Think Globally, Execute Locally - Optimizing Retail Transportation for Omni Channel Success

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1 A Poit of View Thik Globally, Execute Locally - Optimizig Retail Trasportatio for Omi hael Success Omi-chael fulfillmet has spawed ew challeges for trasportatio orgaizatios that are already avigatig bumpy roads iflueced by market volatility, fluctuatig gas prices, ad reactioary carrier rates ad capacity. Ufortuately, may retailers ow realize that their traditioal trasportatio etworks ad supportig ifrastructure are simply ot sufficiet to serve the demads of the ew omi-chael customer. Efficiet maagemet ad plaig of trasportatio requires a ogoig review of the three iterdepedet dimesios of process, techology, ad orgaizatioal structure to esure they are aliged with today's omi-chael busiess strategies. Eve a area as fudametal as the cetralizatio of critical trasportatio fuctios through a cotrol tower philosophy ca deliver sigificat cost ad service improvemets. This paper examies the curret state of trasportatio plaig ad provides isights o the ways i which omi-chael retailers ca drive improvemets i this area. We also idetify alterative trasportatio plaig strategies to help retailers drive the chages required to meet curret ad future challeges. urret halleges Impactig Trasportatio Plaig Historically, retailers could ofte rely o simple, uchagig busiess rules for trasportatio plaig to iclude always shippig i truckload quatities to a cetralized distributio ceter or groups of stores residig i close proximity. However, this approach eeds to be recosidered as compaies begi to adopt a omi-chael busiess model ad e-commerce cotiues to rapidly accout for a larger portio of the shippig volume. There are several implicatios of trasitioig to omi-chael fulfillmet. These iclude fewer full pallets or cases, more idividual pieces to pick ad ship, as well as fewer truckload sized shipmets, ad more multistop routes. Additioal cross-dockig ad parcel hadlig, alog with a icreased umber of etwork fulfillmet odes that require itegratio ad maagemet add to the trasportatio challeges i a omi-chael eviromet. May retailers are therefore havig to reivet logistics as the fulfillmet ad trasportatio pieces of their supply chais become more complex. Moreover, as customer orders across the various omi-chael flowpaths cotiue to grow, it becomes icreasigly importat for retailers to proactively adjust ad maitai trasportatio strategies ad the supportig ifrastructure. This will eable them to better leverage shippig ad delivery optios to aticipate ad fulfill customer eeds more cost effectively. I terms of trasportatio ad logistics, this meas relyig o more flexible supply chai etwork desigs ad multiple trasport modes that ofte cosist of private fleets, third party logistics providers ad parcel carriers, as well as local couriers. Leveragig retail stores as fulfillmet odes ad utilizig various order drop off ad collectio poits throughout the exteded supply chai etwork has also icreased the importace of developig adaptable trasportatio strategies. These strategies should be cotiuously updated to efficietly respod to demad fluctuatios, chagig shippig rates, varyig fuel costs, ad other factors. Despite the icreased logistical challeges ad costs that arise from a 'buy aywhere, ship aywhere, retur aywhere' philosophy, may omi-chael retailers are ot thikig globally - they are yet to adopt a truly cetralized trasportatio cotrol tower structure. Existig trasportatio deficiecies may iclude vastly decetralized processes that egatively impact load plaig effectiveess, or use of outdated, iadequate, or o-itegrated techologies. By ot addressig these gaps, omi-chael retailers may sigificatly risk overall busiess growth ad supply chai cost competitiveess, eve whe usig a leadig trasportatio system. Fidig the optimal solutio to meet a retailer's specific logistics requiremets must start with a objective evaluatio of existig trasportatio capabilities ad performace agaist the three iterdepedet dimesios of process, techology, ad orgaizatioal structure.

