Integrated Transportation in a Capacity Constrained Global Market. August 2011 Bob Heaney

Transcription

1 Integrated Transportation in a Capacity Constrained Global Market August 2011 Bob Heaney

2 Page 2 Executive Summary In June and July 2011 Aberdeen conducted a survey involving 123 transportation and procurement professionals. The data reveals that almost 60% of respondents are focused on improving the ability to analyze and automate true freight spend. This report details how Best-in-Class shippers have leveraged transportation spend management solutions together with process improvements to keep costs under control and maintain high levels of carrier and freight performance. Best-in-Class Performance Aberdeen used the following key performance criteria to distinguish Best-in- Class companies: 2.5 % decrease vs. last year in baseline freight spend 97.2% of orders / items are on-time and complete to customers 68 - average times per year that companies measured transportation performance Competitive Maturity Assessment Survey results show that the firms enjoying Best-in-Class performance shared several common characteristics in both process and enabling collaborative technology versus all others, including: 2.44-times as likely to automate multi-shipper continuous move inbound-outbound interactions 2.19-times as likely to automate suppliers and inbound carriers' information exchange 1.71-times as likely to automate freight audit 1.69-times as likely to automate dynamic supplier routing instructions 1.57-times as likely to automate customs filing Research Benchmark Aberdeen s Research Benchmarks provide an in-depth and comprehensive look into process, procedure, methodologies, and technologies with best practice identification and actionable recommendations By outsourcing our audit and payment process we ve been able to reduce our freight spend by more than $500k. We ve even reduced our errors down to 12 to 15 last year out of the more than 15,000 bills we pay yearly. ~ Logistics Manager, Small Manufacturing Firm Required Actions In accordance with the specific recommendations in Chapter Three of this report, to achieve Best-in-Class performance, companies must: Integrate collaboratively with internal and external partners on enabling collaborative technologies for transportation Complete the transportation spend management loop and increase electronic payments exchange to gain control over spend Implement capacity-constrained event-driven optimization tools with improved multi-party, multi-mode planning or execution technologies / services This document is the result of primary research performed by Aberdeen Group. Aberdeen Group's methodologies provide for objective fact-based research and represent the best analysis available at the time of publication. Unless otherwise noted, the entire contents of this publication are copyrighted by Aberdeen Group, Inc. and may not be reproduced, distributed, archived, or transmitted in any form or by any means without prior written consent by Aberdeen Group, Inc.

3 Page 3 Table of Contents Executive Summary...2 Best-in-Class Performance...2 Competitive Maturity Assessment...2 Required Actions...2 Chapter One: Benchmarking the Best-in-Class...4 Business Context...4 The Maturity Class Framework...5 The Best-in-Class PACE Model...5 Best-in-Class Strategies...6 Chapter Two: Benchmarking Requirements for Success...8 Competitive Assessment...10 Capabilities and Enablers...12 Chapter Three: Required Actions...19 Laggard Steps to Success...19 Industry Average Steps to Success...19 Best-in-Class Steps to Success...20 Appendix A: Research Methodology...21 Appendix B: Related Aberdeen Research...23 Figures Figure 1: Top Business Pressures for Improving Integrated Transportation..4 Figure 2: Top Strategic Actions to Improve Transportation...6 Figure 3: Process Capability Gaps - Automation and Collaborative Optimization...12 Figure 4: Automated Optimization Gaps- Plan, Route, Deliver...16 Tables Table 1: Top Performers Earn Best-in-Class Status...5 Table 2: The Best-in-Class PACE Framework...5 Table 3: The Competitive Framework...11 Table 4: The PACE Framework Key...22 Table 5: The Competitive Framework Key...22 Table 6: The Relationship Between PACE and the Competitive Framework...22

4 Page 4 Chapter One: Benchmarking the Best-in-Class Business Context In our May 2011 Post-Supply Chain Summit Webinar, we presented data based on a survey of 191 enterprises (Welcome to the 2011 Supply Chain Management Summit). The data revealed that the top two pressures facing the supply chain executive have been 1) a general pressure overall to control rising supply chain management costs (50%), and 2) to address the complexity of growing global operations (36%). Today s supply chain executive has taken many steps to reduce transportation costs. In fact, previous Aberdeen reports over the course of the last two years have highlighted several examples of companies with savings of up to 36% in baseline freight costs. However, the economic downturn produced consolidations and constrictions in transportation capacity by lane and mode. Additionally, globalization has increased overseas shipments and volume. The reduced capacity and the increased volume have combined with rising fuel costs to dominate the transportation executive's agenda. Not surprisingly, today, more then ever, transportation cost relative to overall supply chain performance is the top pressure (cited by 57% of 123 transportation executives from the June and July survey, Figure 1). Best-in-Class Results: 2.5% transportation spend reduction over the last year, compared to a 5.9 % increase for Laggards 97.2% of deliveries are ontime and complete versus 84.9% for Laggards 91% reduced their transportation spend yearover-year, versus 49% of all others Figure 1: Top Business Pressures for Improving Integrated Transportation Increasing impact of transportation on overall supply chain performance 57% Increased customer service demands 44% Increased supply chain volatility 36% To facilitate or inform cost-to-serve analysis 19% Servicing expanded complexities 17% 0% 10% 20% 30% 40% 50% 60% Percent of Respondents Source: Aberdeen Group, July 2011 As we shall see in the sections ahead, the two biggest problems companies face, despite the availability of technology and solutions, are the lack of an ability to tightly control transportation costs and the lack of an ability to compete for constricted capacity.

