Networks--The Future of Transportation Management
By the end of this decade, transportation workflow will be revolutionized through transportation management networks on the Internet that allow true collaboration to maximize utilization and minimize costs. Transportation management is due for change. It is a communication-intense, cumbersome process that involves negotiation at virtually every step and is still managed with manual forms of communication.
As a result of transportation deregulation in 1980, many new practices were conceived to improve overall workflow and eliminate redundant processes (e.g., self-billing replacing traditional freight billing). At that time, the transportation community could not actualize many of these practices because it lacked the ubiquitous, interactive communication vehicle that the Internet provides.
New practices are evolving that are being codified as collaborative transportation management (CTM). CTM changes ways of working and adds collaboration and efficiency through the presence of networks. It will become ubiquitous as a result of what is known as the network effect, which asserts that a service becomes more valuable as more people use it, thereby encouraging an everincreasing number of adopters.
Transportation Process Evolution
Given the Internet as the vehicle and the various practices now defined, we can safely speculate the form of transportation management by the end of this decade. We can broadly categorize transportation management processes into four component areas: procurement, planning, execution management, and settlement.
Most companies manage multi-tiered networks. At most locations, they perform both shipping and receiving functions. Carriers conduct simultaneous processes with many shippers and manage complex and dynamic networks.
In the past, transportation was more predicable and scheduled. Today, the environment is much more dynamic. It defies efforts to predict needs and availability of capacity; it demands agility and the ability to evolve rapidly as conditions change. Rapid evolution requires much more frequent communication. Processes formerly conducted in isolation now require collaboration.
Procurement
Today, most shippers contract for transportation capacity annually by sending a request for quotes (RFQ) with their geographic coverage, service requirements, and volumes to candidate carriers; carriers respond with service commitments and rates.
In the future, shippers will run statistical summaries of their transportation history and imbed these data automatically in a predefined RFQ template. They will advertise the availability of the RFQ on the network to their select core carrier group or to an extended carrier group.
Candidate carriers will receive automatic notification of the RFQ and can prepare rate tables and volume commitments and submit their responses electronically. The shipper is notified as offers are placed and the network will expose the current lowest bid for each lane to the bidding community, permitting an auction to take place.
When the shipper has made his selections, all bidders will be notified appropriately. The selected responses will be loaded automatically into the shippers contract and rate databases, eliminating transcription and errors.
Shippers can use the network marketplace to solicit responses at any time; they do not need to wait until a contract anniversary. A shipper can advertise well in advance for unusual requirements, such as a promotion or seasonal events, that demand additional coverage difficult to obtain at the last minute.
Planning
Today, a shipper plans his shipments in a vacuum. Although there are sophisticated programs to develop the optimum use of carriers resources, the shipper assumes that those resources are infinite. He determines how to build economic shipments and allocates the lowest cost/best service modes and carriers, then offers them to his carriers. He discovers anomalies after the shipment has been rejected by the carrier.
Networks will allow much more dynamic planning with the interactive exchange of both requirements and resource availability. A marketplace allows the carriers to immediately advertise unused capacity and uncover candidate loads. With permission, carriers can examine unallocated loads, submit bids, and notify the shipper; he can accept the offer or make an alternate decision. The shipper gets better coverage at lower rates; the carrier gets better utilization.
Shippers are also examining their networks holistically, associating shipments, and determining continuous movement (CM) opportunities. Shippers that do not have organic CM opportunities will be able to participate in network-mediated CM programs and share in the economic benefits; this evolves as critical mass and the network effect are achieved.
Execution Management
Once the shipper has established his optimum load plan, he offers (or tenders) the shipments to each selected carrier individually to determine if they have available lift capacity. The carrier responds with an acceptance or a declination.
In a network environment, the network tenders shipments to each carrier via his media of choice and the carrier responds appropriately. If the carrier declines, the network automatically tenders the shipment to the next carrier in the preference list until an acceptance is realized.
Networks offer a private transportation marketplace (PTM) that allows shippers to solicit uncommitted capacity from their core carriers. This is a parallel tender; the carriers are notified concurrently.
The shipper can include a reserve price and advertise for capacity; the first carrier that accepts the price claims the load at that reserve price. If the shipper does not include a reserve price, he is advertising for best price. Carriers submit bids within the allotted time frame; the shipment is awarded to the lowest bidder and the spot price becomes the contract price for that load.
Appointment scheduling is a byzantine, manually intense process. Each facility is an information island and most schedule appointments based only on their facilitys availability, not when the buyer needs the goods. In the future, facilities will be defined on open networks. Each can define when they are open to receive and ship; how many doors, staging areas, drop lots, etc., are available.
A requester can examine the facilitys schedule, compute the load/unload time, choose an open appointment slot, and request the appointment. If the facility allows third parties to schedule appointments in open slots, the appointment is booked. If not, a scheduler is alerted and confirms, denies, or makes a counter-offer on the appointment.