2 urret Trasportatio Plaig Practices ad Busiess Impacts Although the last mile of the supply chai ca accout for up to 70 percet of the overall supply chai costs, a area as fudametal as proper orgaizatio of the trasportatio plaig fuctio is ofte overlooked. May retailers partially or etirely decetralize trasportatio plaig, due to historical trasportatio plaig practices, curret busiess ad system limitatios, or orgaizatioal biases. Omi-chael retailers still predomiately use oe of three trasportatio plaig methodologies. Each of these approaches ad their associated orgaizatioal structures, busiess processes, systems ad overall capabilities sigificatly impact trasportatio efficiecies. Table 1 highlights these methodologies ad their impact o persoel resposibilities as well as the required supportig ifrastructure. Plaig Methodology Locatio of Persoel Primary Resposibilities Hybrid Plaig etralized Iboud ad Decetralized Outboud Staff at cetral locatio ad at Ds Regioal Plaig orporate office, regioal office or regioal D etralized Plaig with Local Executio Primarily corporate office or cetralized hub (maaged iterally or outsourced) etralized staff Load plaig for iboud purchase orders (PO) Decetralized staff Load plaig for outboud shipmets to stores ad directly to cosumers Regioal staff focused o plaig of iboud ad outboud shipmets by regio Teams dedicated to optimizig product movemet across ad betwee eighborig regios etralized load plaig team focused o optimizig equipmet utilizatio, backhauls, ad cotiuous movemets across the etire supply chai etwork Local staff at the Ds ad/or stores workig o trasportatio pla executio, issue resolutio, ad facilitatig of iteral ad exteral commuicatio Table 1: Primary trasportatio plaig methodologies Decetralized structures lead to segmeted ad disparate processes, multiple systems ad ifrastructure, ad other trasportatio cost iefficiecies. By executig trasportatio plaig i silos, a orgaizatio s focus is more iboud or outboud trasactio based as opposed to focusig o optimizig all product flows withi the supply chai etwork. The beefits of employig a cetralized trasportatio cotrol tower are well-documeted. A more global approach to trasportatio plaig supplemeted by local executio ofte allows retailers to tur oe-way movemet of goods ito backhauls ad multi-stop or cotiuous moves. This, i tur, leads to sigificat cost savigs due to improved equipmet utilizatio ad shipmet cosolidatio. While Fortue 500 retailers typically succeed i beig globally focused by regularly cetralizig their iboud plaig, they do ot always capitalize o the total etwork efficiecies whe decetralizig their outboud trasportatio plaig. Although popular ad successful i the short-term, this hybrid approach does ot lead to log-term or substatial trasportatio cost savigs. Retailers that pla trasportatio movemets regioally are able to realize additioal savigs. However, they must possess the size, scale, ad system ifrastructure to fully optimize loads i each geographic area. Additioally, they must esure effective commuicatio ad visibility betwee regios to realize all freight cosolidatio opportuities, icludig backhauls ad cotiuous moves. As illustrated i Figure 1, the best trasportatio plaig strategy ivolves adoptig a more global approach by cetralizig load plaig processes to the maximum possible extet while executig through the local distributio ceter ad store etwork. This approach facilitates the process of matchig iboud product flow with existig outboud freight movemets across all etwork odes. This approach is Thik Globally Pla etrally Figure 1: Optimal trasportatio plaig methodology 2 Execute Locally

3 particularly relevat for retail leaders who seek cotiued cotrol over a greater portio of their iboud freight movemets ad improved supply chai etwork visibility. Takig a more global view ad plaig trasportatio o a more regioal or cetralized level will lead to improvemets i overall local executio results. ommo Trasportatio Plaig Performace halleges Eve if orgaizatios deploy the best trasportatio solutios available today, beefits realized from these systems may fall short of expectatios if they fail to address the cotiuig problems that impact load plaig performace. Several possible reasos for performace gaps betwee forecasted ad actual results are outlied i table 2 below. Reaso Descriptio Short-Sighted System Deploymet Project efforts that focus primarily o the techical deploymet of the trasportatio solutio without cosiderig existig orgaizatioal practices that impact overall load optimizatio performace. Iadequate Rollout Schedules Project plas that ed shortly after go-live. This does ot give stakeholders adequate time to assess ad execute ay remaiig actios required to fully utilize the solutio ad drive additioal trasportatio optimizatio beefits. Orgaizatioal Iactio Failure o the part of orgaizatios to tackle chage