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Making Way For High Tech

Companies drive down costs with better supply chains, collaboration.
InformationWeek 500 - LOGISTICS & TRANSPORTATIONHigh tech probably isn't the first thing that comes to mind when you think of rumbling freight trains or cargo trucks barreling down America's highways. But the logistics and transportation industry is spearheading collaborative applications, supply-chain management, and E-commerce by using both Internet and custom-built technologies.

Making the supply chain more efficient and driving down inventory and shipment costs are top priorities among logistics and transportation companies, as diminishing shipments and rising fuel costs cut into revenue.

Rising costs from its inbound supply chain is a huge concern for automotive manufacturer General Motors Corp., which is why it turned to two of its logistics providers--CNF Inc. and Schneider National Inc.--to help it trim inventory costs.

CNF and GM collaborated late last year to form Vector SCM. As a CNF company, Vector is able to use supply-chain management and forecasting tools from CNF's other businesses: Con-Way Transportation Service, Emery Worldwide, Menlo Logistics, and Road Systems. GM wanted to better manage inbound inventory from thousands of overseas providers. "Vector leverages all of the systems that we built across our company to solve GM's needs," says Roy Swackhamer, VP and CIO of CNF.

General Motors' attack on rising costs and low visibility in its supply chain didn't end with CNF. Schneider National, a third-party logistics services and software provider, also heeded GM's call and developed the Supply-Chain Integrator. The Web-based application provides greater visibility to all participants in the supply-chain process, from the time an order is sent to a supplier until it arrives at its destination. Previously, when customers placed orders with suppliers, the customers had little or no communication with suppliers and didn't actually know what was on the truck. At times, customers were forced to pay more for extraneous orders used to fill the truck, says Steve Matheys, senior VP and CIO of Schneider National. Schneider plans to offer a generic version of the supply-chain integrator to other customers who have inventory-reduction needs similar to GM's.

The airline industry, meanwhile, has worked collaboratively with customers for many years, but the Internet and self-service kiosks are helping airlines better serve their customers, while cutting down on in-person passenger-assistance costs.

Continental Airlines Inc. and United Airlines Corp. recently agreed to honor each other's electronic tickets. Previously, passengers with E-tickets had to obtain a paper ticket before transferring between carriers. Neither airline had access to the other's electronic-ticket database, but through the Interline E-ticketing initiative, ticket agents can access itineraries stored on two different airline reservation systems. Now customers who purchase electronic tickets can transfer flights from Continental or United with less hassle in the event of service disruptions, says Janet Wejman, CIO and senior VP of Continental Airlines.

The railroad industry, which traditionally has been slow to adopt new technology, won't be outdone by its transportation competitors when it comes to working collaboratively with partners and rivals. Burlington Northern Santa Fe Corp. is working with two of its competitors, Norfolk Southern Railway and Union Pacific Corp., on a joint venture that calls for the sharing of technology, financial systems, and data centers.

Gaining greater visibility into their own supply chains, as well as those of its customers, is another initiative that logistics and transportation companies are undertaking. Burlington Northern, one of the largest transporters of low-sulfur coal, last May developed an online forecasting tool that's used by coal-mine and utilities operators to forecast supply and demand.

"The tool is simple and looks like a spreadsheet," says Jeffrey McIntyre, assistant VP of technology services for Burlington Northern. "It helps the mines and the utilities to be more efficient, because everyone has access to the most accurate information," McIntyre says.

Keeping track of where everything is in the supply chain is a challenge that United Airlines has tackled over the past 12 months. United's information systems department has developed applications to help it catalog and locate its entire spare-parts inventory, which is worth $1.5 billion.


Nirup Krishnamurthy

Keeping track of spare parts is critical to the airline, says United's Krishnamurthy.
Knowing the location of spare parts is critical to the airlines, says Nirup Krishnamurthy, managing director of United's IS division. "You can have as many parts as you want, but if they're not where the plane needs them, you'll have flight delays," he says. Krishnamurthy's team is in the process of creating an application to track the company's parts inventory from the time it enters the system to the time it's used. The new system, which United's mechanics will be able to access on an intranet via wireless devices, should be ready to deploy by the end of the year or early next year, Krishnamurthy says.

Reducing excess inventory and operating costs is a major priority for logistics and transportation companies, which are handling fewer shipments and transporting fewer business and consumer passengers. Creating applications that can track these companies' inventories, as well as their customers', and optimize fuel usage, are high on many CIOs' "to do" lists.

In July, Menlo Logistics, a CNF company, laid off 400 employees, or 15% of its workforce, after HomeLife, a furniture retailer and one of its largest customers, went out of business. Menlo managed supply-chain services and 10 distribution centers for HomeLife.

Hard times hit United's parent company, UAL Corp., earlier this year. UAL announced a $200 million cost-cutting plan, which includes reducing its 2001 budget and capital spending, and retiring old B727 fleets, which run less efficiently than newer models. To optimize fuel usage, United's IS division is building a flight system that reduces fuel consumption by up to 2%, Krishnamurthy says. The system, which generates optimized flight plans for aircraft, is replacing a system that's been used for at least 25 years. "Constant rehabilitation and refreshing of systems over time is the biggest challenge we face in the airline industry," Krishnamurthy says.