No one network will control all facilities; networks will inter-operate so that subscribers to one network can establish appointments with facilities on another network.
Today, shipment status is cumbersome. Drivers call their dispatchers with events and their location, dispatchers enter these data, and the dispatch system periodically generates shipment status messages to customers.
In the future, shipment status will be collected as a by-product of all other network business processes (tendering, appointment scheduling, and actual departure and arrival). Carriers with in-cab computers will be able to automatically update location and ETA from these systems, eliminating the need for driver check calls. Facilities will automatically log carriers into, and out of, their facilities and update the network.
The network will provide complete visibility to shipments. Every event will be automatically evaluated and appropriate alerts and alarms will be generated. Shipment managers will have dashboards that allow them to easily locate any individual, or category of, shipment; examine areas of interest or specific issues; and manage exceptions.
This visibility extends to information consumers not managing the shipment: customer service, sales, shipping and receiving operations, buyers, inventory managers, and customers. Key information consumers, such as buyers, will have unprecedented access to essential inventory status; they will know when milestones, such as appointments or ETAs, do not meet their required delivery times.
All events are recorded for data mining. This extensive shipment history database can be employed for many different forms of business intelligence, including: performance-to-plan measurement (ontime and complete), supplier and carrier report cards, network analysis, transportation cost, and other financial analysis.
Settlement
The carrier invoices the shipper to financially settle a shipment. The shipper must audit the bill, determine if the rates and terms are correct, then pay the carrier.
Since contracts replaced bureau tariffs after deregulation, selfbilling has been recognized as a best practice. With self-billing, the shipper pays the carrier without requiring him to generate an invoice, since both parties can compute the proper rate from the contract. Many shippers, however, do not have the mechanism to compute their own freight rates and then trigger payments upon delivery confirmation.
Networks will automatically compute an audit-quality rate upon allocating a load to the carrier. When the carrier accepts the tender, this rate becomes the contract for that specific shipment, and when he confirms delivery, the network begins the payment cycle automatically. The carrier can inquire to see the status of pending and actual payments at any time. This eliminates the need for carriers to generate freight bills (estimated to cost upwards of $14 per bill).
If the carrier encounters any unanticipated accessorials during transit, he can request they be added to the pre-computed bill. This request automatically notifies the shipper; he can approve the request and add it to the payment amount. This eliminates the entire due billing process, which is expensive, clerically intense, and delays carriers payments.
Why Past Solutions Failed
In the past 25 years, standards committees have defined messages to conduct dialogues electronically. The chosen media was EDI, but it has not been widely adopted because it is expensive and it must be implemented separately with each trading partner. The network effect is never available with one-to-one communications.
During this same 25-year period, there have been numerous shipper-carrier networks dedicated to managing portions of the transportation business problem. In the late 1990s, the Internet promised to be the mechanism to overcome the cost, time, and workflow issues inherent with EDI and provide the vehicle for process change. In 1999, an industry journal delineated 17 transportation networks. However, today, only three exist.
Networks tended to be built for a single purpose. Early networks were built on the premise of load matching. In concept, this is more economical for the shipper and more profitable for the carrier. Later, networks were expanded to incorporate continuous movements.
There is a fatal flaw in this approach, however. The loads that are candidates for load matching or continuous movements represent a small percentage of the total load volume. Purpose-built networks cannot process the entirety of a shippers daily transportation management transactions. He must use two systems to do his daily job one to transact his daily transportation management and another to perform load matching and continuous movements. Likewise, the carrier uses one system for his routine order taking and dispatch functions while using a separate system for collaboration.
Since neither the shipper nor carrier conduct their daily business through the network, these systems become a business process exception and do not attract important or regular volume. They attract only loads that cannot be covered in any other way, never become a standard way of working, and quickly fall into disuse. Clients must not be forced to turn to a separate system for collaborative functions.
Second, open networks do not recognize the value of the shipper/ carrier trading partner relationship. Shippers will not give freight to a carrier that they do not know.
Finally, most networks have been predicated on critical mass. Initially, no network effect exists. It is akin to trying to sell the first telephone when there is nobody to call.
When the network effect is actualized, the network becomes an operating system and standard way of working for the trading partners. Major carriers conduct business with multiple shippers. The network is not an operational exception.
New clients are assured that others are operating successfully with their trading partners in the same environment. Previous successes assure new clients that their implementation will be rapid and trouble-free. Rapid implementation implies the shortest possible time-to-benefit.
By the end of the decade, the majority of all transportation management processes and transactions will be conducted through networks. They will become transportations standard way of working. Shippers will implement components of their process and expand usage with success. Carriers will implement to be good trading partners, but will experience real value as true collaborative processes increase their yield and their profit.
Transportation is one of the last areas in corporate America where large quantities of unmined savings still exist. Transportation networks will deliver those savings.
