logisticsmgmt.com Air cargo relationships 32 Social networking and transportaion 36 Lift truck maintenance 46

May 2013 ® Effective reverse logistics 52

2013 Technology Roundtable Real-time visibility within reach Page 24 + SPECIAL WEBCAST May 30, 2:00 p.m. ET logisticsmgmt.com/2013Tech

SPECIAL REPORT: TOP 30 U.S . PORTS Economies of scale in play 64S

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◆ Diesel keeps heading down. For the eight- First-Class, Priority, and Express Mail. The current week period ending the week of April 21, the aver- agreement between the USPS and FedEx dates age price per gallon of diesel had fallen for eight back to 2001. consecutive weeks, according to data from the Department of Energy’s Energy Information Admin- ◆ UPS reports Q1 earnings gains. In its first istration (EIA). During this span, diesel prices had quarter earnings announcement last month, UPS tumbled a cumulative 27.2 cents. Prior to these reported that first quarter revenue rose 2.2 percent declines, diesel prices rose a cumulative 26.5 cents year-over-year to $13.43 billion, with operating profit over a six-week span. Despite this trend of declin- up 0.7 percent at $1.58 billion. Company officials ing prices, shippers are fully ready for the tides to explained that the revenue gain was largely driven turn. A recent Logistics Management reader study by a better than expected post-holiday season in showed that nearly 40 percent of its respondents January, with e-commerce offerings faring well and expect to pay higher fuel surcharges in the com- a strong performance in its U.S. domestic package ing months. And should fuel prices rise during that segment. “UPS delivered another quarter of growth, time, 67 percent said they would raise or adjust reflecting the discipline and earnings consistency their freight budgets to cover higher than budgeted we have come to expect,” said Scott Davis, UPS costs, and 33 percent said they would take no chairman and CEO, on an earnings call. “The UPS action. domestic business continues to expand margins and speaks to the ability of our integrated network and ◆ USPS plan to eliminate Saturday delivery operations technology that serve the fast growing comes to a halt… The United States Postal Ser- business-to-consumer network profitably.” vice (USPS) said last month that its plan to eliminate Saturday delivery—as part of an effort to become ◆ FedEx expands. With what it describes as “an financially solvent—is not likely to come to fruition. organic expansion,” FedEx Trade Networks has Citing the recently passed Continuing Resolution by announced it will ramp up its operations in Brazil Congress to fund government operations through and other parts of Latin America. The freight for- the end of the fiscal year, the USPS Board of Gov- warding arm of global shipping FedEx Corp. has ernors said last month that “restrictive language” in enlarged its presence and service capabilities in the Continuing Resolution has effectively prohibited the region through a series of strategic operational the USPS to implement the new national delivery developments, noted Fred Schardt, president and schedule for mail and packages that was scheduled CEO of FedEx Trade Networks. “Trade volumes to go into effect the week of August 5. When it first continue to increase in Latin America, and our unveiled its plan to nix Saturday delivery in February, expansion efforts provide customers with greater the USPS said that this effort would result in roughly access to superior freight forwarding in these $2 billion in annual savings. emerging markets,” he said. Meanwhile, organic growth in the region has been a key part of FedEx ◆…but it’s sticking with FedEx for domestic Trade Network’s aggressive global expansion. air services. Last month, the USPS said that it’s It has also established strategic alliances with keeping its domestic air services in the hands of regional service providers to enhance its coverage FedEx and inked a seven-year contract for Prior- and extend its capabilities to reach 19 countries ity and Express Mail services. The current contract throughout Latin America. between the USPS and FedEx expires in Septem- ber, with the new one beginning in October. The ◆ Got 3PL jobs? Another indication of resurgence USPS added that based on estimated volumes, the in the third-party logistics (3PL) marketplace sur- new agreement is valued at approximately $10.5 faced last month, as a leading industry consultancy billion over the seven-year term and also allows the entered the executive recruiting sector. Armstrong USPS to continue a successful business relation- & Associates, Inc., long known for its expertise in ship with FedEx. Services FedEx provides for the rating the performance of lead logistics providers USPS are for various USPS offerings, including Continued, page 2

WWW.LOGISTICSMGMT.COM MAY 2013 | LOGISTICS MANAGEMENT 1 Get your daily fix of industry news on logisticsmgmt.com

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UPDATE AN EXECUTIVE SUMMARY OF INDUSTRY NEWS

globally, announced the formation 3PLRecruiters, ◆ Procuring more with less. Procurement lead- LLC. “Helping 3PLs to hire new people to build ers face new pressures in 2013 as companies capabilities, manage operations, and drive market focus on profitable growth and balance local agility expansion is often a natural outcome of A&A’s core with global scale in their value chains, according 3PL strategic consulting engagements,” said Evan to new Procurement Key Issues Research from Armstrong, the consultancy’s president. Kurt Bau- The Hackett Group, Inc. While company revenue mann, an executive vice president with Armstrong, continues to grow, procurement leaders along with will be in charge of the new offering. While there other business functions continue to be asked are several trusted recruiting companies already to do more with less. In addition, it’s no longer active in the 3PL arena, Armstrong stressed that enough to just provide cost savings. Procurement his firm has an extensive network of contacts to leaders are now focusing on a much broader list leverage in finding qualified candidates. of procurement strategy priorities designed to improve their alignment with business objectives. ◆ HP gets on cloud. In a move to consolidate its The Hackett Group’s Chris Sawchuk said that global procurement process, HP has announced the “talent pool” is problematic. “Finding the right that it will use a cloud-based platform provided young professionals for procurement functions is a by E2open. “The E2open platform will allow us to challenge, but retaining them can be an even big- achieve greater centralized procurement process ger problem…especially if they are not being used efficiencies and help our suppliers reduce lead strategically,” he said. times and inventory, thus enabling a lower cost to serve,” said Tony Prophet, senior vice presi- ◆ Undermining value. According to a new sur- dent of operations for HP. Prophet said that the vey by Consero Group, an international consul- cloud-based platform will be used across all major tancy based in Bethesda, Md, over 50 percent HP product lines, adding that a specific example of Chief Procurement Officers said their com- of near real-time collaborative execution would pany pursues short-term savings from suppli- be the “pull-based” messages generated for ers that undermine long-term value. The results their vendor managed inventory (VMI) processes were reported as part of the 2013 Procurement between HP and its trading partners. & Strategic Sourcing Data Survey, compiled by Consero Group in partnership with Vantage Part- ◆ Go Trojans. The USC Marshall School of Busi- ners. In addition, 65 percent of participants said ness announced a new Master of Science in Global that their company’s procurement strategies are Supply Chain Management. The 16-month online more focused on using competitive pressure to program, which will admit applicants for Fall 2013, get maximum value from suppliers, while only 35 will cultivate leaders and specialists in a multitrillion percent said their company’s strategies are more dollar industry that is expected to grow at an annual focused on using collaboration to get maximum rate of 8 percent globally. Designed for profession- value from suppliers. “Chief procurement officers als who live and work in North America, the Asia- are challenged with the task of driving savings and Pacific region, Greater China, and South Korea, the delivering critical resources with maximum value,” Global Supply Chain Management degree program said Paul Mandell, Founder & CEO of Consero. will be available to the students both synchronously and asynchronously via the Internet. The program ◆ Logistics Management’s Twitter feed focuses on both academics and practical applica- keeps growing…and growing. It is true: LM tions, and includes two experiential trips to global remains “all-a-Twitter” at its @LogisticsMgmt han- logistics hubs in Los Angeles and Singapore. Online dle, which recently cracked the 11,000 followers courses will offer the flexibility to access lectures mark. Be sure to follow us on Twitter to get all anywhere, anytime, while integration of webinars things LM all the time, including daily online news and other online resources will be used to further items, print features, Webcast information, and enhance the program. more! Ⅺ

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Logistics Management

2013 TECHNOLOGY ROUNDTABLE Real-time visibility within reach Integrated systems that better gather and manage data 24 to provide real-time supply chain decision making is now directly linked to competitive differentiation. Our esteemed analysts believe that this “visibility” is a reality, and fortune favors the bold who are brave enough to achieve it. Cover illustration: Glenn Mitsui

TRANSPORTATION AND BEST PRACTICES Air Cargo Relationships: Contracting with purpose and trust 32 It’s easy for shippers to fall in love with an air carrier or forwarder when short-term goals are met, but these vital relationships require a long-term commitment. These two short case studies demonstrate how to succeed. Social networking 36 SUPPLY CHAIN & LOGISTICS TECHNOLOGY Social networking comes to transportation management 36 Cloud-enabled transportation control towers are transforming logistics performance. Our consulting team explains how shippers can realize benefits from true end- to-end supply chain integration that can be operated through an optimized transportation service network. GLOBAL LOGISTICS U.S./Mexico Trade: 7 steps to close the gap 40 U.S. importers and exporters are now looking to draw the most value possible from the fertile Mexican market while remaining aware of the risks. Our trade compliance expert offers steps to improve your cross-border activity. U.S./Mexico trade 40 WAREHOUSE & DC MANAGEMENT Lift Truck Fleet Maintenance: Slow and steady cuts the cost 46 Recognizing the potential for long terms savings, many fleet owners are keen to jump into a fleet maintenance program. However, they soon learn that there are no substitutes for goal setting, clear communication, and patience. LM STRATEGY Taking control of reverse logistics 52 Companies can no longer afford to treat reverse logistics as an afterthought. Our team of experts offers these practical insights to help logistics and supply chain managers build an effective reverse logistics program inside their organizations. Lift truck maintenance 46

Logistics Management® (ISSN 1540-3890) is published monthly by Peerless Media, LLC, a Division of EH Publishing, Inc., 111 Speen St, Suite 200, Framingham, MA 01701. Annual subscription rates for non-qualified subscribers: USA $119, Canada $159, Other International $249. Single copies are available for $20.00. Send all subscription inquiries to Logistics Management, 111 Speen Street, Suite 200, Framingham, MA 01701 USA. Periodicals postage paid at Framingham, MA and additional mailing offices. POSTMASTER: Send address changes to: Logistics Management, PO Box 1496 Framingham MA 01701-1496. Reproduction of this magazine in whole or part without written permission of the publisher is prohibited. All rights reserved. ©2013 Peerless Media, LLC.

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1 Management update 9 Viewpoint 10 Price trends 12 News & analysis 16 Newsroom notes 17 Moore on pricing 18 Pearson on excellence 20 Andreoli on oil & fuel 72 Pacific Rim report

Exclusive Webcast 2013 Technology Roundtable Top 30 U.S. Ports: Thursday, May 30 @ 2:00 p.m. ET Economies of scale in play www.logisticsmgmt.com/2013tech While ranking ports on size and container throughput is both Real-time visibility within reach valid and traditional, analysts contend that domestic ocean Join Peerless Media’s Group Editorial Director cargo gateways might also be compared by volume and value Michael Levans as he gathers five top supply chain of trade as well as value-added services. 64S management software and technology analysts to share insight into some of hottest technologies and trends that are driving logistics transformation. Everything you need, s Dwight Klappich, sTom Wrobleski, every way you need it. Gartner Research CapGemini Consulting Supply Chain 24/7 is the ultimate online business resource for sJohn Hill, St. Onge s Ian Hobkirk, transportation, distribution, logistics, and supply chain professionals. sDavid Krebs, VDC Commonwealth Resarch Group Supply Chain Advisors Find everything you need when researching companies, trends, and industries. Visit supplychain247.com. Begin your experience today.

Logistics Management: On Demand 2013 annual salary survey webcast

Go to: logisticsmgmt.com/2013salary Salary by age Experience pays! $120,000 $110,000 Our 2013 survey finds that the highest salaries in logistics and supply chain $100,000 management will be earned by those $90,000 sticking to time-honored values: education, hard work, and company $80,000 loyalty. Join Logistics Management Executive Editor Patrick Burnson and a $70,000 panel of prominent supply chain career $60,000 Average Median management experts as they put context around the results of our 29th Annual $50,000 Salary Survey and offer their insight into <35 35-44 45-54 55-64 how logistics professionals can take that Source: Peerless Research Group (PRG) next, critical step in building their careers.

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EDITORIAL STAFF Michael A. Levans Group Editorial Director Francis J. Quinn Defining visibility Editorial Advisor Patrick Burnson in research conducted by Peerless To help tighten up operations and Executive Editor Sarah E. Petrie Research Group (PRG) over the past few pull this data together, our four panel- Managing Editor years, we’ve found that end-to-end, global ists each explore an important piece of Jeff Berman supply chain visibility and event manage- the visibility puzzle that may already be Group News Editor ment capabilities are considered “must hard at work in your operation—mobile John Kerr Contributing Editor, Global Logistics haves.” However, those same respon- computing and ADC technology, TMS, Bridget McCrea dents struggle to tell you exactly what WMS, and GTM. Each believes that the Contributing Editor, Technology they need to do in order to achieve this. technology solutions currently available Maida Napolitano Contributing Editor, Warehousing & DC We’ve set out this month to corral have put real-time visibility, as defined John D. Schulz the elements of supply chain visibility, by Wrobleski, into reach for those who Contributing Editor, Transportation a utopian idea that has been highly con- are determined to make the case for ceptualized by analysts and consultants investment—or ready to fully optimize Mike Roach Creative Director as we’ve become awash in data. Once what they already have. Wendy DelCampo realized and put to work, many contend And while our panel does a terrific Art Director that it will help logistics and supply chain of exploring the role these technology operations create true competitive differ- elements play in operations improve- COLUMNISTS Derik Andreoli entiation in a time when the cost of logis- ment and visibility, our consulting team Oil + Fuel tics errors and the subsequent impact on from Accenture takes us a step deeper Elizabeth Baatz your brand could be devastating. by defining the cloud-enabled, trans- Price Trends Mark Pearson The idea seems simple enough from portation “control tower” concept that’s Excellence a pure transportation management per- been inexorability linked to the visibility Peter Moore spective: It’s the ability to track and trace discussion (page 36). Pricing a shipment from pick up to delivery. The team contends that through a But when you add in the critical data version of cloud-enabled “social net- PEERLESS MEDIA, LLC Brian Ceraolo points from the other nodes of the sup- working,” logistics professionals can cre- Publisher and Executive ply chain, the concept remains elusive. ate, manage, and monitor a fully opti- Vice President “Visibility is no longer restricted to mized transportation service network, Kenneth Moyes President and CEO track and trace on the transportation putting real-time event management at EH Publishing, Inc. leg,” says CapGemini’s Tom Wrobleski your fingertips. in this year’s Technology Roundtable. “It “Companies that only gave a passing EDITORIAL OFFICE 111 Speen Street, Suite 200 means following a shipment from order nod to managing supply chain perfor- Framingham, MA 01701-2000 through final delivery, with all the itiner- mance in the past have had epiphanies,” Phone: 1-800-375-8015 ant compliance and finance milestones says Accenture’s Brooks Bentz. “Now MAGAZINE SUBSCRIPTIONS in between, and then being able to act on they realize that it’s a critical strategic Start, renew or update your magazine that information when roadblocks occur.” weapon in top-line growth, cost contain- subscription at www.logisticsmgmt.com/ subscribe. Our panelists on this year’s Technol- ment, and customer satisfaction—and Contact customer service at: ogy Roundtable understand if you’re the transportation control tower concept Web: www.logisticsmgmt.com/subscribe Email: [email protected] still scratching your head. Who wouldn’t is now a critical link in measuring that Phone: 1-800-598-6067 want that capability? supply chain success.” Mail: Peerless Media P.O. Box 1496 But when you step back and examine Framingham, MA 01701 the uniqueness and complexity of your ENEWSLETTER SUBSCRIPTIONS operations, you may see thousands of Sign up or manage your FREE eNewsletter subscriptions at data points, all being tracked—or not— www.logisticsmgmt.com/enewsletters. by disparate systems, ill-trained ware- REPRINTS house/DC personnel, dozens of carriers, For reprints and permissions, contact Michael A. Levans, Group Editorial Director The YGS Group at 800-501-9571 x100 or and well-meaning 3PL partners ready to [email protected]. serve up a tidal wave of information on Comments? E-mail me at your shipments. [email protected]

WWW.LOGISTICSMGMT.COM MAY 2013 | LOGISTICS MANAGEMENT 9 priceTRENDS Pricing across the transportation modes

10 150 TRUCKING Forecast 8 145 The price outlook for trucking currently calls for relative 6 140 calm. Our updated forecast shows prices in the entire truck- ing industry up 2.9% in 2013 and 2.7% in 2014. The last time 4 135 such modest, predictable inflation trends ruled was back in 2 130 1997-1998. That’s when average trucking prices increased 0 125 2011 2012 2013 2014 3% for two years in a row. Shippers and truckers will find their % change (left scale) Index 2001=100 (right scale) budget forecasts to be more dependable ahead. In the first quarter of 2012, LTL and TL prices increased only 0.04% and TRUCK 1M 6M 12M 0.2%, respectively, from the previous quarter. Now, LTL prices General freight - local 0.0 3.2 2.9 are forecast to increase 3.6% in 2013 and 2.1% in 2014. At the TL 0.8 0.3 1.0 same time, inflation in TL service will slow to 1.7% and 2.6%. LTL 0.4 0.5 4.0 Tanker & other specialized freight 0.2 0.4 1.0

15 190 AIR Forecast 12 180 Average transaction prices for flying freight on scheduled 9 170 flights of U.S.-owned airliners saw a one-month 0.2% hike in March. All told, in the first quarter of 2012, prices increased 6 160 merely 0.5% from year-ago levels. That’s a sleepy inflation 3 150 rate compared to the first quarter of 2011 when U.S. airliners 0 140 2011 2012 2013 2014 extracted a 13.5% year-ago price hike from shippers. Prices for cargo on nonscheduled flights in the first quarter of 2012, mean- % change (left scale) Index 2001=100 (right scale) while, declined 4.5% from same-quarter-year-ago. After rising AIR 1M 6M 12M 6.5% in 2011, prices for flying cargo on scheduled U.S.-owned Air freight on scheduled flights 0.2 0.6 0.4 flights are still on target to inch up 0.9% in 2013 followed by Air freight on chartered flights -0.5 -4.0 -2.8 another 2% gain in 2014. Domestic air courier 0.9 5.5 4.6 International air courier 0.8 4.2 1.6

