---

8

Contents

• Contents 1
• Logistics 2
• Visibility into movement 6
• Information systems in logistics 6
• Literature 12

Logistics

After the terrorist attacks on September 11, automotive manufacturing came to a temporary halt at the General Motors Corp. and Ford Motor Co. pickup truck factories in Ontario, Canada. Why? Just-in-time (JIT) deliveries were delayed at the Canadian border. Delays at the Mexican border caused Ford to also shorten production for about two days at two of its Mexican assembly plants.

While the Wall Street Journal and Reuters packaged this news in articles about the need to rethink JIT manufacturing, theres another slant to consider: Logistics matters. According to AMR Research (Boston, MA), organizations spend 11% of their revenues on logistics, yet it is one of the last core business processes to be automated. More often than not, logistics is an in-house, manual process involving phone, paper, email, fax, and home-grown inventory, warehouse, and transportation management systems.

Dont make the mistake of thinking logistics is only about accurately storing and moving inventory. Its also knowing where your stuff is throughout the supply chain, and finding alternative shipping modes and routes to quickly get around delayed and irregular shipments. And as with so much else in factory automation, good logistics is a competitive advantage.

The definition of “logistics” is complex or simple. According to the Council of Logistics Management (CLM, Oak Brook, IL), logistics is “that part of the supply chain process that plans, implements, and controls the efficient, effective flow and storage of goods, services, and related information from the point of origin to the point of consumption in order to meet customers requirements.” AMR Research says logistics is simply “the management of inventory in motion or at rest.”

Numerous industry initiatives fall into this field, including quick response, continuous replenishment, efficient consumer response, and, mostly in manufacturing industries, JIT and vendor-managed inventory. The common theme in all of these is to create some sort of smooth and fast pipeline from material source (supplier) to material consumption (customer), while responding to the real-time dynamics that occur from changing customer requirements, routings, transportation modes, and international trade requirements, to name a few constraints.

Two characteristics separate logistics software from many other types of software, particularly enterprise resource planning (ERP). Logistics applications are execution systems, not planning systems. Second, they are real-time systems capable of making sub-second decisions based on a colossal amount of data at a far more granular level than ERP.

Modern major logistics execution systems include a broad array of applications and modules. The major ones are as follows:

Inventory management systems (IMS) ensure the availability of products by linking customer demands, product reservation, and allocation processes.

Order management systems (OMS) provide real-time visibility into the entire order lifecycle, ensuring against lost, delayed, or corrupted orders. For example, the OMS from Provia Software Inc. (Grand Rapids, MD) manages products, orders, shipments, and delivery information by customer. It also produces the appropriate billing materials, as well as communicates directly with customers and suppliers through electronic data interchange (EDI), Internet/intranet, and other communications modes. It controls billing for all product-handling costs (such as receiving, storage, and labeling), and applies it to the specific customer based on prenegotiated agreements. Plus, it can process complex orders that require future shipment or staggered delivery dates, multiple consignee delivery, or back-ordered product.

Warehouse management systems (WMS) tell you in real time what you have and where your inventory is within whatever it is youre calling a warehouse. At the very least, the software system manages receiving, storing, picking, and shipping product. It is usually integrated into a plethora of automation, including bar code and radio frequency (RF) technology, pick-to-lite systems, ERP, and EDI. Typical WMS verify barcoded or radio-tagged incoming inventory against purchase orders downloaded from ERP, EDI, or OMS. The system will also tell people what warehouse location to store that material, often through printed storage/put-away lists or through RF terminals on forklifts. Likewise, it will prioritize picking operations and direct operators when and where to pick. In both the put away and pick, the WMS will update its inventory database as required. Additionally, leading WMS might perform other functions, including order management, work-load management and labor planning, cross docking, replenish primary pick locations, cycle counting, supplier return/stock rotation, performance reporting, proof of delivery, compliance labeling, and manage productivity-based employee payments.

Transportation management systems (TMS) focus on freight movements and physical distribution. The Web and workflow-based transportation application from Arzoon, Inc. (San Carlos, CA), for example, helps companies determine the best routing and transportation mode for their products, helps select carriers based on service levels and rates, creates a delivery schedule, determines rates, and optimizes the total shipping costs against service and delivery constraints, and international trade requirements. A separate Arzoon application for global trade contains a centralized rules database with trade regulations, tariffs, and duties for nearly two dozen countries. The application automates the proper handling of the proper trade documents by emailing them to the proper officials.

TMS will automatically send shipping notices, manifests, carrier information, and other updates to all interested parties in the supply chain as required, as well as receive requests for updates about the status of shipments. TMS also often monitor and initiate freight payments, as well as monitor reverse logistics, and domestic and international shipping.

Yard management systems (YMS), such as from Provia, extend the warehouse beyond the physical four walls of the plant by controlling the activities of trailers on the dock and in the yard to the point of scheduling both inbound and outbound trucks, In so doing, it effectively expands the amount of storage locations and lets you cross dock using partial or entire trucks.

