E-Logistics Gets The Kinks Out Of Supply Chains

Electronic logistics applications are increasingly being moved off proprietary systems and private networks onto the Internet. Large suppliers are driving this move in an effort to cut costs and time from their deliveries and to better manage customer expectations.

In fact, customer satisfaction is the key driver behind the adoption of the latest E-logistics software and service offerings. Customers are demanding near real-time information on where their goods are in the hopes of fending off production problems. Being able to tap into their suppliers' logistics systems to get order status is one way to more efficiently manage their production efforts.

For General Motors Corp.'s replacement parts operation, the road that runs between suppliers and the automaker's 9,000 car dealers has become much smoother. The reason: an Internet-based logistics system that handles everything from order management and scheduling to delivery. The system has replaced a system of electronic data interchange transactions and phone calls among GM and its suppliers and dealers.

The system, developed by third-party logistics provider Schneider Logistics Inc., was deployed in April and will soon include 3,200 suppliers, 25 distribution centers, and all GM dealers. It will help manage more than 16 million shipments annually. It also provides real-time information on which parts are in which trucks. The old system required suppliers to call GM's parts operation and report the weight of a shipment without providing meaningful information on the parts being shipped.

Jerry Golebiewski, process manager for inbound logistics at General Motors Service Parts Operations, says the system has made it simpler to prioritize the shipment of out-of-stock parts and reliably predict when they'll arrive at the dealers who need them. It also automatically consolidates small shipments picked up by numerous trucks into single truckloads without losing track of the parts that are on the consolidated load.

The E-logistics system also lets General Motors schedule deliveries to distribution centers throughout the week. The previous system let suppliers choose the day of the week they wanted to ship on, which ended up being mostly Friday and Monday.

"Suppliers had 'freedom of the week' shipping," Golebiewski says. "As long as they shipped in that week, they were considered to be on time, so most suppliers would ship at end of the week."

For many years, that supplier freedom resulted in General Motors having to pay additional fees to trucking companies for trailers waiting on lots for days because warehouse personnel couldn't unload all the shipments on the days they arrived. The system lets GM schedule parts pickups for off-peak days and has cut the number of missed shipments. The automaker hasn't yet calculated the return on investment of the project or collected exact statistics.

For companies such as General Motors' parts operation, Hon Industries, Network Appliance, and PPG Industries, real-time logistics is taking the place of their legacy EDI systems, telephone interactions, and faxed documents. A key reason is that their customers are moving more aggressively to lean inventory systems in which a late shipment might mean the shutdown of an assembly line or an angry customer who was depending on the shipment, and that ultimately can lead to lost business.

Internet-based logistics tools are helping companies cut costs by automating the processes of booking shipments, keeping customers informed, and making sure goods arrive on time. Even in the troubled economy, E-logistics applications are experiencing growth because they make it easier for companies to manage their customers' requirements for on-time shipments at a lower cost, AMR Research analyst Chris Newton says.

A survey of logistics and supply-chain execution vendors shows that some buyers have delayed logistics-related projects short-term, but few have canceled them, Newton says. That's because companies increasingly realize that E-logistics systems are becoming mandatory in business. "Companies who are doing business electronically are beginning to realize that the cost of doing business with a supplier that doesn't is too high," he adds.

Malcolm Fields, VP and CIO at Hon Industries, a $2.04 billion office furniture maker in Muscatine, Iowa, says his company's lean manufacturing model has come to depend heavily on a Synquest Inc. advanced planning and scheduling system deployed in March. The system manages a wide range of business processes, including customer orders, plant and production scheduling, and logistics.

The all-in-one suite stood its toughest test shortly after Sept. 11, when it was used to reschedule plants and production schedules so Hon could meet an emergency 20-truckload order for a company hard-hit by the World Trade Center attack. This was a difficult task for Hon, whose plants were running at near capacity, but it did the job.

The E-logistics implementation has driven a business-process reengineering effort within the company. Before deploying the Synquest system, Hon Industries ran its manufacturing and logistics operation in a rigid, predefined plan. Each customer was serviced from a preset distribution center, regardless of whether the center was closest to the customer; and the order was assigned to a factory, sometimes regardless of whether the plant was the closest to the distribution center. The manual nature of the process resulted in some factories being overscheduled, causing Hon to miss some promised delivery times.

"That meant disappointed customers," Fields says. "Shipping across the country in a less-than-optimal way from factory to distribution centers to customers really cost us a lot of money."

Now, the software analyzes orders and assigns them to the plant and distribution center that lets Hon provide the shortest delivery time and make the best use of its facilities.

Like Hon, the complexity of PPG Industries' logistics network--4,000 shipments a week--was a big reason the glass and construction materials manufacturer decided to go with the hosted logistics offering from Logistics.com. In the mid-1990s, as the number of shipments and carriers increased, so did the cost of expanding and maintaining its homegrown logistics system. PPG recently decided that this system wouldn't cut it and turned to a third-party logistics provider. That solution also became too costly. The Pittsburgh company signed on with Logistics.com in July to manage 133,000 shipments annually, involving 32 shipping and receiving sites.

All but the largest 25 of the dozens of national and regional carriers used by PPG were moved immediately to the hosted service from the company's EDI system, says James Carr, manager of corporate transportation for PPG. Since then, five of the larger carriers also have moved to Logistics.com, and PPG Industries may move more major carriers to the hosted service over time.

Logistics.com provides PPG with analysis of carrier performance. The routing and optimization offerings help cut shipping costs by automating the consolidation of small shipments into full truckloads or creating routes with multiple stops rather than a single stop. The service also maintains visibility of each shipment, which is a key to keeping customers happy in the current downturn. E-logistics is becoming mainstream technology. Customers increasingly won't accept anything but real-time information on their shipments. The alternative might lead to project or production delays that could result in factory lines being shut down.

AMR Research's Newton says the customers of many companies will soon be demanding the lower cost of managing logistics over the Internet. "If a company isn't using E-logistics tools or doesn't have a logistics initiative going, it's not a death knell for them right now," he says. "But companies using E-business tools are going to start excluding suppliers that can't participate in their new supply-chain processes."