5 Page 5 In response, over 53% of survey respondents are seeking to gain better visibility to costs and over 51% are investing in technology to gain better shipment status visibility. Overall 65% are looking to invest in process or technology enhancements in transportation management over the next 12 months. The Maturity Class Framework To categorize overall performance in transportation management Aberdeen used three key performance criteria to distinguish the Best-in-Class from Industry Average and Laggard organizations. Table 1: Top Performers Earn Best-in-Class Status Definition of Maturity Class Best-in-Class: Top 20% of aggregate performance scorers Industry Average: Middle 50% of aggregate performance scorers Laggard: Bottom 30% of aggregate performance scorers The Best-in-Class PACE Model Mean Class Performance Decreased the transportation cost per unit handled by 2.5% Had a on-time and complete order rate of 97.2% Measured their transportation performance 68 times per year on average Decreased the transportation cost per unit handled by 1.2% Had a on-time and complete order rate of 91.9% measured their transportation performance 20 times per year on average Increased the transportation cost per unit handled by 5.9% Had a on-time and complete order rate of 84.9% Measured their transportation performance 15 times per year on average Source: Aberdeen Group, July 2011 Using technology to achieve corporate goals and improve transportation performance is not an isolated solution it requires a combination of strategic actions, organizational capabilities, and then the proper use of enabling technologies that can be summarized as shown in Table 2. Table 2: The Best-in-Class PACE Framework Pressures Actions Capabilities Enablers Increasing cost and service impact of transportatio n on overall supply chain performance Renegotiate cost / service contracts with carriers, 3PLs, suppliers, and trading partners Fully integrate transportation management with internal functions Warehouse has visibility of outbound freight schedules for improved work flow Customer service visibility of outbound freight schedules for improved order promising Our staff is proficient in dynamically routing international shipments (vs. static, itinerary-based routing) Shared shipping schedules across our divisions / locations (e.g., backhauls, or closed-loop tours) Business intelligence report tools Data integration Domestic TMS for home country volume Supply chain visibility software B2B collaboration software Contract management software Supply chain software package with transportation management capabilities International TMS for import / export volume Source: Aberdeen Group, July 2011

6 Page 6 Best-in-Class Strategies In response to the key pressure to contain fuel cost and the general need to control overall transportation costs within the extended supply chain (Figure 1), companies of all size and scale (see demographics in Appendix A) are taking action in a variety of areas. Figure 2: Top Strategic Actions to Improve Transportation Renegotiate cost / service contracts with trading partners Fully integrate transportation management with internal functions Consolidate logistics or redesign / streamline our sourcing geographies Increase B2B / EDI data exchange and electronic connectivity with partners Rationalize the numbers of trading partners 22% 21% 34% 33% 54% 0% 10% 20% 30% 40% 50% 60% Percent of Respondents Source: Aberdeen Group, July 2011 Within the past 12 months, constricted transportation capacity has forced many executives to take action to secure the costs and capacity that they need quickly (54% are renegotiating currently, Figure 2) and to adopt more fully integrated processes to reduce costs (34%). It is difficult for organizations to combat fuel surges, and balance the increased costs of transportation to a growing global market (overall 80% export and 78% import, see side bar) while also balancing increased customer service demands (44%) and increased supply chain volatility (36%), Figure 2. The number of trading partners in today's global supply chain is a challenge that every enterprise must face. In addition to improving internal functional integration, the global supply chain is highly dependent on expanding externally (i.e., increasing the number of trading partners, suppliers, carriers and government bodies). Hence, external visibility and collaboration is central to optimizing cost and capacity. Much of the attention today is on extending data visibility and collaboration with carriers, suppliers and trading partners. On top of the efforts made in prior years, over 20% of companies are enhancing B2B connectivity, and over 50% are investing in process or technology improvement to heighten the degree of visibility they have with external groups. Now, more then ever, Best-in-Class companies are embracing the people, processes and technologies that drive superior results which are needed to Global Expansion 80% Exporting (shipping across country borders) 79% Importing (receiving from other countries) 91% Domestic shipping (shipping in our home country) 84% Domestic receiving (receiving from our home country) Global Disparity 85% have import and/or export trade volumes Only 22% have the capability to include customs/duties in landed cost calculations Only 20% have a formal Global Trade Management (GTM) program We will explore this growing issue in detail in our upcoming September report on Global Trade Management (GTM).

