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OPERATIONS

Delivering the Goods

Here's a look at how shipping automation will let you move freight fast, underbudget, and with precision.
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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."

Barely a month later, Irvine disbanded his own small fleet and installed a similar system. But the system was slow and labor-intensive. As soon as the cost of information technology came within reach of the company's small budget, Irvine began investing. The heart of his system is a Compaq Proliant 2000 file server and a Novell network. Running off the system are some 20 PCs. Today, when Kimball Matkins, logistics manager at Prime since 1995, has to move 40,000 pounds of thermoplastics from Des Moines to Tulsa, he first turns to his PC to select from the company's more than 90 contracted carriers. Using proprietary software provided by a number of the carriers, Matkins can quickly get an estimate of how much each would charge for the haul. Then, to be sure that he's paying a fair price, he enters the shipping origin and destination into PC*MILER, a software application from ALK Associates (800-377-MILE; stand-alone, single-user, for Windows, $1,995) that calculates the best route to take, based on the lowest mileage. With that information in hand, Matkins calculates the dollar-per-mile shipping rate. "Some companies choose a carrier if it has trucks pointing in the right direction," says Irvine. "That's typically the wrong way to make the decision."

But price isn't Irvine's only consideration. Reliability is also important. Prime has preprogrammed its shipping standards--the carrier's on-time shipping rate, for example--into a module in Macola Progression Series, the company's accounting and distribution package ( Macola Software, 800-468-0834; accounting, $1,250 per module; distribution, $1,750 per module; all modules of accounting and distribution, $13,000). Every time a shipment is successfully delivered to a customer, Matkins enters three dates into Macola: when the shipment was requested, when the product was shipped, and when the product was delivered. With a few keystrokes, he can quickly find out whether the carrier is up to snuff. In addition, at the end of each quarter the Macola system automatically generates a quality report that's mailed to each carrier. Even if a carrier's prices are below the competition, Matkins may drop it if the computer reports, say, a low on-time shipping rate. "You're at the mercy of the shippers unless you track them very carefully," he says.

But Matkins soon learned that using a carrier's proprietary software to check the status of a shipment wasn't enough. When customers called Prime for shipment updates, they sometimes still had to wait while customer-service representatives called the shipping department and asked Matkins to download the status reports. Sometimes the reps wouldn't get back to the customers for hours. "The system just didn't work that efficiently," says Matkins.

So Robert Gray, Prime's information-systems director, created a program that can dial into a truck carrier's network every hour and automatically download an up-to-the-minute shipping update into a Microsoft Access database that resides on Prime's file server. Now all customer-service reps and salespeople also have access to the information. So far the program is being used with only one carrier--Barr Nunn Transportation, based in Granger, Iowa--but Matkins says Prime hopes to go on-line soon with all its carriers. "If a truck company wants our business, it's just going to have to provide strong electronic connections," says Matkins.

Irvine says that on a pure cost basis, Prime pays much less per mile than it did when the company managed its own fleet. In the old days, $1.25 a mile was commonplace. Today Prime ships for a little less than $1 a mile. In addition to reducing the cost of each haul, Prime has improved its customer service--using fewer people. The company used to have customer-service reps spread all around the country; now just four people answer customer calls--three based in Des Moines and one based in Detroit. "We never dreamed we could manage with only four customer-service reps when we first started," says Irvine. "But then we never knew how tightly connected we could be to the trucking companies."

Going It Alone

While outsourcing with computer connections is the preferred solution for distributors, small retailers--especially those that ship only within one region--are finding they can benefit most from ramping up the technology on the fleets they already own and manage. A good example is Winston Flowers, a $12-million florist with five retail outlets that uses 15 Ford vans for its deliveries throughout metropolitan Boston and the suburbs surrounding the city.

Like many small retailers, Winston's has changed dramatically since its start, in 1944, when Robert Winston first rolled a flower cart and umbrella out to a sunny corner in downtown Boston. In the hands of his grandsons Ted, David, Michael, and Alex, that cart blossomed into eight retail outlets, through which the company sold most of its flowers. By the early 1980s the grandsons had cut the number of outlets down to three, and deliveries had replaced 75% of in-store sales. As delivery demand increased, they found themselves investing more aggressively in technology to keep pace.

