After eight years, heavy-equipment maker CNH ended its relationship with a 3PL and brought transportation management back in house with the aid of a Web-based TMS. Would its gamble pay off?
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.
Not so long ago, if a company wanted to rein in its freight expenditures, it hired a third-party logistics service provider (3PL) to manage its carriers. In many cases, it wasn't that the 3PL had more expertise than the company's internal logistics department; it was simply that the 3PL's staff knew how to use the complex transportation management systems (TMS) needed to optimize carrier movements and selection.
But now that's starting to change. With the advent of lower-cost, online transportation management systems, some companies are discovering that they no longer need outside expertise. They're dispensing with the services of their 3PLs and bringing the transportation management function back in house. Though no hard numbers are available on the number of companies taking this tack, at least one analyst, Adrian Gonzalez of the Dedham, Mass.-based ARC Advisory Group, has identified this trend as a factor in the recent uptick in TMS sales. (See "software for hard times," DC VELOCITY, January 2009.)
One company that has had considerable success with this approach is CNH Global N.V. Two and a half years ago, the agricultural and construction equipment maker dropped the 3PL it had been using for carrier management in favor of having its inhouse staff take over the function. Not only did the manufacturer see freight costs drop and shipment visibility improve, but it also realized several unexpected benefits.
Fixing "broken processes"
Created in 1999 through the merger of New Holland NV and the Case Corp., CNH Global manufactures a full line of farming and agricultural equipment—from tractors to balers and harvesting machines. It also produces heavy construction and light industrial equipment used in industries like road building. The company sells its products through 11,000 dealers in 160 countries.
Around the time of the merger, CNH hired a 3PL to oversee its truckload shipments. By outsourcing that activity, says Dave Czerniejewski, CNH's senior director of supply chain, distribution, and logistics in North America, the company hoped to control costs and fix "broken processes." (Although it farmed out the management of its truckload operations, the equipment maker decided to retain control of its less-than-truckload and other types of shipments.)
For the next eight years, the 3PL managed its client's base of some 400 truckload carriers using its own TMS. During that period, it made significant progress toward CNH's objectives. Among other accomplishments, it saw to it that plants tendered shipments to the lowestcost carrier, and it automated the freight tendering process by linking its own computer systems to CNH's order management systems.
There was one downside, however. CNH found that having to go through a third party whenever it needed rate quotes or cost data was something of a hassle. With the LTL shipments the company managed in house, getting a quote for moving a load from, say, Racine, Wis., to Tulsa, Okla., was a simple matter. But if CNH needed that same data for a truckload shipment, it was a much more involved process. "For some movements, you'd have the data available," says Czerniejewski, "and for the other half, you would have to dig for it."
The rental option
For a long time, CNH accepted that inconvenience as the trade-off for better cost management. But the emergence of transportation management systems offered on a "software as a service" or "on demand" basis changed the situation. Under this model, users essentially "rent" an application from the vendor, obtaining access via a standard Web browser. This option has several attractions for users. For one, it eliminates the need to install and maintain the software or to integrate it with other applications the company is using. For another, it lets users avoid the hefty upfront costs of buying a software license. Instead, they typically pay a relatively modest monthly fee.
The effect has been to make software that was once available only to big corporations accessible to their small and medium-sized counterparts. "When the Internet technology came along for an online TMS, this approach became affordable to a company the size of CNH," says Czerniejewski. Not only was it affordable, but it would also give CNH the option of taking back control of its truckload shipments. And in the end, that's exactly what the company decided to do.
After evaluating 42 software vendors, CNH chose a TMS from Oracle Corp. in February 2006. Given that the company was using an enterprise resource planning system from Oracle's arch-rival, SAP, as its information technology backbone, that choice might seem somewhat surprising. But because software delivered via the Internet eliminates the need for integration, CNH was able to choose the package that best fit its needs without worries about compatibility.