7 Page 7 address global cost challenges and service requirements and to meet corporate objectives. Aberdeen Insights Strategy in a Capacity-Dependent Market If the last two years has taught us anything, it's that visibility into and control of the entire supply chain is critical in fully understanding the true impacts to cost and service. That focus on visibility has suddenly shifted to supply chain community enablement, integration and collaboration, and event -driven optimization in a capacity constrained global transportation marketplace. Many of the new logistics channels and global trade requirements require tight integration in every strategic and every tactical decision made. Hence, collaborative technology is no longer seen as an after-thought. This shift ensures that integrated transportation is highly interconnected and collaborative, and much more global. There has been a shift of focus to community trading platforms, higher levels of cross-company data exchange, and collaborative process redesign. The proliferation of SaaS based models and web-portals, and mobile apps is further fueling a shift to supplier-carrier-shipper connectivity (see the case study, WalMart Inbound Supplier Initiative). Transportation and logistics is an ever-changing landscape. Rates and capacities, sourcing location, and global trade lanes are in a constant state of flux. Managing these highs and lows is critical to sustaining transportation and supply chain costs. Keeping up with the changes and controlling them will become increasingly strategic. It is important to leverage technology particularly around "collaborative technologies" (see Technology Insight for more on this topic) in this capacity-dependent extended supply chain. Collaborative communications were the single largest challenge but once there was buy-in the overall project plan was quickly put in place and implemented at the company locations. The SaaS based deployment time was only a matter of months and the low cost of investment generated quick returns As customer expectations rise and trade volumes shift, we are happy with the consistency in both cost and service that our new collaborative TSM services solution provides in our global export challenge. The results have been an improved customer satisfaction and a steady growth in the bottom line. ~ Director of Transportation, Large Food Manufacturer In the next chapter, we will see what the top performers are doing to achieve these gains.

8 Page 8 Chapter Two: Benchmarking Requirements for Success Over 70% of the companies, from the Chief Supply Chain Officer Survey, January 2011, indicated that internal/external collaboration was integral to their supply chain strategy. When it comes to process, companies of all classes have begun to harness technology in a collaborative fashion both internal and external to the organization. But the Best-in-Class are doing a superior job. The side bar illustrates some of the process collaboration gaps where the Best-in-Class are 1.6-times to1.8 -times as likely to be responsive and strategic in measuring across channels and performing dynamic realignments. The following case study is an example of how one company has taken major steps to collaborate and upgrade capabilities along with its upstream retailer to earn Walmart's top rated supplier ranking. Case Study Large Consumer Products Company upgrades TMS process and technology, goes-live on WalMart Inbound Initiative Best-in-Class vs. All Others in Process Collaboration 1.8 -times as likely as all others to have the ability to respond in near real-time to events across multiple channel) - 71% versus only 18% for Laggards times as likely as all others to have the ability to make supplier-distribution network realignments (i.e., sourcing, mode, or routing shifts) - 72% versus only 27% for Laggards Over a year ago WalMart announced its plans to embark on an inbound collaboration initiative (Kelly Abney, WalMart VP Corporate Transportation presented some supplier success stories around this initiative during Aberdeen s 2011 Supply Chain Summit). The key goals of the initiative include; 1) identifying transportation opportunities of freight conversion and increased customer-pick-ups, or CPUs, 2) reengineering retailer-supplier supply chains, 3) reducing inbound-to-outbound empty miles and green-house emissions, and 4) negotiating shared benefits for all parties. Initially WalMart approached us for information and data as a potential candidate for a good fit for a heavy shift to CPUs or a conversion from prepaid to collect. They wanted to onboard us to see if we would be in alignment with the objectives of the program. We have a great relationship with WalMart and were eager to support the initiative in anyway we could, said the Manager of Application Support, Transportation, for a Large CPG Supplier. Description of Operations and Conjoint Analysis The company's distribution network is comprised of four manufacturing and distribution points. The product line, which includes some very recognizable household brands, consists of thousands of SKUs across eight departments. WalMart orders are placed into the distribution centers based on vendor pools where certain departments or products are pooled together to form primarily truckload (TL) shipments. continued

9 Page 9 Case Study Large Consumer Products Company upgrades TMS process and technology, goes-live on WalMart's Inbound Initiative Pooled shipments in the former process were routed utilizing a SaaS TMS software and coordinated with 3PL carriers who performed the transport to the designated WalMart drop points. To assess the program each company shared data on the past years volume of shipments and lanes in the old prepaid format versus if the company were collect. The objective was to determine if conversion would make sense and the effort involved in the conversion. The analysis led to the decision to enter into a collaborative pilot test phase to work out issues and analyze overall program benefits. The pilot test and TMS conversion process We aggressively setout on a fast timeline in March 2010 and knowing that many details needed to be worked out we began the conversion process with primarily a manual workaround in place during the testing and go live phase, said the Manager. The customer service teams rallied; performing numerous manual steps during this phase. After go-live the companies continued with all these steps and complexities and it was agreed that the overall conversion program was a success but a high degree of cross company collaboration and automation would be required to continue to support the program on an ongoing basis. Over the next four months the commercial TMS underwent a series of programming refinements some of which are: Providing all parties with approved and improved PO visibility and routing request/instructions to/from the company Shipment creation for collect freight PO s EDI 753 request for routing from the company EDI 754 routing instructions from WalMart Of specific note there was development effort to build added functionality into the TMS product particularly around an ability to create and or react to data flags capable of segregating prepaid from collect and promotional from regular orders in such a way that we could both generate and react to 753 and 754 EDI transactions in novel new ways, the Manager went on to say. continued "One of the key elements of total delivered cost for our company as well as a competitive differentiator is transportation cost. So a few years ago we began to partner with a Transportation Spend Management (TSM) services company. Overall this new partnership has allowed us to document savings upwards of $1 million off of our freight costs while at the same time improving our reach from the single DC on both one day and two day delivery to 40 states - a threefold increase. ~ Jim Shannon, Controller S&S Activewear