For a long time Winston's was decentralized: each store purchased its own flowers, had its own on-site staff of flower designers, and used its own van for deliveries. The autonomous shops had little trouble keeping track of deliveries, but they were often overloaded with orders. On a busy holiday weekend, for example, one big order could tie up a store's designers and space for an entire day, leaving other customers in the lurch. "We reached a point where we couldn't grow anymore," says Ted Winston. "We were turning down orders."

In 1990 the grandsons decided to consolidate the business and purchased an 8,000-square-foot warehouse in Boston to bring distribution under one roof. By 1994 the company had reached $8 million in net sales and needed even more space, so it moved to a 32,000-square-foot warehouse downtown, across from the Boston Flower Exchange. With 15 vans and some 350 deliveries a day, keeping track of trucks and orders soon became all but impossible. Ted Winston, the company's by-default chief information officer, turned to automation to regain control. He brought in Abner Maldonado, now owner of Abner Maldonado Consulting Corp., a floral-automation reseller in Scottsdale, Ariz., to install a UNIX-based system running off a Micronix USA Pentium 133 MHz file server. But even with the new system, the flowers couldn't be tracked through production, and it wasn't all that unusual for drivers to be sent to a wrong address.

Fed up with the inefficiencies, Ted Winston decided to try a more sophisticated system. He turned once again to Maldonado, to design and install an order-entry and tracking system fully equipped with electronic maps and bar-code scanners. The system, which cost $150,000, sits on the company's Pentium and can be accessed from any of the 30 terminals and 10 PCs in the company's warehouse-based offices and the 20 terminals in the five stores it has today.

Now, when a desperate husband calls for a dozen roses, an operator punches in the recipient's name and address, and in an instant the computer rifles through a database of maps to verify the address and assign the delivery to one of 15 delivery zones. With a push of the button, the order, along with a bar-code tag, is printed out in the design area. Once the flowers are arranged and the tag is put in place, a warehouse worker just looks at the zone on the tag and carts the flowers to the correct loading bay. The tag is scanned one last time so that the record shows when the flowers left the building and who is delivering them. When the delivery run is completed, the driver either radios in to the dispatcher or returns to the warehouse to update the delivery record. If the driver had to leave the flowers with a neighbor, the name of that person is noted, too.

The program also keeps a running tab of the driver's daily commissions. Winston's drivers receive about 40% of the delivery fee, so, for example, once a delivery in Boston--where the delivery fee is $10--is completed and the transaction is entered into the record, the computer automatically adds $4 to the driver's running tab. At the end of the week, the delivery manager just has to push a button to find out what the driver is owed. In addition, to help keep maintenance records up-to-date, drivers enter their mileage at the end of each day into a separate program that alerts the company when each vehicle needs an oil change or a tune-up.

The system also has some routing and mapping capabilities, which Winston's primarily uses for temporary drivers, those hired for holidays and the occasional busy weekend to drive the trucks Winston's rents to supplement the fleet. "On Valentine's Day we go from 15 drivers to 75," he says. "It's nice to give them maps so they don't all get lost out there."

Although Winston's hasn't calculated an exact return on its information-technology investment, Ted Winston believes that the system has paid off. "Once the driver is paid and the cost of maintaining the fleet--gas, oil, tune-ups--as well as the costs of the delivery manager and depreciation are calculated in, we break even on the delivery fee," he says.

But the greatest benefit of the system has been in customer service. In the past, if Mrs. Smith called to say that her granddaughter had yet to thank her for the lilies she sent, some unlucky customer-service representative would have to trudge to the back of the warehouse and sort through the driver's log to reconstruct what may have happened to the lilies. Today, in an instant, Winston's reps can check computerized logs to find out when the driver dropped off the flowers and who signed for them. "Now we don't just have the best flowers around," says Ted Winston, "we practically have a real-time picture of what's happening in the field."

When Information Is Prime

For some companies, it's not costs that drive the shipping operation but information. Take Unifour Finishers Inc., a $5-million textile-finishing company based in Hickory, N.C. This small company transforms reams of woven fabrics--such as spandex and cotton--into the fleece material that companies like Nike and Patagonia cut and stitch together to make hats, jackets, and sweatpants. Long before the clothing makes it to the retail rack, textile-finishing companies like Unifour drag the fabrics through a napper, an antiquated machine that uses tubular-shaped wire brushes to gently break up fibers and produce the fuzzy, soft fleece effect. Unifour receives the fabrics from "converters"--agents who purchase fabrics for clothing manufacturers--and once they are "finished," ships them off to various cut-and-sew operations. In any given week, Unifour may ship as many as 2,000 rolls of finished textiles.

