What does it take to be a logistics success these days? According to respondents to our 11th annual Giants of Shipping survey, it depends in large part on how deeply they can see into their supply chains. In other words, seeing outside the company's four walls, to borrow that shopworn metaphor, is becoming increasingly important in managing logistics.

That was clearly apparent in the results of the study, which was conducted by researchers at Georgia Southern University, the University of Tennessee, Cap Gemini Ernst & Young, and Logistics Management magazine. The Giants of Shipping study tracks trends in shippers' spending and logistics management practices. Survey respondents include some of the nation's biggest shippers, dubbed the Giants, as well as smaller companies. For the purposes of this study, the Giants are defined as businesses with more than $3 billion in annual sales.

Survey respondents across the board say supply chain visibility is one of their top priorities. But it's not just those who are on the front lines of supply chain management who need that information. Because visibility—direct insight into the status of orders, inventory and shipments across the supply chain—provides strategically useful information to senior management, demands for that information are coming more and more often from the executive suite and the boardroom.

Dr. Karl Manrodt, assistant professor of logistics at Georgia Southern University, who heads up the annual Giants study, explains, "As we move toward collaborative relationships, it is essential that supply chain members know what's going on. This is particularly true today because in many cases there's no buffer inventory shielding you."

That's one reason why, when asked to rank the importance of various supply chain capabilities to their organizations, Giants and non-Giants alike say visibility of inventory is most important. Both groups also rank such functions as advance shipment notification, tracking and exception alerts, which contribute to visibility, high on their lists. (See Figure 1.) But there appears to be a gap between the demand for visibility and what is available: Respondents from companies of all sizes say they do not have the visibility of information they desire on orders, inventory and shipment status. (See Figure 2.)

Who's asking for that information? Seventy percent of all respondents say that their purchasing departments are asking logistics managers for more information, and 75 percent say that senior managers are asking for more. Among the Giants, 79 percent indicate that senior management is seeking more information than in the past. Another indicator of upper management's growing interest in supply chain information may be that 63 percent of all respondents say that they expect to spend more time this year on strategic planning.

According to Al Montgomery, a vice president of Cap Gemini Ernst & Young's global supply chain leadership team, there's good reason for both purchasing and executive management to be looking for supply chain data. "The fact is that purchasing and management are very active [in scrutinizing the supply chain] with a heavy focus on cost. What's happening as a result is that leadtimes and inventory have dropped." Montgomery adds that he believes senior executives in many industries see supply chain issues as an important part of their strategic planning.

But as the demand for information rises, so do concerns about how to share it and with whom. "There's a question about how much you want to give away to third parties," says Montgomery. "You're my execution partner, but I don't want you to go talking to my customers. It's an intellectual property issue. The potential leverage of knowledge may not be to my advantage."

That concern may be reflected in shippers' attitudes toward the importance of integrating information systems. Although they rank internal integration of applications as very important (1.95 on a scale of 1 to 7, with 1 being "very important"), they give external integration less weight—2.60 on that same scale.

Given that there's so much emphasis on supply chain visibility, the ability to provide and exchange that information remains more primitive than might be expected. "Logistics is spending more time on collaboration with customers and suppliers," says Montgomery. "The discouraging part is that more than half the communications are still manual or through phone calls. Companies are still not using the technology available." The study results bear that out: Just over half of all respondents say that the primary way in which internal customers gain access to logistics and transportation information is through a personal request by phone or e-mail. Even among the Giants, where more sophistication might be assumed, 47 percent of such requests are made that way.

In fact, a number of logistics processes are not as widely automated as might be expected. For example, 33 percent of the Giants and 45 percent of the smaller companies responding to the survey use manual processes for returns management. One-fourth of the Giants and 43 percent of the other companies use manual processes for transportation planning, while 19 percent of the Giants and 34 percent of all other companies manually manage transportation operations.

Despite those differences, in many areas smaller companies appear to be catching up with the Giants in how well they manage their logistics operations. Mary Collins Holcomb, associate professor in the University of Tennessee's marketing, logistics and transportation department, says the survey results over the last few years show a flattening of trends. "The smaller firms are getting smarter at what they're doing," she says.

The growing importance of supply chain visibility confirms that trends identified in the earlier years of the study are indeed taking hold. But weakness in the economy has led some businesses to hunker down and revert to an earlier way of thinking where logistics is concerned, as indicated by the dramatic rise in the number of both large and small shippers who say their companies view logistics as a cost center. (See Figure 3.)

Not surprisingly, 57 percent of those who say their companies view logistics as a cost center are focusing their efforts on cost reduction. But 24 percent of the respondents in that group say their prime focus is on customer satisfaction. Another 10 percent are working on maximizing asset utilization, and 9 percent say that their major focus is on maximizing profit.

