October 23, 2017
Column | outbound

IT: Color it green

A simple business concept may be getting lost in the chase for the next big IT thing: Make the business case before you spend.

By Mitch Mac Donald

At an event in 2012, Robert Nathan, founder of logistics services provider Load Delivered Logistics LLC, approached Jeff Silver, the head of broker Coyote Logistics LLC, to explain Nathan's idea for building one of the first mobile applications for North American brokerage. After listening to Nathan's proposal, Silver asked if Load Delivered shipped 3,000 loads a day. No, Nathan replied. Silver demurred, saying that only operations of that scale would be able to justify the investment in the type of application Nathan proposed.

Nathan killed the application and spent the next five years building procurement and digital matching software that large-scale brokers like Coyote could justify. Since that 2012 meeting with Silver, however, the goalposts have moved. Speaking in mid-October at a conference sponsored by IT provider project44, Nathan said a broker would actually have needed to flow 10,000 loads a day through its network to create sufficient ROI (return on investment) to justify the expenditure.

The anecdote ties into an issue starting to occupy more brain space in the trade: Is the pace of technology deployment racing ahead of the industry's need for it? Has technology taken the form of solutions in search of problems? Is it becoming a substitute for developing and nurturing customer relationships?

When industries overcompensate, they tend to overshoot. That may be what's going on here. For decades, the industry—with several notable exceptions—was woefully behind the IT curve. Then, almost like real estate developers who suddenly discover a run-down pocket of a city with great potential, money began pouring in to pull the business's IT capabilities into the 21st century. In many cases, the investments were long overdue and have undoubtedly been beneficial. Yet as the deluge continues, we're starting to see pushback from those who move the goods and must compete with IT for budget dollars.

"If you are building platforms for the sake of technology, you are missing the point," said Mike Rude, director of international marketing for FedEx Corp.'s FedEx Services unit. "If we can't articulate the business benefits of IT to our customers, we will all lose," he said. He advised the audience—a cross-section of IT and physical distribution folks—not to "try to be cool" and not to "try to be the next Uber."

Derek J. Leathers, president and CEO of truckload and logistics company Werner Enterprises Inc., said some IT investment has become tantamount to killing a mouse with an elephant gun. For example, Werner spent millions of dollars on sophisticated track and trace systems, but the technology has been applied to such a small part of the company's operations as to make Leathers wonder if the payback justified the investment.

"We have to say no to more data," Leathers told the crowd, adding that emphasis instead must be placed on the core of the industry's value proposition. "Spreadsheets don't move freight. Trucks do," he said.

Logistics technology is not disappearing. In fact, companies will likely pick up the IT investment pace if, for instance, it can be demonstrated that the technology can deliver superior business analytics. But perhaps we've reached a crossroads in IT attitude. Companies will not blindly follow the technology drumbeat just because a) the industry needs to play catchup, b) they haven't yet utilized it, or c) their competitors have it and they don't. Unlike, say, a venture capitalist, it's the rare practitioner who can afford to toss money at the next big thing because it has cash to burn.

Much of technology buying is rationalized by ROI. In theory, that makes sense. No one wants to invest capital in a money-losing proposition. But Todd Polen, vice president of pricing for Old Dominion Freight Line Inc., perhaps the most successful transport company over the past 10 years, may have stated the most important metric of ROI. In Old Dominion's dictionary, Polen said, "ROI is defined as 'If the customer wants it, that's where it's got to go.'"

About the Author

Mitch Mac Donald
Group Editorial Director
Mitch Mac Donald has more than 30 years of experience in both the newspaper and magazine businesses. He has covered the logistics and supply chain fields since 1988. Twice named one of the Top 10 Business Journalists in the U.S., he has served in a multitude of editorial and publishing roles. The leading force behind the launch of Supply Chain Management Review, he was that brand's founding publisher and editorial director from 1997 to 2000. Additionally, he has served as news editor, chief editor, publisher and editorial director of Logistics Management, as well as publisher of Modern Materials Handling. Mitch is also the president and CEO of Agile Business Media, LLC, the parent company of DC VELOCITY and CSCMP's Supply Chain Quarterly.

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