10 Page 10 Case Study Large Consumer Products Company upgrades TMS process and technology, goes-live on WalMart's Inbound Initiative Overall Benefits Delivered with Refined TMS Improved fleet utilization (private fleet and contracted or WalMart assigned) and supports green initiatives Increased size and scope of CPU program Institutionalized WalMart EDI standards across supplier base Improved WalMart supplier ranking status Reduce Late penalties / missed appointments / Claims Our relationship with WalMart and maintaining a top supplier ranking was a key motivator for internal and external development teams. We knew that under the CPU program we would give-up control and flexibility over our warehousing, dock scheduling, and routing processes. We also knew that the manual processes that were in place during the pilot phase could not be sustained long-term and would require new technology. Our partnership with our TMS software provider allowed us to move off the manual systems onto automated, saving hundreds of man hours of manual labor each month. The new capabilities that were put in place have allowed us to be more agile and responsive and are now built into their standard product; they can now be leveraged by other companies seeking to enable cross-company inbound collaboration programs, concluded the Manager. Competitive Assessment Aberdeen Group analyzed the aggregated metrics of surveyed companies to determine whether their performance ranked as Best-in-Class, Industry Average, or Laggard. In addition to having common performance levels, each class also shared characteristics in five key categories: (1) process (the approaches they take to execute daily operations); (2) organization (corporate focus and collaboration among stakeholders); (3) knowledge management (contextualizing data and exposing it to key stakeholders); (4) technology (the selection of the appropriate tools and the effective deployment of those tools); and (5) performance management (the ability of the organization to measure its results to improve its business). These characteristics (identified in Table 3) serve as a guideline for best practices, and correlate directly with Best-in-Class performance across the key metrics.

11 Page 11 Table 3: The Competitive Framework Process Best-in-Class Average Laggards Ability to make supplier-distribution network realignments (i.e., sourcing, mode, or routing shifts) 72% 56% 27% Ability to respond in near real-time to events across multiple channels 71% 52% 18% Our staff is proficient in dynamically routing international shipments (vs. static, itinerary-based routing) 56% 44% 25% Organizational Management Performance & Knowledge Management Technology Enablers Shared shipping schedules across our divisions / locations (e.g., backhauls, or closed-loop tours) 55% 53% 24% Shared shipping schedules with other companies 33% 26% 25% Warehouse has visibility of outbound freight schedules for improved work flow 80% 76% 51% Customer service visibility of outbound freight schedules for improved order promising 72% 62% 42% Domestic TMS for home country volume 80% Supply chain visibility software 74% B2B collaboration software 73% Contract management software 62% Supply chain software package with transportation management capabilities 59% International TMS for import / export volume 58% Technology Enablers Domestic TMS for Domestic TMS for home country home country volume 63% volume 25% Supply chain Supply chain visibility software visibility software 40% 21% B2B collaboration B2B collaboration software 37% software 17% Contract Contract management management software 36% software 21% Supply chain Supply chain software package software package with with transportation transportation management management capabilities 30% capabilities 18% International TMS International TMS for import / for import / export volume export volume 46% 17% Source: Aberdeen Group, July 2011

