A TMS is for sharing
Transportation management software makes it possible for shippers to share freight deliveries and cut expenses. So why aren't more doing it?
Co-loading may be an old idea, but it's getting a new look as shippers search for ways to control rising transportation costs. It's not hard to understand the concept's appeal. If two or more shippers have loads bound for the same destination—typically, a mutual retail customer—co-loading, or combining those shipments on a single truck, allows them to share freight expenses.
For all its benefits, however, co-loading requires some work. For one thing, there's the matter of identifying suitable loads—shipments going to a common destination within the same—often tight—delivery window. For another, there's the need to synchronize the associated processes among the various shipping partners. So it stands to reason that these days, those tasks are often performed by transportation management systems (TMS)—software that can identify opportunities for co-loading and orchestrate the activities.
Automating the process provides a number of benefits, says Ben Cubitt, senior vice president of consulting and engineering at Transplace, a company that offers a co-loading solution. For one thing, it spares staff members from having to sift through reams of documents to locate suitable loads and then coordinate the moves. "If you try to do co-loading manually, it's fine for a pilot, but you can't scale it," he explains.
On top of that, a TMS automatically tracks any data required for auditing purposes, Cubitt says. As an added benefit, the application imposes discipline on the process, ensuring that all participants follow a set of standard procedures for building combined shipments, carrier selection, and scheduling deliveries.
Yet as much as the software can do to orchestrate the processes, getting a co-loading program off the ground will never be easy. "Co-shipping is very complex," says Fabrizio Brasca, vice president of industry strategy and global transportation at the JDA Software Group. "Who's liable? Who controls the timing of the shipment? There are a whole bunch of execution issues that have to be agreed on." So far, it's not clear whether shippers will decide the savings outweigh the hassles.
3PLs AND CO-LOADING
When it comes to co-loading, European companies are way ahead of their U.S. counterparts. For the past decade, companies in Europe have essentially shared supply chains, going "halfsies" on warehousing and transportation services. Consumer packaged goods companies were pushed into this practice when retailers began demanding more frequent replenishment shipments. To keep costs from skyrocketing, shippers began teaming up to make joint deliveries to shared retail customers. In the United States, however, the practice is just starting to catch on.
Of the U.S. shippers that have engaged in co-loading to date, most have used a third-party logistics service provider (3PL) to coordinate the shared hauls. Typically, the shippers pass along their shipment plans to the 3PL, which marries their loads up into a combined shipment. The 3PL then tenders the consolidated load to a carrier.
One U.S. logistics service provider that's heavily involved in this area is Scranton, Pa.-based Kane Is Able. Kane's co-loading customers include a number of mid-tier consumer packaged goods companies, including Sun-Maid and Topps. The 3PL uses its proprietary TMS to identify common ship-to points and requested delivery dates, and then uses that information to build consolidated shipments for delivery within the retailers' delivery windows.
Another U.S. company that's active in the co-loading arena is Frisco, Texas-based Transplace, which bills itself as both a 3PL and technology provider. For the past year, Transplace has been working with three consumer packaged goods companies—Colgate-Palmolive, Clorox, and Del Monte—on a co-loading pilot. The three shippers are combining loads into full truckload shipments on one lane, using Transplace as a broker. Prior to the pilot, the three companies were making deliveries on different schedules.
Transplace modified its TMS to facilitate the co-loading process, according to Cubitt. Because Colgate-Palmolive and Del Monte are Transplace customers, they have fully integrated their processes and shipment data into the Transplace TMS. Clorox submits its shipment requests to Transplace as electronic data interchange (EDI) messages. The Transplace TMS then merges the requests from all three shippers into a single consolidated load if a combined move meets the needs of the shippers.
If Transplace can't build a combined load from two or three of the shipper requests, then Del Monte submits the order through the regular TMS channels. "The rule has been to make the best truck combination," explains Roger Sechler, director of transportation at Del Monte. "If all three don't fit on the truck, some will ride separate. We'll use our normal carrier if it's not possible to do a consolidated shipment."
Sechler says his company has realized freight savings from the program, which has proved to be less expensive than using less-than-truckload (LTL) service. He adds that the retailers involved have been pleased with the co-loading program because they've seen a reduction in inventory due to shorter leadtimes and more frequent replenishments. In light of the pilot's success, Sechler says, Del Monte and the other two shippers plan to expand the pilot to additional lanes this summer.
But not every shipper doing co-loading has engaged a 3PL. JDA Software has one client, a consumer packaged goods company that did not wish to be identified, that is using a TMS to build consolidated shipments with a partner, according to Brasca. The JDA customer takes in shipment orders from its partner and then feeds them into the TMS to build a combined load.
BARRIERS TO ADOPTION
If co-loading makes economic sense, why aren't more companies using TMS applications to do this? Control over the process has been the biggest issue, as one party has to be the dominant partner, says Brasca "Only one of the two partner entities can own the decision and execution process," he notes.
Gartner analyst C. Dwight Klappich says business process issues have been one of the biggest impediments to the adoption of co-loading, as the practice requires the shipping partners to align their processes and activities. In addition, since each organization has its own needs and priorities, the parties have to put a mechanism in place for resolving conflicts.
Along with issues of shipment control, another impediment has been antitrust concerns. Under antitrust law, companies cannot collude on activities that raise prices or restrain marketplace competition. In theory, two companies could use co-loading to reduce logistics costs, resulting in lower product prices that could potentially be leveraged to force a competitor out of the market. That's one reason why shippers engaged in co-loading have turned to third-party providers. The assumption has been that using a middleman shields them from antitrust concerns.
But a development under way in Europe may offer another model for addressing this problem. The business consortium Collaboration Concepts for Co-Modality (CO3) has begun developing a legal framework based on the concept of establishing a "neutral trustee" that would coordinate movements between two or more shippers. CO3 expects to complete work on that framework by 2014. If it were to become accepted legal practice, the use of a trustee might mitigate antitrust concerns.
Antitrust and shipment control notwithstanding, more shippers in the United States are expected to give co-loading a try as they face mounting pressure to cut freight costs. Cubitt says his company, Transplace, is currently in discussions with several other shippers about co-loading. "There are too many cost savings for shippers to gain from consolidation vs. shipping on their own," Cubitt says.
Sechler agrees. "If you have LTL volume going to a customer and the other shipper is in the same geographical area, co-loading makes a lot of sense," he says.
About the Author
James Cooke is a principal analyst with Nucleus Research in Boston, covering supply chain planning software. He was previously the editor of CSCMP’s Supply Chain Quarterly and a staff writer for DC Velocity.
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