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."