Third-party logistics (3PL) providers are not a technology, per se, but they are a major element in logistics. According to a recent 3PL survey by Cap Gemini Ernst & Young (Detroit, MI), the primary services contracted from 3PL providers include inbound and outbound transportation, cross-docking, warehousing, freight bill auditing/ payment, and freight consolidation and distribution. But this set of services is changing. “3PL providers should now focus on capable information technology, effective management and relationship processes, global responsiveness, and deliver-ing comprehensive, integrated solutions that create real supply chain savings,” writes John Langley, Jr., survey author and The Logistics Institute professor at the Georgia Institute of Technology.

Implementing logistics applications are quick--less than six months is typical. Also quick is their return on investment (ROI), which is often well within 18 months. ROI is based on several measures. According to Supply Solutions, Inc. (Southfield, MI), a supply chain management systems provider, these measures include 30-70% inventory reductions (work-in-progress and in-transit), slashed administrative costs, improved manufacturing efficiency, the elimination of premium shipping and part shortages, predictable production requirements, precise production scheduling, accurate production orders, significantly reduced “just-in-case” and excess inventory, improved use of limited resources, lower labor requirements, reduced overtime costs, reduced premium freight charges, and peace of mind. Add to that such items as faster order velocity and order fulfillment response times, more inventory turns, and less expediting in manufacturing, warehousing, and shipping, to name a few areas.

According to Deby Veneziale, Chief Product Officer for Arzoon, the companys logistics resource management software can deliver “hard-dollar savings of 5% to 15% of logistics costs by minimizing maverick transportation spending by suppliers and employees, optimizing carriers and transportation modes, reducing exposure to customs compliance liability, and eliminating many manual processes.”

Visibility into movement

The goal, of course, is visibility in all areas of logistics. “Customers are demanding visibility into the status of their orders--when its going to ship and when it leaves the door--they want a copy of the bill of lading and the packing list, and they want to go onto the Internet and click on a parcel number to know immediately what the status of the shipment is. This is all standard in a visibility solution,” says Ken Lewis, President and CEO of Provia. The warehouse manager wants to know if a problem is beginning to brew before being blind sided.

Interestingly, logistics is probably one problem where throwing technology at it is good. “Just outsourcing the physical processes of logistics is not going to give you the huge hits in logistics savings,” says Veneziale. “To move shipments and do it right, youve got to share [huge amounts of] logistics information with the right players at the right time, let certain players execute on that information, allow other players just to view that information, and let other players set up the business rules.

“Till now, what was always lacking was the technology and automated workflows to bring that information to the players so they could all do the right thing--and the same thing. Companies did it with people in the past because they didnt have the technology to do it. Today the technology exists. ”

Information systems in logistics

Automatic vehicle location (AVL) archiving systems bring a variety of benefits to companies that operate trucking fleets. Businesses with other types of vehicles like buses, couriers, ambulances and many others benefit as well. AVL or “GPS” systems are among the most cost-effective, service and compliance enhancing investments companies can make.

To derive maximum value from an AVL system it is advisable to identify the vendor with the best overall combination of leading-edge technology, price and fleet management expertise. While it may seem obvious, the ultimate purchase decision should be based not on p

rice alone but value delivered.

If it is determined that two vendors offer similar capabilities that deliver approximately the same value, emphasis can then shift to price making for an easier purchase decision. Executives with responsibility for purchasing an AVL system should be confident they are selecting the vendor most capable of solving their particular needs. However functionality and cost vary considerably one vendor to another. An automated DOT driver logbook is a good example of functionality offered by relatively few vendors.

Know which questions to ask and how precisely your company will benefit. Involve the right departments in the evaluation process. Besides executive management, appropriate personnel representing financial control, operations and safety and information technology should participate in the selection process.

A determination needs to be made whether passive or real-time tracking makes sense for your company. A sensible approach for many first-time AVL buyers is to install a passive system that can be inexpensively upgraded to a real-time system. If a passive system is purchased without a convertibility feature, the investment will be lost if the decision to go real-time is made.

GATCO Technologies is one of a few companies with a passive system that can be upgraded to real-time (they also provide an automated DOT driver logbook). Qualcomms system has a DOT driver logbook too.

What key benefits do real-time interactive AVL systems bring?

Today, demanding customers almost expect to know where their carriers vehicles are throughout the course of delivery. Savvy fleet operators exploit real-timing tracking by granting their customers access to the delivery status of their vehicles. This unburdens fleet personnel from having to track down the status of vehicles in transit so the morale and productivity of fleet operators is improved and customers are placated.

Some companies like to monitor the mechanical performance and security of their vehicles in transit. Emergency alerts indicate malfunctioning refrigeration units, lock tampering and other applications that vary by operation. A comprehensive AVL system includes panic button functionality for 911 emergencies.

An interactive system is necessary for fleets that utilize dynamic optimization-based vehicle routing and scheduling systems for managing complex trucking operations. Sophisticated decision support tools of this kind optimize assignment of vehicles and outstanding orders in real time taking into account vehicle locations, committed orders, vehicle availability, outstanding order time windows and historical demand profiles in regions of delivery.

AVL systems that are capable of reporting the status of multiple vehicles simultaneously reduce the cost of picking up inbound freight (backhauling). These systems disclose the closest available truck to the vendor from whom goods need to be transported.