maagemet, disparate processes, or system related issues that impact the overall trasportatio system performace, ad deters user acceptace or adoptio of best practices. Resource Shortage Shortage of orgaizatioal resources or expertise ca result i failure to support, ehace, ad maitai existig trasportatio systems or drive cotiuous improvemet iitiatives. Lack of otiuous Upgrades Postpoemet or failure to update ad ehace curret trasportatio system capabilities to respod to ew or additioal busiess requiremets such as omi-chael support ca lead to several shortfalls such as: Major fuctioality gaps withi the curret trasportatio system, which was origially desiged ad cofigured for a lesstha-truckload ad truckload shippig eviromet. Isufficiet parcel-specific solutio capabilities to help maage additioal carriers, services, ad more complex parcel rate structures. Deficiecies i itegratio poits betwee the trasportatio solutio ad carrier or retailer systems. This ca impact overall customer experiece, ad order ad delivery status trackig. Table 2: ommo reasos for trasportatio system performace gaps The adoptio of a cetralized trasportatio plaig approach requires orgaizatioal chages ad the developmet of ifrastructure at the commad ceter. The cetralized oboardig of persoel ofte occurs i cojuctio with trasitioig or rampig dow of varyig local processes, systems, ad decisio makig authority. Because of the work ivolved i settig up a cotrol tower, it may take up to a year to fully implemet this cetralized structure ad begi realizig its associated beefits. While a quick chageover is always preferred, proper plaig of chage maagemet activities helps trasitio a compay to a more costeffective ad market-drive cetralized cotrol tower trasportatio structure. Ofte, these activities are ot adequately cosidered throughout the supportig orgaizatio, leadig to less tha optimum trasportatio plaig results or a prologed system rollout schedule. Prior to embarkig o such a orgaizatioal trasitio, seior supply chai executives must uderstad, ad ot uderestimate, the cultural differeces betwee orgaizatios that operate i a decetralized maer as compared to oes that use a cetralized approach. The trasitio of decisio-makig authority from a autoomous, ofte siloed decetralized structure to a more top-dow directed approach - where all divisios or locatios adhere to stadard policies ad procedures - ca be a major cocer for orgaizatioal persoel. To drive the ecessary chages, seior leadership must esure that they effectively commuicate the orgaizatio's future visio, while esurig that they have the right team to support ad successfully execute the project. 3

4 The Six Guidig Priciples for Optimizig Trasportatio Plaig Orgaizatios that exhibit a cosistet set of behaviors ad strategies whe it comes to trasportatio maagemet ca gai competitive advatage. The followig six priciples are itegral to optimal load plaig ad utilizatio of trasportatio system capabilities. 1. Set bold goals for trasportatio plaig A realistic target of cotrollig 35 to 50 percet of iboud freight ca help leadig trasportatio orgaizatios reduce ad leverage overall freight sped effectively. ompaies that trasitio beyod oe way movemet ad capitalize o additioal freight cosolidatio, backhaul, ad cotiuous move opportuities ca reduce overall operatioal sped by 5 to 15 percet by reducig empty miles ad icreasig equipmet ad trailer utilizatio. 2. Pla ad maage trasportatio cetrally Maagig cotiuous moves over a multi-facility etwork requires a comprehesive global view of product flow ad the ability to coordiate trasportatio operatios across multiple facilities ad markets. Decetralized plaig is sub-optimal ad results i icreased freight sped due to segmeted vs. total etwork trasportatio load plaig. Similarly, log-term plaig ad procuremet of trasportatio resources ad capacity requires a etwork-wide view of trasportatio activities ad requiremets. etralized sourcig of carrier services also maximizes retailers' leverage i cotract egotiatios ad facilitates service coordiatio amog vedors. A cetralized approach is cost effective, lea, ad flexible allowig compaies to better alig the trasportatio strategy with market chages. By fully adoptig a cetralized cotrol tower approach, a orgaizatio ca oversee complex trasportatio etworks that use a multitude of service providers more effectively. This approach also helps orchestrate complex, time-sesitive product movemets that may ivolve multiple trasport modes ad etwork odes. While specific trasportatio roles ad resposibilities may vary slightly across orgaizatios, Table 3 depicts the best practices for cetralizig the trasportatio fuctio. Primary Resposibilities etralized for the Etire ompay Local/Facility Level Trasportatio otractig ad Procuremet Domestic Trasportatio Plaig Domestic Trasportatio Executio Iteratioal Trasportatio Plaig Iteratioal Trasportatio Executio S Fleet ad arrier Maagemet S Freight Bill Audit ad Paymet S = etralized otrol, S = Localized Support Table 3: Best practices for a cetralized trasportatio fuctio I the log ru, effective cetralizatio of the trasportatio fuctio facilitates greater cost reductios, drives o-time delivery, ad improves overall logistics performace ad resposiveess. 