Freight aggregation in order fulfilment lifecycle to achieve better freight planning
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1 Freight aggregation in order fulfilment lifecycle to achieve better freight planning Agathian Sannasi
2 Table of contents 1. ABSTRACT THE SALES ORDER FULFILMENT LANDSCAPE FREIGHT AGGREGATION: THE WAY TO BETTER FREIGHT PLANNING TYPICAL CHALLENGES IN FREIGHT PLANNING FOR ENTERPRISES SOLUTION: AN INDICATIVE SHIPMENT TO ACHIEVE BETTER FREIGHT AGGREGATION FINANCIAL AND OPERATIONAL BENEFITS OF INCORPORATING FREIGHT AGGREGATION ABOUT THE AUTHOR...05
3 Abstract Optimization of freight planning is an iterative process and needs frequent refinement as it is tied to changes in logistics and service provider offering. Operations around supply chain is a key factor which directly or indirectly influences consolidation opportunities in freight planning. This white paper talks about the freight aggregation aspect in the order fulfilment lifecycle and how it can help achieve better freight planning. The Sales Order Fulfilment Landscape This section describes the need to realign sales order fulfilment to achieve better freight planning optimization through freight aggregation. The traditional lifecycle of sales order fulfilment includes the following stages : Invoice Sales Order Booking Scheduling In this lifecycle, freight planning activities are usually carried out after stage move transactions in the warehouse. Also, in this fulfilment flow, pick pack process does not consider freight aggregation, which is a key factor influencing freight cost and contract negotiation. Therefore, in sales order fulfilment, opportunities for freight aggregation start from the pick pack stage itself. Freight Aggregation: The Way to Better Freight Planning The key elements which determine the transport mode of freight (parcel, LTL (Less Than Truckload), TL(Truck Load)) are shipment weight and dimensions. Freight aggregation plays a vital role in mode shift leading to freight cost optimization and it also facilitates better negotiation for arriving freight contracts with logistics service providers. Shipping Stage Move Pick Release Traditionally, all transportation planning happens after orders are packed individually. Packed transport orders are fed to a freight planning engine to identify the best cost and mode to meet delivery timelines that have been agreed on with the customer. Figure 1: The stages in the lifecycle of traditional sales order fulfilment 02
4 When multiple transport modes such as TL, LTL and parcel are evaluated for planning, the weight and volume of the package play a crucial role in mode shift between parcel, LTL, Freight and TL. The sales order fulfilment process follows the course as illustrated below : Pick Release Generates a pick slip for the warehouse to perform pick and pack Warehouse Picks and packs individual deliveries Figure 2: The sales order fulfilment process Transport Planning Receives deliveries and creates shipments Consider two shipments weighing 5lbs and 10lbs respectively, which are strapped individually and are moving from a warehouse in ZIP Code 300 to a customer in Zone 8. Based on non-discount UPS ground service rate, the total shipment cost works out to $ However, if the same shipment is strapped together during pick pack and then shipped, the total shipment cost amounts to $50.41 which results in freight cost savings of $19.84, not a trivial amount. Example 2: The following rate card is an extract from FedEx Service Guide This process considers ship unit weight and dimensions for deliveries and makes the planning engine choose expensive models (example: parcel instead of LTL due to weight break). In this scenario, it is important to have an indicative freight plan for the warehouse to identify likely orders to pick pack together. The aim of this indicative plan is to achieve freight aggregation, taking into consideration modes and cost of transportation, which could result in mode shift. A typical parcel mode shipment falls under the weight breakage up to 150 lbs. To achieve freight cost saving, the following aspects influence the mode and cost of transport: Mode of transport is based on : Building larger, more economical loads to fit into more economical transport modes Shifting from one mode to another more economical mode. And cost of transport is influenced by: Package case strapping as it helps to build a larger load Minimum charge per shipment Example 1: This is an excerpt of a rate card from the UPS rate and service guide 2012: Figure 4: Extract from FedEx Service guide 2012 Consider the freight cost where minimum charges are applied. In the above scenario, it is important to ensure maximum consolidation during pick pack to guarantee higher weight breakage for best freight cost. The above examples make the case for freight aggregation playing a key role in freight planning to achieve better fright cost. Typical Challenges in Freight Planning for Enterprises Some of the key challenges in freight planning which enterprises have to deal with are: Inventory management system lacks accurate product weight and dimension Most of the time shipment weight and volume are unknown until it is picked and packed Improper freight cost allocation resulting in loss of money Deliveries planned based on promise to ship date rather than on promise to delivery Suggesting a warehouse team to perform pick/pack activities considering the most likely shipment consolidation opportunities leading to inefficient use of resources Figure 3 Extract from UPS Rate and Service Guide 2012 (Courtesy: Inability to perform end-to-end transportation planning and tracking Challenges in existing TMS solution on cost allocation and visibility 03
5 Solution: An Indicative Shipment to Achieve Better Freight Aggregation To tackle the freight planning challenges and to achieve better freight aggregation to influence mode shift during planning, the high level solution design elaborated below can be considered by enterprises. The planning exercise will undergo two iterations. The first planning iteration will generate an indicative shipment by considering all consolidation parameters and ignoring weight and dimension. This indicative shipment is always associated with a dummy contract and service provider. Using integration, the indicative shipment will be sent to the warehouse to pick and pack likely deliveries together. Freight cost allocation at delivery level to track every dollar spent on freight cost Enablement of automated freight settlement process through identified freight payment centers associated with business entity, customer, service level Operation benefits: Alignment of warehouse operations with freight planning Construction of larger loads during pick pack process Reduction of repacking after stage move About the author Agathian Sannasi is a SCM/OTM Solution Architect working for Wipro Technologies, India. He has Oracle ERP and OTM implementation experience in forward and reverse logistics for multiple manufacturing industry customers. Figure 5: The solution and implementation of a proposed model to achieve better freight aggregation This indicative shipment guides the warehouse to group likely deliveries together to maximize weight breakage and package strapping. After completing pick and pack, the exact weight and dimension information flows back to transportation management and the planning engine performs an exact rate shopping using available contracts. This results in building a larger load and as well as a mode shift. Financial and Operational Benefits of Incorporating Freight Aggregation Several significant financial and operational benefits are possible by incorporating freight aggregation as an integral part of order fulfilment Financial benefits : Foundation for mode shift to optimize freight cost 04
6 DO BUSINESS BETTER W W W. W I P R O. C O M N Y S E : W I T OV E R 1 3 5, E M P L OY E E S 5 4 C O U N T R I E S C O N S U L T I N G S Y S T E M I N T E G R AT I O N O U T S O U R C I N G WIPRO TECHNOLOGIES, DODDAKANNELLI, SARJAPUR ROAD, BANGALORE , INDIA TEL : +91 (80) , FAX : +91 (80) , info@wipro.com North America South America Canada United Kingdom Germany France Switzerland Poland Austria Sweden Finland Benelux Portugal Romania Japan Philippines Singapore Malaysia Australia Copyright Wipro Technologies. All rights reserved. No part of this document may be reproduced, stored in a retrieval system, transmitted in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without express written permission from Wipro Technologies. Specifications subject to change without notice. All other trademarks mentioned herein are the property of their respective owners. Specifications subject to change without notice. IND/UNPL/JULY2011-DEC2011
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