& Supply Chain

THE BENEFITS OF SHARED TRANSPORTATION & SUPPLY CHAIN NETWORKS

® welcome Time for transformational thinking s savvy logistics management A professionals are painfully aware, the freight transportation market is currently walking a tightrope. For most of the past year, we’ve witnessed a brief lull in the ever-rising logistics costs due to the con- fluence of one-time factors, including contents bloated inventories, a strong U.S. dollar The Benefits of Shared Transportation & hampering exports, and a sudden surge Supply Chain Networks 4 in extra truckload capacity. And while many Logistics Management readers have As challenges continue to mount for shippers, shared networks can quickly lead to enjoyed this “shippers market,” all reports improved asset utilization for companies—whether it’s warehouses or trucks. indicate that this is about to change—and Time for an Integrated Transportation Strategy 10 quickly. In fact, most freight transportation ana- With an integrated strategy in place as part of a digital supply network, companies can strategically source transportation events more efficiently. Here’s how to begin the lysts agree that we are about to enter a assessment of your internal and external operations on the way to gaining a critical edge. period of transition that will trigger many of the long-lingering concerns that will indeed The Physical Internet: Logistics Reimagined? 14 tighten capacity and push rates higher. What if the supply chain community could emulate the “Internet world” and create For logistics professionals, it’s clearly a universal, open logistics network that is economically, environmentally, and socially time for transformational thinking. Over efficient and sustainable? Such a concept exists. the next few pages, the editors of Logistics

Management have gathered four features Transportation Network Optimization 16 designed to help mangers break away from Your customers’ needs are dynamic and constantly changing; your transportation traditional, “transactional” relationships network should be in perfect tune. and move more toward integrated provider partnerships that improve asset utilization, introduce strategic sourcing, and optimize Editorial Staff Peerless Media, LLC existing freight transportation networks for Michael A. Levans Group Editorial Director Brian Ceraolo the good of all involved. Group Publisher and President Bob Trebilcock Executive Editor Kenneth Moyes President and CEO Noël Bodenburg EH Publishing, Inc. Executive Managing Editor Josh Bond Editorial Office Michael A. Levans, Group Editorial Director, Associate Editor 111 Speen Street, Suite 200 Peerless Media Sarah Pearson Spector Framingham, MA 01701-2000 Editor at Large Phone: 1-800-375-8015 Comments? E-mail me at Jeff Berman [email protected] Group News Editor Follow me on Twitter: @mikeleva

Chris Lewis Creative Director

Wendy DelCampo ® Art Director

2 Ryder.com Thinking about supply chain solutions should put you to sleep. Not keep you awake.

Good supply chains are invisible. They work so well they disappear. Which is why Ryder is the solutions provider for some of North America’s most sophisticated and demanding supply chain operations. Let us make your logistics worries go away, so you can focus on what really matters: your business. Be Ever Better. Discover how outsourcing with us can improve your fleet management and supply chain performance at Ryder.com.

Ryder and the Ryder logo are registered trademarks of Ryder System, Inc. Copyright ©2016 Ryder System, Inc. Ever better is a trademark of Ryder System, Inc. Ryder.com 3 Shared Transportation & Supply Chain Networks

THE BENEFITS OF Shared Transportation & Supply Chain Networks As challenges continue to mount for shippers, shared networks can quickly lead to improved asset utilization for companies—whether it’s warehouses or trucks.

HE TRANSPORTATION Globalization, driver shortages, and the need for LANDSCAPE has become rapid order fulfillment are all impacting the freight transportation industry. According to PwC’s 2016 more complicated for shippers Global CEO Survey, transportation and logistics pro- in recent years. In fact, there fessionals are extremely concerned about over-regula- Tare currently several challenges facing tion, geopolitical uncertainty, the availability of key the entire transportation and logistics skills, and volatile energy costs. Fifty-eight percent industry as a whole.

By Bridget McCrea, contributing editor

4 Ryder.com think changes in regulations and greater direct and indirect sure on businesses to receive, customize and ship products competition—and shifts in consumer spending and behav- faster. Add in changing technology, a talent shortage iors—will impact their organizations over the next five years. throughout the industry (i.e., drivers, warehouse workers, “We refer to these challenges as ‘disruptors,” says Darin and technicians), and increasing or changing regulations, Cooprider, vice president and general manager of consumer and businesses have much to focus on to meet their cus- packaged goods for the Supply Chain Solutions business tomers’ expectations. segment of Ryder System, Inc. “The speed and scale of Over the next few pages, we’ll examine the current chal- business has never been greater. This is driven by consumer lenges of the transportation industry, explain how these demand—not just the products the consumer wants, but issues have exacerbated supply chain inefficiencies, and also when they want it.” show how shared transportation and supply chain networks Concurrently, major retailers are driving toward same- can help companies overcome these obstacles. day—and in some cases, 2-hour—delivery. This puts pres- Driver shortage and new regulations the largest operational cost. And as driver pay increases The driver shortage is one of the biggest disruptors due to the shortage, it has a significant impact on fleets. in the industry. Some 80% of American communities rely solely Currently the American Trucking Associations (ATA) on trucks to deliver their goods, but a shortage of driv- estimates the industry is short about 50,000 drivers. ers is compounding an already tight capacity situa- That number is expected to climb to 330,000 by 2020. tion. “With drivers in scarce supply, companies can’t The effects of the driver shortage can be felt throughout afford to have empty or even partially filled trucks on the economy, as 68.9% of all freight tonnage is moved on the road,” Cooprider explains. “Hence they’re increas- the nation’s highways. ingly using less-than-truckload (LTL) arrangements to Specifically, according to the American share space in trailers.” Transportation Research Institute (ATRI), 34% of truck- New and changing regulations are also making an ing’s operational costs per mile is driver pay, which, with impact on the way goods move on our nation’s highways. the recent drop in fuel prices, is quickly putting pay as Long after the deregulation wave of the 1980s, trucking

