The Giants of Information

Results of our seventh annual Giants of Shipping survey show information management and transportation management go hand in hand.

By Peter Bradley -- Logistics Management, 9/1/1998

The Giants of Shipping could also be called the Giants of Information Management.

Mary Collins Holcomb, associate professor in the University of Tennessee's Department of Marketing, Logistics, and Transportation, made that observation after reviewing the results of the annual Giants of Shipping survey. The numbers support her conclusion and prove the value of using good information well. As Richard Thompson, a partner with Ernst & Young LLP's supply-chain practice, points out, 85 percent of the survey participants say the successful use of information technology has been reflected in their bottom line.

The survey, now in its seventh year, is a collaborative effort by Logistics Management & Distribution Report, the University of Tennessee, and Ernst & Young LLP's supply-chain consulting practice. It examines the buying patterns of the nation's shippers, particularly large shippers with the biggest transportation budgets. The study examines shippers' current transportation buying practices, shipment volumes, modal preferences, technology use, and future buying plans. In most cases, the results reported in this story divide responses into two categories: the average for all respondents, and the average for those classified as "Giants of Shipping"--for the purposes of this study, those companies with reported annual revenues of more than $3 billion.

As in previous years, the study was led by Dr. Karl Manrodt, executive director of the Office of Corporate Partnerships at the University of Tennessee. Other members of the team included Holcomb, Thompson, and Logistics Editor in Chief Peter Bradley. They were supported by Kolin Holladay and Samrat Sidhu, graduate students in logistics at the University of Tennessee.

The survey respondents themselves came predominantly from manufacturing, but represented a number of other industries, too. Slightly more than half of the respondents--55 percent--work at the business-unit level, while the remainder represented a corporate perspective. Many of the companies are business heavyweights; 40 percent reported annual sales exceeding $1 billion.

The respondents represent companies that move a lot of freight. Of the entire sample, 39 percent said they spent $50 million a year or more on domestic transportation. And the group we've identified as Giants--the 24 percent of the respondents whose companies have revenues of $3 billion and up--spends a lot more. Nearly half of that group reported spending $150 million or more each year on domestic transportation. The biggest companies, nearly 4 percent of our overall sample, doled out $750 million or more each year for their domestic transportation requirements.

Spending on transportation represents an important percentage of total corporate spending. Twenty-one percent of the entire sample and 10 percent of the Giants said their transportation expenses exceeded 5 percent of their corporations' annual revenues. Another 34 percent of all shippers and 41 percent of Giants said domestic transportation spending consumed between 2 and 5 percent of corporate revenues.

Total spending on domestic transportation continues to increase, probably as a result of the continuing strength of the economy. Sixty-three percent of all the shippers surveyed and 78 percent of the Giants said their absolute spending was increasing. But that doesn't mean shippers are taking their eyes off costs. Forty percent of all the shippers and 54 percent of Giants said that their domestic transportation spending was decreasing as a percentage of sales. Their focus is clearly on providing their companies with more efficient transportation.

Technology Pays Off

In 1997, the central role that technology had begun to play in logistics management led the Giants researchers to ask an entire set of questions related to technology use. This year's responses to those questions are striking.

A large percentage of survey respondents said they considered a variety of logistics software applications to be essential. They cited several reasons for that belief. Logistics technology was necessary to compete, they said. In addition, they viewed it as a way to distinguish their companies from the competition. They also called technology an important means of reducing costs.

What are shippers looking for in their software systems? One series of questions asked shippers to evaluate their current software in such categories as transportation planning, load planning, routing and scheduling, warehouse management, and other decision-support systems. Respondents ranked the "impact of results" as being more important than the costs of acquiring the software, training, or maintenance. In other words, at the end of the day, shippers look at what the software accomplishes.

"What is interesting about this finding is that respondents reported the highest impact for those packages that are commercially available compared to those that are developed in-house. Today's commercially available packages are increasingly more powerful, better integrated into the ERP systems being developed, and a lot more user friendly," says Manrodt.

Thompson adds a caveat worth keeping in mind when introducing new software, whether off-the-shelf or customized. "Although most logistics professionals acknowledge that today's decision-support tools can have a significant impact on results, very few companies initially understand the true cost and process redesign associated with successful implementation," he says. "Those companies that have gone through a thorough evaluation of the people, process, and technology are achieving the greatest results."