12 Page 12 Capabilities and Enablers Based on the findings of the Competitive Framework and interviews with end users, Aberdeen s analysis of the Best-in-Class demonstrates that it is truly a combination of superior and balanced performance across each of the sections that denote the overall level of transportation success. Process - External Collaboration and Realignment One strategic theme explored throughout this report is how the Best-in- Class are embracing automated processes and collaborative optimization in their transportation processes. Only 18% of Laggards (and as high as 71% of the leading companies) have an "ability to respond in near real-time to events across multiple channels." These companies are making transportation a strategic part of the supply chain and are leveraging their multi-channel responsiveness to make supplier-distribution network realignments (i.e., sourcing, mode, or routing shifts). Routing shifts are highly interactive and dynamic. But the real benefits of collaboration can be long term as the Best-in-Class are turning their integration efforts toward the long term - 72% are reacting strategically to effect "realignments of their networks." They are restructuring and transforming their supply chain and not merely reacting. We recently landed a sizeable account that operates large production facilities with over $25 million in freight spend. We couldn t have landed this account without the ability to analyze current operations and compare to baseline; and simulate and tweak variables. This system was our ticket to the game under our old system the rigorous transportation consolidation analysis the client required was impossible. In the end, the system streamlines our operations and allows us to highlight our real competitive advantage: our people." ~ Vice President of Logistics and Customer Care, Mid-sized 3PL Figure 3: Process Capability Gaps - Automation and Collaborative Optimization Ability to respond in near real-time to events across multiple channels x 18% 52% 71% Ability to support DC bypass (e.g., orders prelabeled and shipped straight to store, consumer, or via crossdock) x 28% 60% 56% Optimization across inbound and outbound freight in one planning process x 39% 50% 60% Ability to dynamically route international shipments (vs. static, itinerary-based routing) x Ability to redirect in-transit flows & orders to balance higher demands or inventory imbalances in-transit x 15% 15% 48% 36% 44% 38% Best-in-Class Industry Average Laggards Some companies, like we saw in the earlier case study, have been able to collaborate both upstream and downstream to reduce the cost of their transportation spend, focus resources on driving efficiencies, enhance or acquire new skills and insights, and manage through the difficult complexities 0% 15% 30% 45% 60% 75% Percent of Respondents, n=123 Source: Aberdeen Group, July 2011

13 Page 13 of today's global supply network. To do so, they rely heavily on technology and optimization tools to assess and inform their short and long-term strategies (more on this in the technology section). The Best-in-Class companies are responding and widening the performance gap, where they are 8.4 percentage points advantaged versus Laggards in their year over year "transportation cost per unit improvement" metric, Table 1. Organization When it comes to organizational capabilities the Best-in-Class are much more likely to place focus on equipping their staff. The Best-in-Class staff is proficient in dynamic routing, both domestically and internationally. Also, the Best-in-Class companies are collaborating by proactively sharing shipping schedules internally across divisions /locations and externally with suppliers, carriers, brokers and other companies. Not only are the teams more than twice as proficient in shipment process collaboration they are sharing internally and externally more frequently. On the average, the Best-in-Class at (62 times per year) are measuring transportation performance more the once every 6 days - whereas Laggard and Industry Average companies only measure once every 18 to 24 days, respectively (Table 1). Additionally, the leading companies organize capability around a centralized transportation platform capable of handling global complexity including multilingual and multi-currency functionality. At 51% the Best-in-Class are more than twice as likely as Laggards to have this capability. This fact is compounded by the increasing globalization of companies, (i.e., more than 85% of all respondents are global). Having a centralized platform to collect and share data across regions divisions and operating silos enables the company to evaluate its extended supply chain and analyze transportation event management data. In our study, this was one of the most significant areas for savings opportunities with some companies uncovering as much as 35% in cost savings directly applicable to cross-region optimization initiatives. If a company can not centralize and measure this shared data, then they are at a distinct disadvantage in performing periodic strategic and tactical assessments. The Best-in-Class firms are largely centralized with respect to transportation data and over 72% of these organizations are "managed globally." When compared to all others, Best-in-Class firms are more likely to automate data exchange both internally and externally and then manage execution globally: 2.06x as likely with trade compliance - 33% vs. 16% 1.43x as likely with customer support - 50% vs. 35% 1.39x as likely with manufacturing - 25% vs. 18% 1.29x as likely with finance - 54% vs. 42% 1.15x as likely with third-party partners (third-party carriers, forwarders, brokers etc.) - 63% vs. 55% Best-in-Class Collaborative Process Enablers vs. All Others The Best-in-Class are: 2.44x as likely to automate multi-shipper continuous move inbound-outbound interactions 2.19x as likely to automate suppliers and inbound carriers' information exchange 1.71x as likely to automate freight audit 1.69x as likely to automate dynamic supplier routing instructions 1.57x as likely to automate customs filing 1.55x as likely to automate tendering and booking 1.50x as likely to automate transportation procurement and payment 1.50x as likely to automate event management / alerts Note: Figures preceding x indicate the automation gap of Best-in-Class

14 Page 14 And finally, in the July 2010 report, International Transportation: Optimize Cost and Service in a Global Market, the advantages of online carrier portals to handle a variety of transportation costs and events were highlighted, and organization effectiveness is correlated to frequency of measurement. Here again we find that the Best-in-Class (at least weekly at 62 times per year, Table 1) measure transportation performance 4 times more frequently than Laggard companies. Knowledge Management and Performance Management Knowledge is power when it comes to internal and external performance management. A few of the related areas where the Best-in-Class demonstrate superior capabilities is shared visibility of shipping schedules relative to 1) warehousing, and 2) customer service. The Best-in-Class are leading the pack in sharing data with these key internal groups (at 80% to 72% respectively). It is no wonder that they can boast the following levels of superior collaborative capability with these partners: 2.69x as likely to automate order splitting - a customer service function 1.84x as likely to automate dock appointment scheduling - a warehousing function The top pressure companies' face is the cost and service impact of transportation to the overall supply chain (57%, Figure 1). Laggard companies are only able to accurately report 31% compliance to contractual cost and for outbound shipments they deliver only 84.9% orders on-time and complete versus 97.2% for the Best-in-Class (Table 1). The higher level of success that the Best-in-Class demonstrate (in 90% range on the same compliance metrics) is directly related to the measurement and performance management skills of the company. Both having actionable metrics and expectations for service/cost as well as measuring carrier/supplier performance frequently are central to the success of the Best-in-Class. Collaborative transportation like the Walmart-Supplier conversion program from our case study requires frequent measurement and coordination. Technology The data required to evaluate transportation events and control/optimize cost is vast and daunting. It is clear that software technology and automation tools are requirements for these efforts to be successful for companies of any scale. The Best-in-Class are more highly adopted where they are anywhere from 1.6 to 2.4-times as likely as all others to have each of the technology enablers indicated in the competitive framework (Table 3, Technology Enablers). While most companies have had domestic and international transportation software, the true differentiator is the level of process and technology automation a company applies at each step in the transportation process from plan to deliver. Laggard Reasons for Not Investing in Technology: 48% upfront cost of the solutions is too high 30% we cannot get executive level support for these initiatives 25% we don t know enough about the available solutions