15 195 WATER Forecast 12 190 In the first quarter of 2012, vessels plying inland waterways 9 185 reported average transaction prices up 1.8% from year-ago levels. That was a significant slowdown from 2011 when those 6 180 prices soared 7.2% in the first quarter. Average prices charged 3 175 by U.S.-owned ships in the deep sea category also increased 0 170 2011 2012 2013 2014 in 2012:Q1, up 1.1% from year-ago. And that happened to rep- % change (left scale) Index 2001=100 (right scale) resent a huge price hike compared to 2011:Q1 when deep sea shipping prices fell 5.2%. Adding together price changes in all WATER 1M 6M 12M segments of the water transportation, we see a market that is Deep sea freight 0.0 -1.6 -1.6 treading water on the inflation front. Our forecast calls for prices Coastal & intercoastal freight 0.0 -1.0 0.1 to increase 2.9% in 2013 and 3.1% in 2014. Great Lakes - St. Lawrence Seaway -1.0 2.8 -0.4 Inland water freight 0.0 -2.4 1.7

10 195 RAIL Forecast 8 185 Transaction prices reported by rail operators split in March 6 175 with a 1% hike in intermodal rail prices and a 0.1% decline in 4 165 carload tags. The intermodal rail price trend clearly has been driven by underlying demand. Indeed, intermodal loadings have 2 155 experienced year-over-year gains for 40 straight months. In the 0 145 2011 2012 2013 2014 carload segment, freight traffic declined 0.5% in March 2013 % change (left scale) Index 2001=100 (right scale) from same-month-year-ago. That explains carload rail price weakness. Our forecast for all rail transportation service shows RAIL 1M 6M 12M prices up 3.8% in 2013 followed by another 2% annual price Rail 0.1 3.1 4.5 hike in 2014. Intermodal 1.0 2.0 2.9 Carload -0.1 3.3 4.8

10 LOGISTICS MANAGEMENT | MAY 2013 WWW.LOGISTICSMGMT.COM

NEWS analysis

Also: s503AND4EAMSTERSCOMETOTERMSONTWONEWTENTATIVElVE YEARDEALS 0AGE s0ROPOSED&97HITE(OUSEBUDGETCALLSFORPERCENTINCREASEIN$/4FUNDING 0AGE s92#&REIGHTCHANGEOFOPERATIONSPLANISFORMALLYAPPROVED 0AGE Labor peace arrives for East and Gulf Coast ports

ILA membership signs off on six-year Master Contract with USMX

By Jeff Berman, Group News Editor

NORTH BERGEN, N.J.—After more Terms of the new contract, accord- or subcontracting of ILA jobs to non- than a year of contentious negotiations, ing to the ILA, include: wage increases ILA employers, with the ILA preserv- the United States Maritime Alliance totaling $3 per hour spread out over ing its chassis maintenance and repair (USMX), an alliance of container carri- the life of the agreement that will bring jurisdiction and expand major damage ers, direct employers, and port associa- the hourly pay rate to $35 by the final criteria to protect jobs. tions serving U.S.-based East and Gulf year of the contract; contract language Other terms of the contract, which Coasts, and the International Long- that protects ILA workers that have were disclosed by ILA President Harold shoremen’s Association (ILA), the larg- been displaced due to new technol- Daggett in a March 19 letter to all ILA est union of maritime workers in North ogy and automation, coupled with a members covered by the Master Con- America, have finally arrived at a state joint management-ILA committee that tract, include guaranteed payments of of labor peace. will continually examine the impact of $211 million in container royalties each The ILA announced last month that automation on ILA’s workforce; and year for the life of the contract, and a its membership has officially signed off terms that will restrict the outsourcing continuation of the national healthcare on a six-year Master Contract, which covers roughly 14,500 members, in a ratification vote held at East and Gulf Coast member ports. This agreement follows a March announcement when the USMX and the ILA approved an agreement for a successor Master Contract that came one month after the parties came to terms on a new tentative labor contract agreement. The original dead- line for the contract was Sep- tember 30, 2012, but it was extended through a series of continuing extensions to keep ILA and USMX negotiations intact and to keep cargo mov- ing into and out of East and Gulf Coast ports. The Federal Mediation and Conciliation Services aided both parties in negotiations. 12 LOGISTICS MANAGEMENT | MAY 2013 WWW.LOGISTICSMGMT.COM program for ILA members with no change dispute on the West Coast—which some agreements well before our current con- in deductibles, coverage, or co-pays. estimates indicate cost the U.S. economy tracts expire is a testament to the skills “On behalf of ILA members and offi- several billion dollars per day and nega- and determination of all those involved cers at all ports, we’re thrilled this Master tively affected various key sectors within in these negotiations.” Contract was ratified by an overwhelming the economy. Another positive development, which margin,” said Daggett. “We all worked Jon Gold, the National Retail Federa- was highlighted by Davis on the com- very hard, achieved landmark improve- tion’s vice president for supply chain and pany’s first quarter earnings call, was that ments, and protected our members and customs policy, told Logistics Manage- labor negotiations with the Teamsters— our union for many years.” ment that this news is positive for both prior to the announcement regarding the These negotiations were very sig- supply chains and the U.S. economy. tentative agreements—made significant nificant in that they affect 14 East and “This provides the stability that retail- progress and resolved the most important Gulf Coast ports that cumulatively rep- ers, importers, exporters, and transporta- issues in their labor contract. resent 95 percent of all containerized tion and logistics providers really rely on On its Web site, TDU outlined key shipments—and 110 million tons of through the ports,” he said. aspects of the tentative contracts, which import and export cargo—to the East- Prior to the completion of this deal, include: all UPS Teamsters in company ern seaboard. many shippers were vetting contingency health plans being moved to union health ILA officials have noted that since plans in the event that a deal might not plans; $1 per-hour increases in contribu- 1977, ILA and USMX have successfully happen. Some of those plans, said Gold, tions to pension and healthcare benefits negotiated nine new Master Contracts included diverting cargo to the West each year, which matches the previous without any disruption in operations, Coast, looking at options through Canada contract; and wage increases under the with the current contract in effect since and Mexico, and shipping well ahead of five-year deal reportedly at 70 cents in 2004 and then subsequently extended for time to ensure there was sufficient inven- each of the first three years, followed two years in 2010. tory in place. by raises of 90 cents and $1 in the last However, concerns over the deal com- “That uncertainty really weighed heavily two years. ing to fruition remained heightened due on a lot of shippers in terms of what they Teamsters officials said that the to the 10-day 2002 longshore contract needed to do,” explained Gold. Ⅺ tentative agreement for UPS package employees moves 140,000 employees into the Teamsters-controlled health LABOR plans to maintain current benefits for all UPS Teamsters and also grow funds UPS and Teamsters come to terms on for Teamsters for all industries into the future. two new tentative five-year deals The Teamsters also said that for UPS Freight the tentative agreement resolves ATLANTA and WASHINGTON— need to be presented to the UPS Team- subcontracting issues by putting all laid- When it comes to labor negotiations, sters-represented employees for ratifica- off road drivers back to work, with UPS situations can change quickly for better tion. When the contracts are officially Freight employees receiving substantial or worse. In the case of the negotia- ratified, UPS said the new agreements wage increases and lower co-pays for tions between transportation and parcel would take effect on August 1. health insurance, coupled with providing bellwether UPS and the International “These agreements are a ‘win-win-win’ the ability for more part-time workers to Brotherhood of Teamsters, it’s the former. for our people, customers, and sharehold- become full-time employees. UPS said late last month that it has ers,” said Scott Davis, UPS chairman and The possibility of this deal coming to reached a tentative agreement with the CEO. “The fact that we have reached fruition was in jeopardy as recent as a Teamsters on two new five- few weeks ago, with the year contracts for UPS’s small Teamsters Union hav- package and freight busi- ing drawn a line in the ness units. These contracts sand over health care in cover roughly 250,000 UPS labor negotiations when and UPS Freight employees, UPS floated the idea that according to Teamsters for a the 260,000 Teamsters Democratic Union (TDU). for the first time make a UPS added that the tenta- small co-pay contribution tive contracts were hammered toward their health care out well ahead of their July premiums. 31, 2013, expiration date and During a negotiation

WWW.LOGISTICSMGMT.COM MAY 2013 | LOGISTICS MANAGEMENT 13 NEWS analysis

session in March, Teamsters union Presi- ment to avoid any freight diversion to Statements added that because rebuild- dent James “Jim” Hoffa said a group of non-union carriers. ing the nation’s infrastructure is an imme- Teamsters began chanting “we won’t pay” “The ball is in the UPS court,” Hall diate need, the budget uses near-term in a display of their opposition to the said in March. “If they don’t want ship- savings from reduced overseas operations proposal, adding that it was a non-starter pers to walk away, it’s in their best interest to fully offset the long-term reauthoriza- for the union. to agree to a fair deal.” tion proposals. Prior to the late April announcement, Wolfe Trahan analyst Ed Wolfe wrote While this proposed DOT budget UPS officials repeatedly declined to in a research note that his firm’s initial is ambitious on various fronts, funding negotiate publicly and refused to discuss sense is that the economic impact to UPS still remains an issue. According to Mort any details of their negotiating strategy. seems more favorable than past contracts, Downey, chairman fo the Coalitions for Ken Hall, the Teamsters’ general sec- adding that the relatively early agreement America’s Gateways and Trade Corridors, retary treasurer and the union’s point man also seems like a near-term positive for the White House is laying out a plan for for the Teamsters negotiations with UPS, UPS and a negative for FedEx. a national transportation program in the said in March that the talks were tough context that funding increases for surface but that was not a surprise. UPS, though, —Jeff Berman, Group News Editor, transportation do not increase the deficit. had expressed a desire for an early settle- and John D. Schulz, Contributing Editor “Republicans in Congress want to know where the transportation-related TRANSPORTATION POLICY taxes to pay for it are coming from,” said Downey. “It would be good if they commit to spend the money committed to trans- Proposed FY 2014 White House budget calls portation if it was raised, but it cannot be guaranteed. There is still the question of for 5.5 percent increase in DOT funding will this go anywhere or will it fall through the cracks due to the heavy partisanship WASHINGTON, D.C.—While specific r
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continue to get lip service rail reauthorization program to about the importance of improve existing intercity pas- roads and bridges with no senger rail services, develop real roadmap to real funding new high speed rail corridors, solutions.” and strengthen the economic competitiveness of our new —Jeff Berman, freight rail system. Group News Editor

14 LOGISTICS MANAGEMENT | MAY 2013 WWW.LOGISTICSMGMT.COM NEWS analysis

LTL Jeff Rogers, president of YRC Freight. Jackson, Miss. road domicile. YRC Freight change “New network densities, load factors, and In an interview with LM during last direct routing of shipments will make this month’s National Shippers Strategic Coun- of operations plan is network optimization the foundation of cil (NASSTRAC) Annual Conference in our continued performance improvement Orlando, YRCW CEO James Welch said formally approved initiatives in 2013.” that when he took the reins as CEO in late OVERLAND PARK, Kan.—Less-than- YRCW said that these changes, once 2011, YRC Freight had a network that was truckload (LTL) transportation services implemented, will serve as another step too large for the amount of business . provider YRC Worldwide (YRCW) said last in YRC Freight’s efforts to continuously “When they put Yellow and Roadway month that the network optimization—or improve customer service, optimize line- together, in my mind, they did a very poor change of operations—plan, which was haul density and load average, reduce empty job of sizing the network for its business submitted in March to the company’s union miles, and reduce shipment handling. levels,” said Welch. “We had a network leadership, has been formally approved. According to a copy of the proposed that was more expensive than it needed to YRCW said that the network optimiza- change of operations released by Team- be, one in which we handled our custom- tion is a key component of YRC Freight’s sters for a Democratic Union (TDU), the er’s freight too much. It was as efficient as strategy to continuously improve customer proposals include: consolidating 29 end- it needed to be from a linehaul standpoint, service by reducing the handling of ship- of-line terminals into existing terminal but this change does not reduce any of ments and excess time in transit. The car- locations; reducing end of line road domi- our coverage from a service standpoint. rier added that the transportation team and ciles; reducing distribution center loca- It merely puts us in a better position to network engineers at YRC Freight would tions by three, utilizing existing capacity improve our density and allows us to load implement the enhancements over the next to create density for more network direct more direct trailers, as an example, and several weeks. loading; reversing specified road prima- that gives us the opportunity not to trans- “Our network team identified oppor- ries; establishing a new relay operation fer as much of our customer’s freight as we tunities for us to further align customer in Staunton, Va. to reduce system miles; had been doing,” he said. service and operating efficiencies,” said and adding additional sleeper runs to the —Jeff Berman, Group News Editor

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Solving the economic puzzle takes more than a few pieces

there continues to be many mixed signals regarding the I’m not mistaken. state of the economy. For example, fuel prices are declin- That tune goes along the lines of “things are shap- ing, which is good, but so are retail sales, which is bad. ing up pretty well so far here in the first half of the The most recent edition of the Cass Freight Index year when you consider volumes and inventory levels.” report showed gains in volumes and freight expendi- Then, as has been the case in recent years, the situa- tures, which were up compared to previous months. tion is no longer as rosy, with drop-offs in demand and And while manufacturing is doing OK, new orders, a flat-lining of subsequent economic activity during the which are commonly referred to as the engine that second half of the year. drives manufacturing, have declined a cumu- lative 5.5 percent in the last two months as of When I first started covering this industry, I was press time. If that last trend were to continue, the told “how the freight transportation market goes situation would not be good for the overall so goes the overall economy.” In some instances, economy or the freight economy. “Slower this sentiment still holds weight, but in others growth in manufacturing equals less freight in various stages of the supply chain,” noted it’s not nearly as prescient. Rosalyn Wilson, senior business analyst with Delcan Corporation and author of the annual CSCMP While it’s too soon to say if the tune will be the State of Logistics Report, in her analysis of the recent same in 2013, the case could have already been made Cass report. given the relatively sluggish pace of retail sales and the We hear, and see, that things are moving along in uneven employment outlook—which changes quickly the freight world as they typically would in terms of by a few tenths of a percentage point every month. seasonality. However, we’ve heard this song before if When I first started covering this industry, I was told “how the freight transportation market goes so goes the overall economy.” In some instances, this sentiment still holds weight, but in others it’s not nearly as prescient. Looking at it through this lens can lead—in equal parts—to both confusion and clarity, depending on what you’re examining and how the story behind the data is being told. For example, in its most recent earn- ings announcement, FedEx said that it is reducing air capacity into and out of Asia due to reduced demand in that region, coupled with shippers trading down in modes for more affordable freight rates. And looking at rail and intermodal data, one can tell that modal trade down is alive and well given the annual increases we’re seeing year-to-date on the rails. Of course, we need to remember that part of the inter- modal growth story is due to increased movements via containers and less in trailers. However, it appears that the recovery’s prospects will depend on consumer-based activity. Wilson added that in the Cass report consumer demand for goods is still not strong, and disposable income isn’t enough to increase consumption of services, lending credence to her point that 2013 will continue to be stronger than 2012, but not robust. Ⅺ

16 LOGISTICS MANAGEMENT | MAY 2013 WWW.LOGISTICSMGMT.COM Peter Moore is a Program Faculty Moore on Pricing Member at the University of Tennessee Center for Executive Education, Adjunct Professor at The University of South Carolina Beaufort, and Partner in Supply Chain Visions, a consultancy. Peter can be reached at [email protected].

Air Cargo Rates: Going up or coming down?

The air cargo experts at Boeing provide a bi-annual Not surprisingly, Asia continues to grow relatively report on the Air Cargo industry entitled The World Air fast, perhaps 6 percent to 8 percent. Latin America is Cargo Forecast, and I recommend it to shippers prepar- expected to grow at modest rates, and North America ing for discussions with their carriers and forwarders. and Europe will be flat, according to Boeing’s report. Logistics Management also provides monthly trend data Shippers should look at their freight lanes and the pro- that is worth checking regularly. viders—carriers and forwarders—in those lanes. The Both sources suggest air freight pricing will continue carriers will continue to be under pressure, as will the to track at or below inflation despite high fuel costs forwarders that bring them freight. and continued upward pressure on equipment, labor, With this information, shippers need to pay attention and operational costs. This sounds like good news for to the business health of their providers. For shippers shippers approaching the market, but it will take some who use forwarders with multiple carrier contracts, it’s detailed market analysis and planning to get the most important to understand their mix and how trends will productivity out of your air cargo dollars. Armed with affect their contractors. Make sure your discussions also knowledge, shippers can have a meaningful dialog with providers about cost and service. And in these candid discussions shippers Shippers need to pay attention to the business may learn of a provider’s expectations for the health of their providers. For shippers who use future—and they may surprise you. The first trend Boeing looked at in its most forwarders with multiple carrier contracts, it’s recent report was the long-term decline of important to understand their mix and how margins in the air cargo business. According to their findings, freight yield has declined trends will affect their contractors. 4.2 percent per year when averaged over the past two decades. The last 10 years saw a slight yield increase of 0.9 percent per year, compared cover trends in the ground portion of their business—as to the 9.0 percent average annual decline recorded noted in previous columns, changes are coming to that in the preceding decade. The carriers have flattened aspect of the business as well. the trend by controlling labor, increasing productivity, Your discussions need to be candid and two-way, and and combining fuel hedging with fuel efficiency. But it’s important to understand how trends are affecting slowing margin reductions is not the same as margin their business. You will need to understand their plans improvement. over the next few years including how your freight fits Service providers are making strong business deci- into their service lane strategy. What does that mean for sions in an effort to improve their business conditions. pricing in your business lanes? Also be open to sharing Boeing points to improvements in margin recently, but your future market trends. Can your provider support notes that there’s more capacity coming on in new, your plans for your business? larger, more fuel-efficient aircraft. Boeing estimates Air Cargo is typically just one piece of our supply that the air freight fleet will increase 80 percent over chain operations. And as we re-evaluate our businesses the next 20 years, while freight traffic is estimated to in light of insourcing and outsourcing and the ways we double in this time—but that growth is not uniform will serve our customers in the future, we need to give across the business. special attention to how changes to the provider’s busi- The second trend that will affect the business, ness can make an impact on our ability to compete in according to Boeing, is the growth of regional markets. a global market. Ⅺ

WWW.LOGISTICSMGMT.COM MAY 2013 | LOGISTICS MANAGEMENT 17 Mark Pearson is the managing Pearson on Excellence director of the Accenture’s Supply Chain Management practice. He has worked in supply chain for more than 20 years and has extensive international experience, particularly in Europe, Asia, and Russia. Based in Munich, Mark can be reached at [email protected] Agile Execution: The engine of dynamic operations

this is the final column in our series about dynamic also has a place, since end products can be customized operations, or global supply chains imbued with the closer to the sale, thus helping to ensure that supply closely ability to alter the function and focus of key pro- matches shifting demand. cesses (manufacturing, transportation, distribution) in An innovative network strategy is also associated with response to changing events. In recent months we’ve agile execution. The mantra here is “flexible resource profiled three of dynamic operations’ core capabilities: allocation” made possible by centralized operations, low- r
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Flexible innovation: making design and develop- automation are the linchpins here. For example, process- ment processes less rigid by reducing changeover times, es and technologies need to be broadly standardized to increasing interchangeability, and designing products effectively handle and disseminate ideas, designs, plans, that embrace multi-channel networks and technology. and products. Systems also must be able to operate seam- The fourth capability—agile execution—is concerned lessly and adjust to changes without human intervention. with adjusting supply chain actions by rethinking supply Agile execution’s core components—horizontal part- chain functions, partnering more effectively, improv- nering (collaboration), innovative network strategy, and ing collaboration, and implementing new strategies and flexible system architecture—are profiled in the corre- advanced technology. sponding figure along with brief examples of how lead- For example, agile execution emphasizes collaboration with internal and external partners to maximize informa- tion sharing, reduce order cycle times, and create pro- cesses that are streamlined yet adaptable. Postponement Noteworthy components and practitioners of Agile Execution Key Components Practitioners Horizontal partnering A strategic collaboration with United Biscuits allowed Nestlé to increase asset utilization, reduce its carbon footprint, and lower transportation costs. Nestlé also pursues horizontal partnering with other consumer goods companies. Agile network strategy Procter & Gamble’s exceptional cross- docking capabilities are partly the result of flexible linkages between supply planners and logistics teams. Frequent results include lower inventories, handling costs, and delivery times Flexible system architecture Nordstrom’s leadership in customer service is enhanced by its prowess in inventory visibility. If a product is available anywhere in the network, Nordstrom can make it available via in-store pickup or direct ship.