Because Unifour doesn't own the large inventory it moves, the converters cover the cost of shipping into, and the cut-and-sew operations cover the cost of shipping out of, the company's 20,000-square-foot warehouse. But the converters can't send out bills to the cut-and-sew operations for the finished textiles until they know that the textiles have left Unifour's warehouse. So naturally they can be impatient and demanding masters. For Unifour's CEO, Harold Setzer, the pressure is on to account quickly and accurately for every stitch the company ships.

In the early 1980s Setzer used a variety of manual systems--paper-based procedures that were riddled with human error--to keep tabs on the fluid inventory. A warehouse worker, for example, might move a roll of spandex from the warehouse to the finishing plant and never mark down the transfer. Or because a roll of white spandex and a roll of white cotton can look the same, workers might mistakenly load the wrong material onto outbound trucks. Moreover, preparing detailed shipping reports for eager converters was a tedious chore that required hours of tallying up bills, using pencil, paper, and calculator. At best, reports were sent out twice a week. "Reporting like that may have been fine 30 years ago," says Setzer. "But not today, when the imports are beating our brains out." Even after purchasing a minicomputer in the late 1980s to enter the information into, errors persisted. "I hate to admit it," he says, "but we had little control over what was going in and out of our building."

So three years ago Setzer enlisted the help of Sean Turner, the owner of Unitech, a systems integrator in Atlanta and Hickory, N.C. Turner replaced Unifour's minicomputer with a Novell network running on an IBM file server, giving everyone--from the chief financial officer to warehouse loaders--access to the same information. After refining the order-entry and accounting systems, Turner tackled inventory management, installing four real-time radio-frequency (RF) bar-code scanners, made by Hand Held Products (800-582-4263; $1,499 per unit). In the past bar-code scanners that could update computers using RF links were difficult to install and outrageously expensive. In fact, most RF systems were built to transmit signals in enormous warehouses of 100,000 square feet or more, and businesses were required to apply to the FCC for an operating permit. "It was like owning your own FM station," says Turner. That all changed in the early 1990s, when prices dropped dramatically and FCC regulations no longer applied to many systems. Turner's last move was to connect the scanners to the inventory-management system to provide an up-to-the-minute picture of what was in the finishing process, what was in the warehouse, and what had already been shipped.

The upgrade has cost Setzer more than $80,000 in the past two years. But just knowing that every morning he can accurately report to his converters has made the outlay worth it. "We're more accountable to our customers today than we ever have been," says Setzer. "And we can take on more business without fearing that we'll lose track of what's leaving the warehouse."

Today as soon as goods enter Unifour's warehouse, employees key a work order into the computer, including shipping instructions and a packing-slip number. The computer then spits out bar-code tags that are attached to each individual roll of fabric. Workers walk through the warehouse carrying the small wandlike scanners and scan a bar-code tag any time they move a roll even a foot; then, using the scanner's alphanumeric keypad, they enter which aisle they've moved the roll to. When an order is ready to be shipped, workers reenter the packing-slip number and scan the tags on the individual rolls that are loaded onto the trucks. If a worker mistakenly loads the wrong item, the RF scanner flashes a red light and makes an audible tone.

Generating bills is just as simple. As the rolls of fabric are scanned throughout the finishing process, the computer builds an electronic invoice. Before the finished rolls are loaded onto a truck, the name of the trucker and the cost of shipping are entered into the main computer. Office workers then need only punch a few keys to print out a customer's invoice. Not only are customers happier because they receive bills faster, explains Setzer, but Unifour benefits because it gets paid sooner. "This system has helped us improve what's nearest and dearest to us--our cash flow," he says.

A Handle on Growth

For FMC, which recently became an independent subsidiary of the St. Paul­based Merrill Corp., tracking wasn't particularly tricky, but managing the shipping needs of an exploding business was.

When Mark Trumper and Bill Smith acquired FMC, in 1987, it was operating out of the basement of a small house in Ballard, Wash. For the company's minor shipping demands, Trumper, the CEO, and Smith, the president, purchased a $4,000 Pitney Bowes shipping automation system--basically a 386 computer electronically attached to a digital scale--that came preloaded with United Parcel Service (UPS) shipping rates and could generate UPS packing slips and tracking numbers.