15 Page 15 Automated Optimization: Plan, Consolidate and Deliver When it comes to software capabilities there are numerous choices for the transportation professional. With ERP and Supply Chain Management suites, complete transportation management systems, and a variety of specialized tools and optimizers (Table 3), companies have a wide range of options available to automate various aspects of their transportation management. But even Laggard companies have adopted these technologies. The difference lies in how these tools are used that leads to superior transportation performance. Companies that are able to leverage technology to maximize automation of the everyday tasks of selecting, routing, consolidating, and optimizing freight are able to focus more on delivering value versus entering data. At each and every phase - from plan, consolidate, and on to deliver - the Best-in-Class are both more automated and proficient. In Figure 4, we have captured some of the key areas where the Best-in- Class have demonstrated more advanced automation features and optimization capabilities from planning to delivery: Optimization starts with planning and selection. The Best-in- Class are anywhere from 1.5 to 3.5-times as likely as all others to be able to optimize inbound to outbound modes and carriers (65%), import and export functionality (63%), and the planning of backhauls (56%) following delivery. Without collaborative optimization across carriers and transportation volumes or without full consideration of trade compliance, it is likely that savings will be left behind during transportation execution. Optimization ends with inbound to outbound pooling and consolidation. From origin to destination across planning and execution the Best-in-Class are anywhere from 1.6 to 2.3-times as likely as all others to be able to automate pooling and hub- based routing (56%), multi-leg and multi-mode optimization (56%), SKU and item level visibility (52%), and multi-origin to multi-destination routing and consolidation (50%). All of these phases require collaborative coordination across the extended supply chain. Not only does one have to coordinate across each node and mode in a global network but they must collaborate tightly with their suppliers and carriers to truly be successful during execution. Best-in-Class Optimization Events vs. All Others The Best-in-Class are: 3.20x as likely to automate Optimization tools to effect near real-time control 2.48x as likely to automate score-carding 2.20x as likely to automate Optimization and schedules subject to lane and mode capacity and inventory item availability 2.10x as likely to automate International bid optimization 1.97x as likely to automate International rating - currency and costing 1.67x as likely to automate Multi-stop routes 1.63x as likely to automate Support for ocean or air procurement with Container Load Planning Note: Figures preceding x indicate the automation gap of Best-in-Class Automated Collaboration: Procure to Pay and Audit Beyond optimization, today's transportation executive must automate collaboration processes in the transportation network. Several of the areas where the Best-in-Class are more highly automated are found in the sidebar.

16 Page 16 Figure 4: Automated Optimization Gaps- Plan, Route, Deliver All Others Best-in-Class Optimally select inbound and outbound modes and carriers x 42% 65% Import, export, and global trade functionality x 18% 63% Backhauls (reduce empty miles through product pickups on return trip) x Pooling / hub-based routing x Multi-leg and multi-mode optimization x Enhanced support for delivery time and multiperiod transportation plans x Basic shipment consolidation / pooling x SKU-level item and inventory visibility x Multi-origin to multi-destination routing and consolidation x 35% 32% 24% 24% 34% 32% 30% 56% 56% 56% 56% 55% 52% 50% 0% 15% 30% 45% 60% 75% Percent of Respondents, n=123 Source: Aberdeen Group, July 2011 Procure to pay automation. On the procurement-to-pay side of things, the Best-in-Class at 45% are 1.5-times as likely as all others to perform automated carrier selection during transportation procurement and payment. This capability allows them to adhere to the routing guide and standard transportation lanes. What about promotional items or new spot order/lanes? Here the Best-in-Class are also 1.5 -times likely to leverage automated features such as online bidding tools for dynamic tendering and booking of freight (65% versus 32% for all others). At the moment planning is not connected to inbound receiving, but it s critical for our planners to be able to view incoming shipments. We began implementing a company-wide Enterprise Resource Planning (ERP) solution last year. Our visibility is becoming more consistent as data becomes more consistent. We also now have visibility into the requested delivery date and the committed supplier delivery date. ~ Sr. Logistics Director, Global Manufacturer Freight audit automation. On the freight audit side of things, the Best-in-Class at 60% are 1.71-times as likely as all others to perform automated. This capability allows them to validate actual costs and feed the closed-loop transportation spend management loop (see Transportation Contract, Tender and Spend Management, May, 2011 for more details). What about imports and exports? Here the Best-in-