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WWW.LOGISTICSMGMT.COM MAY 2013 | LOGISTICS MANAGEMENT 19 Derik Andreoli, Ph.D.c. Andreoli on OIL+FUEL is the Senior Analyst at Mercator International, LLC. He welcomes any comments or questions, and can be contacted at dandreoli@ mercatorintl.com.

Going Broke: Oilfield lessons from the playing field

seventy-eight percent of former NFL players learn been previously anticipated. In all, production capacity the hard way that bills remain long after incomes have is likely to rise faster than demand through the remain- dried up and are broke within five years of retirement. der of the year, and prices are likely to soften—perhaps A similar force is at play among the world’s oil export- significantly. ing nations. Meanwhile, higher wages and subsidized fuel prices The Arab Revolution began as a protest against will continue to drive up rates of oil consumption in oil high food prices, and across the Middle East/North exporting countries. In many cases domestic consump- Africa (MENA) region, discord has been quieted in part tion is rising faster than production, and oil exports are through petrodollar funded social spending programs. declining. If prices soften and exports contract, some of In addition to direct social spending, the minimum the highest volume oil exporters in the world will find wage has been increased, and food and fuel subsidies themselves with underfunded federal budgets. have increased. We need look no further than Greece to see how austerity might be greeted, or to Egypt in 2011 to While another uprising is not a foregone see how the public might react to a scaling back of conclusion, a sudden drop in oil prices food subsidies, or to the violent nationwide protests that occurred when Nigeria decided to cut back on will increase the risk as oil exporters fuel subsidies. will suffer from the same financial In the short term, the easing of oil prices may ailment that has plagued so many lead you to breathe a sigh of relief, but in the medium term, low prices have the potential to fan professional athletes. the flames of social unrest. While another uprising is not a foregone conclusion, a sudden drop in oil Oil commentators frequently assert that the cost prices will increase the risk as oil exporters will suffer to produce a barrel of oil in Saudi Arabia is just $20 from the same financial ailment that has plagued so per barrel, and while this may be technically true of many professional athletes. old fields, simple production cost estimates ignore the If you’re lucky, low oil prices will be passed along federal expenditures that they support. to consumers of refined products. And if this hap- The fiscal break-even oil price at current export lev- pens, enjoy low prices while they last, but don’t get els in Saudi Arabia, Libya, the UAE, and Oman is over tricked into believing that low prices are anything $80 per barrel, and the break-even price in Iraq, Bah- but temporary. Ⅺ rain, Algeria, Venezuela, and Russia are all above $110 per barrel. If oil exports decline, the break-even price will be proportionally higher. Since 2008, the break-even price has increased by more than 35 percent in five of the 10 MENA countries, and since 2010, oil prices have remained high, so there hasn’t been much cause for concern that federal expenditures are unsustainable. Looking to the horizon, however, a perfect storm is brew- ing as forces align to bring down oil prices. Oil production in the U.S. and Canada continues to surge. Meanwhile, consumption among advanced economies is declining and a slowdown in emerging markets means that oil consumption there will be lower than had

20 LOGISTICS MANAGEMENT | MAY 2013 WWW.LOGISTICSMGMT.COM YOU SEE OUR BIG YELLOW TRUCKS. HERE’S WHAT YOU DON’T SEE. Penske Logistics is hard at work behind the scenes, making sure everything is done right. It’s nearly impossible to spend a day without encountering hundreds of items that have been through the warehouses we manage or the supply chains we optimize. They’re there, right where you need them. Because Penske was there. ADVERTORIAL

MEXICAN MASK MANUFACTURER PUTS ON A HAPPY FACE WITH UPS IN CONTROL

Diego Esponda was in About six years ago, Grupo Rev a scary situation. discovered the logistics prowess of UPS. It was already using UPS As general manager for occasional expedited ship- of Grupo Rev, a Cuer- ments. “Our UPS agent saw the navaca, Mexico-based potential with us,” Esponda says. maker of costume “One time we had a very late order masks, Esponda was and the customer wanted it ASAP. losing U.S. customers The UPS agent gave us a good because of uncer- discount on that shipment. After tain deliveries by an that he came to our office to see unmanageable network how he could help us further.” of trucking and logis- tics companies. That was in 2007. Now six years later, Grupo Rev has “The customer didn’t know the days they were tripled its revenue. It sends approximately 700 going to get the merchandise,” says Esponda, shipments annually with UPS—and that figure is who runs the 58-year-old company founded by his rising.“The prices are very competitive,” Esponda grandfather outside of Mexico City. “We used to says. “Plus, the reliability of the shipments is what have many complaints.” makes all the difference. The American custom- Multiple Logistics Companies ers like the idea of getting all the orders through One reason it was so difficult to quote accurate ship- UPS.” ping times to U.S. customers was that Grupo Rev A Well-Oiled Machine was working with many logistics companies and Unlike some transborder shipments, Esponda says each one had their own set schedule. “Every client delays at the U.S.-Mexico border were not the had their own logistics company they preferred to main problem. “The problem was shipping—how use,” he explained. “We had to manage too many and when to ship. There were too many problems different logistics companies. It was a mess.” and miscommunication.” The shipment visibility Grupo Rev, which manufactures high-quality howl- offered by UPS has greatly alleviated these day-to- ing masks and other high-end costumes for Hal- day shipping problems. loween and other holidays, has been exporting to June to August is the busy season for Grupo Rev, the U.S. since 1988. It now has 160 employees and as it gears up for Halloween and Day of the Dead revenues of about $4-5 million. celebrations. “That is my tough time,” Esponda As the company grew, it found that its Achilles heel says. “Now there is no problem. I can call them was shipping and logistics. with a shipment of just one box or a full truck.” “It’s a well-oiled machine,” Esponda says of UPS. Esponda says that dealing with many carriers and logis- “Everything works like a clock. Everything works tics companies had become so cumbersome and time- on time. Everything works very well.” consuming that it was affecting business. He recalls the process: “We had to get a quote, send that quote In the six years Grupo Rev has been working with to the client, and then wait for him to accept the quote. UPS, it has tripled the amount of exports to the U.S. It took so much time to close an order. Some people And there is nothing scary about that. canceled orders because it was too much trouble.” To find out more, please visit: ups.com/gruporev Copyright © 2012 United Parcel Service of America, Inc.

3 WAYS LOGISTICS CAN SHRINK THE WORLD.

UPS can help you benefit from the fact that 95% of today’s consumers live outside the U.S. Access to them, as well as suppliers, depends on logistics. UPS is your best choice for taking advantage of new opportunities around the globe.

1) REACH GLOBAL MARKETS as well as freight—so your company we have the technology to help you With one of the world’s largest air can quickly adjust to changing breeze through customs. With our fleets, UPS delivers to more than customer demands. You can even paperless solutions, we can show 220 countries and territories. So your have status updates sent to your you ways to reduce typical customs suppliers can reach you and you can mobile devices. delays by up to 56%. reach your customers. 3) REDUCE YOUR CUSTOMS DELAYS Logistics has opened up new 2) MAKE YOUR SUPPLY CHAIN UPS is one of the largest customs opportunities internationally. UPS can VISIBLE UPS technology lets you see brokers in the world. We have the help your company seize them, even what’s coming and going—package experience, and just as important, if you are just getting started.

See more ways logistics can work for you at thenewlogistics.com/guide or snap the QR code.

thenewlogistics.com/guide EXCLUSIVE

2013 Technology Roundtable Real-time visibility within reach BY MICHAEL LEVANS, GROUP EDITORIAL DIRECTOR

ogistics and supply chain professionals have never computing solutions is certainly expanding. Critical innova- faced a more challenging period than what they’re tions in robotics, voice technology, and image capture, among up against at this moment. others, are making this an exciting time for the ADC market. In some cases, their companies are anxiously L pushing to expand their global reach deeper into LM: Is it possible to put your finger on signature trends that new and uncharted markets to capitalize on a burgeoning are driving the adoption of ADC technology at this time? consumer boom; others are figuring out how to optimize Krebs: One trend that continues is the shift to cam- their sourcing and manufacturing networks in light of rising era-based solutions in logistics environments. This is hap- transportation costs and more complex trade regulations; pening in a number of different ways. First for handheld and still others are trying to figure out the best way to meet scanning—primarily the domain of laser scanners because a multi-channel distribution challenge driven by an ever- of their long-range scanning capabilities—we’re seeing the fickle domestic consumer base that needs the order today. emergence of more functional long-range imagers. In addi- Our esteemed panel taking part in Logistics Management’s tion, we’re seeing an expansion of applications supported by 2013 Technology Roundtable firmly believes that there are imagers. Along with bar code scanners, imagers are support- technology solutions available that will help today’s logistics ing other value-add services such as damage documentation professionals win any of the aforementioned battles—it just and dimensioning for load planning. depends on how brave and determined they are to make the Another meta trend is the need for greater business analyt- case for investment and put them to use. ics. ADC systems today collect a tremendous amount of data, This year David Krebs, mobile and wireless vice president much of which is underutilized or not leveraged at all. How- at VDC Research Group, will bring us up date on the cur- ever, at the same time, today’s supply chains are becoming rent mobile computing and automatic data capture (ADC) increasingly complex and represent growing cost components market and it’s vital role in achieving visiblity; Dwight Klap- of today’s organizations. Leveraging the added functionality of pich, vice president of research at Gartner, puts transporta- today’s image-based ADC solutions is enhancing key applica- tion management systems (TMS) functionality into context tions from vendor compliance and revenue recovery to load in light of today’s challenges; John Hill, director at St. Onge optimization, pallet dimensioning, and order automation. and supply chain technology sage, shares his insight into how warehouse management systems (WMS) are evolving; LM: Multi-channel order fulfillment is pushing retailers and Tom Wrobleski, vice president at CapGemini Consult- to basically revolutionize their supply chains. What role do ing, offers shippers the current state of global transportation you see mobile computing playing in streamlining these new, management (GTM) systems. highly complex operations? Here’s what this year’s panel had to say. Krebs: With the shift to multi-channel we’re seeing a greater emphasis being placed on perfect order accuracy. Mobile computing/ADC: Gateways to visibility The penalty of errors and poor performance is heightened Logistics Management (LM): From your unique view of and can have a lasting impact on brand perception. In addi- the highly diversified ADC market, is there a way to neatly tion, multi-channel is driving the need for more efficient summarize where the overall market stands? returns processing capabilities to support the increase in David Krebs: The overall ADC market continues to mature returns, the need to manage split case and full case pick- as adoption and penetration scales. With increasing needs for ing in the same facility, and the overall shift from batch not only visibility, but also status, the use of a wide array of or wave processes to more dynamic on demand systems. data collection, sensing, wireless communications, and mobile These requirements are, in turn, placing greater emphasis

24 LOGISTICS MANAGEMENT | MAY 2013 WWW.LOGISTICSMGMT.COM WEBCAST 2013 Technology Roundtable Thursday, May 30, 2013 at 2:00 p.m. ET Register NOW at: logisticsmgmt.com/2013tech

Integrated systems that better gather and manage data to provide real-time supply chain decision making is now directly linked to competitive differentiation. Our esteemed analysts believe that this “visibility” is a reality, and fortune favors the bold who are brave enough to achieve it.

GLENN MATSUI on efficiency and inventory accuracy while creating greater business operations—is evident. It’s also evident that the demand for ADC solutions. lower cost and ease of use of many of these consumer devices is appealing to enterprises. However, for many supply chain LM: Yard management is one area that logistics profession- and logistics operations, especially those with heavy data als are realizing they can easily improve through the adoption of collection requirements, consumer devices cannot hold up. intuitive technology. Where does yard management stand today? Recent research we’ve just conducted reaffirms the value of Krebs: The yard has often been overlooked when it comes rugged devices in these environments, especially in the con- to supply chain optimization investments creating a black hole. text of cost of ownership and the impact of failure on opera- The use of wireless communication, location, and RF identi- tional disruption. However, at the same time, it’s not busi- fication technologies is driving improvements in the yard. In ness as usual for rugged mobile vendors, as they will need addition, the integration of TMS, yard, and WMS is driving to address a growing perception that their devices are falling streamlined operations. One area we are seeing those benefits behind major industry trends. is around load planning and optimization, which in turn can drive significant benefits in terms of fuel cost reduction. LM: With that in mind, where will logistics professionals see mobile computing and ADC technologies head in five years? LM: We’re reporting how quickly smart phones and tab- Krebs: In our minds it’s about integration, processes, and lets are making their way into logistics mangement. While the global supply chains—not just the technology. Trends we’re “ruggedness” of these devices has come into question, how far witnessing now include shifting demographics, more edu- do you see smart phones and tablets penetrating this market? cated and empowered consumers, the integration of true Krebs: The use of smartphones and tablets in the enter- multi-channel distribution and retailing, shortening product prise across a variety of environments—including line of lifecycles, the shift from mass market to greater levels of

WWW.LOGISTICSMGMT.COM MAY 2013 | LOGISTICS MANAGEMENT 25 WEBCAST 2013 Technology Roundtable Thursday, May 30, 2013 at 2:00 p.m. ET EXCLUSIVE Register NOW at: logisticsmgmt.com/2013tech personalization and customization are in the area of greater than $100 mil- TMS. Compared to many other appli- all having profound impacts on how lion per year in annual freight spend. cations, TMS implements quickly and businesses operate. But now we’re finding significantly fairly easily and companies can take a As a result, the need for systems greater interest in mid-sized ship- phased approach that allows them to that better gather, store, manage data pers ($20 million to $100 million in get some pieces up and running initially and provide intelligence to drive real- annual freight spend), especially for to gain the benefits that can then fund time decision making is today, more cloud TMS offerings. We see some the remainder of the project. so than ever before, being linked to interest in cloud at the high end, but competitive opportunities. Put another that is largely private cloud (dedicated WMS: Muli-channel drives way, the cost of errors and subsequent instance for a single client) where in need for integration impact on brand is at an all time high. the mid-market the demand is for LM: The greater WMS market contin- This, in turn, spells massive opportu- multi-tenant SaaS. ues its steady climb, last year growing by nity for a new breed of ADC solutions. Two things are driving this. First, about 6 percent. What business elements the economics of SaaS are favorable in are coming together to push this? TMS: Capacity crunch pushing adoption that a company can pay an annual sub- John Hill: First, if you’ve looked LM: The overall TMS market enjoyed scription that in the near term is far less at your 401K lately, it’s likely that it has double-digit growth in 2012. What business than equivalent on-premise. The second finally begun to outperform your money elements do you see coming together to push advantage is that companies are being market account. And I suspect that this this growth? forced to engage with more carriers and is also true for many small- to medium- Dwight Klappich: First, cost con- the carrier network that is part of many sized businesses (SMBs) that, although tainment remains a very high priority SaaS TMS is advantageous. they’ve understood the potential value as costs are generally trending upwards of supply chain systems as a differen- and remain a burden for shippers of LM: The perception of how cloud tiator, have been unable or unwilling to all sizes. However, increasing capac- computing functions has been a deter- risk investment in new technology or ity constraints are anticipated, and we rent to skeptical adopters. Are those fears systems over the past few years. already see signs of this in some modes still in play? Larger firms are also making WMS like refrigerated. So another key motiva- Klappich: While some concerns investments to address the challenges of tor is having technology that will help remain, I don’t find that this is a real multi- or omni-channel fulfillment and ensure a company can secure capacity. barrier to SaaS TMS adoption. If any- more tightly integrate their WMS systems thing there’s a barrier we find that cus- with demand planning, order manage- LM: Do you have any early indicators tomers are now getting better at mod- ment, and transportation management. of how the oncoming capacity crunch eling the cost differentials between Other drivers include traceability con- will affect shipper/carrier engagement? on-premise and SaaS based applica- cerns and mandates, system-wide vis- Klappich: We did a study last year tions. And while SaaS pricing is very ibility demands, workforce performance and were surprised to find that shippers favorable in the near term, it can appear improvement, and the maturation of were already engaging with more carriers more expensive long term. I now find ERP, SaaS, and cloud-based alternatives. than we expected. We thought shippers buyers more diligent in conducting might engage with 10 to 25 carriers, or this analysis that has had a deflation- LM: How do you see WMS evolving maybe as many as 50 to 100 for very ary price effect. The other issues we see as a result of the multi-channel challenge? large shippers. However, our study found coming up more often now are integra- Hill: The buzz about multi- or omni- smaller shippers were using upwards tion concerns. This is not as much as channel distribution is real. We’re see- of 50 carriers, and very large shippers say an ERP to TMS integration issue, ing a significant increase in interest were in the 250 to 500 range. Clearly, but how one SaaS solution will fit in the from our current and prospective cli- these shippers don’t use this many car- overall supply chain management appli- ents in finding solutions for single-site riers every day, but this indicates that cation landscape. DC fulfillment of on-line and store they have at least periodic capacity con- orders—as well as fulfillment from straints that force them to have a large LM: Any tips for new TMS adopters? retail outlets to on-line customers. number available to them when needed. Klappich: Even though the econom- Setting aside the complexities associ- Managing 10 carriers manually, while ics are very good, a 10 percent or more ated with DC design for omni-channel suboptimal, is doable, but managing 500 reduction in annual freight spend, only fulfillment, the phenomenon raises the demands technology—and this too is about 25 percent of the addressable bar for WMS, for which inventory slot- driving increased demand for TMS. market has adopted a holistic TMS. At ting and task and labor scheduling and the high end we estimate over 50 per- management become even more criti- LM: As part of this growth, what role cent penetration, and that says that in cally important. Another key is inven- are cloud and SaaS solutions playing in the mid-sized shipper market adoption tory accuracy at every stocking location, pushing further adoption of TMS? remains modest. These companies including retail stores, as well as visibility Klappich: TMS has largely been should start looking at TMS given the into inventory in transit to those loca- used at the high end of the market, number of options, particularly SaaS tions, which may be provided by TMS.