Real-time systems can be very affordable if purchased from companies with leading-edge proprietary technologies. For example, GATCO Technologies has lowered the cost of real-time reporting dramatically. They invented and patented a method of transmitting short bursts of data from moving vehicles without expensive cellular connection charges.

AVL systems benefit purchasers in a variety of other ways. Key areas are these:

Development of "smart routes" Routes will evolve that get the same work done with fewer trucks and drivers when a good planning tool is combined with a good GPS product. Most AVL vendors can tell you exactly where your resources are at any time. But by itself, this information does not provide the means for improving the operation. However when actual performance is compared against a plan, fleet operators are provided a “road map” for improvement. GATCO Technologies an AVL provider, teamed up with Paradox Software Company, Inc. a logistics planning software vendor to provide solutions for continuous improvement of logistics systems. Companies using this combined technology can expect to reduce the resources they need to transport goods significantly.

Improved driver performance. Experience shows that once drivers know they are being monitored, their driving habits change for the better. Improvements are realized through reductions in speed and costly engine idling, elimination of unauthorized routes and stops as well as less time spent at authorized stops.

Compliance. Staying in compliance with regulators is a tedious, labor-intensive, costly proposition for many companies. For example, fleet operators whose vehicles travel in multiple states must keep track of those miles so the right fuel tax can be paid. At the same time, keeping in compliance with drivers hours of service regulations is a top priority. AVL systems that provide automated and tamper- proof DOT driver logbooks and allocate miles by state without driver participation virtually pay for themselves just in these areas alone.

Incentive pay programs. Reduced to its simplest terms, incentive pay rewards the driver for performing the job as quickly and safely as possible. Actual trip data generated by the AVL system can be used to develop drive and stop standards to develop an incentive pay plan for drivers.

Defending drivers involved in accidents. Incontrovertible trip data protects drivers who may be wrongly assigned blame in accidents. For example, a driver accused of running a stop sign and causing an accident can prove he was stopped at that very stop sign.

Defending against fraudulent claims. Some companies are targets of fraudulent claims against their vehicles. Trip data can be reconstructed showing a vehicles exact location at any time so this can be used to successfully repudiate the “eye witness” testimony of unscrupulous criminals.

Reduced liability insurance. Monitoring and reducing driver speed reduces accident probability. Insurance companies look favorably at companies that control their drivers speed and some offer reductions in liability premiums.

Fuel and maintenance savings. Monitoring and controlling vehicle speed and engine idling reduces fuel consumed and engine wear extending engine life. The longevity of vehicle components like gearboxes, axles, and break liners is extended as well through reduced wear.

Financial analysis and reporting. Actual operational data produced by an AVL system can be soundly integrated with financial data for accurate profit and loss reporting and transportation ratemaking.

A few considerations in selecting the most suitable vendor are these: Decide what functionality is most important to your business and identify which vendors systems are best capable of delivering this. Many lower-priced systems provide vehicle location but do not automatically report miles by state and do not have DOT driver log capability. Negotiate with vendors who understand the intricacies of fleet operations. Ideally, the vendor should have persons on staff who have successfully managed fleet operations themselves.

Develop a list of questions: What distinguishes the vendors technology? Does the vendor hold patents? How will drivers like the system? How much driver interaction is required? Is voice communications needed and does the vendor provide this? Can the system be upgraded from passive to interactive? How is the quality of the maps and how fast do they load? How fast does the system execute reports? Does reporting capability exist that compares actual with planned data? What kind of training and customer support is accessible? What maintenance support (hardware and software) is offered?

Develop a vendor “short” list:

Just because a vendors name is well known does not necessarily mean their product (or price) is best for your company. Take into account the total cost of the system: hardware, software licensing, installation, maintenance, upgrades and communications charges. It is not uncommon that vendors sell hardware relatively inexpensively but charge expensive (and recurring) messaging or reporting charges for their systems. It is unwise however, to purchase a system of this kind based on price alone. The ultimate purchase decision should be based on value delivered.

Once a “short” list of vendors is identified, there can be no substitute for testing the vendors system on your fleet in your environment. Calculate a return on investment analysis. A system that provides the right functionality should rapidly pay for itself in well under a year.

In the ideal relationship, fleet operators and AVL vendors function as partners. Find a provider that is committed to working with you. The vendor should be willing to customize its reports specific to your business and make modifications to its system if necessary. Finding the best AVL vendor is not easy. A better understanding of what you need and asking the right questions makes it easier. Companies that operate vehicles face enormous pressure to control their costs, comply with governmental regulators and to continually enhance the future performance of their fleet. AVL technology helps in so many ways it should not be overlooked.

Literature

1. http://en.wikipedia.org/wiki/Logistics

2. Creveld van, Martin. 1977. Supplying War: Logistics from Wallenstein to Patton. Cambridge: Cambridge University Press

3. Engels, Donald W. 2006. Alexander the Great and the Logistics of the Macedonian Army. Berkeley: University of California Press

4. Roth, Jonathan P. 2003. Logistics of the Roman Army at War (264 B.C. - A.D. 235). Leiden/Boston/Koln: Brill