Freight transport enables the flow of materials along the supply chain. There are five main modes of transport: (a) air; (b) road; (c) water; (c) rail; (d) pipeline. Sea transport is the dominant mode of transport for international transport, while road transport for inland. They are often integrated in global transportation.
Scale is usually the key to cut transportation cost. Purchasing materials in bulk quantities and delivering them in bundles are usually the way to cost effectiveness. However, JIT system pushes to opposite direction - frequent shipment of materials in small quantities. How can a company benefit from JIT system and at the same time to minimize transportation costs? Obviously one solution is to minimize the transportation distance by choosing manufacture site close to supplier. Another solution is to combine the small loads of many customers to achieve economics of scale. There are lots of third-party logistics providers, freight consolidators and forwarders existing to meet the market need. They often offer competitive shipping price. A sound understanding of these options for unbundled transportation that meets both JIT and transportation cost objectives may be challenging. The best solution may be a mix of both bundled and unbundled transportation.
Case study: Deutsche Post / DHL
DHL was founded by Dalsey, Hillblom, and Lynn in 1969. It was one of the first air courier companies. Hillblom started with delivering bills of from San Francisco to Honolulu. By flying the documents to the destination city, the clients could save valuable time dramatically as oppose to using vessel to ship the documents with a long waiting time. By 2002, DHL has been acquired by Deutsche Post that is headquartered in Bonn. DHL is by far the largest international carrier, capturing 40% of that market. In comparison, DHL captures only 6% of the domestic market. Its major competitors include FedEx, UPS, and national post carriers such as United States Postal Service. Deutsche Post has five business segments (revenue in percentage): logistics (34%), express (25.7%), mail (19.9%), financial services (14.3%), and services (6.1%). Today Deutsche Post DHL's revenue reaches about 55 billion euros and its employee about half million.
4.3 Supply chain technology
Timing is critical for many businesses, especially in JIT environment with very short lead-times. Often the exact quantities are known only a short time before they are processed, so that communication speed is essential to keep the flow of goods when they are needed through the pipeline. These requirements have spurred invention and development of the above IT technologies. By matching purchase order and shipment information, one electronic invoice is generated at the time of completion of the ordering cycle and transmitted to the customer. The invoice document allows a buyer to record payment information and automatically update applicable financial systems. The flows of materials and financial resources in the supply chain is triggered and supported by the information flows. Today's multi-tier global supply chains are dependent on modern information systems to manage logistics complexities. This is a key driver of developing increasingly sophisticated supply chain information technologies. The ability to access to timely and accurate information is fundamental to effective supply chain management. The more timely and accurate the information is, the greater the capabilities of moving the resources and materials across the supply chain.
Common core IT applications used in global logistics and supply chain management include Electronic Data Interchange (EDI), Enterprise Resource Planning (ERP), Collaborative Planning, Forecasting and Replenishment (CPFR), Warehouse Management Systems (WMS), and Vendor Managed Inventory (VMI).
Electronic data interchange (EDI) as computer-to-computer exchange of business documents in standard format, has greatly facilitated domestic and international trade. Many businesses are finding that EDI gives them a competitive advantage. The technology has significantly reduced the communication cost and has led to symphonic coordination among the members of supply chain network. When EDI is used to exchange business documents, data is transmitted quickly and accurately and is keyed in only once. Suppliers can access their customers' database to inquire product stock level and determine when shipments should be made. Systems are directly linked and provide data updates as needed for the appropriate transaction.
Enterprise Resource Planning (ERP) as a core application in multinational manufacturing and logistics companies offers visibility and integration of many complex global interactions. The ERP is evolved from MRP (Material Requirements Planning; later Manufacturing Resource Planning) and CIM (Computer Integrated Manufacturing) by Gartner, Inc. in 1990. The applicaiton covers all core functions of an enterprise, regardless of the organization's business or charter.
Collaborative Planning, Forecasting and Replenishment (CPFR) began in the late 1990s by Wal-Mart to enable collaborative planning with their first tier supplier. The major ERP software vendors are now including CPFR to their ERP package. CPFR is considered a core application as it has far-reaching supply chain solutions.
Warehouse Management Systems (WMS) are essential to the management and control of warehouses and distribution centers. They are usually integrated with other software applications. For example, a customer order transmitted via EDI will trigger the ERP system to call for materials from stock, followed by the WMS to pick from stock and dispatch. WMS often interface Auto ID Data Capture (AIDC) systems including barcode scanners, mobile computers, wireless LANs and Radio-frequency identification (RFID) to monitor the flow of materials. Such devices allow automatic data collection and a real-time wireless transmission of data to a central database that provides inventory reports about the status of materials in the warehouse.
Vendor Managed Inventory (VMI) is more than just a software application. It fosters a collaborative and symbiotic relationship between buyers and suppliers. The suppliers (vendors) take full responsibility for maintaining an inventory of the products usually at the buyers' consumption location. This ensures that the suppliers' products are properly displayed, handled, and the buyers are fully informed about the features of the products. VMI becomes one of the successful business models used by Wal-Mart and many other big box retailers.
Radio-frequency identification (RFID) stands out among many other innovative enabling technologies for JIT management. The advent of RFID tracking technology revolutionizes the logistics management by providing real-time tracking of products' flow across the global supply chain network. RFID readers eliminate manual data entry, and allow companies to track their products and make real-time management decisions from anywhere in the world. Now Wal-Mart and the United States Department of Defense have required their vendors to put RFID tags on all shipments.