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LM: Any advice for retailers? and security were the major concerns. more advanced tablets and smartphones. Hill: Well-defined work flows and pro- As it turned out, security was not an What can we expect to see in terms of cedures have always been important to issue even though the application sat WMS and mobile apps on the floor? laying the proper foundation for success- along with a number of others in its Hill: Hard to believe, but it has been ful WMS configuration and deployment, own partition on a third-party server. 38 years since Logisticon installed an but never more important than here. On the WMS front, SaaS or cloud- RF-based WMS with handheld bar based systems enable SMBs as well as code readers and lift truck-mounted LM: Much like its TMS cousin, larger companies with small satellite printers for JC Penney in southern Cali- WMS has moved into the cloud. While warehouse operations to stick their fornia. Yes, there have been some very still in its infancy, do you see cloud- toes in the WMS water rapidly and interesting deployments of WMS using based WMS gaining momentum? with lower cost and risk—provided iPads, tablets, and smartphones for data Hill: Hosted TMS entered the pic- that they do not require the features of collection and communications by early ture in the mid-1990’s with Gillette’s a top-tier, on-site WMS package. adopters, and I believe this trend will deployment of a system that managed continue. It’s a natural and particularly transportation operations throughout LM: Mobility was infused into the important for attracting the post-mil- North America—and the system per- warehouse/DC years ago with ruggedized lennials to the workforce. formed well. At the time, bandwidth handhelds. Those tools have given way to Additionally, the ability for manag-

Research: Overcoming WMS upgrade fears e recently caught up with Ian Hobkirk, managing director schedule, often the focus shifts from optimizing processes Wof Commonwealth Supply Chain Advisors, following the to simply completing the project and getting the software in- presentation of his latest research project on WMS adoption for stalled. As a result, good processes may get cast aside in favor the attendees at the Materials Handling Industry (MHI) Spring of whatever processes are easiest to implement quickly. There Meeting. is an important step of “optimization” that needs to happen three months to six months after a WMS go-live, but not all Logistics Management: What are the key drivers pushing companies follow through and do this. WMS upgrades today? Ian Hobkirk: Functionality still seems to be the main driver, LM: Can you share a short example of a type of company although the specific needs vary depending on how far a com- that’s taking on an upgrade? pany has already come along the WMS path. Companies that Hobkirk: If the project involves an upgrade, then compa- have little or no WMS capabilities right now are trying to just nies usually start by exploring the costs of just getting on the get the basics: real-time transaction confirmation and more latest version of their current vendor’s WMS. There’s almost sophisticated pick processes. always a moment of sticker shock when they understand the Companies that already have some form of WMS are often costs of upgrading, especially if the current system was heavily seeking to upgrade or replace that system so as to achieve customized. functionality like slotting, labor management, wave planning, This usually prompts a general feeling, especially in the and task interleaving. IT group, that this time around, they want to avoid custom The one common thread across both groups though is this code and change their business processes to conform with need for more complex pick processes—cluster picking, batch the software’s “standard” functionality. If they do the project picking, zone picking—processes that drastically reduce labor right, then they will identify those areas where customization costs. Even a lot of legacy WMS systems don’t enable the flex- is required and have a dialogue with all of the stakeholders ibility that companies are looking for in their pick processes. to determine when it makes sense to change processes vs. customize software. LM: What continues to hold them back? Hobkirk: Cost is always a concern, but the biggest factor LM: Any advice for companies about to head into the holding companies back is their fear of a “bad implementation.” upgrade process? The companies we talked to repeatedly mentioned horror sto- Hobkirk: Adequately defining the business requirements ries that they have heard about cost overruns, delays, and even up front is still the single most important thing that a company service level disruptions. The fact is that there are lots of things can do to ensure success. Document all of the process needs, that can go wrong if the business needs aren’t adequately de- and most importantly, all of the exceptions to the rules. If the fined up front, and if good, solid project management practices upgrade is going to be a major event with a hefty price tag, then aren’t followed. companies should do their homework and investigate other potential provider that can meet their needs. Then it comes LM: From your findings, are users fully optimizing their down to execution. current WMS? —Michael Levans, Hobkirk: In many cases, no. If an implementation is behind Group Editorial Director

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RFID, and voice that prospective users to the advent of new players into the should not ignore. global supply chain, regulations in LM: How will GTM solutions need mature markets can also change. to evolve to keep up with the complex GTM: Window to global visibility Improved visibility is also paramount demands of the global trade environment? LM: Where does the GTM market stand? today. Visibility in a GTM context is no Wrobleski: In general, GTM solu- Tom Wrobleski: As a result longer restricted to track and trace on tions certainly meet the demands of expansion of global operations, the transportation leg. It means follow- of today’s global trade environment. increasing global competitiveness, and ing a shipment from order through final However, as global trade itself evolves, complex trade regulations, companies delivery, with all the itinerant compli- GTM solutions need to evolve as well to help companies deal with the Visibility in a GTM context is no longer restricted unfolding challenges in trade compli- to track and trace on the transportation leg. It ance, such as understanding which means following a shipment from order through Free Trade Agreements (FTA) they’re final delivery, with all the itinerant compliance eligible for based upon the origin of and finance milestones in between. different purchased parts; maintaining visibility of all purchase part informa- — Tom Wrobleski, vice president at CapGemini Consulting tion; coordinating with suppliers to obtain all required FTA information to establish compliance with a trade pro- are giving more importance to global ance and finance milestones in between, gram; and collecting duty savings by trade management. In fact, according and then being able to act on that infor- qualifying bills of material of saleable to Capgemini’s 2013 Third Party Logis- mation when roadblocks occur. A GTM goods for different trade programs. tics Study, 43 percent of shippers said solution that integrates seamlessly with they feel that 3PL providers should existing supply chain systems increases LM: Where is GTM in five to 10 years? focus on developing their global trade the level of automation and visibility. Wrobleski: We’ll continue too management IT capabilities. see Saas as the dominant deployment And according to the recent Aber- LM: What advice do you have to get model for GTM. Some vendors offer deen Annual GTM study, the top invest- over the GTM acceptance challenges? access to their GTM solutions over the ment focus for over 75 percent of dis- Wrobleski: GTM solutions gain web, thereby bypassing the headaches crete manufacturing companies is the acceptance when shippers target the of buying and installing the solution. move to GTM platforms or solutions importance of enhanced visibility to Accessing GTM solutions on an as- that integrate data sharing and work- end-to-end trade activities and team needed basis reduces cost of usage and flows with internal users and a myriad productivity; the improved integra- ensures that the latest technologies of countries, suppliers, carriers, and tion of workflows between import and being developed by the software ven- trading partners. And while this bodes export processes where trade data flows dor are available to the end user. well for the market, we see fragmen- seamlessly between different GTM We will also see a more efficient use tation in the GTM software delivery system modules; the advantages of a of “big data.” As more and more global model. While there is clear movement paperless process; and the more flexible trade management processes get auto- towards web-based or cloud-based solu- and scalable processes you’ll establish. mated an increasing amount of data will tions, the traditional standalone model be collected. Merely collecting data will has not become obsolete. LM:Any tips to facilitate adoption? not be sufficient, but the data will have Wrobleski: Shippers need to train to be converted into a form that can be LM: What functionalities are the most GTM staff. The role of the GTM prac- used in decision making. desirable for shippers adopting GTM? titioner is growing harder day by day. There will also be a shift in the con- Wrobleski: The first and most Besides stiffer compliance issues, they trol of data. Instead of allowing an out- obvious is improved risk management. also face the task of understanding the side vendor to control all of their data Countries in South America, Middle financial and operational components and then just draw on that passive data, East, and Africa are now part of global of their supply chains and how those more logistics firms are realizing that supply chains and GTM practitioners pillars are integrated. And most come they have to be in control of this data to are less familiar with these regions. to their roles without any advanced manage and dictate how it is used. There is certainly now more reason degrees in compliance, much less the to automate GTM to account for the other facets of GTM with which they —Michael Levans is Group Editorial unknowns of doing business in these might not be familiar. Director of Peerless Media

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It’s easy for shippers to fall in love with an air carrier or forwarder when short-term goals are met, but these vital relationships require a long-term commitment. These two short case studies demonstrate how to succeed.

BY PATRICK BURNSON, EXECUTIVE EDITOR

hile the recent marriages between air cargo shipment had a specific need, not duplicated. carriers has captured headlines, the real story “One of 50 or 60 of our media customers needed his for shippers is still one of “staying the course.” shipments delivered on January 30th to only Gate D of the The fragile nature of business relationships in Mercedes-Benz Superdome at exactly 9 a.m.—any earlier Wthe logistics arena is made evident when major and the crew would not be in yet, any later and a crew of disruptions occur, so it’s edifying to see just how players 40 people would be left standing around without gear to are working together to avoid them. Pairing two narrative work,” recalls O’Connell. “Meanwhile the other shippers accounts from shippers and forwarders makes this point are demanding entirely different services on the same day.” loud and clear. During the four-week period that includes setup and break down for this game, SOS Global was responsible for SOS Global Express: Zero margin for error hundreds of shipments, from pieces as small as a computer Having done business with Southwest before it acquired hard drive to twenty-foot long television set pieces and stag- AirTran in 2011 may have given SOS Global Express a rea- ing. Each individual shipment had its unique place in shap- son to look elsewhere for priority service. But the forwarder ing the overall look and feel of the game for the audiences at soon found that the carrier’s culture had not been compro- home and in the stadium. mised following the deal. Given this complexity, more than one cargo airline must The first real test, said SOS CEO Stephen O’Connell, was be engaged, admits O’Connell. But the carrier with the getting his shippers—some of the leading video and broad- most aggregated set of trade lanes gets most of the business. casting companies in the world—on board for approval. “Like all of our vendor partners, we look for an air carrier “We fill a niche for companies that prefer one contact willing to sign on for the project and commit the resources point, instant access 24 hours a day, 365 days a year, with necessary to ensure its success,” says O’Connell. “Once our true operational control,” says O’Connell. “Problems may team is in place, we begin to lay out a plan that identifies arise with afterhours shipments, the need for damage con- everyone’s part and how they are to play it. Our air cargo trol, or absolute minute-by-minute control over a very sensi- partners are included in the fine details of the plan and we tive shipment.” count on their input to make the plan better.” The most recent example of this logistical challenge In this case, O’Connell found that Southwest Airlines’ came with the 2013 Super Bowl in New Orleans. During operating hours, lift capacity, and key people could be incor- the four-week period that includes setup and break down porated into the master blueprint for the overall project. for this game, SOS Global was responsible for hundreds “The planning and execution is similar to rehearsing a fine of shipments, and thousands of individual pieces compris- orchestra and then performing flawlessly night after night,” ing more than a million pounds of cargo. Each individual he says. “There’s a very narrow margin for error.”

32 LOGISTICS MANAGEMENT | MAY 2013 WWW.LOGISTICSMGMT.COM DAN VASCONCELLOS

Given that SOS has 25 years of experience certainly in 2010 of United Airlines and Continental, shippers had doesn’t hurt. But every game and city has a different setup to choose between staying with their proven provider— and needs, including new security rules every year. SOS whether it be with United or its newly-acquired partner—or Global starts planning as early as November and sets up seek alternatives elsewhere. its onsite team, typically anchored by some of its most sea- For the Esslingen, Germany-based INDEX Group, the soned people. This team is backed up by an operations and main issue was transparency—not a big surprise when one customer service team at headquarters that operates around considers that INDEX is a leading manufacturer of preci- the clock. sion-made turning machines for global engineering and “SOS Global then teams up every year with vendor part- electronics companies. ners that we’ve come to know and trust with such an impor- “Mergers and acquisitions aside, we work with any airline tant project,” says O’Connell. “Some are local to the game that can deliver on promises,” says Jean-Claude E. Toussing, city but most are national partners such as airlines and export purchasing manager for INDEX in Noblesville, Ind. trucking companies.” “Velocity is the goal, but transparency is key. Shipper, for- He adds that SOS expects these companies to “sign warder, and carrier must all have access to the same track- on” for the project and commit the resources necessary to ing and tracing data,” he adds. ensure its success. The sports metaphors don’t end there, According to Toussing, an urgent shipment of custom however. “Once our team is in place, we begin to lay out a machined auto parts destined for factories in Stuttgart was plan that identifies everyone’s part and how they are to play feared to be lost or missing when INDEX was first evalu- it,” concludes O’Connell. “Our partners are included in the ating carriers. Fortunately, they had been working with a fine details of the plan and we count on their input to make freight forwarder who could deliver the most reliable infor- the plan better.” mation available, irrespective of carrier. Freight-Base, a U.S. Customs broker and international INDEX Group: Delivering on promise freight forwarder based in Bensenville, Ill., had proven to be Our second case study demonstrates why “speed dating” is the right fit for the German manufacturer several years ago. a poor way to build air cargo relationships. With the merger “Because Freight-Base and the airlines use variations of the

WWW.LOGISTICSMGMT.COM MAY 2013 | LOGISTICS MANAGEMENT 33 Transportation Best Practices/Trends: Air Cargo

same TMS software, we have back- Strengthening the bond and temperature-sensitive cargo.” up when we absolutely must find the Now that a federal bankruptcy judge Keeping shipper, forwarder, and car- shipping status of our parts,” Toussing has approved AMR’s Corporation’s rier on the same page is OnAsset, an says. “This provides a second layer of plans to merge with US Airways, ship- Irving, Texas-based provider of track- security, too.” pers will be looking for innovative ways ing solutions. The advanced technol- With its own certified cargo screen- to work with the new mega-carrier. ogy directly maps into the immedi- ing facilities and in-house X-Ray and Indeed, this merger will create the ate requirements of intricate supply explosive trace detection equipment, single biggest airline company in the chains involving multiple modes of the forwarder is also able to expedite world. Operating under the American transportation, and is the cornerstone shipment. Airlines name, it will join United Con- of in-house models used by forwarders Jack Groat, president of Freight- tinental, Delta Airlines, and Southwest like Freight-Base. Base, recalls when a test shipment Airlines as carrier leaders capturing According to the consulting firm for INDEX was temporarily placed in more than 80 percent of U.S. reserva- Frost & Sullivan, OnAsset’s partner- limbo because the airline lost track of tions and cargo bookings. And begin- ships with mobile network opera- its status. But because the forwarder ning this month, American Airlines tors ensure that information is trans- uses photos and backup commercial Cargo will provide shippers with GPS ferred efficiently, even in cases of invoices on its web page, the matter tracking and sensor monitoring devices multi-mode transportation. “Targeting was cleared up fairly quickly. as part of its partnership with OnAsset this space and succeeding in it has “The cargo was inadvertently placed Intelligence, Inc. allowed OnAsset to safeguard against in a remote corner of a warehouse,” “These devices can be added to any current competition,” says Rahul recalls Groat. “Without our GPS and domestic and international shipments Vijayaraghavan, a research analyst at other enhancements, we would have to monitor temperature, pressure, and Frost & Sullivan. “The compelling to wait for the airline to find it with humidity, as well as to detect motion benefits of its solution have enabled it just their own resources. But that’s and vibration,” says Matt Maynard, to get more approvals for commercial how a partnership works. We stay on American’s cargo media representa- aircrafts than any other company.” the same page and work things out for tive. “It is designed for shippers who The company’s domestic mobile the shipper.” are booking time-critical, high-value network partners have helped to estab- lish international rate plans with the Air cargo associations partner, too necessary connectivity, thereby easing global adoption of this technology. Nurturing relationships is not limited of aviation, such as security and the en- “Connectivity brings people to busi- to shippers, forwarders, and carri- vironment, and the Secretary General ness, and delivers products to mar- ers these days. They are also crucial and his team have made a clear point of kets,” observes Tony Tyler, director to air cargo associations. The Inter- meeting with us, listening to our views general and CEO of the Geneva-based national Civil Aviation Organization and participating in our events to learn International Air Transport Associa- (ICAO) and The International Air Cargo more about the requirements and con- tion. “Within a few miles of the tarmac Association (TIACA) recently signed cerns of the air cargo industry.” the most remote region can be con- a Declaration of Intent to strengthen Benjamin says that ICAO has been nected to the global community,” says cooperation on technical matters. grateful for the input and advice re- Tyler. “And that could mean access to The declaration was officially signed ceived by TIACA as they have begun vital sources of health care and emer- in Dallas at TIACA’s 2013 Executive to develop closer ties with the air cargo gency assistance; jobs selling products Summit by the association’s Chair- sector. “With this agreement now sup- in global markets; or opportunities for man Michael Steen and the ICAO’s porting our future cooperation across education, exploring the world or cre- Secretary General Raymond Benjamin. a wide range of shared priorities, ICAO ating business.” Under the terms of the new agreement, will be focusing its near-term efforts Tyler says that air cargo carrier con- ICAO and TIACA will work more closely on evolving our regulatory frameworks solidation should not be regarded as on air cargo and mail security and facili- with states and industry stakeholders, a threat to shippers, or does it repre- tation, accelerating the evolution from including TIACA, toward the greater sent a reduction of choice. Indeed, paper-based to electronic processes, liberalization of air cargo services,” he he contends that with meaningful air environmental stewardship, the liber- says. cargo partnerships, every flight brings alization of market access for air cargo This new commitment by ICAO and with it enormous possibilities to make services, and air cargo safety. TIACA follows a joint communiqué for our world a better place and gener- “This is another highly significant “Enhanced Cooperation in the Field ate wealth—“both material and of the breakthrough in the new era of col- of Air Cargo Transportation” issued at human spirit.” laboration between our industry and TIACA’s 26th International Air Cargo leading regulatory bodies,” says Steen. Forum & Exposition in Atlanta. —Patrick Burnson is Executive Editor “ICAO is taking a lead in critical areas —Patrick Burnson, Executive Editor of Logistics Management

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Cloud-enabled transportation “control towers” are transforming logistics and supply chain performance. Our consulting team explains how shippers can realize benefits from true end-to-end supply chain integration that can be operated through an optimized transportation service network.