3. Ecompass all supply chai etwork odes Orgaizatios are icreasigly fidig that they must rely o effective ad ofte exteded supply chai etworks to compete i the global market. Busiess relatioships are extedig beyod traditioal eterprise boudaries ad ow seek to orgaize etire processes through a value chai of multiple compaies.¹ [1] Supply hai SL Express Lie, Experiece ad Flexibility Key Igrediets for Successful Supply hai Network, Accessed February 2015, Merrill Reach for loud (October 2008), accessed February 2,

5 Icreased trasparecy ad systems itegratio that ecompass all supply chai etwork odes are critical to fully evaluate trasportatio optimizatio opportuities for product movemets, regardless of the fulfillmet chael or shipmet type ad size. Iclusio of key suppliers ad reverse logistics freight movemets for complete supply chai etwork visibility is o loger a ice to have -it is ecessary for log-term success. Figure 2: Supply chai visibility illustratio 4. Itegrate iboud freight to icrease backhauls Iboud repleishmet flows from suppliers ca be chaeled alog stadard, repetitive routes usig dedicated truckload capacities that operate i cotiuous moves, as illustrated i figure 3. ompaies ca leverage curret trasportatio system capabilities for trip plaig as opposed to plaig oe-way moves. ompaies ca the realize sigificat improvemets i trasportatio efficiecies through improved routig quality ad asset utilizatio. Outboud Load (Store Deliveries) Distributio eter Retail Store Outboud Delivery ad Backhaul Itegratio Deadhead Iboud Load (Purchase Orders) Supplier Iboud Load (Purchase Order) Deadhead osolidatio Poit I this illustratio, the solid lie represets a roud trip where the outboud move is from the D to the retail store. The asset is the reloaded at a earby supplier locatio with a iboud PO destied for the origi D. The dotted lie represets the backhaul move from a cosolidator locatio to the origi D as a possible backhaul alterative. Figure 3: Roud trip cotiuous move 5

6 5. Employ dyamic routig ad schedulig Trasportatio plaig persoel ofte have to deal with a highly dyamic ad ucertai eviromet. As a result, delivery routes ad pickup dates must be adjusted cotiuously i accordace with chagig volume requiremets ad busiess eeds. May leadig retailers have already trasitioed away from static routig guidelies that apply to all suppliers, ad have istead adopted dyamic, highly adaptable load plaig practices ad techologies to realize additioal multi-stop loads, backhauls, ad cotiuous moves. Such dyamic routig ad schedulig esures reliable services to stores ad cosumers as well as timely pickup from vedors, without sacrificig efficiet trasportatio operatios. To improve pre-plaig of these real life variatios, simulatio models may be used to better desig delivery routes ad assess performace. This will help respod to forecasted variatios i supply ad demad such as promotio-geerated surges i traffic ad prebuilds of seasoal ivetory. Further sychroizatio of supply chai operatios with key vedors by matchig ad optimizig purchase order movemets, as illustrated i figure 4, will also yield additioal savigs. Outboud Load (Store Deliveries) Distributio eter #1 Retail Store Iboud PO s routed through osolidatio Poit Distributio eter #2 osolidatio Poit Distributio eter #3 Iboud Load (Purchase Orders for 4 D s) Deadhead Supplier Distributio eter #4 Whe coordiated i advace, PO's for multiple D's ca be picked up from key suppliers ad the routed to a cosolidatio poit for routig to the fial destiatios. The cotiuous move ca the proceed to the origial D. Figure 4: Sychroizatio of iboud PO's flowig to multiple Ds 6. Assess ad improve objectively Frequet ad objective assessmet of the overall effectiveess of trasportatio plaig ca become a idispesable tool i evaluatig areas that could beefit from further improvemets. Real time performace measuremets, forecastig of volumes, ad aalytics are all critical tools to assess performace. Bechmarkig curret trasportatio costs agaist those of leadig orgaizatios ad key competitors ca help idetify uderperformig areas or those that lack critical resources. Such assessmets ca support orgaizatios i developig plas to achieve sigificat improvemets i a more rapid ad cost-effective maer. It ca also ucover areas that may beefit from strategically employig maaged services. Beefits of Maaged Services i Trasportatio Fortuately, retailers today have may optios to effectively avigate the varyig challeges ad complexities of trasportatio maagemet, icludig the utilizatio of maaged services. Several orgaizatios partially or completely outsource trasportatio system implemetatio or itegratio activities. However, maaged services ca also be leveraged to improve routie but very valuable processes such as trasportatio load plaig ad schedulig, freight bill audit ad paymet or import trade operatios. 6