6 Ryder.com Shared Transportation & Supply Chain Networks

has remained a regulated industry. The heightened safety and environmental regulations issued over the past decade have become even more stringent, significantly increasing the adminis- trative burdens, training, and compliance costs for all fleet own- ers. The Compliance, Safety and Accountability (CSA) regulations issued by the Federal Motor Carrier Safety Administration (FMCSA) in December 2010, for example, are a prime example. The CSA measures carriers and publicly reports on their performance in seven categories ranging from unsafe driving and driver fitness to hours of service compliance and vehicle maintenance. Hours of Service (HOS) regulations are intended to make sure that drivers are not fatigued from long hours on the road without a break or rest. High profile incidents demonstrate the hazards of drivers who operate without sufficient rest.

Ryder.com 7 However, accurate measurement of HOS compli- posed new standards to further reduce carbon emis- ance is hampered by the large numbers of drivers who sions and increase fuel economy for medium and are still working with paper logs rather than onboard heavy-duty vehicles. computers. For example, many of the HOS issues that “Regulatory changes require the industry to adapt drivers and carriers face are the result of mistakes in the against a dynamic marketplace that has ebbs and flows logs rather than driver fatigue—mistakes that will be in demand. This timing of the impact can change how avoided as more fleets and owner/operators deploy the shippers and carriers feel it.” Cooprider says. onboard computers to track HOS. “Although it is expected to exacerbation in the short Complicating the freight situation even further is a term, it will improve trip log accuracy in the long-run.” new rule that’s expected to be published in the fall of 2016, and that mandates the use of electronic trip logs. Sharing trucks and drivers “This is a game changer for the industry,” says Cooprider. Like most forward-thinking concepts in the supply chain “It will virtually eliminate accidental or even willful inac- space, the idea of “shared networks,” the “Uberization” curacies in trip logs. In the short-term it is also expected of freight, and the optimization of the nation’s truckload to exacerbate the driver shortage.” capacity have been discussed at industry conferences The transportation industry is also impacted by and on webcasts, yet there are few real-life examples environmental regulations on fuel economy and emis- showing how it works. sions, both of which continue to expand. Engine tech- The good news is that asset sharing—warehouses, nology changes mandated by the Environmental trucks, and/or drivers—is helping companies meet the Protection Agency (EPA) in 2007 and 2010, for exam- demands of customers and work more efficiently. ple, have significantly reduced greenhouse gas emis- In addition, 30% of companies that outsource logis- sions, but also resulted in much higher vehicle cost tics are growing their usage of load sharing in particular, and increased complexity. according to the 2016 Third-Party Logistics Study. As More recently (June 2015), EPA and the demand grows, logistics experts are positioning services National Highway Traffic Safety Administration pro- to make sure their customers reap maximal benefits of