The application, Oracle Transportation Management, enables CNH to select and schedule inbound and outbound carriers. The system oversees all of the equipment manufacturer's motor carrier shipments—both TL and LTL. (CNH currently uses about 115 motor carriers in North America and a similar number in Europe.) The Oracle application also manages CNH's rail shipments in North America and in Europe. (For an idea of the volume and scale of the operation, consider that CNH's overall transportation bill generally amounts to $300 million in North America alone.)
The Oracle TMS notifies carriers of any special equipment requirements—an important consideration for a company like CNH that often needs specialized trailers to deliver its heavy machinery. The TMS also provides in-transit visibility for intra-continental moves, another critical factor for CNH since dealers like to know when their equipment will be arriving. Although CNH uses the Oracle application to track shipments moving within a continent, it does not use the software to provide visibility into air and ocean shipments moving between the United States and Europe. For that, CNH uses a different transportation management system— one provided by GT Nexus.
Today, the company has a staff of 15 full- and part-time load planners who use the Oracle TMS. Although CNH had to hire additional staff when it brought transportation management back in house, it quickly recouped those costs. In fact, the company reports that the switch from a 3PL to an online TMS paid for itself in less than two years through reduced freight expenditures. When asked if his company would make the same decision today, Czerniejewski doesn't hesitate before answering yes.
Closer to carriers
Along with lower freight costs, better shipment visibility, and easier access to data, the company has realized several other benefits from the switch. For example, Czerniejewski notes that a side benefit of the move has been newfound opportunities for training and career development. At CNH, the load planner's job has become an entry-level position that serves as a training ground for new hires, giving them a chance to learn the transportation business and then move up within the company's logistics organization. "We would not have had this flexibility with the 3PL," he says.
Another benefit has been stronger relationships with its carriers—something CNH had hoped would result from the move. "We wanted to get closer to our carrier base and be able to sit down and talk strategically with them and review tactical issues," says Czerniejewski."That's been very beneficial in the difficult times we're in."
Parcel giant FedEx Corp. is automating its fulfillment flows by investing in the AI robotics and autonomous e-commerce fulfillment technology firm Nimble, and announcing plans to use the San Francisco-based startup’s tech in its own returns network.
The move is significant because FedEx Supply Chain operates at a large scale, running more than 130 warehouse and fulfillment operations in North America and processing 475 million returns annually. According to FedEx, the “strategic alliance” will help to scale up FedEx Fulfillment with Nimble’s “fully autonomous 3PL model.”
“Our strategic alliance and financial investment with Nimble expands our footprint in the e-commerce space, helping to further scale our FedEx Fulfillment offering across North America,” Scott Temple, president, FedEx Supply Chain, said in a release. “Nimble’s cutting-edge AI robotics and autonomous fulfillment systems will help FedEx streamline operations and unlock new opportunities for our customers.”
According to Nimble founder and CEO Simon Kalouche, the collaboration will help enable FedEx to leverage Nimble’s “fast and cost-effective” fulfillment centers, powered by its intelligent general purpose warehouse robots and AI technology.
Nimble says that more than 90% of warehouses today still operate manually with minimal or no robotics, and even those automated warehouses use robots with limited intelligence that are restricted to just a few warehouse functions—primarily storage and retrieval. In contrast, Nimble says its “intelligent general-purpose warehouse robot” is capable of performing all core fulfillment functions including storage and retrieval, picking, packing, and sorting.
For the past seven years, third-party service provider ODW Logistics has provided logistics support for the Pelotonia Ride Weekend, a campaign to raise funds for cancer research at The Ohio State University’s Comprehensive Cancer Center–Arthur G. James Cancer Hospital and Richard J. Solove Research Institute. As in the past, ODW provided inventory management services and transportation for the riders’ bicycles at this year’s event. In all, some 7,000 riders and 3,000 volunteers participated in the ride weekend.
