truck rental and leasing business. "We've spent a lot of time reviewing all our strategies upside down and backwards," says Parker.
Coming off a 1996 loss of $41 million on sales of $5.5 billion, Ryder moved quickly to sign up two key IT part ners for logistics services. In March, it announced the Ryder Technology Alliance with IBM and Andersen Consulting. Ryder has moved 550 of its IT employees into the alliance and has signed logistics services contracts with blue-chip customers such as Whirlpool and General Motors' Saturn division.
Parker now feels less like a CIO and more like the head of a systems integration business in a logistics outsourcing market that is growing at 30% to 40% per year. "My big question was how we were going to do this without having to own all the resources," he says. "If we were going to service big global companies, we needed new skill sets, different technologies, and different locations." In addition to Andersen and IBM, Ryder works with software vendors SAP and Manugistics.
At Saturn's assembly plant in Spring Hill, Tenn., Ryder manages the just-in-time delivery of 2,000 parts orders a day from 350 suppliers. Saturn pays Ryder on a per-finished-car basis, effectively converting its logistics and delivery fro m variable cost to fixed cost. "It really looks like a big IT outsourcing contract," says Parker.
Role For NCs
When appropriate, Ryder uses leading-edge mobile computing technologies such as onboard computers, handheld devices, and global positioning systems. CSX also uses handheld devices, standardizing on Telxon Corp. units for its railcar and inventory inspectors. It's embracing network computers, has deployed 100 Sun Microsystems JavaStations, and is testing thin-client devices from several vendors. "NCs will play quite a role in the transportation industry," Andrews predicts. "We have a lot of field personnel that don't need the power of the PC, but they do need access to information."
On the consumer side of the industry, online travel has rapidly become one of the most successful businesses on the Web. Major hotel chains (included in the IW 500 transportation sector) are using the Web to provide room rates and take reservations. American, Delta, Southwest, US Airways, and other airl ines offer online ticket sales as well as flight data on their Web sites.
However, the real successes have been startup, full-service sites such as Preview Travel, Microsoft Expedia, and the Travelocity site run by the Sabre Interactive Division of AMR Corp. in Dallas. Expedia, for instance, sells $2 million worth of airline tickets a week on its own site and through those of Northwest and Continental, which license its technology.
But the relationship between airlines and travel Web sites hasn't always been rosy. Disintermediation is the point of contention. Last spring, several airlines cut the commissions they pay for online bookings to less than what they pay traditional travel agencies. The airlines claimed that a Web site provides less travel planning service than a traditional agent. But some observers say the airlines are merely trying to protect a valuable distribution channel from the Internet's competitive threat.
Such controversies may become more common in the transportation industr y as technology continues to force changes in the nature of the business. There's only one constant: customers' relentless desire for faster delivery of goods and information. In the supply chain of just about any industry, that makes transportation and logistics companies-and their use of IT-more strategic and critical than ever.

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