17 Page 17 Class are also 1.6 -times more likely to leverage automated customs filings (69% versus 32% all others) which allows them capture planned and actual duties and avoid freight delays in their global shipments. Across a broad range of transportation components, today's software and automation tools are providing a strong foundation for companies to handle each step in the closed loop transportation procure-to-pay cycle. Today's software aids in eliminating manual steps where possible and bringing down overall processing costs. Beyond the savings in time and labor, those companies that excel in automation and transportation management are able to reduce their baseline freight costs by 2% to 3% and improve carrier service levels compared to their peers. Aberdeen Insight Collaborative Technology Over 70% of the companies, from the Chief Supply Chain Officer Survey, January 2011, indicated that internal/external collaboration was integral to their supply chain strategy. Despite the availability of technology and solutions, for many companies the issue is the need to tightly control transportation cost and service and compete for constricted capacity. To compete for available capacity and lowest cost the transportation professional must coordinate externally. Companies of all classes and scales have begun to harness what we call "collaborative technology" in a systematic fashion. However the Best-in-Class are doing a superior job, primarily in the area of inbound to outbound optimization which by its very nature requires both collaboration and automation with external parties. Figure 3 illustrates some of the process collaboration gaps across the classes where the following collaborative technology components are explored: Collaborative technology to support multi-channel logistics and DC bypass. Seventy-one percent (71%) of the Best-in-Class can respond to events across multiple channels and 60% can support DC bypass - in a world where new logistics formats are pervasive (see sidebar) this is very important. Today's supply chain is becoming more tightly connected and without collaborative technology that provides visibility nearreal- time at the DC, port and shipment level these new logistics channels cannot exist. In order to measure and monitor compliance to plan, determine cost variances, or control fuel surcharges and accessorials data must be shared frequently. For those that are tracking these costs, ensure that monitoring is taking place in a collaborative fashion. continued

18 Page 18 Aberdeen Insight Collaborative Technology Collaboration technology to effect inbound-to-outbound moves and dynamic execution. At 60%, the Best-in-Class are more likely than all others to practice collaborative optimization of inbound to outbound freight in one planning process, to dynamically route international shipments (48%) and to redirect in-transit orders (44%). Without this capability it is impossible to consolidate loads, perform mode shifts or reroute items that are in-flight. The WalMart Inbound Supplier Initiative from our case study highlights some of the technology changes required to seize the benefits and remain competitive with the Best-in-Class. Acquiring more advanced automation features is tightly correlated to superior performance. It is also important to look to the areas where the Best-in-Class have the largest automation gaps (see technology section). It can be expensive to upgrade your systems and processes to embrace these collaborative technologies. However, much of the upfront costs and lead-times can be substantially reduced. It is important to be aware of the variety of solutions available today and the deployment options they provide. The evolution of SaaS and on-demand offerings from most solution providers has delivered on the promise to decrease these historical hurdles. Companies must invest the time to educate their decision-making teams on the latest options in order to complete the proper due diligence around these solutions.

19 Page 19 Chapter Three: Required Actions Whether a company is trying to move its performance in transportation management from Laggard to Industry Average, or Industry Average to Best-in-Class, the following actions will help spur the necessary performance improvements: Laggard Steps to Success Embrace multi-channel logistics visibility. Only15% of Laggards are capable of leveraging measuring costs or events in these new emerging formats. The Best-in-Class at 71% are 1.8-times more likely to have visibility and then respond to these events on a near real-time basis (Figure 3). Working to get control of transportation cost and routing requirements is the end-goal, however it's first important to get visibility and measure compliance, only then can today's collaborative technology tools be applied to optimize cost and identify short and long term improvements. Improve basic and advanced staff proficiency. Over 44% of Industry Average and 56% of Best-in-Class companies are proficient in dynamically routing on a global basis. Yet only 25% of Laggard companies have this level of proficiency (Table 3, Organizational Management). Our survey indicated that over 80% of Laggards are operating internationally, so to have the basic proficiency to react to dynamic routing requirements is vital to up the Laggard on-time and complete delivery metric beyond the 85% level. Manage TMS Globally Best-in-Class vs. Others 1.65-times as likely on transportation procurement (61% vs 37% others) 1.61-times as likely on freight audit and payment (53% vs 33% others) Industry Average Steps to Success Integrate collaboratively with external groups. Working to get control of transportation spend data is critical. Over 30% of all companies cite collaboration and synchronization of data with carriers, suppliers and trading partners as the second highest strategic action (Figure 2). But for the Industry Average, on a global level, only 16% can share that data with external partners. Collaborating to combine data into a global view will greatly increase spend analysis, value-add opportunities, and, finally, sharing with external partners will drive better performance. Increase shared shipping schedules and collaborative data sharing with other companies. Only 26% of the Industry Average are sharing shipping schedules with these partners (Table 3, Organization). Industry Average companies have automation tools to conduct scorecarding (42%) so they need to increase the level of shipment sharing so these tools can be put to use. Only then can these companies begin to effectively automate dock appointment scheduling with supplier and carriers, or embark on a WalMart Inbound Supplier Program.