Trucking Dominates

Although technology plays an ever more crucial role in transportation management, the actual physical distribution of goods has not changed much. Trucking still by far dominates domestic respondents' transportation spending.

On average, shippers spent 75.3 percent of their transportation dollars on trucking services, which include private fleets, truckload carriers, national and regional less-than-truckload carriers, and surface-parcel carriers. The Giants, which spent 73.5 percent of their transportation dollars in those categories, closely reflected the overall average.

Of the remaining modal choices, air freight consumed the next-largest share of transportation expenditures--9.8 percent of all shippers' dollars and 10.1 percent of the Giants' spending.

The shippers also were asked to indicate whether their spending in each mode was trending up or down. Truckload carriers should find the results heartening: 57 percent of all respondents and 67 percent of the Giants said they were increasing their spending on truckload shipping. With truckload carriers already taking in more than a quarter of the respondents' domestic transportation dollars, that's a significant trend. It appears to be driven, at least in part, by supply-chain management practices.

"Supply-chain management, which has increased the emphasis on effective procurement--often on a global basis--has enabled firms to leverage the supplier base," Holcomb says. "[This is] evidenced by the increases in truckload spending."

Though truckload spending may be increasing, the number of carriers used by the average shipper may be falling. When asked about the number of carriers they were using in each mode, forty-three percent of the overall shipper sample and 61 percent of the Giants said they were reducing the number of truckload carriers they were using. By contrast, only 27 percent overall and 26 percent of the Giants said they were using more truckload haulers. That supports observations of a continuing trend toward using core carriers.

"The survey results clearly show a continued trend toward carrier consolidation. This is consistent with what we have seen in the field as companies continue to leverage their transportation expenditures with a tighter group of core carriers," says Thompson. "In addition, shippers are working hard to take advantage of the savings opportunities associated with improved load planning and consolidation. This would support the survey findings relative to increased spending with truckload carriers."

Small Productivity Gains

For all their efforts to improve transportation operations by using technology or concentrating on fewer carriers, few shippers said they expected major gains in transportation productivity in the next year. Still, they did expect some improvement: 69 percent of all shippers said they expected to achieve productivity gains of between 2 and 5 percent this year, and 61 percent of the Giants said they expected similar gains. Many of the gains, apparently, will come from looking inward rather than asking more of carriers. Asked to rank the importance of productivity efforts on a scale of 1 to 5, with 5 as very important, half of all shippers and half the Giants ranked "internal operating improvements" as a 4 or 5.

That tactical focus on internal improvements in productivity rather than on external relationships is shortsighted, Thompson believes. "Transportation is a critical link in the supply chain between suppliers and customers," he says."Those industry leaders that have adopted transportation management system (TMS) software solutions for strategic advantage, not simply cost reduction, have seen the greatest impacts on both cost and service and have been able to sustain results," he says.

Part of the difficulty in making even greater gains in efficiency may be that corporate management in most companies continues to see transportation strictly as a cost center, rather than as a strategic element in supply-chain management. Only 32 percent of the entire survey sample and 38 percent of the Giants said that transportation was viewed by their organizations as being a strategic component of their overall corporate planning. That may leave transportation managers with little choice but to squeeze productivity gains out of operations, while the potential for cross-functional improvement remains largely untapped.

Miles to Go

The results of this year's Giants survey suggest a number of conclusions. Shippers are managing the core function well. They are controlling costs and getting good service from most of their carriers, at least most of the time. They are using technology effectively to manage large and complex systems.

But logistics management has yet to live up to its full potential. In many organizations, transportation management has yet to break out of the traditional functional straitjacket that prevents companies from achieving the vast predicted benefits of logistics and supply-chain management. It is not because logistics managers don't recognize how great that potential is. It may simply be that change is difficult to impose, especially when times are relatively good. The biggest institutions may have the greatest resources, but they also may have the hardest time accepting change.

Thompson says that technology-enabled change requires careful evaluation of people, process, and technology. That can be quite a significant undertaking for any organization, he adds.

When the business environment is changing rapidly, however, an overly cautious approach to change can pose a risk. Care and foresight are essential ingredients of prudent decision making, but so is the ability to respond quickly to a shifting environment.

Still, Thompson is optimistic about the future direction of transportation management. He says, "Although major change is difficult to impose on any organization or functional area such as transportation, leading transportation professionals soon will embrace technology to enable the transportation-management function to achieve breakthrough results."

Success stories demonstrating just that already exist. More are certain to follow.