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 NEWSFork in the road By Jack Mccarthy September 20, 2002 1:01 pm PT IN THE MIDST of intense competition for shipping customers, Burlington Northern Santa Fe railway last month formed its own logistics subsidiary to offer its partners more customized transportation management services. Kathleen Regan, Burlington Northern's vice president of business development, logistics, and e-business, calls the move "new wave logistics," the deployment in the transportation industry of the best of new logistics technologies to win customers and cut costs.
With profits tight, these IT executives say they want the best in logistics technology to cut costs and attract customers. Transportation logistics, a broad category for systems that automate and streamline distribution and delivery of goods, has become a hot market for corporate cost cutting by streamlining and easing the complexities of shipping. While big companies such as Burlington Northern can mix and match new technologies with their own in-house logistics development, smaller shippers are using outsourced 3PLs (third-party logistics) industry experts say. Regan says transportation companies don't have any choice but to look to new technology for help in such a competitive market. "Shippers are pressured, as are all companies these days, to continue to make improvements on the production curve," Regan says. "There is a major focus on reducing the transportation costs." As a result, IT leaders such as Regan and CTO Ted Barnicoat of bulk trucking company Trimac, in Calgary, Alberta, are developing their own sophisticated logistics systems with a combination of in-house programming and the use of outsourced systems. The outsourcing market itself is growing as logistics outsourcing providers such as shipper Penske Truck Leasing offer a full range of services, according to Bill Stobbart, Penske's vice president of IT. But the low profit margins are forcing these companies to add value to logistics services, says one industry analyst. "There is an ongoing push by service providers to enhance [logistics] offerings," says Gary Allen, senior manager of supply-chain solutions at New York-based consultancy Cap Gemini Ernst & Young. "Transportation providers are continually pressured to transform and improve their internal efficiencies." Extending service At Burlington Northern, parent corporation of one of the country's largest railroads, Regan says she and her team are putting together a complete logistics system to keep their shipping customers happy. In such a competitive market, new, customized features that can help customers are taking on more and more importance. "Our system is a hybrid," Regan says. "Some of it we can do ourselves, where we feel we have the core competence, and some we take from outside where we feel we need [specific] technology." The railroad, with 33,500 route miles covering 28 states and two Canadian provinces, formed its own logistics company in August. Called BNSF Logistics, the new company was partly formed from the assets of Clicklogistics, a Boston-based 3PL company the railroad bought. Regan says BNSF Logistics will offer customers a suite of logistics products and services, including network analysis, design, optimization, and multimodal transportation management. The launch fit into a new deployment that integrated the new logistics with BNSF's iPower, a Web-enabled tool suite organized around the shipping process to facilitate end-to-end shipping, including online access to scheduling, inventory management and freight bill payments. Regan's team also built customized software. "We built tools in-house that allowed us to have network engineering that gives us the best overall network distribution chain for customers," Regan says. "It's technology that that allows us to take in all information on goods flow and analyze it." Ted Barnicoat, CTO of Trimac, takes a slightly modified approach. He says his company has built a logistics platform by integrating several cutting-edge systems. "Our choice is to buy [systems] and integrate them into how we work," Barnicoat says. "We learned how to leverage investment in systems to improve on operations and to customize services." Trimac has more than 3,000 trucks and 132 terminals throughout North America. "In bulk transportation, there is a high percentage of change orders, which causes you to quickly change transportation plans, such as where you assign assets like drivers and trucks, and you need all the warning you can get," Barnicoat says. "You need accurate information to make decisions. That's why getting information into systems to quickly analyze it is so important." Barnicoat is integrating business intelligence provider Cognos with the company's dispatch system to engineer trip data for process improvements. "This has resulted in a bottom-line impact of about $2 million in savings a year for us," Barnicoat says. He's also using transportation management software from Cleveland-based TMW Systems to enable views of orders and invoices and set up payment systems. In addition, he's deploying an electronic ordering system built on technology from Vitria Technology in Sunnyvale, Calif. Taken together, the platform is a key part of Trimac's strategy. "This is a terribly low-margin business for us," Barnicoat says. "So you've got to be terribly efficient to survive." Customized logistics engineering Many shipping companies seeking to avoid the complexity of setting up their own logistics systems are looking to outsource such operations through 3PL companies. Even Burlington Northern's Regan sees an advantage in 3PL partnerships. The company plans to use 3PLs from companies such as MercuryGate, Manugistics, or i2 to deploy a transportation management system that further automates shipping management. "The big trend right now is toward more emphasis on logistics -- where people are working together," Regan says. "Our customers and shippers want to aggregate all these services." Penske Truck Leasing of Reading, Pa., has added 3PL services to its fleet management offerings. As logistics systems grow in complexity and the need for customization, such 3PL service providers take on a consultant's role and engineer unique systems to suit customers' business plans, says Penske's Stobbart. "Customer needs are very specific, and logistics tools are customizable," Stobbart says. Penske can take several months of studying a shipper's business before starting a customer's systems, he adds. For example, Penske took over management of the distribution centers and the dedicated delivery fleet of appliance company Whirlpool, minimizing transportation and distribution costs. Penske centralized common carrier management, using its own transportation management services organization and combined its proprietary and off-the-shelf transportation technology with Whirlpool's supply chain systems to provide the company with shipping capability. The company also offers a Web-based service from San Jose, Calif.-based Business Objects that allows customers and employees to run reports, and access data about shipments and driving performance over the Internet. With Penske's years of logistics proprietary code as his arsenal, Stobbart is increasing revenues and enhancing offerings. "The most important attribute for us is to use systems to execute to a high level of service back to the customer," Stobbart said.  SPONSORED WHITE PAPERS 
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