BY BROOKS BENTZ, RODDY MARTIN, BILL KAMMERER, AND TUSHAR NARSANA

here’s increasingly more noise chain management is a critical strategic trading partners. In many instances, it and dust around the strategic weapon in top-line revenue growth, cost was a one-to-many relationship where virtue of the “transportation containment customer satisfaction, and the “many” sometimes numbered in the control tower” concept. It’s not repeat business. thousands. In the days before the Inter- T all that new; in fact, back in r
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QBTT- The problem many shippers encoun- prise-wide, end-to-end supply chain ing nod to managing supply chain per- tered with this product, and other simi- management where this sort of capabil- formance in the past have had epipha- lar ones, was the difficulty in creating a ity is needed most. Examples are centers nies and now recognize that supply comprehensive network of connected that managed rolling assets, such as rail

36 LOGISTICS MANAGEMENT | MAY 2013 WWW.LOGISTICSMGMT.COM comes to management

car and private truck fleets, or load makes sense to find an alternative, more tion,” which in English is Facebook for control centers that managed domestic efficient path to follow, employing the logistics. truckload business. best enabling decision-support technol- Instead of the individual con- ogy and the most skilled resources. nections, companies can go out and Building the tower What’s so different about this? Let’s “friend” their ocean carriers, truck True, end-to-end, global supply chain take a brief look back. Perhaps the lines, railroads, airlines, 3PLs, who visibility remained elusive, although if seminal game-changer was Steve Jobs. are already on the platform. It can be you read through back issues of LM you He envisioned a new world where the faster, cheaper, and provides more will see that for most of the last decade applications and data were device- timely, accurate information. supply chain visibility and event man- independent. It didn’t matter whether This capability, coupled with other agement has topped the list of “must you had a PC, an iPhone, an iPad, or enablers, such as cloud-based TMS haves” for logistics professionals. any of a number of other devices. The solutions, as well as similar capabili- So what’s the answer? We put forth apps and data didn’t live on the device, ties for sourcing multimodal transpor- several possibilities: Our view is that they lived in “the cloud.” tation capacity, dynamically routing the transportation control tower con- Next in line of seminal game- and scheduling shipments, auditing cept can provide tangible strategic ben- changers was Mark Zuckerberg who, and paying freight charges, managing efit. But how do we operationalize it? with the advent of social networking, claims, and mining business intelli- There isn’t a silver bullet just yet where helped chnage the way communica- gence to track performance and man- you can go to an app store and down- tions between people worked. Facebook age trends, is what really can empower load a plug-and-play app—but we are made connecting with others the work the transportation control tower of the getting close. of a click. future. A possible starting point for ship- So what’s any of this got to do with There are at least three models on pers, large and small, is to assess the logistics management and transpor- how to go about this, each with mul- current state of their supply chain tation control tower concepts? First, tiple flavors: management capabilities objectively transportation control towers func- Transportation-in-a-Box: This is and with a clear eye. This is some- tion when they are fed timely, accu- a business process outsourcing (BPO) times done through the aegis of a rate information across the entire play, where the company teams with a neutral third party, but it needn’t be. supply chain. Second, true supply 3PL to hand over the operational func- The trick is mapping out what the chain visibility and event manage- tions of logistics and strategically man- supply chain looks like now, the capabil- ment works most efficiently and age the on-going operation, rather than ities that exist to manage it, and how it effectively in a many-to-many eco- a tactical approach. performs. You can then put that up system. Transportation Managed Ser- against what the “should case” is for It can be terribly difficult, time con- vice: This is a hybrid model that supply chain performance and what suming, and expensive for every shipper involves handing over logistics func- it will take to get there. The gaps will to individually go out and connect with tions for a shorter timeframe, like an always leap out and become visible. hundreds or thousands of many of the incubation period, to a third party and A next step is to examine what it exact same service providers and ven- then transitioning it back in-house takes to close those gaps. The age of dors that everyone else is connecting to. post hiring along with stabilization and making everything yourself may have What does make empirical good sense, training of their in-house team. For passed. A smart play is to sort out what however, is employing what we refer to example, perhaps the organization is makes sense to do in-house and what as the “multi-tenant cloud-based solu- operationally excellent, but does not

WWW.LOGISTICSMGMT.COM MAY 2013 | LOGISTICS MANAGEMENT 37 Supply Chain Technology

Air Transportation-In-A-Box

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Control Tower Network Support Functions

Transportation Network Capacity Dynamic Operations/Routing/ Compliance/Administration Sourcing & Optimization Scheduling & Optimization & Business Intelligence

manage its sourcing functions as well as leaping off the high-dive. completed in 1858. The 10 days it used it could—or, it does that well, but is less Cons: It often sub-optimizes results to take for communicating trades was successful at claims management and and takes substantially longer to get to reduced to minutes. We are again on the freight payment. the end-game. cusp of transformational change: those Advisory/Self-Service: This is who can look ahead and take advantage where the shipper intends to keep all Advisory/Self-Service of it will lead the pack. of the logistics functions in-house, Pros: For those who want to control The fact is that implementing the but wants or needs third-party advi- everything internally, it can be a much core elements of the transportation sory services to help stand up the more secure environment and perceived control tower, using any of the models capabilities they aspire to achieve. to be less risky. It can also be much less outlined here, can deliver two major Here are the pros and cons of each: disruptive to the status quo, which isn’t elements that rebound to the credit always a bad thing if the operation is sub- and vision of the activist who makes Transportation-in-a-Box /BPO stantially on track. Unbiased third parties them happen. Pros: There is a lengthy list of positive provide two core valuable services: First, First, supply chain performance attributes, but a compelling one is the they can objectively look at the current can be significantly and demonstrably ability to comparatively, rapidly, and eco- state and bring to bear industry-leading enhanced, which can also make the nomically move to cloud-based, leading- practices from others; and second, they life of the logistics professional easier edge technology solutions, without incur- can often be relied on to push the enve- and better. And second, taking full ring large expenditures of scarce capital lope a bit further in transforming the busi- advantage of the concepts, approach, dollars and enduring the sustained pain ness and challenging prevailing wisdom. methodology, and tools we discussed of conventional implementation. It can Cons: Third-party advisors are not may deliver significant value in terms also be a means to add experienced capa- inexpensive; frequently being viewed as of benefits and cost reduction, which bilities to augment the existing profes- causing interference or assumed to be can affect shareholder value and help sional staff and hold a third party, who demonstrating a lack of trust in the cur- fund other initiatives. does this for a living, accountable for the rent organization to do its job. As a result, The value of true end-to-end sup- business outcomes, possibility through a some very powerful recommendations ply chain integration, enabled by vis- gain-share agreement. and advice have gathered dust due to a ibility and event management that can Cons: It’s often a significant lack of commitment to change. be operationalized and operated by an cultural shift. A common reaction is optimized transportation service net- “you’re calling my baby ugly” when, in Putting it in context work, is of a magnitude that cannot be fact, the goal is to give the “baby” a dif- The pace of change is accelerating, overlooked or ignored. ferent set of tools to do the job better. driven by rapid advances in technology. Finding new and better ways to leverage Brooks Bentz (brooks.a.bentz@accenture. Transportation Managed Service these increasingly facile tools and capa- com), Roddy Martin (roderick.martin@ Pros: It can be less of a culture war; bilities is essential. accenture.com), and Bill Kammerer it can serve as a proof of concept—it’s Think about the trading of securities ([email protected]) more like entering the pool from the between Europe and North America are Managing Directors at Accenture. shallow end and wading, at your own and how it was revolutionized when Tushar Narsana (tushar.narsana@accen- pace, to the deep end, rather than the laying of the transatlantic cable was ture.com) is an Accenture Senior Manager.

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Everything you’re looking for, any way you want it. Visit supplychain247.com today. Global Logistics: Cross-Border Strategy U.S./Mexico Trade: 7 steps to close the gap

U.S. importers and exporters are now looking to draw the most value possible from the fertile Mexican market while remaining acutely aware of the risks involved. Our trade compliance expert offers steps to improve your cross-border activity both today and in the future.

BY SUZANNE RICHER, CONTRIBUTING EDITOR

he U.S. is only two years continues to grow 5 percent annu- participation in the Importer Self- away from a five-year goal ally and offers exceptional opportuni- Assessment (ISA) compliance program. to double exports, hoping to ties through the North American Free These programs have influenced revive the economy and cre- Trade Agreement (NAFTA), while similar initiatives in both Canada and T ate two million jobs along the remaining aware of areas of risk that Mexico. The C-TPAT equivalent pro- way. And if you’re keeping score, last may impede trading capabilities both gram in Canada is Partners in Protec- year cross-border activity with Mexico here in the U.S. and Mexico. Strategi- tion (PIP), while in Mexico an eligible accounted for over $216 billion dollars cally, there are several steps a company firm may join C-TPAT or the newly in U.S. exports and over $277 billion needs to take in order to improve their developed Nuevo Esquema de Empre- in imports. cross-border activity. sas Certificadas (NEEC). For trade With a shared border of just over compliance, the ISA equivalent in 1,950 miles and representing our sec- 1) Recognize trends in customs Canada is the Canadian Self Assess- ond largest export market, Mexico is transactions ment (CSA) program, while Mexico a critical part of the U.S. job creation The past 10 years have seen major is busy developing their Ventanilla plan attributed to export shipping. But changes in the way U.S. Customs Unica, or Single Window for the col- at the same time, the U.S. struggles and Border Protection (CBP) both lection and analysis of trade data. with enforcing immigration policies views and manages U.S.-based import- The U.S. continues to lead the through increased border protection- ers and exporters. Through voluntary change that affects a company’s ship- ism, with new horse patrols, fencing, cargo security and trade compliance ping process with the creation of 10 and around-the-clock surveillance by programs, CBP labels companies as Centers of Excellence and Exper- drones. Trusted Accounts if they agree to join tise (CEE). These industry-specific For U.S. importers and exporters, the Customs-Trade Partnership against centers will oversee the clearance of the challenge is how to draw value Terrorism (C-TPAT) cargo security entries into the U.S. through a single, from this incredible market, one that program, which opens the door to specialized import team dedicated to

40 LOGISTICS MANAGEMENT | MAY 2013 WWW.LOGISTICSMGMT.COM Participating in C-TPAT on both sides of the Mexican border will improve clearance times, while chang- ing trends within CBP will support multiple site applications and review processes through a single site. 3) Master the Ventanilla Unica Similar to CBP’s Center of Excel- lence and Expertise (CEE) functional- ity, Mexican Customs has developed a modernized approach to clearance capabilities through the single window concept, or Ventanilla Unica (VUCE). Data collected from Mexican import- ers/exporters will be captured in this single repository with information shared across 30 stakeholders includ- ing government agencies and carriers. Mexican importers are required to update their electronic process- ing capabilities and file their invoices, abbreviated as COVE via the VUCE system. This electronic sharing of shipment data is intended to reduce costs and paperwork, though not elimi- nate it, and allow for greater efficiency in the clearing process. The unique number assigned to each transmission will then be used by the customs broker to release the final release, which is known as the pedimento. While Phase I of the imple- mentation process was initiated in improving transparency within indus- a company’s North American supply mid-June 2012, companies are still tries and increasing enforcement for chain operations. working to perfect their data sharing non-compliance. U.S. companies that participate in efforts and ensure a smooth process at Most importantly, with limited C-TPAT and also have Mexican plants the border. resources under the sequestration, may leverage centralized procedures to CBP has confirmed that priority will support their Mexican plants’ C-TPAT 4) Identify and report savings be given first to companies who part- applications and secure fast lane clear- through NAFTA ner in both C-TPAT and ISA, followed ance opportunities in the process. While the Ventanilla Unica offers by those only in C-TPAT, and then In mid-to-late 2013, CBP will intro- cost savings advantages in processing, finally all other firms that choose not duce an updated C-TPAT web portal additional savings are still obtainable to partner with CBP. that will allow a U.S. C-TPAT partici- through the qualification of products pant to create a single company profile, eligible for NAFTA. The most difficult 2) Leverage these programs for pulling in all of their related C-TPAT aspect of trading with Mexico, how- cross-border transactions accounts. In doing so, the number of ever, is acknowledging that all prod- In light of these changes and their C-TPAT validations will be limited to ucts made or purchased in the U.S. do impact on border-crossing capabilities, a single site, thus reducing the amount not necessarily qualify for NAFTA. strategically leveraging participation of work as compared to preparing mul- Qualifying product for this trade in these programs would greatly affect tiple sites for the validation process. agreement requires a very strategic and

WWW.LOGISTICSMGMT.COM MAY 2013 | LOGISTICS MANAGEMENT 41 Global Logistics: Cross-Border Strategy detailed program to classify the prod- uct being exported and then confirm through NAFTA rules of origin that the product qualifies for conditionally Mastering Mexico’s advance trade data single window approach, under duty-free treatment. While NAFTA the Ventanilla Unica, will expedite U.S. exports and provide greater visibility remains the key trade agreement upon of supply chain metrics as part of the process. which most other free-trade agree- ments are based, it remains challeng- ing for companies to undertake the trade agreements using similar rules soon to celebrate its 20th anniversary necessary steps to confirm that their including the Dominican Republic- since implementation, many com- products actually qualify. Central America-U.S. Free Trade panies have yet to master its rules What’s stopping companies from Agreement (CAFTA-DR), and the and requirements. Companies with taking these strategic steps? Most U.S.-Singapore, U.S.-Korea, and U.S.- best practices place strong emphasis often, it’s the lack of knowledge of Australia Free Trade Agreements. on continuing education focused on potential savings attributed to the free- both classification and qualification trade agreement initiative followed by 5) Verify eligibility, reduce risk of product lines as part of their efforts improperly trained personnel. In order In light of these potentially high-duty to legally reduce duty fees and avoid to evaluate products for NAFTA quali- savings, it’s important to confirm that unnecessary penalties from future fication, companies must have a strong your customs compliance team has audits. knowledge of classification rules as verified the necessary documentation well as NAFTA origin rules. Hiring to support your NAFTA claim. 7) Take a fresh approach or developing these skill sets requires All free trade agreements are con- It’s said that the longer you know a strong management support and dedi- ditionally duty free. However, NAFTA customer the more likely it is that you cated training. has a unique audit aspect; that is, any don’t know anything about them at all. Despite the hurdles for developing exporter or producer may be audited While this initially may seem unlikely, NAFTA and Free Trade Agreement for their NAFTA program by any one it demonstrates that in order to keep (FTA) expertise, the programs bring of the three governments—Canada, all relationships fresh and updated, strong benefits to companies. For Mexico, or the U.S. Equally as impor- one must constantly communicate, exporters, signing a NAFTA certifi- tant is the need to document and question assumptions, and research cate allows their customers to legally maintain your verification for five years the changing landscape. Customs declare a lower, preferential duty rate from the date of import or export. practices in both the U.S. and Mexico in the receiving country—making the In the past two years, Mexico has offer U.S. companies an opportunity to exporter’s product more competitive aggressively audited U.S. exporters reassess their land border activities and on pricing than exporters not qualify- for their NAFTA verification process. reconsider how bottom line savings ing their product for NAFTA. Many of these reviews have been ini- can be achieved through updated pro- For an importer, cost savings asso- tiated with a request for documents grams and a renewed stance towards ciated with NAFTA-qualifying prod- from 2008 or 2009 and are required to initiating best-in-class programs. ucts can be significant, resulting in a be translated into Spanish before sub- Participation in C-TPAT and ISA major impact on the company’s bottom mission to the Mexican authorities. will provide U.S.-based companies line. Working closely with their sup- These reviews are lengthy, lasting up the highest level of partnership with pliers, importers are generally seek- to a year before closing or settling any CBP and expedited clearance process- ing NAFTA certificates for qualifying open issues. Companies lacking proper ing capabilities. Mastering Mexico’s product at the start of each New Year, supporting documents may see a rever- advance trade data single window seeking to take advantage of reduced sal from their original duty-free status approach, under the Ventanilla Unica, duty benefits all year long. to a dutiable value. This requires not will expedite U.S. exports and provide Over 20 percent of all of the survey only payment of past duties due, but greater visibility of supply chain met- participants from a 2010 white paper also interest on those duties as well rics as part of the process. by Customs and Trade Solutions, as any potential penalties that may be Benchmarking your company’s Inc. recognized savings of $50,000 to assigned as part of the process. trade initiatives against these practices $500,000 annually due to NAFTA or with a continued focus on education other FTA qualifications—a strong 6) Tighten training programs, and verification of your trade lane pri- indicator for the company to continue recognize savings orities will ensure that your firm is suc- to pursue FTA programs. Despite these warning signs, U.S. firms cessfully managing this market for the As a best practice, companies continue to export without adequate greatest savings and efficiency in your should build expertise on trade agree- documentation to support their NAFTA cross-border supply chain. ments that use similar rules of origin claims. Qualifying product for any trade programs such as tariff-shift concepts. agreement first requires a strong under- Suzanne Richer is President, Customs & Knowledge used to qualify product for standing of classification rules. Trade Solutions, Inc. and a Contribut- NAFTA may be transferable to other With the NAFTA trade agreement ing Editor to Logistics Management.

