In today's stagnant economy, logistics professionals are working hard to upgrade supply chain performance. Or as the dusty old cliché goes, when the going gets tough, the tough get going.

That message comes across loud and clear in the results of our 12th annual "Giants of Shipping" logistics survey, which found marked improvements in inventory turns and reductions in inventory on hand compared to previous years' results.

Over the past 12 years, the study has tracked trends in shippers' transportation and distribution practices. This year, 188 shippers accounting for an estimated $17.2 billion in transportation spending took part in the research. The study once again was conducted by researchers at Georgia Southern University, the University of Tennessee, consultants Cap Gemini Ernst & Young, and, of course, Logistics Management magazine.

Although shippers taking part in the survey represent a cross-section of industries, the largest group of respondents—about 25 percent—hailed from the consumer products manufacturing sector. Just over 20 percent were in general manufacturing, and the third-largest category was retail, with about 11 percent.

The study originally was dubbed "The Giants of Shipping" because it compared freight expenditures of large corporations with those of small companies. (For purposes of the study, "giants" are defined as businesses with more than $3 billion in sales.) Although the study still compares the activities of large and small companies, over the past couple of years the distinction between them has become blurred. To a large extent, trends observed in the logistics practices of large companies today also are found among smaller companies.

This year in particular, logistics managers are focusing on transportation cost reduction. When asked to name the strategies they employ to increase customer profitability, 77.1 percent cited reduced transportation costs. Another 54.2 percent said they reduced their inventory, while 53.5 percent said they reduced their order-to-ship cycle times. (Multiple responses were allowed for this question.)

Figure 1

When asked to name the most important issues facing their organizations, 71.3 percent of those responding ranked "cost control/cost reduction" as their top concern. In second place was the need to utilize and optimize information technology, cited by 40.0 percent of respondents. (More than one response was allowed to the question.) The third most-cited answer was improving customer-service processes, noted by 34.8 percent of respondents. (See Figure 1.)

"This ranking indicates that firms have not lost sight of the fact that transportation expenditures are still one of the largest cost drivers for logistics," observes Dr. Mary Collins Holcomb, associate professor of logistics at the University of Tennessee and one of the study's authors. "Reducing costs in this area creates positive bottom-line results," she says. "Furthermore, the next priority reflects the fact that firms also understand how to accomplish this first goal."

The survey results further indicates that companies are looking to logistics managers to help generate cash flow during these tough times. When asked to rate the performance of their business unit over the past year, most respondents said that accounts receivables, return on assets, and cash-to-cash cycle times met or exceeded corporate targets. Only general profitability and return on investment were reported as having failed to meet company objectives.

The expanding adoption of technology appears to be playing an important role in improving logistics performance. The research found that 80.0 percent of the respondents now have the ability to track outbound shipments, and 64.3 percent can track their inbound shipments. Interestingly, nearly three-fourths—73.6 percent—said they were using technology to handle carrier selection.

When asked about their use of logistics technology, 55.0 percent of the survey respondents said they had already completed implementation of an electronic data interchange (EDI) system, the highest implementation rate of any application in the survey. Next came deployment of a warehouse management system, which was cited by 34.6 percent. Just under one-third of respondents (31.5 percent) said they had implemented a manufacturing resource planning (MRP) or distribution requirements planning (DRP) system.

As for implementations now under way, transportation management systems (TMS) were most frequently mentioned, with 25.4 percent saying they were in the process of implementing a TMS. EDI came next with 21.8 percent.

The biggest surprise was that 34.9 percent said they were considering implementation of radio frequency identification technology, an application that has been receiving a lot of press these days as a possible replacement for bar codes. Another 32.6 percent indicated that they were looking at supply chain event management software, an application that's being touted for its ability to provide supply chain visibility.

Nevertheless, the disparity between the deployment of existing technology to achieve internal and external visibility was striking. The majority—72.1 percent—said they had deployed technology to obtain internal visibility of orders. Only 37.1 percent, on the other hand, were using technology to obtain global visibility of orders. That seems to indicate that companies have gained a clearer vision of their internal operations, resulting in commensurate benefits, but they have yet to incorporate their trading partners into a global, big-picture view of their supply chain.

Visibility often hinges on the ability to exchange data between disparate applications; hence integration is essential to gaining visibility. This year, survey participants reported a higher degree of integration of various software applications than they have in the past. When asked to rate the integration of various processes on a scale of 1 to 7, with 1 being highly integrated and 7 being not very integrated, order management integration with ERP systems scored 3.1—the highest degree of overall integration. Order management integration with warehousing received a mark of 3.2. Order management integration with transportation systems netted a score of 3.5, and warehousing coupled with transportation applications earned a rank of 3.6.

