The Problem Statement
For many companies in consumer goods, retail and other industries, also referred to as shippers, the diversification of distribution channels from a single channel to an omni-channel structure includes many challenges. One challenge we want to focus on in this article is the impact on managing inventory and demand fulfilment in global logistics. How can we manage and understand the global movements, irrespective of how the shipper or logistics provider, also referred to as carrier, manages the global product flow? The key business questions are:
- How do you achieve visibility and control in a global multi-node supply chain?
- Where is my order and where is my inventory?
Diverse Logistics and Carrier Options
Before we look at the various options available to a company on how to address the key business questions, the logistics provider market needs to be explored. The terminology and definition of different logistics providers market can be confusing, hence we will attempt to bring some orders into this.
The logistics provider market and players, defined as carriers, can be segmented and defined as follows:
- 1st Party Logistics Provider (1PL): local carrier
- 2nd Party Logistics Provider (2PL): national carrier, express parcel service
- 3rd Party Logistics Provider (3PL): 2PL including customs
- 4th Party Logistics Provider (4PL): asset free
- 5th Party Logistics Provider (5PL): 3PL/4PL including consulting and SCM services
Other terms which are commonly used are Logistics Service Provider (LSP) and Lead Logistics Provider (LLP), those are more often than not 3PLs including brokerage. Another term often used is the definition of a freight forwarder, which is the same as a 3PL. A freight forwarder has the following operating dimensions:
- Non-vessel carrier
- Own bill of lading
- Operates on behalf of shippers
- Specialises in storage and shipping
The above illustration shows the complexity of the global supply chain and the high number of logistics players being part of it. Given this complexity, any of the above companies still has key business objectives to achieve:
- Reliable Customer Delivery Promise (last Mile)
- Reliable On-Time Delivery
- Controlled Cost Management
- Lead-Time Optimisation
- Omni Channel Response Flexibility
- Shipper versus Carrier Control
In order to address the key business questions stated above, companies can employ one of two main operating strategies. They are defined as follows:
Freight Forwarder centric Strategy:
- Functions are distributed between Shipper and Carrier
- Shipper manages ocean booking and lane optimisation
- Carrier manages foreign domestic transportation (drayage at the origin port)
- Carriers still manages the majority of the goods movements from origin to destination
Shipper centric Strategy:
- Shipper controls the goods movements from origin to destination
- Coordinated the activities of multiple freight forwarders (3PLs) and/or service providers (4PLs), strong oversight of the end to end flow by the shipper
- Transportation management functions such as tendering, planning and execution can still be distributed to and managed by a specialised service provider
Both operating strategies, however, require a technology platform. Transport management systems (also referred to as TMS) is the technology platform of choice used to manage global logistics in this situation. The capabilities of a TMS are deployed differently depending on which strategy a company uses. Such deployment options can be realised through either on-premise or a cloud based infrastructure. The latter deployment mode makes TMS available also to mid-size companies. TMS deployed this way can be viewed as a private platform connecting to the outside world; assets owners such as trucking and warehouse companies, airlines and steamship lines, freight forwarders, parcel providers providing the last mile and cross border e-commerce capability, and public platforms. TMS also connects to internal functions and ERP systems within the corporation and supports collaboration against one single data set.
In addition, public platforms can be used from players such as INTTRA, GT NEXUS or FREIGHTOS. However most public platforms are limited to procurement as well as track and trace capability although some providers are extending their capabilities into the core TMS space of order management and execution.
Capabilities of a TMS
Before we review the deployment modes in more detail, a review of typical TMS capabilities is required, irrespective of which operating strategy is used. Such typical TMS capabilities are as follows:
- Route optimisation
- Load planner
- Merge-in-Transit visibility
- Real-time performance reporting
- Multi-modal quoting
- Shipment consolidation
- Real-time multi-carrier
- Auto-generated shipping documents
- Returns Management Authorisation
TMS acts as the ‘air traffic controller’ for entire supply chain. It owns no assets and has strong technology abilities allowing 360-degree visibility which allows proactive steering, management and control of all supply chain participants and trading partners. Another dimension is the integration of data flows across all players of the supply chain under management. Common data exchange mechanism based on standardised business object documents (BOD) are the foundation for that integration.
TMS will be deployed as follows:
Freight Forwarder centric Strategy
- Shipper use TMS for certain functions internally
- Carrier use TMS for their internal operation
- Control Tower can reside with the freight forwarder and provider and end to end service to the shipper
- Visibility as well as Track and Trace is managed externally to the Shipper
- Caution: We must remember that 90 percent of freight forwarders cannot go beyond pure freight and warehousing
Shipper centric Strategy
- Shipper uses a Global TMS for coordinate the activities of its freight forwarders (3PLs) and service providers (4PLs)
- Neutral Platform for all freight forwarders operating for the Shipper
- Data homogenisation for all players
- Shipper operates the Control Tower
- Visibility as well as Track and Trace manages internally
- Supports a centralised internal logistics and transport function
- Trade Compliance integration and overlap is managed in a tighter fashion
- Integration of international and domestic logistics service providers
Benefit and Trend
TMS will drive a number of benefits, as listed below. But…
… the benefits stated here are focused primarily on the logistics flow from source to destination. However, demand changes are the need to be responsive and flexible is an absolute must. Hence TMS alone will not be the only solution to the requirements of an omni-channel strategy. The shipper has to manage the inbound inventory from the sources with a view of how to best deploy this inventory against the demand in mind. This first requires, and we see this trend happening at the moment, that across industries many companies opt for employing a more shipper centric strategy.
Secondly, the inbound flow managed through a TMS platform has to be integrated to the front-end tool used to manage an omni-channel structure.
Below is an example of an omni-channel architecture. Since It is not enough to just move goods from a source to a destination based on a fixed purchase order, there is an increasing requirement to connect the movement of goods with inventory planning, management and allocation capability, as well as the sales platforms. Any shift in demand can be reflected in the steering of goods movements and potential redirection at certain control points along the logistics flow. This is the reason why a shipper centric strategy will be more successful. Carriers have limited capability in this area for complex global flows, since the primarily execute a purchase and are unaware of the changing demand of the channels.
Advanced Omni-Channel Architecture
Integrated 4 layer approach to omni-channel fulfilment and supply chain responsiveness