Photo courtesy of Dematic
For the past four years, automated solutions provider Dematic has helped support students pursuing careers in the STEM (science, technology, engineering, and mathematics) fields with its FIRST Scholarship program, conducted in partnership with the corporate nonprofit FIRST (For Inspiration and Recognition of Science and Technology). This year’s scholarship recipients include Aman Amjad of Brookfield, Wisconsin, and Lily Hoopes of Bonney Lake, Washington, who were each awarded $5,000 to support their post-secondary education. Dematic also awarded $1,000 scholarships to another 10 students.
Motive, an artificial intelligence (AI)-powered integrated operations platform, has launched an initiative with PGA Tour pro Jason Day to support the Navy SEAL Foundation (NSF). For every birdie Day makes on tour, Motive will make a contribution to the NSF, which provides support for warriors, veterans, and their families. Fans can contribute to the mission by purchasing a Jason Day Tour Edition hat at https://malbongolf.com/products/m-9189-blk-wht-black-motive-rope-hat.
MTS Logistics Inc., a New York-based freight forwarding and logistics company, raised more than $120,000 for autism awareness and acceptance at its 14th annual Bike Tour with MTS for Autism. All proceeds from the June event were donated to New Jersey-based nonprofit Spectrum Works, which provides job training and opportunities for young adults with autism.
The logistics process automation provider Vanderlande has agreed to acquire Siemens Logistics for $325 million, saying its specialty in providing value-added baggage and cargo handling and digital solutions for airport operations will complement Netherlands-based Vanderlande’s business in the warehousing, airports, and parcel sectors.
According to Vanderlande, the global logistics landscape is undergoing significant change, with increasing demand for efficient, automated systems. Vanderlande, which has a strong presence in airport logistics, said it recognizes the evolving trends in the sector and sees tremendous potential for sustained growth. With passenger travel on the rise and airports investing heavily in modernization, the long-term market outlook for airport automation is highly positive.
To meet that growing demand, the proposed transaction will significantly enhance customer value by providing accelerated access to advanced technologies, improving global presence for better local service, and creating further customer value through synergies in technology development, Vanderlande said.
In a statement, Nuremberg, Germany-based Siemens Logistics said that merging with Vanderlande would “have no operational impact on ongoing or new projects,” but that it would offer its current customers and employees significant development and value-add potential.
"As a distinguished provider of solutions for airport logistics, Siemens Logistics enjoys a first-class reputation in the baggage and air-cargo handling areas. Together with Vanderlande and our committed global teams, we look forward to bringing fresh impetus to the airport industry and to supporting our customers' business with future-oriented technologies," Michael Schneider, CEO of Siemens Logistics, said in a release.
I recently came across a report showing that 86% of CEOs around the world see resiliency problems in their supply chains, and that business leaders are spending more time than ever tackling supply chain-related challenges. Initially I was surprised, thinking that the lessons learned from the Covid-19 pandemic surely prepared industry leaders for just about anything, helping to bake risk and resiliency planning into corporate strategies for companies of all sizes.
But then I thought about the growing number of issues that can affect supply chains today—more frequent severe weather events, accelerating cybersecurity threats, and the tangle of emerging demands and regulations around decarbonization, to name just a few. The level of potential problems seems to be increasing at lightning speed, making it difficult, if not impossible, to plan for every imaginable scenario.
What is it Mike Tyson said? Everyone has a plan until they get punched in the mouth.
It has never been more important to be able to pivot and adjust to challenges that can throw you off your game. The report I referenced—the “2024 Supply Chain Barometer” from procurement, supply chain, and sustainability consulting firm Proxima—makes the case for just that. The company surveyed 3,000 CEOs from the United Kingdom, Europe, and the United States and found that the growing complexities in global supply chains necessitate a laser-sharp focus on this area of the business. One example: Rightshoring, which is the process of moving business operations to the best location, means companies are redesigning and reconfiguring their supply chains like never before. The study found that large numbers of CEOs are grappling with the various subsets of rightshoring: 44% said they are planning to or have already undertaken onshoring, for instance; 41% said they are planning to or have undertaken nearshoring; 41% said they are planning to or have undertaken friendshoring; and 35% said they are planning to or have undertaken offshoring.