8 Ryder.com Shared Transportation & Supply Chain Networks

sharing. Ryder, for instance, is developing LoadSmart to found in the consumer packaged goods, oil & gas, retail, make sure trucks are packed to the gills, not only when and healthcare industries. By offering multi-client ware- they leave a factory or distribution center, but also on house facilities and shared drivers and equipment, the way back. Ryder is helping these companies work faster and more efficiently. Shared networks in action “By outsourcing to a third party logistics provider With only so much warehouse and transportation (3PL) such as Ryder, shippers can outsource the disrup- space available, food companies are looking for ways to collaborate with peers, and even competitors, to drive efficiencies, improve service, and manage costs. With a client roster that includes the top 10 food and beverage companies in the United States, Ryder has helped build solutions for these companies by providing shared facilities and transportation networks. Shared networks can quickly lead to improved asset utilization for companies, whether it’s warehous- tion,” says Cooprider. “We see these disruptions all the es or trucks. By sharing space, they are also sharing time, and because of our experience, we can see disrup- costs—which will lower their overall supply chain tions before they come. Third party logistics providers, cost and improve cash-to-cash cycles. “In California like Ryder, can help shippers reduce cost, increase effi- for example, we work with two competing grocers ciency, become more flexible, speed up their supply who share fleet assets and drivers across their net- chain, and keep their products moving.” works,” says Cooprider. With stores needing to stock their shelves more Managing disruption frequently, while not keeping much inventory in the Disruptive trends have a significant impact on fleet stock room, these grocers were tasked with sending management, transportation, and logistics—making it smaller shipments closer to the time of sale. They were difficult for companies to manage the complexities of shipping at LTL rates, but through Ryder and its route running their own fleets and supply chains. They face an optimization capabilities, the grocers were able to use unprecedented array of issues across technology, regula- the same trucks to ship their goods at preferred rates. tions, and personnel, which often draw attention away This results in improved inventory and product fresh- from their core business. ness and cuts down on wasted deliveries. Plus, the With their combination of know-how, processes, shared network is smooth; the shipper has full visibility engineering, and infrastructure, 3PLs like Ryder help of its shipments, and is ensured its products reach the shippers mitigate supply chain disruptions related to shelves on time. everything from natural disasters, to roadway and port Customers’ expectations are met, and the shipper congestion, to parts availability and vendor production benefits from lower transportation costs, improved on- issues. They also help shippers leverage the power of time delivery, and higher customer service levels. As shared networks and allow them to reduce costs, make consumer demands grow and the speed of business better use of transportation assets, speed up delivery accelerates, companies in some industries are looking at times, and maintain high levels of customer service in opportunities to share transportation and logistics today’s fast-paced business environment. resources for greater efficiency and faster delivery. “We help companies outsource many of these Companies in many industries, face common challenges to a partner with the experience, resourc- issues such as a shortage of drivers and tightening capac- es, and expertise to drive effective solutions,” says ity. They often have fleets traveling similar routes to the Cooprider, “while increasing business speed, reliabili- same or nearby destinations. Ryder also provides multi- ty, and efficiency.” • client packaging and warehouse facilities as well as. This allows companies to not only share warehouse space, Bridget McCrea is a contributing editor but save on operating costs. Examples of this can be to Logistics Management

Ryder.com 9 EXCLUSIVE

STRATEGIC SOURCING Time for an integrated transportation strategy With an integrated strategy in place as part of a digital supply network, companies can strategically source transportation events more efficiently. Here’s how to begin the assessment of your internal and external operations on the way to gaining a critical edge.

HE BALANCE BETWEEN SHIPPERS and carriers swings back and forth. However, carriers have made strides in reducing excess capacity—while volumes have improved—and have benefited from generally lower fuel prices. With this shift in balance, shippers have a greater need for an integrated transportation strategy Tso that they can apportion resources effectively and minimize the impact of carriers’ increased pricing power. Carriers have also become more efficient. They have tightened their operational controls, started to modernize their assets, and adopted new technologies. These initiatives, in combination with an improving business environment, have driven growth in the transportation sector. Carriers, of course, face their own set of challenges. As part of the overall drive to achieve

BY ROBERT GIACOBBE, ROBERT J. PITTS, AND MICHAEL R. REISS, ACCENTURE

10 Ryder.com EXCLUSIVE: Xxxxxx xxxxxx

efficiency, carriers are accelerating design, source, make, move, store, and The integrated approach is based their transition to a regionalized net- service products. upon a central team that uses tech- work model. While such models deliver As they evaluate their transpor- nology to track and identify potential significant operating efficiencies, they tation networks, they seek deeper disruptions. Their scope is holistic and also exacerbate driver turnover, which insights through the use of analytics, extends across the supply chain ecosys- is already high due to changing demo- greater collaboration, and near-real— tem to other internal functions as well graphics—older drivers are retiring and time responses to changing market as to suppliers, partners, and customers. not enough new drivers are entering conditions. They also see transpor- An integrated solution provides visibility the business—and competition from tation as a key component of the as data is standardized across the supply other industries. digital supply network, one that can chain ecosystem. In the midst of this, shippers are help companies establish competitive For companies that have not made hardly standing still. Many are re-thinking advantage and contribute to sustained, the move to an integrated transporta- their entire supply chain—considering profitable growth. tion strategy, a key first questions are: how they can transform it into what we How is the network currently struc- call a “digital supply network” that uses Creating a TMC tured? Is it centralized or dispersed by new technologies to change the way they Shippers continue to increase expecta- region? No matter what the structure, tions with their transportation depart- an enterprise-wide capability in the ments to drive productivity, lower costs, form of a transportation control tower and improve service across their end-to- or transportation management center end networks to deliver a seamless expe- (TMC) is critical. A control tower drives rience to internal and external customers. operational execution decisions through These continual and increased data analytics and can improve visibility demands require more advanced use and foster collaboration across different of technology and analytics to support parts of the network. the business with critical information. What companies need—but few have in place—is an integrated approach to transportation strategy.