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WranglerWorkwear.com Warehouse/DC Management: Lift Truck Maintenance Lift Truck Fleet Maintenance: Slow and steady cuts the cost

Recognizing the potential for long terms savings, many fleet owners are keen to jump into a fleet maintenance program. However, they soon learn that there are no substitutes for goal setting, clear communication, and patience.

BY JOSH BOND, EDITOR AT LARGE

carpenter can only do so ing creative options for outsourcing Establishing a foundation much with a broken ham- maintenance piecemeal or entirely, The first step is to articulate goals. The mer. Then again, if he has often for a flat rate, providing custom- number of things that can impact fleet an endless supply of ham- ers with predictability and comfort. costs—from uneven floors to process Amers, or a dedicated hammer Meanwhile, other users have entered improvements—can result in an end- repairman nearby, he might not be too into such agreements only to find less scavenger hunt in the absence of a bothered to care for them. interruptions in productivity while clear end game. Lift trucks, as critical to a distri- wondering whether they are paying too Next, simply start measuring parts bution center (DC) as a hammer much. and labor maintenance costs per lift to a woodworker, were for a long Logistics Management has learned truck, both for routine and unplanned time treated with similar disregard, that the true secret to achieving an maintenance. This requires nothing expected only to swing hard, drive optimal lift truck fleet maintenance more complicated than an Excel spread- production, and be close at hand program is to take things slowly. sheet. The data should then be overlaid when needed. Today, few operations According to our experts, the process with the lift truck’s utilization. “Once are content to pour money into equip- of driving cost out of a fleet in motion you know the operating cost and uti- ment and its maintenance just for the is not a matter of flipping a switch. lization, then you can start looking at sake of keeping it around. And unfor- “Lots of people want to go from trends,” says Mike McKean, fleet man- tunately, few operations have any real zero to 100 miles per hour, rolling out agement sales and marketing manager sense of what it actually costs to do technology and making big changes,” for Toyota Material Handling USA. “If a just that. says Brian Markison, senior manager lift truck is low-cost and low-utilization, Technology and data, whether of national accounts at UniCarri- do you really need it? If it is high, is it grafted onto a fleet or built-in, have ers Americas Corp. [Nissan Forklift, time to replace it?” proven to be valuable tools for help- North America recently merged with Replacement cycles are critical to ing lift truck fleet owners identify and TCM America to form UniCarriers controlling maintenance costs, but curb a fleet’s costs. Some users have Americas]. “But depending on what these two elements have been histori- collected mounds of data only to end you learn along the way, it can take cally controlled by disconnected silos up with piles of questions. Lift truck years. When a doctor takes care of a in an organization. Many companies manufacturers and third-party service patient, they don’t go in and change all have done a very good job of defining providers have responded by develop- the medications at once.” the acquisition cost component of an

46 LOGISTICS MANAGEMENT | MAY 2013 WWW.LOGISTICSMGMT.COM asset’s total cost of ownership, says Pros and cons of service Nick Adams, business development agreements manager for the Mitsubishi Caterpillar Companies increasingly prefer to Forklift America fleet services group. outsource fleet service, but making “That is good old fashioned purchas- the transition away from decades ing methodologies. But once they’ve of in-house fleet maintenance can purchased, maintenance becomes be challenging. The cultural legacy secondary,” he says. “At the corporate of addressing issues “on our own level, the thinking is that the individ- terms” can lead to all sorts of prob- ual plant can worry about that.” lems. A technician scheduled to The cost per hour of ownership and perform a planned maintenance the cost per hour for maintenance are (PM) might be turned away by therefore rarely evaluated side by side. a user too busy to spare the lift The combination produces the true truck, or a fleet manager might per-asset cost per hour, says Marki- feel compelled to review son. “The more hours you put on a lift the details of each service truck, the lower your cost of ownership invoice even though he’s per hour,” he says. “But there is a point paying his service provider where the per-hour maintenance costs to do the same thing. of aging equipment will meet the other “Those with suc- curve, and it’s no longer wise to retain cessful in-house that piece of equipment.” maintenance It’s often wise to designate a person, either in-house or from a third party, to be responsible for coordinating opera- tions and purchasing while working to break down the imaginary boundar- ies between each silo. Among other things, a holistic approach can prevent well-meaning cuts to capital expense budgets that result in skyrocketing maintenance costs.

WWW.LOGISTICSMGMT.COM MAY 2013 | LOGISTICS MANAGEMENT 47 Warehouse/DC Management: Lift Truck Maintenance

operations know the best way to drive down costs is to control each service event,” says Patrick DeSutter, director of fleet management for Yale. “If you buy guaranteed maintenance up front you’ve got comfort in the budget, but also the element of risk that you might have spent more than necessary.” “They can have all the comfort in the world with a great service pro- vider, the right technician and the right parts,” says McKean, “but unless the customer understands that spend and the utilization, they’ll never under- stand their cost per hour.” C.D. Watson, product support man- ager for Combilift USA, says that the move to full maintenance contracts with a fixed rate often seems to help customers perpetuate their bad habits. “They’re leasing equipment and rotat- If fleet maintenance costs are brought under control, they can be tied to cost ing, trying to keep equipment new and per unit produced or shipped. control maintenance costs,” says Wat- son. “But that’s where operators who don’t take ownership of the lift trucks haul, which, again, can be a multi-year fleet’s performance, according to Scott end up beating them up, comfortable process. With comprehensive and pre- Craver, product manager, business in the knowledge that new equipment dictable data in hand, the disciplined and information solutions for The is on its way.” customer can enter into the right agree- Raymond Corp. “They’ll know actual The ideal place for a flat-rate arrange- ment for the operation. utilization before PMs, and they can ment is toward the end of a fleet main- Similarly, the service provider will monitor abuse while boosting account- tenance and fleet management over- be assured by the consistency of the ability,” he says. “Since it reduces the Warehouse experiment delivers peak performance 3PL merges LMS and fleet management for unprecedented visibility into fleet costs ENCO, A THIRD-PARTY LOGISTICS (3PL) dards. Equipment usage, time traveled, warehouse cost, says Bob Simon, di- GPROVIDER, manages 38 million square number of impacts, and utilization rates rector of process solutions at GENCO. feet of warehouse space across 130 were not being accurately tracked, add- “We attacked the biggest elephant in operations for customers including many ing to the lack of accountability for lift the room and decreased a few percent- Fortune 500 companies. After partnering truck operators. age points in labor costs,” he says. with a labor management system (LMS) The test facility deployed a fleet of “The total turned out to be a significant provider and a provider of lift trucks and lift trucks (The Raymond Corp.) in 2009, dollar savings for us and our customer.” fleet management systems, the com- including 26 counterbalance, reach, rider, Over the course of the trial period, the pany was able to merge the two systems and orderpicker units. The supplier’s fleet company reduced labor costs by nearly to reduce costs, increase efficiencies, management system was merged with a 10 cents per unit, decreased impacts, and improve productivity. cloud-based LMS (Easy Metrics) to pro- resulting in savings on time and equip- The team chose a world-leading busi- vide a comprehensive view of operations. ment repair, and reduced pick labor by ness process and document manage- Among other functions, the fleet man- 12 percent. ment company as its focus facility for agement system verifies that only ap- “This whole process was a kind of the project. The 410,000 square-foot propriate personnel are authorized to testing ground for all three companies,” facility loads and unloads as many as operate each lift truck and that OSHA- Simon says. “I think everybody was con- 25 tractor-trailers each day and had mandated checklists are completed prior fident that it would work. It was just been experiencing many challenges with to operation. This complements the LMS a matter of how well. We are happy visibility from both a labor management database system, which supplies com- with the outcomes, we are happy with and operational standpoint. prehensive data on individual and group the benefits that we’ve seen and we’re It was unclear where labor dollars performance. All of this information is excited about taking this to our other were being spent and how employees combined in one streamlined report. facilities.” were measuring up against labor stan- Labor accounts for 70 percent of —Josh Bond, Editor at Large

48 LOGISTICS MANAGEMENT | MAY 2013 WWW.LOGISTICSMGMT.COM Imagine the other wonders they would have created with a Hyundai.

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dealer’s costs, they are then in a posi- With comprehensive and predictable tion to pass those savings back to the maintenance data, a facility can pay customer.” by the hour for lift truck utilization.

Right tools for the job eet costs cannot be underestimated, a There is no shortage of tools and tech- dds Shephard. If operators are involved nologies that can help measure main- in the evaluation of equipment before- tenance costs. But none of them are purchasing, it can generate pride and a se any good unless action is taken after nse of ownership, in addition to boost- the collection of data. ing productivity. “If an operator feels val- UniCarriers’ Markison offered ued then they will use a keen eye to insp the example of a customer who ha ect and report,” says Shephard. “Otherwi d a problem with impacts and was re- se, they’ll only focus on the things that placing two overhead guards each mo are absolutely critical to safety, if tha nth as a result. After installing imp act monitors, they were able to reduce .” What the future ho the number of collisions to virtually ze lds With thght maintenance program, ro. A different customer deployed imp the right technology, and an engaged act monitors that locked out the trucks workforce, fleet owners might find on impact—they ultimately gave the re themselves, for the first time, with a set access code to each operator to av truly accurate picture of a fleet’s cost. oid the hassle of addressing it on the flo McKean says that a good way to or. “The success of a technology is justify fleet maintenance programs is not because you put the device on the l to draw a correlation between the cost ift truck, it’s because you managed w of the lift truck fleet and the activity hat came out of the device,” Markison sa of the facility. “Instead of being viewed ys. Before and after deploying through the lens of capital expense, the any technology, Jim Shephard, foun fleet spend begins to speak to bottom der and president of Shephard’s Industr line profits,” he says. “That’s kind of a ial Training Systems, encourages cu- ty. “One of the most common rep far-fetched thought. Over the years, it stomers to perform a root cause analy- air codes we see is shrink wrap caught just hasn’t been looked at that way.” sis of observed maintenance costs. “I in a radiator,” says McKean. “You’d th With precise data, customers and see people chasing those costs, but t ink it would be low-hanging fruit to look service providers will be able to tailor hey don’t have an avenue to go out and at housekeeping, but we see it over equally precise service arrangements. see what’s broken,” Shephard says. “O- and over again. Avoidable damage co “‘Pay by the hour’ has never really taken therwise, they’re just logging problem mes right off the bottom line and is direc off, because when you start invoicing s.” Generally, in an unchecked env- tly proportional to operator trainin based on usage, you need to be sure ironment, there’s a lot of low-hanging fr g.” Housekeeping can be a signific you can cost-effectively collect very uit before any investment is needed ant source of damage, DeSutter agre accurate data,” says Adams. “Built-in in additional technology like telemati es, but it’s not just about picking up shr telemetry is making that much more cs, impact monitors, or electronic c- ink wrap and pieces of pallets. It can a affordable. We’re on the cusp of hourly hecklists, says Yale’s DeSutter “You’ve got lso have to do with the condition of plans being a real mainstay instead of a to take those things on almost surgica the floor in the facility as well as g nifty concept.” lly based on where you know your co aps between dock plates. “It’s amaz- Already, says Craver, the tendency sts are,” he ad ing what an ounce of prevention can do is toward a convergence of information in those cases,” says DeSutt systems, with integrated systems direct- s. The operator and the cult er. As with uneven floors and ot ing an entire warehouse operation. ure Fleet maintenance is not just ab her environmental factors, the operat “With maintenance, vehicle monitoring out the equipment, but those who sp ors are more often not to blame for a- systems, labor management systems, end their workday using it. “If you’re voidable damage to equipment. “About and warehouse management systems, optimizing your fleet,” says Adams, “t 95 percent of the time I’m brought in the industry has the ability now to build hen you’re optimizing your labor force. to train operators there’s a process is bridges between all these islands, bring- ” A truly optimized workforce should sue that is the source of the problem t ing all that data to the manager’s desk- be part of a facility culture that pla hat they think training alone will addres top or smartphone,” he adds. “You don’t ces an emphasis on training, feedba s,” says Shephard. “Too many think t have to wait 90 days for a report that ck, and housekeeping—all of which hat the operators are the problem, is a snapshot of a time that’s already can impact on maintenance costs as w as opposed to what’s really going o passed.” ell as productivi n.” The impact of labor morale on fl —Josh Bond, Editor at Large

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Taking control of reverse logistics

Companies can no longer afford to treat BY DALE S. ROGERS, RON LAMBKE, AND JOHN BENARDINO reverse logistics as an afterthought. Our team of experts offers these practical hat does not sell, is entering the end of its life, insights to help logistics and supply or has been returned due to buyer’s remorse is chain managers build an effective now generally understood to be a critical part reverse logistics program inside their of product life cycle management. Yet this has not always been the case. organizations. Historically, most of the attention paid to product Tmanagement has focused on the introductory phase or on the volume-shipping portion of the product life cycle. The leaders have greatly broadened this perspective. They know that the difference between a product’s suc- cess (and profitability) and failure often depends on how the end of life is managed. The leaders understand, too, that the business impor- tance of taking good care of consumers. They know that customer satisfaction holds the key to long-term success and that enabling them to return products without pen- alty is a big part of the equation. The practice of customer returns isn’t really new (see accompanying sidebar “Sears and JC Penney—Pioneers of Customer Returns,”on page 54), but it has become much more cost-efficient in the top-performing companies. Over the next few pages we aim to make the case for building an effective reverse logistics program in your organization. It describes the importance of this key com- ponent of supply chain management and outlines how reverse logistics differs from forward logistics. We then describe some of the key considerations in advancing a building a reverse logistics competency and then list key metrics that need to be put in place. Finally, the article

52 LOGISTICS MANAGEMENT | MAY 2013 WWW.LOGISTICSMGMT.COM WWW.LOGISTICSMGMT.COM MAY 2013 | LOGISTICS MANAGEMENT 53 Reverse logistics

offers some practical steps that read- According to the Reverse Logistics on a pallet are typically identical and ers can take to build momentum for a Association, the volume of returns stacked in neat rows, and they arrive at successful reverse logistics program in annually is estimated at between $150 the distribution center or retail outlet their organization. billion and $200 billion at cost. This like clockwork. represents approximately 0.7 percent The reverse flow is different in a REVERSE LOGISTICS: of GNP and 6 percent of the Census number of ways. First, product arrives IMPORTANT AND DIFFERENT Bureau’s figure of $3.5 trillion total whenever customers decide to return Companies can no longer afford to treat U.S. annual retail sales. It has been an unwanted item, or a retailer decides reverse logistics as an afterthought. It estimated that supply chain costs asso- to pull slow-moving product, or a man- needs to be a core capability within ciated with reverse logistics average ufacturer institutes a packaging change, the supply chain organization. For between 7 percent to 10 percent of cost or any number of other possible causes. years, most firms paid little attention of goods. Second, the product is not all in new to returns. That has changed as com- Capturing the potential benefits condition. Third, much of the packag- panies increasingly realize that under- begins by clearly understanding the ing is damaged or shelf-worn. The end standing and properly managing their nature of reverse logistics. First off, result: the company must look at each individual item and make a decision as to its disposition. As every good supply chain manager knows, the fewer times you touch an item—and the shorter and cleaner the process—the better the DRIVERS OF REVERSE LOGISTICS result. The drivers of reverse logistics poli- cies and practices will differ among organizations, in large part depending on the perceived importance of this activity to the business. In many com- panies, reverse logistics still is not considered very important—though as we said this is changing. In some organizations, in fact, it is actually viewed as an embarrassment. This could be the case, for example, where merchandisers responsible for buying product that did not sell well to the consumer are in charge of man- aging those returns. Often, they resist taking the hit of unsold and obsolete merchandise. reverse logistics cannot only reduce it is very different from forward logis- Because writing down the book costs, but also increase revenues. It can tics. Retailers and manufacturers value of the slow-moving inventory also make a huge difference in retain- design supply chains to quickly and and moving it to the secondary market ing consumer loyalty and protecting the efficiently send a continuous flow of is an admission that the purchase was brand, as we explain more fully below. product from production facilities unsuccessful, firms tend to postpone Just how big is the opportunity? to retailers’ shelves. All of the boxes the decision. The products in question Sears and JCPenney—Pioneers of Customer Returns

he late 19th century saw two of the nation’s most historic risk of shopping at Sears or JCPenney. This meant that their retailers emerge, Sears and JCPenney. Both evolved stores were likely to attract a long-term consumer because the Tfrom very simple roots to become retail powerhouses. risk associated with shopping there was reduced. It was safe to Sears started in a small train station in Minnesota, while buy something from Sears or JCPenney because the consumer JCPenney began as a tiny general store in Kemmerer, Wyo- knew that if it didn’t function well, or it was the wrong size, or ming. Both of these retailers operated on a then-innovative it just didn’t work, they could return the product and get their business philosophy: an open, liberal return policies where money back. consumers could bring products back with no penalty. For these two pioneering retailers, taking back product from This innovation, which was designed to increase customer consumers was a smart marketing move that over the years satisfaction, did more than that. It actually reduced consumer consistently translated to business success.