The Pitney Bowes machine served FMC well for five years. Then its large retail customers began demanding smaller shipments of product. Nordstrom, for example, was no longer willing to sacrifice valuable storage space to hold 50,000 invoice forms for the women's apparel department. So FMC introduced a new concept: distributor as warehouse. It stopped shipping in bulk and began filling orders according to customers' precise specifications, essentially putting together variety packs for each customer and holding on to the rest.

From that point on, the company really took off. Trumper and Smith quickly moved their small business to a 6,000-square-foot warehouse in Bothell, Wash., a suburb of Seattle, and began expanding the customer base. But it wasn't long before they outgrew that space, too. This time they moved to a 40,000-square-foot warehouse in Monroe, Wash., northwest of Seattle. In less than a year, the company began building another 40,000-square-foot warehouse next door; today the two are connected by a short tunnel.

With the tremendous growth came extraordinary shipping demands, and the limited Pitney Bowes system wasn't going to cut it. So Jim Mesick, an FMC promotional sales representative who dabbled in computers, was recruited to beef up the automation in the shipping department. Mesick entered into shipping contracts with the big overnight shipping companies, including FedEx, UPS, and Roadway Package System. Each shipper gave FMC a 486 PC that came loaded with the shipper's rates. One by one the computers and scales lined the small warehouse table. "It became a joke," says Mesick. "We couldn't keep working that way. We were shuffling computers around a small table."

A lack of table space was the least of Mesick's problems. He also couldn't connect the disparate systems to FMC's UNIX-based accounting program or order-entry system; nor could he compare shipping rates without physically moving from computer to computer.

The computer overload couldn't have happened at a better time. Because of the boom in the overnight-shipping industry, software had been developed that eliminated the need for multiple computers. So Mesick returned the pool of shipping hardware and purchased one shipping automation system--a DOS-based system called Aristo Parcel Shipping System (Aristo Computers, 800-3ARISTO; $1,000 for software only, $5,000 base price for the hardware and software)--from Distributech, a regional reseller of shipping automation systems (800-868-8282; $4,000 base price). Mesick installed the software on one 486 computer and loaded the shipping rates of all his carriers onto it. Not only can FMC staff now quickly scan for the cheapest carrier for any specific delivery; they can also transfer data from the Aristo system to and from the company's UNIX mainframe network.

These days when impatient customers need to know when their parcels will arrive, they simply call an FMC customer-service representative, who can quickly give them a package tracking number. If a package has been sent through an overnight carrier that allows tracking through a Web site, such as UPS or FedEx, the customer can just key into the Internet and in an instant know when to expect the order. "We wanted technology that would get our customers the information they need when they need it," says Trumper.

The system cuts credit risk, too. The Aristo software automatically dials in for credit-card verification before a package is sent out.

For Trumper and Smith, the investment in information technology has had a clear payoff. In the past five years FMC's warehouse has grown to more than 10 times its original size while the warehouse staff has barely doubled, to 10 employees. "In an industry that has flattened out, the technology keeps us growing strong and under control," says Trumper.

The message is clear: as shipping demands increase, automated systems are a way to keep tabs on your product and forge strong relationships with your customers. Whether you use a third-party carrier or stick with your own fleet, automated shipping systems let you do more for less money with fewer people. For small companies, upgrading can mean the difference between taking on new business and turning it away.


RESOURCES

Web Sites

Two prime overviews, including software, consultants, and news: Transport News

Also take a look at The Internet Guide to Transportation , a well-organized, comprehensive listing of Internet sites related to transportation, logistics, and shipping.

Software

Some of the best-known logistics-software vendors:

FourGen Software , Seattle; 800-333-4436; kiml@fourgen.com;

Cass Logistics Software , Chicago; 312-454-9000; mweigers@casssoftware.com;

Tranzact Systems , Homewood, IL; 708-957-7500; miker@bbs.trazact.com;

Roadnet Technologies , Timonium, MD; 800-ROADNET; market@roadnet.com;

Automated Parcel-Shipping Systems

These companies have been in the automatic parcel-shipping business the longest and offer some of the most sophisticated systems available.

Aristo Computers , Beaverton, OR; 800-327-4786; sales@aristocom.com;

Tracer Research , Marlborough, MA; 508-229-4400; sales@tracerx.com;

For more information about automated systems and a comprehensive list of manufacturers, contact the Affiliated Independent Mailing Equipment Dealers, a product-emphasis group of the Business Technology Association, in Kansas City, MO; 816-941-3100; info@btanet.org.

Last updated: Dec 15, 1996




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