Here's a look at how shipping automation will let you move freight fast, underbudget, and with precision.
Shipping automation lets you move freight fast and under budget--and track it with laser-beam precision
In 1992 FMC Resource Management Co. shattered all the customary rules of shipping. Like most companies, the fledgling distributor of printed collateral materials grew up believing that occasional in-bulk shipments were the way to go. But when its large retail customers began complaining that shipments were too large, FMC co-owners Mark Trumper and Bill Smith decided to do something radical: hold onto inventory and ship smaller loads more frequently.
The new strategy was meant to spark growth--and it did. FMC shot from $600,000 in net sales to $16 million in about eight years. But it also created a logistical nightmare. FMC used to consider 25 outbound shipments a day demanding; suddenly it had to make 500 to 1,000. The whirl-wind pace would have broken the small company had it not been for a sophisticated automated shipping system that took overnight delivery to the limit. Today FMC routes and tracks packages in minutes and chooses from several overnight carriers to get the lowest price. "We've not only lowered our shipping costs," says CEO Trumper, "but we offer better service to our customers, and we don't need 100 people to run our shipping department."
Like FMC, most American companies spend considerably fewer dollars on shipping than they did 15 years ago. In 1995 American corporations spent 6.1% of the gross national product on transporting goods--down from 7.5% in 1981, according to the U.S. Department of Commerce. That might not sound like a giant reduction, but each tenth of a percent equals $7 billion, says Robert Delaney, executive vice-president of Cass Information Systems Inc., a transportation-management information and software company in St. Louis, and author of the Cass Annual State of Logistics Report, a compilation of statistics about transportation and business logistics. Delaney believes the decrease is due to two factors: deregulation of the trucking and rail industries and the increased use of information technology.
Yet pressure exists to reduce shipping costs further. As large manufacturers and distributors have watched their profit margins erode over the past 10 years, they continue to struggle to cut operating costs. "Large companies are looking for untouched reengineering territory," says Ted Stank, professor of transportation and logistics in Iowa State University's College of Business Administration. "And it appears to be logistics."
The belt-tightening has often left smaller companies holding the bag. Unable to ship parts until the moment customers need them, small suppliers must ship less product more frequently--a situation that saddles them with disproportionately high shipping bills and devaluing merchandise. But things are changing. Increasingly, smaller companies are using shipping automation to track inventory from their docks to the customer's door and to move products more efficiently and at a lower cost. The big payoff: reducing the cost of inventory while forging stronger customer relationships.
Linking to Outsiders
One of those smaller companies is Prime Alliance Inc., a distributor of thermoplastics based in Des Moines. The $50-million company is the crucial link between giant manufacturers of thermoplastics and components makers. The thermoplastics eventually are used in an assortment of products--everything from Hewlett-Packard computers to John Deere tractors. Squeezed in the middle, Prime fights a shipping war on two fronts because the company is liable for inventory from the minute it's hauled away from the manufacturer's plant to the instant it's dropped off at the customer's warehouse.
Back in 1980 Chuck Irvine, Prime's founder and chairman, leased 15,000 square feet of a warehouse in Des Moines, hired full-time truck drivers, and launched the company. In those days the shipping game wasn't too complicated. During the long hours of the night, warehouse workers loaded pallet after pallet onto the company's cavernous trucks and sent them out on lonely highways at daybreak. But soon the rules that had set Prime in motion drastically changed: the federal government deregulated the trucking industry, demolishing trucking monopolies that had existed for decades and shaking the very foundation of interstate commerce. Irvine faced an unanticipated dilemma: as a $250,000 nationwide distributor, should he continue using his own trucks or go with a third-party company?
Irvine knew that Consolidated Freightways and other giant carriers were using technology that allowed them to track trucks as if they were Scud missiles--an investment he'd be hard-pressed to make alone. If he outsourced, he figured, he'd have access to that tracking, without having to spend the time and money to set up the system himself. And with the large carriers now battling it out for customers, he'd likely find high-quality service at a price he could afford.
There was only one catch. Irvine had reservations about dismantling his small fleet, fearing that he would lose control over his freight and no longer be responsive to his customers. He wasn't the only one with misgivings. The large thermoplastics manufacturers were also hesitant to fork over their valuable freight to an unknown quantity, especially because the only third-party carriers that existed before deregulation were referred to as "bull haulers"--better thought of as trucking mercenaries. Those truckers reported to no one and didn't always file their trucking rates with the Interstate Commerce Commission.
Before Irvine made the leap, he wanted to see how others were surviving in the brave new world of outsourced trucking. So he visited a local commercial grain-trading company that shipped product throughout the United States via third-party carriers. The company used a rudimentary phone-bank system to stay in touch with the trucking companies and to track its freight. "I'd never seen anything like it," says Irvine. "Here was this massive grain company, and it didn't own one truck."