20 Page 20 Best-in-Class Steps to Success Optimize dynamically with the online transportation community. About 40% of Best-in-Class companies are leveraging spend data visibility and optimization for bidding via community web portals. Optimizing the bid process is limited to the company s level of visibility to tender or evaluate capacity constrained routing options. There are numerous public and private bidding and community freight boards that post capacity daily. By leveraging these tools into your daily freight operations, you can optimize your movements to get the best rates and greatly increase freight utilization on your low volume freight lanes. Enhance you level of capacity constrained shipment optimization. With the superior visibility and knowledge of historical costs of freight spend; score carding at a higher level can help drive further cost reductions. The Best-in-Class have 80% visibility to shipping schedules - this visibility can yield opportunity to consolidate and mode shift for rate or capacity. The Best-in-Class are already 2.2 -times as likely as all others to automate optimization and schedules subject to lane and mode capacity and inventory item availability. But, currently only about 44% of the Best-in-Class are engaged such optimization - you can improve cost and service by expanding on this capability. Aberdeen Insights Summary The Globalization and complexity in the world of transportation continues to grow exponentially and every company is looking for ways to sustain costs. The predominant pressure is the current volatility of freight and fuel costs in a tightly constrained transportation marketplace. To combat this pressure, Best-in-Class companies are looking to optimize the process of sourcing, selecting, and negotiating freight rates. Also, companies are increasing the degree of collaboration and datasynchronization with both their carriers and trading partners. To achieve the capabilities needed to support these strategies, Best-in-Class companies utilize both foundational systems, such as TMS, but also specialized point-solutions community platforms and portals and collaborative technologies (or look to logistics services providers to provide the same). Through a combination of best practices and business transformation, radical improvement and tight integration to the extended supply chain can be achieved. Automation of these processes, along with end-to-end integration, and the degree of connectivity to supply chain partners is now clearly a top priority for the supply chain executive. These actions will serve to fuel improvements in the decade ahead. Outsourcing Audit and Payment Process: 62% Best-in-Class 33% Industry Average 22% Laggard At the moment planning is not connected to receiving, but it s critical for our planners to be able to view incoming shipments. We began implementing a company-wide Enterprise Resource Planning (ERP) solution last year. Our visibility is becoming more consistent as data becomes more consistent. We also now have visibility into the requested delivery date and the committed supplier delivery date. ~ Sr. Logistics Director, Global Cosmetics Corporation

21 Page 21 Appendix A: Research Methodology Between June and July 2011, Aberdeen examined the use, the experiences, and the intentions of 123 enterprises using transportation management solutions in a diverse set of enterprises. Aberdeen supplemented this online survey effort with interviews with select survey respondents, gathering additional information on integrated transportation management strategies, experiences, and results. Responding enterprises included the following: Job title: The research sample included respondents with the following job titles: CEO / President / EVP / SVP (10%), VP (10%); Director (19%); General Manager/Manager (43%); and other (18%). Department / function: The research sample included respondents from the following departments or functions: procurement, supply chain, or logistics manager (68%); purchasing and operations (12%); sales and marketing staff (6%); senior management (6%); and other (8%). Industry: The research sample included respondents from: Transportation and Logistics (12%); Industrial Manufacturing (11%); Retail and Apparel (9%); Consumer Packaged Goods (CPG) (9%); Food and Beverage (6%); and Automotive (3%). Geography: The majority of respondents (63%) were from North America; Europe (16%) Asia-Pacific region (13%) and other (8%). Company size: Twenty-six percent (26%) of respondents were from very large enterprises (annual revenues above US $5 billion); 24% of respondents were from large enterprises (annual revenues from US $1 billion to US $5 billion); 31% were from midsize enterprises (annual revenues between $50 million and $1 billion); and 19% of respondents were from small businesses (annual revenues of $50 million or less). Headcount: Thirty-three percent (33%) of respondents were from very large enterprises (headcount greater than 10,001 employees); 15% of respondents were from large enterprises (headcount between 2,501-10,000 employees); 41% were from midsize enterprises (headcount between 101 and 2,501 employees); and 11% of respondents were from small businesses (headcount between 1 and 100 employees). Study Focus Responding transportation executives completed an online survey that included questions designed to determine the following: The degree to which TMS is deployed in their operations and the financial implications of the technology The structure and effectiveness of existing TMS implementations Current and planned use of TMS and related technologies to aid operational and promotional activities The benefits, if any, that have been derived from transportation management initiatives The study aimed to identify emerging best practices for technology usage and process improvement in transportation organizations, and to provide a framework by which readers could assess their own management capabilities.