Ryder.com 11 Transportation Best Practices: Integrated Transportation Strategy

In particular, the TMC can manage tional efficiencies; and the company’s visibility throughout the network, daily planning and execution operations, ability to access information and data on using supplier data, shipment execution while also enabling more strategic initia- a timely basis. data, and market intelligence. Mobile tives such as continuous collaborative External factors, those outside the technologies enhance its connectivity improvement, efficiency, and cost reduc- company’s control, include such things as it allows shippers to work with carriers, thereby enabling dynamic routing Considering today’s complex environment, companies need a more and delivery assurance. collaborative approach to dealing with their transportation suppliers and Intelligent. Once fully networked, increased visibility of shipments in the supply chain pipeline. This approach transportation becomes part of an inte- begins with data. grated network, where analytics fuel tion to support the entire transportation as shifting fuel prices; regulatory and transportation management decisions. procurement strategy. With the introduc- workforce issues affecting the transpor- Data is analyzed and insights are derived tion of cloud, such a system becomes less tation industry; inclement weather con- from the entire ecosystem of internal capital intensive and easier to extend to ditions; or even an unanticipated spike functions, as well as key suppliers and carriers and suppliers. in customer demand. customers. As a result, the company Considering today’s complex envi- benefits from dynamic reporting capabil- ronment, companies need a more col- Tying into the digital ities and a store of carrier performance laborative approach to dealing with their supply network information such as cost, service, capac- transportation suppliers and increased With internal and external factors evalu- ity, safety, quality, and reliability. visibility of shipments in the supply chain ated, the company can lay the building That information can be used to pipeline. This approach begins with blocks of an integrated transportation conduct supply chain network analysis, data. Companies now have access to a strategy. To support that strategy, compa- transportation modeling, and business vast amount of transactional data, such nies will need to strengthen their digital intelligence analytics to maximize value as cost per shipment, vehicle utilization, network in areas such as business intel- and minimize system-wide costs while the mode selected, whether goods were ligence, analytics, scenario planning, and meeting service level requirements. shipped via parcel or in less than truck- collaborative technologies. Scalable. In addition to being smart- load (LTL) amounts, and the levels of A stronger digital network supports er, digital supply networks also make it service delivered by selected carriers. internal improvements, but also enables easier to scale a company’s transportation By organizing this data properly and the shipper to work more closely with services up or down as market volatility using sophisticated analytics and business suppliers to realize greater efficiency and and circumstances dictate, with the plug intelligence tools, shippers can make bet- effectiveness. In our view, the digital sup- and play capabilities afforded by these ter informed decisions about their entire ply network rests on four key attributes: networks. As such, the connected, intel- transportation strategy, from big-picture Connected. Digital supply networks ligent shipper finds it easier to maintain issues such as network optimization and are connected at their foundation and flexible resources and to add and/or the location of distribution centers to interact with the full business ecosystem, reduce partners as needed. With a well- more specific concerns related to pricing, including the company’s transportation integrated, digital supply network, com- cost to serve, compliance, and safety. management group and its ecosystem panies find it easier to enter niche mar- A second step involves evaluation of suppliers and partners for real time kets and achieve a significant reduction of both the internal and the external information flow. Collaboration is proac- of the time to market of new products. factors that stand in the way of an opti- tive, and digital technology is utilized Indeed, 51 percent of C-level opera- mized, effective digital supply network. to actively capture customer feedback tions and supply chain executives say that Internal factors, those within the and carrier inputs as well as feedback on supply chains characterized by a multitude company’s control, include the capabili- transportation performance. That informa- of partners and numerous geographies are ties, tools, and other assets needed to tion is processed and shared with internal their biggest challenge. Transportation is plan, manage, and execute transporta- teams for action. no small part of that equation. However, tion moves; enterprise-wide efforts to For connected companies, the digi- as companies leverage analytics, cloud, 3D rationalize sourcing and realize opera- tal supply network provides real-time printing, and social media to make their