54 LOGISTICS MANAGEMENT | MAY 2013 WWW.LOGISTICSMGMT.COM Reverse logistics

end up losing much more of their Differences Between Forward and Reverse Logistics value than if the decision to liqui- date the inventory was made more Forward Reverse quickly. In addition to corporate per- • Product Quality Uniform • Product Quality Not Uniform ceptions, product attributes are a • Disposition Options Clear • Disposition Not Clear major driver of reverse logistics. • Routing of Product Unambiguous • Routing of Product Ambiguous The first, and often most impor- • Forward Distribution Costs More Easily Understandable • Reverse Costs Less Understandable tant attribute, is the quality of • Pricing of Product Uniform • Pricing of Product Not Uniform the product being returned. Items • Inventory Management Consistent • Inventory Management Not Consistent that appear to be first quality are • Product Life Cycle Manageable • Product Lifecycle Less Manageable more likely to be worth saving that • Financial Management Issues Clearer • Financial Management Issues Unclear those that are not. Product size is another attribute that typically • Negotiation Between Parties More Straightforward • Negotiation Less Straightforward determines how return product • Type of Customer Easy to Identify and Market to • Type of Customer Difficult to Identify and Market to is handled. It doesn’t make sense • Visibility Of Process More Transparent • Visibility of Process Less Transparent to pay high-cost transportation to return a damaged item that is cum- Adapted from: Tibben-Lembke, R. S., & Rogers, D. S. (2002). “Differences between forward and reverse logistics bersome to handle. It’s not a good in a retail environment,” Supply Chain Management: An International Journal. idea to transport a large item 1,000 miles and then throw it away—what- items are returned, they enter back position, and eliminate unnecessary ever the prevailing diesel costs may be. into inventory—and the transaction is touches. The position in the product life- reversed. This reduces the value of the Reverse logistics product has likely cycle is another attribute that drives inventory turns metric, which is typi- spent a great deal of time moving returns management strategy and tac- cally used by management as a measure through the forward and reverse sys- tics. Disposition of a mature product of the health of inventory management tems. The longer it continues to stay in that is nearing the end of its lifecycle within the firm. the system, the more its value is likely will likely differ from that of success- The seller needs to find an appropri- to decline. (As one executive told us: ful new product introduction. Another ate secondary market that will speed “This is not like fine wine. It does not important attribute is price point. If the up the time in which some value can get better with age.”) Already dam- product is low cost, then a lengthy deci- be gained from the inventory they had aged products or packaging are likely sion process around its disposition is hoped to sell. As is the case with for- to become further damaged the longer counterproductive. ward logistics, financial flows typically they are in the system. A fifth driver of reverse logistics is determine the structure of the reverse Products with any kind of technol- the company’s “go-to-market” strat- logistics flow. One recurring problem is ogy component to them are losing mar- egy. This usually relates to the chan- that managers are often measured on ket value with every passing month. As nels the company uses to connect metrics that suboptimize the structure a result, companies must minimize the with its customers. It also incorpo- of the reverse logistics flow. time product stays in the reverse logis- rates supply chain and marketing pro- tics system. The more quickly an item cesses that guide how the company MANAGEMENT MANTRA: gets dispositioned and moved through interacts with customers. Some go-to- SIMPLIFY the system, the more value it is likely market strategies will dictate how the With an understanding of the nature can be recaptured. firm should handle product returns. and drivers of reverse logistics, you can One of the biggest management For example, it could be that market begin to more effectively manage this challenges in this context centers on cannibalization is a major concern. activity. The guiding principle here is the issue of “one of many” vs. “many In such cases, the final product dis- simplification. As every good supply of one.” In other words, the return position would have to be routed to chain manager knows, the fewer times flow often consists of low volumes of a distant secondary market offshore, you touch an item—and the shorter a multitude of items; by contrast, the thereby alleviating that concern. and cleaner the process—the better the forward flow is typically comprised of Finally, there are the financial driv- result. one, or just a few, items moving in high- ers that come into play. A major one is This certainly holds true in reverse volume. inventory turns. Companies make an logistics. Because much of this prod- Handling product on an individual investment in inventory and once that uct is low value, it’s especially impor- basis, particularly product of vary- inventory is sold, it moves into the cost tant to simplify the process, shorten ing quality, is much more difficult and of goods sold (COGS) category. When the time and distance to ultimate dis- costly than working with new, perfect-

WWW.LOGISTICSMGMT.COM MAY 2013 | LOGISTICS MANAGEMENT 55 Reverse logistics

quality product that moves in high vol- electronics waste is disposed of prop- How effectively you minimize time-to- umes. Because of the greater complexity erly. One reason for this is to guard cash depends greatly on the processes and level of decision-making involved, against the products being exported to developed around credit reconciliation. reverse logistics requires closer attention developing countries, which is against Because returns are not always a stan- at the senior management level than the law in most of those countries. In dard transaction, credit reconciliation does forward operations. an October 2011 Dateline segment on processes that are routed through the Regardless of whether a product is Australian television, an investigative CFOs office can be slow. intended to be sold and then recycled journalist in Ghana displayed a collec- These processes need to be estab- or disposed of in a landfill, systems tion of computers and monitors that lished in advance so that credit recon- must be in place to ensure proper han- bore stickers from multinational corpo- ciliation can happen quickly. Similarly, firms need to make disposition Product Flow to Secondary Markets (Retail Example) decisions fast. In fact, a sub-opti- Return to Vendor mal disposition made quickly often results in a better cash posi- tion than a perfect decision made Manufacturer Reman/ Refurb Retailer slowly. Returned items need to be managed for speed as well as for Open Box highest recovery values. Resold in Stores For firms forward in the channel Factory Salvage such as retailers, wholesalers, or Outlets Value Salvage Dealer Retailer manufacturers receiving finished Charities Auctions (First Level) product, vendor agreements need to be strategically negotiated— Internal Salvage Dealer Recycler Disposition (Second Level) not just accepted blindly. Sup- plier agreements must specifically Dollar Salvage Dealer Stores address what should happen with (Third Level) returned products, who is going to Pawn Shops Flea Landfill pay for each element of the reverse Markets logistics process, and how the credit reconciliation process will function. Large credit write-offs and aging receivables that should Adapted from: Dale S. Rogers, Zachary S. Rogers, Ronald Lembke, "Creating Value Through Product Stewardship and Take-Back," Sustainability Accounting, Management and Policy Journal, Vol.1, No. 2, , 2010. have been written down a long time ago can eventually get a com- pany in deep trouble. dling. Some companies may be will- rations and U.S. state and federal agen- Another important issue in many ing to pay additional costs for proof of cies. No company wants that kind of industries is zero returns. This is called secure disposal. One popular approach publicity. by a number of different names such to assure brand equity protection is for Managers also need to be cogni- as swell allowance or adjustable-rate the company or its 3PL to video the zant of new regulations requiring that policy. What all of these terms basi- actual product disposition, which often companies be able to offer proof that cally mean is that the customer does entails destruction of the product. their products are what they claim to not physically return the item. Instead, Managers need to be aware of the be. In the pharmaceutical industry, for it takes a credit allowance from its regulatory trend requiring firms to example, the California Board of Phar- supplier. develop reverse logistics processes that macy’s (CBoP) has set deadlines for all This is common practice in the ensure proper of end-of-life manage- manufacturers to be able to show an consumer packaged goods industry. ment. Electronics waste, or e-waste, electronic pedigree and a defined serial Typically, manufacturers allow retail- is a good example. Currently, 25 states number down to the pill bottle level. ers a small percentage credit for items have e-waste regulations. Twenty-four Managing the authenticity of forward- that are “unsaleable.” These unsale- of those states have Extended Pro- moving product is costly. Managing ables will then be disposed of by the ducer Responsibility regulations, and authenticity backwards in the supply retailer and not shipped back to the California has an Advanced Disposal chain can be even more costly—and manufacturer. Procter & Gamble pio- Fee program. more difficult. neered adjustable-rate policies in the These regulations require that cer- We mentioned earlier that time-to- 1990s. In the food industry these are tified recycling partners confirm that cash is a key driver of reverse logistics. now the rule (often leading to some

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difficult feelings with the manufac- return types. For industries that are the product.” turers who may not view such policies susceptible to recalls, like automo- Mishandling a recall can be extremely in the same light). tive or pharmaceutical, part of design- damaging to a manufacturer’s reputation Finally, regardless of your par- ing an effective returns management and is a poor example of risk manage- ticular industry segment, one of the process is developing procedures for ment. In the Johnson & Johnson case, core reverse logistics competencies quickly informing customers trans- congressional investigators became is the ability to track the movement parently about a recall and then effi- involved, forcing the company to turn of products and components—both in ciently handling the return. over more than 22,000 pages of docu- the forward and reverse channels. Even the best-run companies can mentation. It would have been much run into difficulties with recalls, as evi- easier—and less costly—to have per- PRODUCT RECALLS denced by Johnson & Johnson’s (J&J) formed the recall differently. Product recalls are part of the reverse experience in 2009 with its Motrin It was probably naïve to believe that logistics process that merit special product. J&J found contaminants in the the FDA and retailers would not notice that all units of a specific SKU were being purchased in every retail out- Regardless of your particular industry, one of the core reverse logistics let carrying those items. What makes competencies is the ability to track the movement of products and this case all the more surprising is that components—both in the forward and reverse channels. J&J was the architect of one of the most successful recalls campaign in history—the cyanide-tainted Tylenol incident in 1982, which the company handled transparently and skillfully in protecting the brand. SECONDARY MARKETS AS DRAINS Developing a cost-effective reverse logistics program demands a solid understanding of secondary markets and the related concept of “drains.” A consumer who purchases a refurbished laptop, or a college student who buys a used textbook are good examples of selling on the secondary market and getting additional value out of an asset. In addition to the revenue aspect, secondary markets provide other impor- tant benefits. Notably, they effectively divert a large number of products from landfills and create numerous jobs, thereby resulting in substantial envi- ronmental and economic benefit. In short, secondary markets have attention. Recalls can be voluntary or product that reduced its potency. J&J become a significant portion of domes- mandatory. But in all cases, they need asked its recalls management company, tic economic activity in the United to be managed carefully in a way that Inmar, to buy back the drug. States. Although not reflected in cur- first and foremost protects the brand Inmar sent contractors into stores rent government metrics, a conserva- and is efficiently executed. to purchase Motrin without explaining tive estimate is that the secondary mar- Recalls in general are becoming the situation to the retailers. A memo ket represents 2.28 percent of the U.S. more common. Consider that between signed by J&J’s McNeil Consumer Gross Domestic Product. Several of Feb. 14 and March 11, 2013 (less Healthcare unit told Inmar employees the secondary markets consist of many than one month), the Food and Drug to “not communicate to store person- small players, so there are no trade Administration (FDA) mandated more nel any information about this product. associations or other authorities to esti- than 40 recalls. Recalls require more Simply visit each store, locate the prod- mate their size. upfront planning than most other uct and, if any is found, purchase all of To get a better sense of the second-

58 LOGISTICS MANAGEMENT | MAY 2013 WWW.LOGISTICSMGMT.COM MARKETING AND SALES: TOOLS, TECHNIQUES AND TACTICS FOR REVENUE GENERATION

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ary market dynamics, let’s examine the tem’s arteries handle the forward logis- thought-out plan, complete with a net- retail sector. It helps to gain a realistic tics of bringing oxygen and nutrition to work of secondary market partners, that view all of the destinations that prod- the cells while the veins carry the car- will accomplish all of the following: (1) uct may flow to from a retailer. When bon dioxide and waste products to the dispose of product in a timely manner, a company receives returned product, lungs and kidneys for removal. Without much of it will be sold off to compa- the veins to carry away waste products, nies in the secondary market. The cells would cease to function, literally secondary market is not a single mar- drowning in their own waste. And no ketplace, but the name for the network one wants to think about a building of companies that buy and sell product that did not have both inbound and

To monitor progress against its reverse logistics plan, a company needs metrics that measure the financial impact of returns on the firm and on other members of the supply chain. that cannot be sold as first quality in outbound plumbing. Having “drains” the primary channel. of one type or another is crucial to the Usually, a retailer’s first choice operation of all systems. of disposition is to return the items Drains are similarly critical to a for full credit back to the supplier. product supply chain. Items are taken Unfortunately, that option is often to retail destinations for sale, but precluded by a supplier agreement not all of it will be sold. Some will or by a product customization such be returned, and the system has to as a store-branded item. have a way to deal with those prod- One of the most common approaches ucts. If there were no drains built to product disposition is through sal- into the system, no way to deal with vage brokers. The first level of salvage the items, the system would drown broker will typically buy in bulk such as in this unwanted material. Imagine a trailer load, and offer a small fraction what a retail store would look like of the product’s original cost. The offer if all returned and unsold items had might be as low as 10 percent of the to stay at the shop until they were wholesale price. When a company sells sold. The sleek and chic stores of an product to a salvage broker, that broker upscale mall would quickly look like will turn around and sell that product to thrift outlets. another broker or other secondary mar- No matter how well the system’s ket, who then may sell it to the public. unwanted materials disposal system Or the product may be sold to a series is designed, there will likely be times of brokers before it ultimately gets sold when the drains cannot keep up with to a consumer. the load placed upon them. The reverse Some of the product may enter the logistics system is charged with clean- secondary market through other paths. ing the unwanted product out of the Auctions, international dispositions network, and contributing as much as where the product is shipped offshore, possible to profitability. factory outlets, value retailers such as The products sold to the secondary firms like T.J. Maxx or Marshall’s, or market are generally being sold for far dollar stores are places to move prod- below their original cost, so it might seem uct that is not selling well through the strange to speak about reverse logistics intended primary market. systems contributing to profits. However, These secondary markets effectively every additional dollar recovered is one act like drains. Every system needs to less dollar of loss—the higher the per- have a means to rid itself of excess or centage of cost that can be recovered, the unwanted materials. In the human better. body, for example, the circulatory sys- A company needs to have a well

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(2) recover as much value as possible, distance traveled per item is not nearly new product in the forward channel. and (3) protect brand equity. as simple as determining per-item- Negotiations to sell the product further handling cost. Generally speaking, the contribute to the complexity of reverse IMPORTANCE OF METRICS fewer miles that can be put on an item logistics. To monitor progress against its reverse in the reverse logistics network, the The end result of all this: the reverse logistics plan, a company needs metrics better. movement of products offers many that measure the financial impact of r
Energy used in handling returns: challenges and opportunities not pres- returns on the firm and on other mem- This metric is used in sustainability ent with forward logistics. Companies bers of the supply chain. As part of this programs. It measure how much energy need to spend quality management process, the company should develop (diesel fuel, electricity, etc.) is used in time carefully examining and construct- ing their reverse logistics processes. They need to work hard to manage The reverse logistics system is charged with cleaning the unwanted these processes or they will experience product out of the network while contributing as much as possible a constant leak of profit. to profitability. A successful reverse logistics pro- gram begins with a clear objective: What do we want to accomplish through our reverse logistics efforts? Setting that procedures for analyzing return rates the reverse logistics process. objective will help the company bet- and tracing the returns back to the root r
Total Cost of Ownership: What is ter determine how to handle consumer causes. Measures such as amount of the total cost of ownership related to returns and unsuccessful product. product to be reclaimed and resold as originally acquiring the product, resell- As part of this process disposition is, or percentage of material recycled, ing it, bringing it back as a return, and options for returned product need to be are examples of such metrics. moving it through a secondary market identified and analyzed for cost minimi- In analyzing your company’s reverse or placing it in a landfill? zation and profit maximization. Consid- logistics performance, consider track- eration also must be given to the impact ing these metrics: PATH FORWARD or policies and procedures on the brand r
Disposition cycle time: Cycle times Firms need to care deeply about how and potential cannibalization of sales in can be an important measure of reverse they manage product that did not sell in the primary market. logistics. The more standardized and the primary channels. Reverse logistics Going back to the Sears and JCPen- streamlined the processes are, the is not an easy task, and many practitio- ney examples, a company can turn shorter the cycle time should be. ners underestimate its difficulty. Good returns into a strength that improves r
Amount of product reclaimed and reverse logistics and returns manage- its relationship with consumers. To resold: What percentage of product that ment programs are unlikely to appear manage the complexity that accompa- moves to the reverse statistics system is out of nowhere. Companies have to work nies a good reverse logistics program, reclaimed and resold? How much value closely with their suppliers and custom- companies need to view it as a critical is recaptured? ers to make these processes work well. management activity. In particular, they r
Percentage of material recycled: This At first glance, handling the reverse need to apply management time and metric tracks the percentage of product flow may seem roughly equivalent to expertise required to turn a problem in the reverse logistics stream that is managing the forward movement of into a strength. Or put another way, to recycled in an appropriate manner. new product moving through primary turn trash into cash. r
Waste: How much product and channels. However, the process is often other materials are moved to landfills, much more difficult and the final objec- Dr. Dale Rogers (reverse@business. incinerated, or disposed of as waste? tive is not as clear. rutgers.edu) is a Professor of Logistics The objective is to minimize product in It is obvious that the goal of manu- and Supply Chain Management, Co- the waste streams. facturing and shipping new product Director of the Center for Supply Chain r
Percentage of cost recovered: Is forward is to get it all the way to the Management, and Director of the new the firm maximizing the profitability retailer and ultimately the consumer. Supply Chain Finance Lab at Rutgers of product that did not sell well or has On the reverse side, quality, distance University. Dr. Ron Lembke (rlembke@ been returned by consumers? traveled and the other variables men- unr.edu) is an Associate Professor of r
Per item handling cost: A cost-per- tioned earlier can determine the path Managerial Sciences at the University of touch type of metric can be readily com- backward and ultimate disposition. Nevada. John Benardino (John_Bena- puted by dividing total facility costs per The lack of uniformity in the prod- [email protected]) is the Vice month by the number of items processed. ucts’ physical condition makes reverse President of Supply Chain Operations This is also a valuable way to compare the logistics all the more difficult. It entails for Comcast. Prior to this, he worked at efficiencies of different facilities. the sorting and evaluation of product, HP for 20 years, holding multiple posi- r
Distance traveled: Tracking average which is typically not necessary for tions in reverse logistics.

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Special Report

Top 30 U.S. Ports: Economies of scale

While ranking ports on size and container in play throughput is both valid and traditional, analysts contend that domestic ocean cargo gateways might also be compared by volume and value of trade as well as value-added services.

By Patrick Burnson, Executive Editor

he simple meaning of “economies of scale” Angeles illustrates this point. Tis doing things more efficiently with increas- The Virginia Port Authority (VPA), which owns ing size of operation. Industry analysts agree that ports in Norfolk, Portsmouth, and Newport News, size of a port, in terms of traffic flow, says nothing represents a regional hub for East Coast shippers about productivity, efficiency, or responsiveness to seeking a wide range of container vessel choices. beneficial cargo owners. An overview of some of With more than 30 international lines serving the the U.S. ports participating at this month’s Inter- gateway today, it’s well positioned to take advan- national Association of Ports and Harbors in Los tage of the Panama Canal expansion in 2015.