"That's great news," says Dr. Karl Manrodt of Georgia Aouthern University and one of the study's authors. "It tells you that WMS and TMS packages are more integrated than in the past. That could also explain why [inventory] turns are better and inventory is down."

No surprise, then, that shipper respondents reported having made great strides in supply chain visibility. On a scale of 1 to 7, with 1 as the highest in importance and 7 as the lowest, shippers gave the best grade—2.4— to finished goods inventory. Visibility of outbound shipments was rated 2.5 on the same 7-point scale, and inbound shipment visibility earned a mark of 3.7. "In addition to being one of the key attributes leading to customer satisfaction, the ability to respond to changing customer requirements, sometimes in the midst of an order cycle, hinges on visibility," Holcomb points out. "Customers want to know where materials and products are at all points in the supply chain."

Figure 2

Visibility becomes crucial to companies interested in minimizing inventory. No wonder then that inventory turns for finished goods climbed again this year, rising from 18.6 turns in 2002 to 20.7 in 2003. Average days of sales in inventory (finished goods only) also fell, declining from 42.6 to 35.4. The number of days of sales outstanding (a measure of accounts receivable) dropped from 41.6 in 2002 to 37.9 in 2003. (See Figure 2.) This year, the survey for the first time asked the number of stock keeping units (SKUs) held by each concern. On average, survey respondents said they kept 18,911 SKUs.

The study results found evidence that shippers, in their drive to cut transportation spending, are continuing to engage in shipment consolidation. For the fourth consecutive year, the percentage of shippers' dollars spent on national less-than-truckload (LTL) carriers declined. This year, that percentage dropped to 9.7 percent from 10.9 percent in 2002. Dollars spent on regional less-than-truckload also fell, sliding from 12.8 percent in 2002 to 11.8 percent. (See Figure 3.)

Figure 3

In the past, the research has indicated that those LTL dollars were largely being shifted to truckload carriers. Yet this year the percentage spent on truckload carriers also declined, from 32.2 percent in 2002 to 29.6. "This most likely reflects the composition of the participant base rather than an actual decline in truckload expenditures," observes Holcomb. "Even so, approximately one-third of the study respondents reported that they plan to spend more of their transportation budget next year on truckload. The increase in truckload will be most felt by the national LTL carriers, who are forecasted to lose even more of the transportation budget in the coming year."

Expenditures on rail transportation, on the other hand, rose for the first time in three years. Survey respondents spent 8.9 percent of their freight dollars on rail service this year, compared to 6.9 percent in 2002. That may indicate that a resurgence in railroad transportation may be underway, helped in part by the railroads' movement toward more reliable, time-specific service.

Figure 4

Other evidence of the shippers' cost consciousness can be found in the continued growth in the percentage of freight dollars spent on surface parcel shipments. That amount rose from 9 percent of the respondents' budgets last year to 10.9 percent this year. In fact, surface package was the only freight category besides rail to see a spending boost this year.

For the most part, expenditures on the other modes registered declines or remained flat. For example, shippers spent the same percentage on air freight in 2003—3.1 percent—as they did the previous year.

Carrier performance metrics were similar to last year, and no clear leader emerged from among the modes. Overall, there were negligible improvements in on-time delivery. Still, the fact that there were improvements virtually across the board indicates that carriers are taking shippers' concerns about reliability to heart. Equipment availability, on the other hand, declined slightly for motor carriers, while the railroads improved from 85.5 percent in 2002 to 91.5 percent this year—indicative once again, perhaps, of the rail industry's efforts to compete with trucks.

The most significant improvement occurred in the billing error rate for motor carriers. For truckload, national, and regional LTL carriers, the percentage of billing errors out of total billings declined by half. Although this certainly is good news, the fact that respondents ranked correct invoices as the second-most important service attribute for their carriers suggests there is still a need for improvement in this area. (See Figure 4.)

The survey also solicited comments on how logistics and transportation is perceived in the boardroom. Based on the responses, upper management appears to be split in its opinions. It's encouraging that 41 percent of the survey respondents said their chief executives, financial officers, and operating officers viewed logistics as a strategic component. Another 36 percent said those executives saw this function strictly as a cost center. (See Figure 5.)

Although shippers may find themselves pressured to perform feats of logistics strength these days, they can take heart from our latest survey results. They've cut inventory, boosted turns, and have integrated their software packages to higher degree than ever.

Figure 5

On the other hand, each improvement raises the expectation level for customers and for company management. Customers expect on-time deliveries with more frequency, while companies expect logistics managers to continue to rein in costs. "Customers still want more for less and customers are demanding more and more," notes Manrodt. "[Shippers} are running harder to maintain customer satisfaction and they're just doing it to survive."

Editor's Note: The results of the 12th Annual Logistics Survey will be presented in a session at the Council of Logistics Management's annual conference later this month. The complete set of data will be available in October from Prof. Manrodt at www.manrodt.com.