12 Ryder.com supply chains scalable from end to end, needed to manage the carrier request for they can contribute significantly to growth proposals process. Using an optimization- as digital technologies reduce time to based scenario approach allows shippers market and enable swifter, cost-effective to balance critical business constraints delivery schedules. with carrier capacity, thus putting the right Rapid. Recognizing that speed may freight with the right carriers. be the currency of the future, digital Management of complex compliance supply networks enable flexibility in issues should also be factored into the operations across the entire supply integrated transportation strategy. Better Transportation services are aligned chain ecosystem by taking key suppli- information and more sophisticated ana- with the needs of internal and external ers and customers into consideration. lytics, which they can leverage through stakeholders, so it’s easier to develop This lets the company react quickly to their digital supply network, can help transport strategies to support product demand and supply volatility, adjusting companies comply with routing guides, development, to reach underserved their shipping plans accordingly. track supplier safety metrics, and com- markets, or to customize products for Vital data can be stored in as close pare actual safety, fuel, and emissions specific markets. And, when unfore- to real time as possible, and in a format performance against RFP and budget seen events occur, the company is in a that makes it accessible and easy to use. forecast numbers. better position to respond quickly and Just upgrading from PDF to Excel for- Additionally, if designed, sourced, effectively—minimizing the risk of dis- mats for reports can provide significant and executed correctly, the strategy can ruptive events in the supply chain. benefits on this front. help companies track suppliers’ pricing Implementing an integrated trans- and volume trends; the frequency with portation strategy as part of a digital Building an integrated which they transport goods to and from supply network is clearly beneficial. transportation strategy different destinations and origins; as well However, a digital supply network rep- With an integrated transportation strat- as their operational performance in terms resents more than just the broad appli- egy in place as part of a digital supply of reliability, timeliness, and safety. cation of technology. The supply chain network, companies can strategically Another way to build momentum is evolving from a function concerned source transportation events more and accelerate positive change and with the movement of materials to an efficiently. The company begins with potentially help fund longer-term invest- inter-enterprise discipline intended to an assessment of its own network and ments is through the identification optimize materials, talent, information, internal organization. of “quick wins” in areas such as local and finances. During the assessment, the company routing and delivery, load consolida- For both shippers and carriers, these should align its transportation deci- tion, freight contract management, and are exciting times for the transportation sions with its overall growth strategy. To freight sourcing. These less complex, sector. As a core element of the digital achieve alignment, transportation man- easier-to-implement initiatives also supply network, transportation has agement will want to conduct a reduce costs and free up cash that can become central to a company’s growth market assessment, evaluate products be used to fund strategic investments. strategies. By integrating transportation in the pipeline, consider how they could within a digital supply network, compa- affect future shipping activities, and they Benefits of an integrated approach nies can gain an edge over competitors should engage with their stakeholders— A holistic, integrated approach to trans- who still see transportation as a series of including customers and suppliers—to portation—undertaken as part of the disconnected components rather than a better understand current levels of ser- move to a digital supply network—can vital strategic capability. • vice and satisfaction. deliver significant benefits to shippers. With the big picture strategy estab- With the carrier base re-shaped, opti- Robert Giacobbe, managing director, lished, the company can make more mized, and rationalized, shippers can and Robert J. Pitts and Michael R. Reiss, informed choices about its modal strategy implement tighter cost controls, improve senior principals, authored this article. and then align with the right planning and reliability, and record higher customer All are executives in Accenture Strategy, execution strategy. Information will also be satisfaction scores. Operations.

Ryder.com 13 Open Networks

The Physical Internet: Logistics Reimagined?

BY MARÍA JESÚS SÁENZ, DIRECTOR, ZLC-MIT SCALE

HAT IF THE SUPPLY CHAIN COMMUNITY Material Handling& Distribution could emulate the “Internet world” and create a uni- Chair and Professor, Georgia Tech in versal, open logistics network that is economically, the U.S. Since then the idea has gained many proponents, and the environmentally, and socially efficient and sustain- Third Physical Internet Conference able?W Such a concept exists, and it’s called the Physical Internet. Today will take place on August June 29 to the Physical Internet is a vision for an end-to-end global logistic net- July 1, 2016, at Atlanta, U.S. work, but there are plans to turn it into a reality by 2050. Hundreds of people from across the globe representing many industries Companies constantly strive to data networks were highly fragment- are expected to attend the event. improve the efficiency of the logistics ed. Communicating data across com- In Europe, the Alliance for networks that move their goods world- panies, especially on an international Logistics Innovation through wide. Although performance levels scale, was relatively costly, slow, and Collaboration (ALICE), launched by have increased significantly over recent hampered by capacity limitations. the European Commission in 2013, decades, they are far from satisfactory. Then came the information super- has adopted the concept and is work- For example, too many containers and highway; a metaphor taken from the ing towards a real-world Physical freight vehicles transport empty space transportation space. The digital high- Internet by 2050. way swept away these bar- The Zaragoza Logistics Center riers by providing a stan- (ZLC), Zaragoza, Spain, one of the dardized pathway for data ALICE founders, is researching the transmissions that encir- horizontal collaboration and dynamic or are idle because of operational cled the world. With a modest invest- business models that will be required delays. All too often, disruptions pre- ment in equipment, any organization as the Physical Internet takes shape. vent products from reaching consumer could join the highway. The speed and Horizontal collaboration requires dis- markets, adding to the waste that per- volume of data flows grew exponen- parate logistics organizations to coop- vades many logistics networks. tially, as did the rate of innovation in erate on increasing the efficiency and The Physical Internet proposes to data communications. sustainability of freight transportation. eliminate these inefficiencies in The Physical Internet is a “super- In order to evolve towards a real-world much the same way that the Internet highway” for the movement and stor- Physical Internet the changing roles transformed the flow of information age of physical objects. It was original- of key players and stakeholders will around the globe. ly proposed in 2011 by Benoit have to be integrated, and dynamic Before the arrival of the Internet Montreuil, currently the Coca-Cola business models are needed to