64S May 2013 s Logistics Management Top 30 U.S. Ports (by Imports of TEUs) U.S. Port 2010 2011 2012 1 Los Angeles, CA 4,158,150 4,252,636 4,163,410 2 Long Beach, CA 3,181,809 3,121,986 3,032,892 3 New York, NY/Newark, NJ 2,718,176 2,783,511 2,807,932 4 Savannah, GA 1,193,812 1,209,033 1,214,391 5 Seattle, WA 1,052,523 974,038 909,603 6 Houston, TX 857,665 871,513 884,319 7 Oakland, CA 850,181 872,353 853,534 8 Norfolk, VA 765,097 769,549 840,070 9 Tacoma, WA 502,783 525,415 689,535 10 Charleston, SC 621,281 642,660 687,314 11 Miami, FL 491,156 529,483 521,665 12 Port Everglades, FL 401,201 445,791 450,133 13 Baltimore, MD 286,113 307,265 305,341 14 New Orleans, LA 186,627 224,813 212,469 15 Jacksonville, FL 159,600 184,672 190,521 The Port of Seattle is No. 5 on 16 San Juan, PR 175,026 180,553 177,355 Zepol’s list of Top 30 U.S. Ports 17 Philadelphia, PA 157,645 166,774 168,011 by Imports of TEUs. 18 Wilmington, DE 141,769 147,717 157,734 19 West Palm Beach, FL 112,533 108,777 115,617 20 Wilmington, NC 120,869 123,744 113,680 21 Gulfport, MS 110,668 113,593 104,846 “We’ve seen growth in January, 22 Mobile, AL 47,021 75,787 99,102 February, and March, and our year-to- 23 Boston, MA 84,780 99,710 94,267 date twenty-foot equivalent unit (TEU) 24 Portland, OR 79,137 90,915 71,535 volume is up 6.2 percent, a difference 25 Chester, PA 50,183 54,127 53,885 of nearly 30,000 TEUs,” says Rodney Oliver, the port’s interim executive 26 San Diego, CA 50,102 49,070 49,809 director. “Given what we’ve seen thus 27 Port Hueneme, CA 18,568 18,093 46,788 far in 2013, we’re optimistic about the 28 Freeport, TX 33,724 30,149 35,959 coming months and focusing all of our 29 Honolulu, HI 20,902 23,392 21,515 energy on leveraging this port’s assets to 30 Panama City, FL 20,218 21,224 20,560 build volumes.” All Others 106,191 96,996 87,057 One notable physical asset is the VPA’s 50-foot channels—the deepest on TOTAL 18,755,511 19,115,337 19,180,848 the East Coast, and capable of accom- Source: Zepol Corporation modating the largest “mega vessels” now being launched in the trade. Shippers wishing to reach inland markets in the tion of Port Authorities (AAPA), notes Perishables equal profit Midwest, Ohio Valley, and the Southeast that “keeping a balanced portfolio” helps As the second busiest export facility in are also being attracted to the port, says ports of any scale stay in the game. “By the U.S., the Port of Savannah contrib- Oliver. “Both Norfolk Southern and providing a wide variety of shippers with utes significantly to promoting U.S. CSX offer on-dock, double-stack inter- customized services like those offered at businesses in the global marketplace. modal service,” Oliver observes. VPA, our members can compete in an Last year alone, the Georgia Ports Au- Kurt Nagle, president and chief ex- honest and transparent manner,” he says. thority (GPA) saw a 3.9 percent increase ecutive officer of the American Associa- “Diversity wins in this marketplace.” in refrigerated cargo exports, totaling

Logistics Management s-AY65S Special Report: Top 30 U.S. Ports A SPECIAL SUPPLEMENT TO LOGISTICS MANAGEMENT

nearly 108,000 TEUs. Meanwhile, Georgia has allocated Port of Miami is also bringing in new In a recent move designed to expand $231.1 million toward the state’s por- shippers, particularly those who are the cold chain advantage, Nordic Cold tion of the Savannah Harbor Expansion targeting Latin America. Storage opened the first phase of its Project (SHEP). A U.S. Army Corps of “Ongoing investment in our infra- modern storage and blast facility, located Engineers study has shown that SHEP structure will ensure that we remain just minutes from the port’s docks. will reduce shipping costs for private competitive in a highly competitive “Nordic’s announcement extends our companies by at least $213 million a year. global marketplace,” says the port’s power to support Georgia’s vital agricul- “Additional studies by the Army Corps of director Bill Johnson. tural industry, in particular, our poultry Engineers show a 5.5-to-1 benefit to cost The port’s recently-released “2035 producers,” says Curtis Foltz, GPA’s ex- ratio, meaning that for every dollar spent Master Plan” has earned a National ecutive director. “The Port of Savannah on the deepening, the nation will reap Recognition Award from the American handles nearly 40 percent of the nation’s $5.50 in benefits,” says Foltz. Council of Engineering Companies as containerized poultry exports, supplied The channel deepening project and part of the organization’s Engineering largely by Georgia’s farms.” re-introduction of on-dock rail at the Excellence Awards competition honor-

Top U.S. port authorities watching pending legislation with great interest

xpanding upon freight policy milestones established by movement serves as a target for state investment. The MOVE “Moving Ahead for Progress in the 21st Century” (MAP- Freight Act calls for 27,000 miles of critical freight corridors, E21), Rep. Albio Sires (D-NJ), introduced the “Multimodal to include roadways, freight rail, navigable waterways, inland Opportunities via Enhanced Freight Act of 2013” (MOVE ports, seaports, freight intermodal connectors, airports, and Freight Act) earlier this spring. aerotropolis transportation systems. Because it’s a bill designed to ensure all transportation sRequirement that states create state freight plans: modes and system connections necessary to moving freight The MOVE Freight Act requires states to develop state freight receive proper deference in freight planning, port spokes- plans, which are critical to the development of a well informed people are applauding the effort. and effective national freight policy. These plans stretch the Furthermore, the bill establishes a competitive grant effectiveness of network investment by assisting in the identi- program critical to ensuring that projects essential to moving fication of high-return investments. freight receive proper investment. Co-sponsoring the bill are sNational freight infrastructure investment grants: long-time freight advocates Representatives Earl Blumenauer Establishes a competitive grant program to provide financial (D-OR), Adam Smith (R-WA), Corrine Brown (D-FL), Janice assistance for capital investments in freight transporta- Hahn (D-CA), and Grace Napolitano (D-CA). tion infrastructure to States, political subdivision of States, “MAP-21 put freight planning on the map, but there is still government-sponsored authorities and corporations, and the work to be done,” says Coalition for America’s Gateways and District of Columbia. U.S. port authorities maintain that the Trade Corridors (CAGTC) Chairman Mortimer Downey. “The nation’s freight network has many needs that continue to go MOVE Freight Act would ensure all modes carrying our nation’s unaddressed. Without the ability to move goods expeditious- freight receive full attention in the development of a national ly, U.S. global economic competitiveness will suffer. plan, and it would also establish a competitive grant program to “Objectives outlined in this bill fit squarely with the multi- assist in financing worthy goods movement projects.” modal strategy that CAGTC has been promoting since 2001,” The legislation ensures the various and essential modes of says Paul Hubler, director of community and government our freight network are accounted for and emphasize four key relations for Southern California’s Alameda Corridor-East tenets, including: Construction Authority and member of the CAGTC Board of sIdentification of freight as a national priority: Accord- Directors. ing to U.S. DOT, U.S. freight shipments will more than double Hubler adds that freight congestion and delay continue to between 2013 and 2040 to roughly $39.5 trillion annually, afflict communities and stymie American businesses, causing with an estimated $10.3 trillion worth of goods using multiple losses our economy cannot afford in its “fragile” state. “It’s modes of transportation each year. time to get our freight moving while protecting communities, s Inclusion of multimodal transportation infrastruc- and I believe that the MOVE Freight Act is the next logical ture in the national freight network: The National Freight step to improving our multimodal network.” Network established by MAP-21 calls for the designation —Patrick Burnson is Executive of 27,000 centerline miles of roadways essential to freight Editor of Logistics Management

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ing projects that demonstrate exception- al achievement in engineering. Geography also seems to favor Miami. The “Cargo Gateway to the Americas” is the closest East Coast port to producers of winter fruits and vegetables in Central and South America. “Miami truly is a natural entry point for perishables, and it is our goal to become shippers’ preferred entry point,” says Johnson. “ By providing a wide variety of shippers with customized services like those offered at VPA, our members can compete in an honest Nice niche Florida’s Port Canaveral is becoming rec- and transparent manner. Diversity wins in this marketplace.” ognized as a modest “niche” gateway for importers of perishables as well. Citrus —Kurt Nagle, president and CEO of the American Association of Port Authorities (AAPA) concentrate from Brazil and deciduous concentrates from Argentina and Chile tional breakbulk, heavy-lift and project global trade. “The port is also seeking are major commodities here. cargo. “That regular monthly scheduled to learn where it can assist in removing Cargo tonnage has new record high service will open a lot of doors for the logistical and policy barriers that inhibit of 4.55 million, and Canaveral has Port of Stockton,” says port director commerce,” he says. recently begun regularly scheduled Richard Aschieris. “It will also enable The series of export roundtables cargo service to the Caribbean. “Recent freight forwarders in the region to be- provided the port with an opportunity funding for new cargo facilities will ac- come more fully acquainted with mar- to share its “Century Agenda” vision celerate our current growth and poten- kets in East Asia and the South Pacific. for growth and discuss the need for tial,” says John Walsh, Port Canaveral’s Paul Rasmussen, CEO of Zepol statewide transportation investments for interim CEO. Corporation, a leading trade intelligence freight mobility that will facilitate the Growing pains are part of the happy resource, says Stockton and Canaveral flow of exports. “Our Century Agenda problems being dealt with at a similar have the economies of scale to compete strategy charts significant growth for the small port on the West Coast. Instead of with even the biggest gateways. “Both port over the next 25 years, and we need trying to compete with huge container ports bring in a good mix of commodi- to know what more we can do to sup- operations on the scale of neighboring ties as well as specialty goods that larger port global trade,” says Port of Seattle Port of Oakland, Stockton is expanding ports might not be able to handle as Commission President Tom Albro. its niche role as a bulk cargo specialist well,” he says. “Chemicals and oils are Seattle was the outbound port for serving the agriculture and construction just a few examples.” more than 75,000 containers TEUs of industries of California’s Central Valley hay last year. Meanwhile, the state’s agri- and beyond. Regional collaboration grows cultural businesses exported $8.6 billion Efforts have had a considerable Regional rivals can also be friends— in farm products in that year. The other boost by the introduction of Swire especially when competing against a major export category (timber, lumber, Shipping’s new IndoTrans Asia liner foreign nation for freight and market paper, and other forest products) ac- service, which provides a multipurpose share. The Ports of Seattle and Tacoma counted for another 135,000 containers breakbulk and containerized service have made peace as they engage in a exported through the port. linking Southeast Asia and Papua New joint marketing campaign to compete Educating shippers and enlisting Guinea to the Pacific Islands as well as against Canada’s Port Prince Rupert and their support for federal legislation key ports on the West Coast of Canada Vancouver. reform is also high on the agenda for and the U.S. Tay Yoshitani, the Port of Seattle’s Washington’s ports. Joining Seattle in its The service operates a fleet of three CEO, recently joined port commissioners resistance to the Harbor Maintenance sister vessels—Pacific Adventurer, Pacific in a series of discussions with Central Tax on imports is the Port of Tacoma, Explorer, and Pacific Voyage—on a 30- and Eastern Washington agricultural which is also seeking to “level the play- day frequency. The vessels are designed producers. Their mission: to update ing field” with Canadian ports that do to carry dry containers, reefers, conven- shippers on the shifting patterns of not have to pay for dredging.

68S May 2013 s Logistics Management Before you dive in, you’d better know exactly how deep the water really is.

See time-lapse video of simultaneous 8,000 TEU ship calls.

The deepest channels in the Southeast are in Charleston, South Carolina, the only port in the region that routinely handles 8,000+ TEU post-Panamax ships drafting up to 48 feet.

With the expansion of the Panama Canal coming in 2015 and even more big ships on the way, you need a post-Panamax supply chain to reduce risk and cost. And you can only realize the benefits of these ships in a port capable of handling fully loaded ones. So before you take the plunge, visit PortCharleston.com. Are you Special Report: Top 30 U.S. Ports Retail Ready?

Gateway Logistics Services The Port of Tacoma is No. 9 on Zepol’s list of Warehousing and Distribution Top 30 U.S. Ports by Imports of TEUs. Import Deconsolidation and Transloading Local and National Transportation Value-Added Services “While the Panama Canal expansion for the year to 457,078 TEUs. WMS and TMS Technology should have us concerned about East Tacoma’s 2012 container volumes Coast ports in the future, we have to reflect the addition of the Grand Alliance National Footprint keep on eye on the competitive forces deployment with its associated carriers, New York - New Jersey here in the Pacific Northwest,” says John as well as significantly stronger volumes Los Angeles - Long Beach Seattle - Tacoma Wolfe, CEO of the Port of Tacoma. from established customers. The carrier Savannah Double-digit growth in both imports consortium—comprising Hapag-Lloyd Houston and exports propelled a 16 percent gain AG, Nippon Yusen Kaisha, and Orient in the Port of Tacoma’s 2012 container Overseas Container Lines—helped in- Proven Results volumes. Breakbulk cargo volumes crease container vessel calls by 10 percent. To discuss your gateway logistics needs, ended 68 percent higher for the year, The trends signaled in this feature— contact the experts at Port Logistics Group. while the port handled 1.7 million while U.S.-centric—are surfacing in TEUs, marking its best year since 2008. data gathered by both the AAPA and “Our intermodal lifts grew 30 percent, IAPH, say analysts. reflecting the port’s growing container “It’s interesting to note that the volumes,” says Wolfe, who also notes that volume and value quotient for ports the tonnage improved almost 4 percent worldwide is becoming a competitive to nearly 18 million tons last year.” factor,” says Rasmussen of Zepol. “Our In the meantime, full-containerized ongoing search for data reveals that imports improved more than 27 percent ports worldwide are looking for any for the year to 611,085 TEUs, bolstered and all special services to gain an edge. North America Sales by strong demand for auto parts, furni- The performance of the top U.S. ports (973) 249-1230 ext. 1171 ture, toys, and sporting goods. Agricul- clearly reflects this.” tural products and bulk commodities Corporate Headquarters One Greenway Plaza, Suite 400 like scrap paper helped push full export —Patrick Burnson is Executive container volumes up almost 22 percent Editor of Logistics Management Houston, TX 77046 www.portlogisticsgroup.com Life. Uninterrupted.

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Ports of LA/Long Beach address air quality

With the global shipping industry showing increased Among the active participants in the group are rep- interest in the use of liquefied natural gas (LNG) as a resentatives from the Ports of Los Angeles and Long fuel for vessels, members of the International Associa- Beach. Southern California ports are leading the way tion of Ports and Harbors (IAPH) are laying the ground- on the “clean trucks” front, too, as the IAPH seeks to work for how ports worldwide can accommodate this establish new global standards for drayage. And in a emerging trend. precedent setting move made last month, the South LNG will be the focus of technical committee and Coast Air Quality Management District approved con- panel discussions at IAPH’s 28th World Ports Confer- tracts for a zero emissions truck demonstration project ence this month in downtown Los Angeles. It’s generally along a one-mile stretch of Alameda Street leading out expected that by 2015 a number of progressive shipping of the Port of Long Beach. lines will have LNG-powered vessels in their fleet, pre- While this project will take about three years to com- senting a challenge for ports and shipping lines worldwide. plete and cost approximately $16 million, it may dem- Some vessels today are already LNG-powered and onstrate the viability of transporting goods using zero more are on order. According to a recent study from emissions trucks and provide a starting point for a future the Danish Maritime Authority, the current use of zero emissions transportation corridor out of the port. natural gas on the high seas is expected to increase by The project will also use hybrid catenary trucks— 140 percent by 2020. Analysts add that using LNG instead of conventional fuels offers sub- Existing voluntary emission reduction stantial environmental benefits in compari- commitments for nitrogen oxides, sulfur son to conventional fuels. Sulfur and particle oxides, and PM2.5 in the Clean Air Action Plans emissions would be reduced to almost zero, nitrogen oxide emissions by 85 percent to in Southern California will serve as a model for 90 percent, and net greenhouse gases by 15 other ocean cargo gateways worldwide as the percent to 20 percent. Overall, LNG is a cleaner, more cost- overall business of moving freight actually competitive fuel, and it meets the upcom- does become more sustainable. ing 2015 International Marine Organization emissions regulations. And recognizing it as the ship’s vehicles that run along an overhead system of electrical fuel of the future, ports are preparing to offer safe stor- wires, but are also able to run on either diesel, com- age and bunkering of LNG for shipping lines in or near pressed natural gas, or a battery system. These types their port areas. of vehicles, say experts, can eliminate diesel emissions Focusing on the use of LNG as a marine fuel, while connected to the electrical system, but can also an “LNG Fuelled Vessels Working Group” has been travel outside the system to haul freight. established under the auspices of IAPH’s World Ports The payoff for shippers? Existing voluntary emis- Climate Initiative (WPCI). This working group is sion reduction commitments for nitrogen oxides, sulfur tasked to develop guidelines on safe procedures for oxides, and PM2.5 in the Clean Air Action Plans in LNG bunkering operations, providing ports around the Southern California will serve as a model for other ocean world with an implementation guideline if they wish to cargo gateways worldwide as the overall business of mov- pursue this technology. ing freight actually does become more sustainable. Ⅺ

72 LOGISTICS MANAGEMENT | MAY 2013 WWW.LOGISTICSMGMT.COM supplychain247.com

Find everything you need when researching companies, trends, and industries.

Supply Chain 24/7 is the ultimate online business resource for transportation, distribution, logistics and supply chain professionals. Search engine can search across content elements Your best business resource for: and by specific s News companies s Best practices s Trends s Case studies s White papers s Webcasts s Research s Special reports s Blogs and much much more! Featured companies that are relevant to the Trending news specific topic and features

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