InformationWeek
Defining The Business Value Of Technology
October 25, 1999
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A Special Report From InternetWeek
By Tim Wilson
ou can't send a package over the Internet. All companies selling to businesses and consumers online must face this simple truth. Solving the shipping problem, therefore, is often the difference between E-business success and failure. As a result of this pressure, the companies most affected--most transformed--by the ascent of the Internet aren't those that do the online selling but those that deliver the goods.The CEOs of these companies say the Internet is forcing a fundamental shift in their business and the services they provide. Not only are these companies transporting more online-purchased goods, they're becoming ever more critical links in those customers' supply chains. They're doing so by creating extranet links with their customers and gathering logistics data that those customers can use to improve the operation of their businesses. IT provides the underlying links as well as the data collection and analysis platform for all these activities.
Logistics data "allows you to operate the business more and more precisely against demand," says Fred Smith, CEO of FDX Corp., a holding company that includes Federal Express, RPS, and other shipping and logistics companies.
"Being able to have very sophisticated information architectures where our system and the customer's system is seamless--that's the ball game for us," Smith says. "All that information has to be online and available all the time."
Smith and his competitors are backing up their statements about the value of logistics data by pouring money into E-commerce.
Transportation and logistics companies spent $2,367 per employee on technology to support E-commerce during the past year, an increase of more than 11% from the year before, according to the IT advisory firm the Meta Group. Those figures include expenditures on server hardware, operating systems, client and server applications software, as well as systems and software dedicated to E-commerce applications.
For organizations such as United Parcel Service, with 327,000 employees, or the U.S. Postal Service, with 760,000 employees, that's a pretty penny.
All that spending isn't simply to handle higher volumes of business. Most E-businesses are putting enormous pressure on their package carriers to participate fully in the just-in-time processes that enable manufacturers to fill orders as swiftly as possible while keeping inventory to a minimum.
"It's ironic, but the net result of E-commerce will eventually be a shrinking of shipping volumes, at least on the business-to-business side," says Brian Clancy, a principal at MergeGlobal Inc., a freight trans-port consulting firm. "There will be a relative reduction in the need for transportation because, with ERP and supply-chain technology, forecast errors will be reduced."
As a result, Clancy says, package delivery companies are moving at breakneck speed to reshape themselves as masters of logistics, supply-chain management, and even warehousing.
"In order to succeed, they must deploy technology at a speed that allows them to stay ahead of the decline in traditional package delivery revenue," he says. "It's like Intel, which must accelerate its technology development fast enough to stay ahead of the drop in chip prices."
While executives in the transport and logistics industry aren't ready to concede any drop-off in volume, which has steadily increased throughout the E-commerce boom (Web-related revenue was up 80% last year, according to the Meta Group), they acknowledge the need to go beyond shipping goods.
continued...page 2, 3
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