14 Ryder.com achieve this integration. develop global protocols for the sys- and industries. These organizations ZLC is also working with MHI, the tem’s operation. can serve as triggers, and they could be largest material handling logistics, and These challenges are daunting. a private-sector, first-mover player with supply chain association in the U.S., to Moving goods through a universal net- a global reach such as Amazon.com or promote horizontal collaboration con- work rather than many small, inde- Ali Baba or a government. Perhaps a cepts and practices. MHI has created a pendently operated networks, is a very group of retailers that is grappling with community of industry thought leaders different proposition than moving bits similar challenges as the enterprises called the U.S. Roadmap for Material and bytes in this way. There are physi- transition to omnichannel supply chain Handling & Logistics that is models could fulfill the role of advancing the Physical Physical Internet facilitator. Internet concept. ZLC and After the trigger organizations MHI are also conducting a take effect, it will be necessary study to identify possible to scale up the effort with the international synergies addition of a wider range of between organizations. For players. example, a comparison of hor- The logistics industry has izontal logistics practices in already taken some baby the U.S. and the European steps in laying the ground- Union is part of the study. work for the Physical But garnering support for Internet. For example, the concept is only the first Amazon.com has partnered step; now comes the job of with the U.S. Postal Service building a real-world global to deliver packages to logistics system based on common stan- cal limitations in freight logistics that Amazon customers seven days a dards and worldwide interconnectivity. do not exist in the world of electronic week. This horizontal partnership This will require an open market communications. Developing a global requires the organizations to align for freight transportation, as well as consensus on operating standards in their huge distribution networks. open, configurable and shared distri- the logistics space presents some Also, Amazon is dynamically redefin- bution networks. Goods will be car- unique difficulties as well. ing the competitive landscape in ried in modular, standard and smart Achieving the level of collaboration which it competes. The online retail- containers equipped with “smart” needed to evolve towards a fully func- ers recently announced plans to open technology that enables every unit to tional Physical Internet will require a physical book stores, for instance. be precisely tracked. Products will profound change in business and man- Creating the Physical Internet will need to be designed to fit into these agerial mindsets. Companies will have require an unprecedented level of containers in order to capture huge to redefine the competitive landscape cooperation and resources, but it’s a gains in improved space utilization as they join forces with other enterpris- journey that is worth taking. • and cargo handling productivity. The es – including their rivals – to develop design of shared infrastructure such the Physical Internet. María Jesús Saenz is the director of the as logistics centers also will have to Can the dream be realized? Given ZLC-MIT Scale program in Zaragosa, comply with the system’s require- what the Internet has achieved, and Spain. She can be reached by email at ments. Harnessing the achievements the rewards that a real-world Physical [email protected]. of technological innovations such as Internet could bring, the answer is Editor’s note: The following column on the Internet of Things is also impor- surely yes. the Physical Internet Initiative by Maria tant, especially in areas such as sup- But overcoming obstacles like these Jesus Saenz was originally published ply chain visibility. And, of course, will require the influence of resource- by the Zaragosa Logistics Center. It is industry and regulators will need to ful organizations that span countries reprinted with permission.

Ryder.com 15 Special Report Special Report

TRANSPORTATION NETWORK OPTIMIZATION Your customers’ needs are dynamic and constantly changing; your transportation network should be in perfect tune.

FLEET LEASING & MAINTENANCE | DEDICATED TRANSPORTATION | SUPPLY CHAIN SOLUTIONS

16 Ryder.com TRANSPORTATION NETWORK OPTIMIZATION

Businesses of all shapes and sizes know if they don’t have a strong, reliable transportation network, their products won’t reach customers. Let’s face it, if customers aren’t getting what they want, they will quickly move to another company that delivers what they need when they need it, damage-free.

Along with the challenge of delivering orders on-time, businesses have seen freight rates increase approximately seven percent since 2014. Freight volumes are also on the rise, up 13 percent in the past year. Coupled with a driver shortage, capacity constraints, changing federal safety regulations, and loss of productivity because of hours of service (HOS) changes, it’s easy to see why companies have a difficult time managing their transportation network. These increasing complexities limit the time you can spend focusing on your core business.

So how do you meet customer demands and keep costs as low Transportation industry trends as possible given the challenges in today’s trucking industry? The solution is simpler than you might expect – an optimized transportation network. • 26 million trucks haul freight in the U.S. • Freight shipments are up 13% over 2014 A truly optimized transportation network means it is flexible • Truckload rates increased 7% in 2014 enough to adapt with your company’s strategy, changing needs, • Industry is short about 48,000 drivers and a variety of constraints and variables. It takes advantage of all available mode options in order to deliver the lowest • Trucking industry expected to grow 21% in 2015 possible cost, while providing visibility and reliability every • Trucking capacity approaching 100% active step of the way. truck utilization Source: American Trucking Associations

Keeping your transportation options open carriers, as well as private vehicles. This approach is what Businesses have three major alternatives when it comes to many are now calling an “integrated” transportation model transporting their freight over the road: or solution.