Supply chain visibility plays a role in enabling companies to achieve all of those objectives. For instance, Montgomery says, businesses that want to maximize profits find it very difficult to get the data they need to calculate the profitability of individual customers. That's because businesses are good at understanding costs within functions, says Holcomb, but collecting and interpreting data across the supply chain is a challenge. Supply chain visibility is the key to obtaining that information, Manrodt adds.

In addition, more than half of all respondents to the survey say that their companies' or divisions' business strategies focus on customer service and leadership through product and market innovation, suggesting that logistics managers have to make a better case to management that they are contributing to those goals. (See Figure 4.) "If all we talk about is reducing costs, logistics gets typecast and we continue to paint ourselves into a corner," Manrodt says. "We have to change our language and talk about providing value for customers, and how investments in supply chain enhancements will have a positive financial impact on the company."

Although the emphasis on cost control may have increased, says Holcomb, the results of the study indicate that logistics managers have not lost ground when it comes to service. Four primary service measures—on-time shipment delivery, over/short/damage, correct invoicing, and percentage of shipments with customer complaints—remained virtually the same from 2001 to 2002.

The study results offer other indications that the poor economy has not derailed efforts to improve the effectiveness and efficiency of logistics management efforts.

A critical indicator of supply chain management success is how well businesses manage their inventory, a particularly important issue during an economic downturn. Although inventory levels remain relatively high—respondents report an average of nearly 43 days' worth of sales in finished-goods inventory—that's still an improvement over last year's 46.7 mean days of sales in inventory, although not as good as the previous year's figure. Interestingly, the number of inventory turns rebounded to 18.6 from last year's 10.5, while average days of sales outstanding (one measure of accounts receivable) deteriorated only slightly to 41.6 from 40.3. (See Figure 5.)

"Of all the years when we thought the numbers would be bad, it didn't happen," says Manrodt. "I was expecting a lot worse."

How well inventory is managed in the future may be influenced by who is managing it, Manrodt suggests. He cites the example of a supplier engaged in vendor-managed inventory for a major retailer. The supplier is better equipped to manage the inventory because it not only has visibility of inventory in the retailer's distribution centers, but it also knows its own capacity to meet forecast demand. Some other retailers, by contrast, may be able to see inventory in their supplier's DC but have no visibility into manufacturing capacity. Having that information is critical to achieving the most effective inventory management, Manrodt says.

Montgomery adds, "Inventory optimization is a never-ending quest for all supply chain managers. It's a highly visible metric for which they all, almost universally, are accountable. It's encouraging to see that new visibility tools are now going to allow them to act on their aspirations to run lean," he says. "Once inventory in motion and at rest is consistently in their sights, they can pull the trigger quickly when events occur that require a re-optimization of their inventory plans."

As both Giants and non-Giants grapple with issues like cutting costs and managing inventory better in a tough economy, they also are taking a closer look at their domestic transportation operations. To that end, nearly all respondents are consolidating more shipments, as indicated by their increasing use of truckload carriers. For the third consecutive year, truckload expenditures as a percentage of domestic freight spending increased. In 2000, truckload accounted for 26.9 percent of the transportation budget; this grew to 29.5 percent in 2001 and 32.2 percent by 2002. At the same time, spending on private fleets has increased markedly, from 11.6 percent in 2000 to 15.2 percent this year.

This shift toward truckload carriage and private fleets clearly has come at the expense of national less-than-truckload carriers, whose share of the freight dollar has declined during that same period. (See Figure 6.)

Another indication of cost consciousness is the steady move away from express services (defined as "small package" in the survey) toward cheaper surface parcel shipments. Spending on air freight, moreover, is down fairly sharply, due most likely to cost cutting as well as to a drop in available airline capacity in recent months. Expenditures on rail and intermodal shipments, meanwhile, remain relatively stable compared to last year.

In general, Giants and non-Giants take fairly similar approaches to apportioning their freight spending, but there are a couple of significant differences. Giants spend more than twice as much of their freight budget on rail shipments as do non-Giants (11 percent versus 4 percent). At the other end of the spectrum, the Giants spend far less on surface parcel shipments than do non-Giants (4 percent versus 12 percent).

Carrier performance metrics are similar to last year's, with one exception: The on-time delivery ratio for railroads jumped by 5.4 percent. (See Figure 7.) Also interesting is the substantial difference in the billing error rate for national LTL carriers between Giants, who report an error rate of 3 percent, and smaller companies, which experience an average error rate of 7 percent.

The results of this year's Giants of Shipping study are encouraging in several respects, according to the researchers. The gap in performance between the largest shippers and their smaller colleagues seems to be getting narrower, and shippers of all sizes are demanding greater visibility across their supply chains. On the other hand, low-tech, manual logistics processes remain prevalent even when more effective tools are available. And the tendency to focus on cost rather than supply chain efficiency or competitiveness when the economy softens is a thorny issue that extends well beyond logistics and supply chain management into every corner of business.

Perhaps the best news is that logistics managers have not sought to make cost reductions that will hurt service, Holcomb says. "This bar has been raised and [customer service] appears to be positioned for further gains—not declines."