As any logistics professional can tell you, the old saw about making sure the left hand knows what the right is doing could well have been written about distribution operations. By coordinating their transportation and warehousing activities, shippers can realize the kinds of efficiencies that lead to big savings—like consolidating shipments into full truckloads or building pallets to optimize unloading.
But in the past, companies often missed out on these opportunities. The reasons had largely to do with a failure to communicate on the part of their software apps. Shippers have traditionally used separate systems to manage their warehouse and transportation operations—a warehouse management system (WMS) for activities like picking and packing and a transportation management system (TMS) for carrier selection and routing. And the two apps didn't work together. "Supply chain execution applications emerged as silos—warehouse systems are independent of transportation," says Gartner analyst Dwight Klappich.
An emerging class of software addresses the need for closer cooperation between the two functions. These specialized apps, which could be termed logistics optimization packages, sit between the WMS, the TMS, and the company's enterprise resource planning (ERP) system and coordinate their activities for optimal performance.
The advantage for users is that they don't have to jettison their existing WMS or TMS (the new apps are designed to complement and enhance the existing systems, not replace them). As Klappich notes, most companies can't afford to "rip and replace" all of their applications, but they can afford to incorporate the new convergent applications into their operations.
One company that markets optimization software is Transportation|Warehouse Optimization (TWO), located in Franklin, Tenn. Company president Thomas Moore says TWO's solution uses a three-step approach to optimization. First, it calculates exactly how much palletized freight can be loaded onto a particular truck or trailer so it can group orders into the most efficient loads. Next, it uses inventory data drawn from the WMS to generate step-by-step picking and pallet-building instructions as well as a detailed loading plan that maximizes trailer cube and minimizes product damage. "If you think about a WMS, it does not understand you can't put bricks on top of a case of eggs," says Moore.
Then, once the TMS has selected a carrier, the optimization software runs a final check to make sure the designated pallets will indeed fit on the truck and that the load falls within legal weight limits.
Moore reports that shippers that have used TWO's solution have seen their freight bills drop anywhere from 4 to 10 percent. And that's just part of the story. Because the software takes the guesswork out of picking and pallet building, workers are able to make more productive use of their time. As a result, Moore says, his company's clients have also saved between 10 and 15 percent on labor costs.
Another company that offers this new type of software is Dutch software developer Ortec. Ortec's LEO solution, which is designed for SAP users, includes modules for optimizing order picking, carton packing, pallet building, vehicle loading, and route planning. These modules, which are embedded in SAP, are designed to be used alone or in any combination. By using all five simultaneously, companies can optimize the entire distribution process. Bobby Miller, vice president for product strategy and industry relationships in Ortec's Atlanta office, reports that his company's clients have shaved between 5 and 15 percent off their freight costs by using the solutions. (Note: All of these solutions are also available in a Windows version.)
Software analysts say these "hybrid" solutions that perform both planning and execution tasks have the potential to save shippers tremendous amounts of money. "Many 'full truckloads' today are actually only 80 to 85 percent full, and some of this leakage is caused by poor load planning," says analyst Steve Banker of ARC Advisory Group. "Improving load factors by 5 or 10 points could lead to significant cost savings."