Burlington Northern also is considering building or buying technology to manage fuel costs. "Our biggest challenge is trying to find the most effective way to purchase fuel at the lowest possible price and at the location that's closest to where you need it," McIntyre says. The company regards fuel as an inventory item to be tracked and managed carefully. McIntyre says he hasn't found a product to meet the railroad's needs--he's considering buying an enterprise resource planning software product and customizing it.

One of the greatest strengths of the Internet is its ability to communicate information to a potentially infinite number of users. This benefit is also turning out to be a huge challenge for United Parcel Service of America Inc., which wants to keep its Internet infrastructure in sync with customer demands.

UPS receives an average of 41 million hits per day on its Web site, which lets customers order pickups, return shipments, or track packages. Because of its huge Internet growth, says VP Jerry Skaggs, "it's hard to predict how many servers and mainframes we're going to need; our Internet usage has doubled every six months" since the site launched in 1994.

UPS is already gearing up for its peak season, which runs from Thanksgiving through Christmas. Skaggs says that by October, UPS should have all of the technology and business processes in place to handle the holiday shopping and shipping season. UPS expects to receive 14 million shipment-tracking requests on its peak business day in December. It handles less than half of that on an average day. To ramp up on bandwidth, UPS simply makes a call to Sprint, its high-speed network provider. UPS manages its Web traffic and data in two data centers and load balances the data on 45 application servers.

Even during slow economic times, many logistics and transportation CIOs vow to continue investing in technology because so much of their communication with customers and suppliers relies on it. Whether the companies expand and manage their businesses with homegrown or off-the-shelf applications, technology and collaborative partnerships will play an integral role in shaping the industry that's constantly on the move.

Closeup Logistics & Transportation
Rank Company Revenue in millions Revenue Change Income (loss) in millions Income Change IT employees
2 Continental Airlines Inc. $9,899 14.6% $342 -24.8% 1,800
16 Northwest Airlines Inc. $11,415 11.1% $256 -14.7% 1,165
35 FedEx Corp. $18,257 8.8% $688 9.0% 5,540
55 Schneider National Inc. $2,400 19.3% - - 404
59 Delta Air Lines Inc. $16,741 12.0% $897 -11.0% 2,200
69 United Parcel Service of America Inc. $29,771 10.1% $2,934 232.3% 6,000
72 APL Ltd. $4,673 9.3% $178 283.5% 566
89 Danzas AEI Intercontinental $1,012 - - - 470
94 CNF Inc. $5,572 10.6% $127 -33.3% 940
134 Roadway Express Inc. $3,040 8.0% $57 23.5% 162
137 DHL Worldwide Express - - - - 2,540
146 Ryder System Inc. $5,337 7.7% $89 -78.8% 400
155 United Airlines Corp. $19,352 7.4% $50 -96.0% 2,250
225 Hub Group Inc. $1,384 6.7% $5 -54.5% 175
229 Union Pacific Corp. $11,878 5.7% $842 4.0% 1,650
230 American Airlines Inc. $18,117 10.9% $778 -17.0% 960
240 Yellow Technologies Corp. $3,588 11.2% $68 33.6% 378
293 Werner Enterprises $1,215 15.4% $48 -20.0% 80
313 Landstar System Inc. $1,418 2.2% $45 -1.6% 265
326 Penske Truck Leasing Co. $2,700 - - - 340
328 J.B. Hunt Transport Services Inc. $2,160 5.6% $36 13.0% 300
332 Airborne Express Co. $3,276 4.4% $28 -68.8% 617
333 UniGroup Inc. $2,008 7.6% $18 25.7% 232
343 Burlington Northern Santa Fe Corp. $9,205 0.2% $980 -13.8% 550
364 Alaska Airlines Inc. $2,177 4.6% ($70) -152.4% 270
409 CSX Corp. $8,191 -21.1% $565 28,150.0% 590
460 Stolt-Nielsen Transportation Group Ltd. $2,269 27.4% $20 -57.1% 100
474 GATX Corp. $1,312 10.4% $67 -56.2% 72

Financial data from public information sources. Figures are for most recent fiscal year.
IT employee information from InformationWeek 500 qualifying survey. Requested company footnotes at informationweek.com/855/splash.htm.

SnapShot 500/Logistics & Transportation
Inside companies
Average portion of revenue spent on IT 5%
Portion of IT organizations that sell services or IT products to other companies 61%
Portion of companies that say wireless E-commerce will contribute to E-business revenue stream 68%
Senior IT executive is a member of executive management committee 93%
Average portion of customers included in electronic supply chain 36%
How companies divide their IT budgets
New product and technology purchases 18%
IT consulting and outsourcing 15%
Research and development 4%
Salaries and benefits 28%
Applications 19%
Everything else 16%
How often companies re-examine their IT spending plans
Daily -
Weekly 4%
Monthly 45%
Quarterly 29%
Twice a year 11%
Annually 11%
DATA: INFORMATIONWEEK RESEARCH