1. Private fleet - you own the equipment and employ your By considering all available modes of transportation, you own drivers can get the best of all worlds – dedicated drivers, guaranteed 2. Dedicated (outsourced) fleet - you use a third party provider capacity, high levels of service, and predictable costs. What’s to manage your equipment and drivers more, you will gain the flexibility to ramp up your capacity 3. For-hire carriers and freight brokers - you use a range of using for-hire carriers when there are surges in demand. You for-hire trucking and logistics companies based on available can also take advantage of backhaul opportunities, negotiated capacity and lane rates rates, and fuel savings.

Taken independently, each of these alternatives has worked Moving to a more dynamic transportation strategy, you well enough in the past, but the transportation landscape has can realize gains in efficiencies and cost savings. Executed changed. To meet these new challenges head on, companies are effectively, an integrated solution allows you to achieve taking an “all-of-the-above” approach for their transportation significant network stability, guarantee capacity, and reduce network – blending a dedicated fleet with third party for-hire costs. At the same time, there will be an increase in productivity that comes along with the benefit of right-sizing your fleet.

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2 | With an optimized network, you’re able to adapt to the ebbs and Implementing an integrated transportation solution can solve flows of the business environment. You will also have a scalable many of the challenges you face in today’s transportation transportation network that can easily adjust to customer environment, but it is important to do your homework first. demands, strategy realignment, and economic changes that Along with the questions above, other factors that should be may arise in the future. considered are distance traveled, number of stops, types of equipment, returns/vendor pick-ups, special handling, and delivery requirements. The goal is to deliver a more efficient Optimization in practice and cost-effective operation, without jeopardizing operational constraints or service levels. The first step to optimizing your transportation network is to perform a complete evaluation of your current operation. Ask Even after considering all of these factors, optimization needs yourself these questions: to take place on a regular cadence to reap the most benefit. For example, it might make sense to run a one-way lane with a for- • Do my customers have fixed delivery windows, or would they hire carrier one week, and run the same lane with the dedicated be open to relaxing their delivery requirements – such as fleet the following week, because of a backhaul opportunity. receiving larger shipments less frequently? In addition, not all changes are implemented instantaneously. • How predictable are my shipment volumes and But when you are open to these types of dynamic adjustments, transportation needs? versus a more fixed plan, you have the potential to claim • Do I have the right level of visibility to planned and in-transit huge savings and efficiencies. Visibility is paramount in any shipments to make dynamic adjustments to my network? operation and that includes your transportation network. • Are market factors like the driver shortage, hours of service, For many, the investment is not only purchasing, but also tightening capacity, and many others impacting my ability to effectively implementing the transportation technology needed maintain my ‘current state’ transportation solution? to get the right visibility. This can be a daunting, and often, • How much flexibility do I have today compared to how much insurmountable undertaking, as you are increasingly turning to I need to have in the future? providers for the technology that will help diagnose, remediate, and optimize your network.

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18 Ryder.com Ryder.com 19 Centralizing route planning and engineering can also simplify A network that grows with you decision-making, provide dashboards to identify waste in the Examples abound, showing how businesses are leveraging network, and ultimately make smarter decisions that the flexibility inherent in an integrated solution to adapt to save money. changing business requirements. Here are three case studies where Ryder has provided an integrated solution with An integrated solution requires a lot of planning and control positive results: throughout the process to manage the different modes being used – you’re not just coordinating multiple vendors, but also the Case Study 1: Managing drivers and maintenance associated with the private or dedicated Seasonal Demand fleet. It is important to have a knowledgeable operating team in One Florida plant nursery sought an place to drive execution. The operating team should be armed integrated transportation solution to with the right planning tools, deep knowledge on the transfer of help it manage dramatic shifts in demand goods, and have the right processes and procedures in place to during peak season. The solution, which manage tight delivery schedules. Setting your operations team was contracted to Ryder, includes a dedicated fleet and up for success will ensure your transportation network transportation management of third-party for-hire carriers. is optimized. The nursery ships plants to retailers in Florida, Alabama, Georgia, Arkansas, Mississippi, and Louisiana.

