Greg Johnsen, Founder and Executive Vice President, GT Nexus
Feb. 28, 2009
Any exporter of commodities, such as those in the forest products industry, has to keep an especially close eye on logistics operations these days. That’s because how you handle logistics – which covers transportation, storage, and documentation throughout the entire supply chain – can have a major effect on the entire company, for good or for ill. There is the potential for staggering, unexpected costs. Last year, for example, overall logistics costs for commodity exports effectively doubled from years past. Dow Chemical, for one, was forced in May 2008 to announce a 20% price increase across the range of its products. This volatility in costs warrants close attention to your logistics operations, and tight control. That, in turn, requires the right kind of technology. Many shippers in this business already know that smart logistics management technology is no longer a luxury; it’s a requirement.
A skittish horse
In the forest products industry, logistics represents a high proportion of the cost of goods sold compared with, say, electronics. Rising costs, therefore, take a big chunk out of already-meager profit margins. That increases the pressure from the boardroom to drive down logistics spending, and do more with less. Furthermore, anyone involved in global trade knows it’s a skittish horse to ride. The market is always changing, and what’s hot today may be stone cold tomorrow. The ongoing saga of wildly fluctuating dollar and euro values leads to unpredictable demand patterns. Market conditions also drive changes in capacity in different geographical locations. And then there’s the legislative tangle: no one is yet quite sure what the effect will be of the dismantling of ocean liner conferences in Europe this year, for example. Taking control of logistics operations can make a company far more lean and nimble in responding to changing conditions. Ocean transport contract management software can help shave 5-12% off transport costs, while track-and-trace technology gives a transparent supply chain in which there’s no need to build up expensive inventory to compensate for uncertainty about whether there is enough product in the right place at the right time.
Unpredictable supply chains tend to lead to poor customer service, which in turn can damage a company’s reputation. Customers take note of late deliveries, unexpected price hikes, and unreliable information about where their shipment is and when it’s coming. Again, well-chosen logistics management technology can help spread your reputation as a good, reliable product provider who delivers on time. You can even give customers access to some of your technology, allowing them to track their own shipments through your web site. Providers with sophisticated customer-facing services like this often command higher prices. Altogether, logistics management technology can give a company a competitive advantage.
Achieving the goal
So how do you go about achieving this goal? You can ask your internal information technology (IT) department to address the problems, and build you a tailored logistics management system. Unfortunately, however, this is usually very expensive and time-consuming. Firms that have tried this approach often find they spend millions of dollars over several years, only to find the system they end up with is already outdated. Furthermore, a proprietary system built in-house is not necessarily set up to communicate well with outside business partners who, after all, possess much of the valuable information you need to feed into your system. Another option is to partner with existing logistics service firms, such as third-party logistics providers (3PLs), many of whom offer on-line logistics management services, including track-and-trace functions. However, this can drive up the bill, and because any one 3PL does not necessarily manage or connect with all your transportation providers, it may not give you a comprehensive picture of what’s going on in your supply chain.
An attractive and available solution is to look at logistics management technology provided on a Web-based network, on-demand. On-demand means that the services sit on an external server, and are provided and charged for on the basis of how much you use. The network is important, because it allows for all your logistics business partners to plug in and feed their information about your shipments into a central database. In the case of GT Nexus, for example, all of the world’s major ocean liner companies are already connected, and the data they feed into the system is already standardized so that it can be used in a myriad different ways.
On-demand logistics management technology offers a low-cost solution. There is no need to buy software licenses, or build and maintain an expensive data-handling system. That has already been built, and is available to rent rather than buy. It’s also a good option for the long term, as buying and maintaining your own system represents a serious up-front financial commitment to one technology provider, who might disappear, cutting off access to crucial software upgrades and patches. With on-demand, the up-front payments are minimal, and a company can scale up or down according to changing needs. It is also not necessary to wait years before the system is available. A connection to an on-demand network can go “live” in 60 days. Furthermore, access to a vast network of logistics information can benefit the whole company. Data in a logistics management network are important to other departments – sales, marketing, customer service, and finance. External access to this information by your business partners makes it easier to work with you as well.
Work well with others
The ability to work efficiently with external business partners is an important advantage. Many companies already have existing investments in logistics management software and IT, especially as part of their enterprise resource planning (ERP) systems. But those systems don’t scale easily outside the four walls of your company. In any case, you need good data to fuel your internal ERP system and, without an intermediary cleaning and standardizing the data coming in from a wide range of business partners, you are going to have to do a lot of data manipulation yourself. With a logistics management network, delivered on-demand, you have a data collection and translation hub that offers seamless interaction with your partners, receiving and feeding back information crucial to smooth operations.
This allows your ERP system to benefit from better data feeds, and do its real job, which is to manage the internal functions of the company. On-demand logistics management technology can provide applications that focus on business processes involving external partners, such as transport management systems (TMS), shipment optimization, and visibility. These are generally not the strengths of an ERP system. But they do provide important pieces of information that can now be piped into ERP: for example, shipment cost data for payment and settlement; transportation plans to help manufacturing operations meet their schedules; payment event triggers and information about ocean carrier capacity.
In conclusion, it’s important to investigate the possibilities offered by on-demand logistics management technology. The spread of the World Wide Web has brought with a whole new world of communication and data-handling capabilities. There are many alternatives out there, and it is wise to consider them all. On-demand is a great place to start, especially for those who have minimal IT resources. Leaders in the industry, such as Weyerhaeuser, Votorantim, Rayonier and Suzano, are already there.
Pulp & Paper International is FREE to qualified subscribers. Click here to find out more.