But that’s not all. CEOs are also struggling to deal with the rise of artificial intelligence (AI) and its application to business processes, the potential for abuse and labor rights issues in their supply chains, and a growing number of barriers to their companies’ decarbonization efforts. For instance:
Nearly all of those surveyed (99%) said they are either using or considering the use of AI in their supply chains, with 82% saying they are planning new initiatives this year;
More than 60% said they are concerned about the potential for human or labor rights issues in their supply chains;
And virtually all (99%) said they face barriers to decarbonization, with 30% pointing to the complexity of the work required as the biggest barrier.
Those are big issues to contend with, so it’s no surprise that 96% of the CEOs Proxima surveyed said they are dedicating equal (41%) or more time (55%) to supply chain issues this year than last year. And changing economic conditions are adding to the complexity, according to the report.
“As inflation fell throughout last year, there were glimmers of markets stabilizing,” the authors wrote. “The reality, though, has been that global market dynamics are shifting. With no clear-set position for them to land in, CEOs must continue to navigate their organizations through an ever-changing landscape. Just 4% of CEOs foresee the amount of time spent on supply chain-related topics decreasing in the year ahead.”
Simon Geale, executive vice president and chief procurement officer at Proxima, added some perspective.
“It’s fair to say that the complexities of global supply chains continue to have CEOs around the world scratching their heads,” he wrote. “The results of this year’s Barometer show that business leaders are spending more and more time tackling supply chain challenges, reflecting the multiple challenges to address.”
Perhaps the extra focus on supply chain issues will help organizations improve their ability to roll with the punches and overcome resiliency challenges in the year ahead. Only time will tell.
Investing in artificial intelligence (AI) is a top priority for supply chain leaders as they develop their organization’s technology roadmap, according to data from research and consulting firm Gartner.
AI—including machine learning—and Generative AI (GenAI) ranked as the top two priorities for digital supply chain investments globally among more than 400 supply chain leaders surveyed earlier this year. But key differences apply regionally and by job responsibility, according to the research.
Twenty percent of the survey’s respondents said they are prioritizing investments in traditional AI—which analyzes data, identifies patterns, and makes predictions. Virtual assistants like Siri and Alexa are common examples. Slightly less (17%) said they are prioritizing investments in GenAI, which takes the process a step further by learning patterns and using them to generate text, images, and so forth. OpenAI’s ChatGPT is the most common example.
Despite that overall focus, AI lagged as a priority in Western Europe, where connected industry objectives remain paramount, according to Gartner. The survey also found that business-led roles are much less enthusiastic than their IT counterparts when it comes to prioritizing the technology.
“While enthusiasm for both traditional AI and GenAI remain high on an absolute level within supply chain, the prioritization varies greatly between different roles, geographies, and industries,” Michael Dominy, VP analyst in Gartner’s Supply Chain practice, said in a statement announcing the survey results. “European respondents were more likely to prioritize technologies that align with Industry 4.0 objectives, such as smart manufacturing. In addition to region differences, certain industries prioritize specific use cases, such as robotics or machine learning, which are currently viewed as more pragmatic investments than GenAI.”
The survey also found that:
Twenty-six percent of North American respondents identified AI, including machine learning, as their top priority, compared to 14% of Western Europeans.
Fourteen percent of Western European respondents identified robots in manufacturing as their top choice compared to just 1% of North American respondents.
Geographical variances generally correlated with industry-specific priorities; regions with a higher proportion of manufacturing respondents were less likely to select AI or GenAI as a top digital priority.
Digging deeper into job responsibilities, just 12% of respondents with business-focused roles indicated GenAI as a top priority, compared to 28% of IT roles. The data may indicate that GenAI use cases are perceived as less tangible and directly tied to core supply chain processes, according to Gartner.
“Business-led roles are traditionally more comfortable with prioritizing established technologies, and the survey data suggests that these business-led roles still question whether GenAI can deliver an adequate return on investment,” said Dominy. “However, multiple industries including retail, industrial manufacturers and high-tech manufacturers have already made GenAI their top investment priority.”