The nursery’s fleet consists of a half-dozen dedicated trucks Five ways an integrated solution can deliver for and drivers, which is sufficient for the majority of the year. your transportation network: However, when spring arrives each year, its capacity needs surge by 400 percent, as it rises to the task of stocking retailers’ 1. Flexibility. An integrated solution provides a garden centers. The nine-week peak season from March to May foundation for core capacity and allows a better accounts for nearly 80 percent of the nursery’s annual revenue. match of transportation resources with procurement capabilities when demand fluctuates. All businesses have peak seasons, and it is imperative to have a 2. Cost savings. Save money by making as-needed flexible transportation network that can handle the additional adjustments to lanes and other variables. volumes, but ok when they are no longer needed. For many 3. Transparency. Ensure you have full visibility into companies, this is no easy task, especially when deliveries must your transportation network across all modes. occur without interruption and on time to keep your customers 4. Waste reduction. Make your network run LEAN happy. In this scenario, having reliable providers – both the through a reduction in miles driven, carbon dedicated fleet and for-hire carriers – will make or break the emissions, and fuel consumption, and an improved success of the company, especially considering that 80 percent utilization of resources. of revenues came from the peak season. 5. Collaboration. As with any change to “the way things have always been,” success through an By leveraging an integrated solution – that uses a dedicated integrated solution requires a commitment to fleet year round and flexes with for-hire carriers for the peak collaboration across all parties involved – from season – the nursery has benefited from an increased ability to purchasing to the shipping dock. Collaboration can successfully fulfill orders, while controlling costs and service transcend carrier network operations and private levels. It also has a model to leverage as its business expands fleet management concerns to deliver the best for with new retailers. your transportation network.

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| Case Study 2: Un-tightening capacity company the dedicated capacity and drivers it needs while and reducing costs leveraging Ryder’s purchasing power of more than $5.2 billion For a company that manufactures paper annually to procure for-hire carriers at pre-negotiated rates. rolls, liner sheets, and cardboard boxes from recycled corrugated materials, having The company’s transportation spend went from $32 million an optimized transportation network to $28 million annually. The results in the second year of helped alleviate the pressures of tightening truckload capacity its partnership where even more staggering. As the data in their geography. collected from the first year of operations was analyzed, further optimization opportunities were found, and the fleet was Before outsourcing to Ryder, the company struggled with reduced again. In addition, significant backhaul opportunities escalating costs and poor carrier performance. With Ryder, were identified that ultimately saved the company several the company was able to establish an integrated transportation million dollars. model consisting of a dedicated fleet and transportation management of third-party for-hire carriers. This begs the question: Why aren’t more companies re-evalutating their networks if they can save millions by They got started with a staggered implementation plan, optimizing them? which led to a conversion of 22 percent of for-hire carrier shipments to their dedicated fleet. As a result, the company avoided more than $700,000 in for-hire carrier rate increases What’s next for the industry and saved $1.4 million in for-hire carrier surcharges. For decades, the transportation industry has relied on people to collect and analyze data manually, who would then decide Case Study 3: Fleet utilization and which mode to ship an order. Depending on the size of the optimization deliver a one-two punch transportation network, this process could take anywhere In the Midwest, a vegetable canning from a few hours to a few days – or more. This process, company that supplies grocery retailers while necessary, keeps transportation managers up at night, across North America knows having wondering: Is the team analyzing the right data? Are the most the right transportation network is the cost effective decisions being made? What about the element of difference between keeping shelves stocked or losing loyal human error? customers. Family-owned and operated for nearly a century, the company knew business was their strength, but struggled with A recent survey of Fortune 500 companies conducted by their transportation network. They partnered with Ryder to the University of Tennessee’s Global Supply Chain Institute evaluate their network and implement numerous optimization revealed 76 percent of those surveyed use a combination of strategies. The company distributes its products from three for-hire carriers and a dedicated fleet to deliver freight. Of the different locations – two in the south and one in the Midwest – companies that use an integrated model, 27 percent do not have and prior to optimization, their average haul was between 700 a clear process to assign shipments; and 53 percent do not use a and 1,000 miles. routing tool to optimize their fleet.

At the time they decided to outsource, the company was With new technologies entering the market every day, it is running a private fleet of 100 power units and supplementing it only a matter of time until tools are developed that enabled the with for-hire carriers. Ryder determined that the existing fleet automation of some or the entire network planning processes. was heavily underutilized, and proposed a 50 percent reduction But there is still room for improvement, and innovations in this in fleet size. Combining the remaining dedicated fleet with area will greatly improve the performance of supply Ryder’s Transportation Management capabilities gave the chains everywhere.

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5 Conclusion The facts are clear; a company that relies on trucks to deliver Is an integrated solution right for you? its products over the road is only as strong and efficient as its transportation network. With continuous pressure for cost Do you have a transportation network that containment, improved efficiency, on-time performance, and consists of both a private or dedicated fleet and high levels of customer service, an optimized transportation for-hire carriers? network can give your company the competitive advantage Do you have at least 48 hours to plan your routes it needs. By continuously evaluating your transportation in advance? network and analyzing opportunities for optimization, you Is your network impacted by seasonality or other can achieve success. variability in demand? Are you experiencing capacity constraints outside Ryder specializes in integrated transportation solutions of your core network? that help you improve performance across every mode Do you have significant LTL volumes that could of transportation, derive more value from transportation be consolidated? partners and take control of your operation. Ryder offers the insight, management expertise, purchasing power, and standard operating practices it takes to increase visibility, Discover how outsourcing with us can improve your fleet make better use of assets, reduce costs and improve management and supply chain performance by calling customer service. 1-888-88-RYDER (option 1) or by visiting ryder.com.

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