7 Leveragig exteral support for key activities ca lead to may orgaizatioal syergies ad beefits such as improved trasportatio plaig performace, faster adoptio of idustry best practices, reduced overall project risk, improved retur o ivestmet (ROI), ad faster oboardig of specialized persoel. By workig with a mature, maaged services parter, orgaizatios ca utilize a lea resource approach ad focus o strategic core trasportatio competecies such as executio, performace aalysis, cotract egotiatio, ad procuremet. A maaged services parter ca also brig i deep expertise to ehace overall trasportatio maagemet plaig, visibility ad cotrol with miimal workig capital requiremets. They ca help esure that supply chai maagemet (SM) techologies seamlessly itegrate with the retailer's Eterprise Resource Plaig (ERP) ad other legacy systems, eablig successful solutio deploymet. Retailers ca eve explore the optio of usig shared services for their supply chai maagemet. With a parter takig o the resposibility of hostig ad maagig their SM solutio, retailers ca reduce or eve elimiate the overheads of maitaiig ad periodically upgradig eterprise IT ifrastructure for SM. Such a approach ca help the orgaizatio focus o achievig operatioal excellece. Strategically applyig a maaged services approach to facilitate a cetralized cotrol tower for trasportatio operatios ca deliver sigificat beefits. Accordig to a article published i D Velocity, it is ot ucommo for a cotrol tower to result i trasportatio savigs of 5 to 10 percet for a mature orgaizatio. A compay that has ever used a trasportatio maagemet system or cetralized its logistics operatios could realize savigs of 15 to 25 percet. Makig etralized Trasportatio a Busiess Priority Historically, migratig to a more cost effective cetralized trasportatio structure has seldom bee easy, largely due to the complexity of orgaizatioal chage maagemet activities or the reluctace of seior leadership to strogly support the trasitio. May retailers have therefore delayed this trasitio ad cotiue with decetralized trasportatio plaig that leads to several operatioal iefficiecies. However, maitaiig the status quo is o loger a viable optio, as omi-chael retailig places additioal pressure o back-ed supply chai activities, especially fulfillmet ad trasportatio operatios. Effectively meetig the growig expectatios of customers requires a differet approach that delivers a seamless, well-itegrated customer experiece regardless of the fulfillmet or shipmet ode. Today's omi-chael retailer must employ more flexible ad efficiet trasportatio strategies that leverage iovative best practices ad techologies. The ability to trasitio to a cetralized cotrol tower is critical to maagig the icreasigly diverse supply chai etwork. It also helps combie trasportatio modes ad services i ew ad iovative ways, thereby eablig better trasportatio plaig ad ehaced balacig of cost, service ad time tradeoffs. About the Author Deaa M. Raiwater is part of the Tata osultacy Services (TS) Supply hai eter of Excellece. Raiwater has over 20 years of busiess ad cosultig experiece havig worked i the retail, osumer Packaged Goods (PG), life scieces, ad logistics idustry. She specializes i trasportatio ad distributio cosultig. Her articles have bee published i various jourals. [2] D Velocity, otrol towers made easy, Published April 2014, Accessed February 2015, 7

8 About TS' Supply hai etre of Excellece Tacklig today s complex, volatile ad ucertai global Supply hais requires iovatively egieered solutios, provisioed usig variable-cost delivery models that bled strategic thikig with hads-o practicality. The traditioal process re-egieerig approach is o loger acceptable i today s highly dyamic busiess eviromet. To help cliets achieve ad sustai supply chai performace excellece i this age of rapid chage, TS leverages a capability accelerators based approach implemetable i a short timeframe. Our accelerators utilize scietifically desiged IT solutios that combie robust aalysis of complex data sets with egieerig rigor. This i tur eables cliets to quickly derive beefits without the eed to re-ivest i process redesig iitiatives. Our team comprises highly experieced idustry veteras who are well-versed i successfully addressig ed-to-ed supply chai challeges. Their collective wisdom is supplemeted by our Aalytics ad Operatios Research related Itellectual Property, which is developed to eable the delivery of high-impact solutios that offer our cliets a sustaiable competitive edge. otact To kow more about our Trasportatio Maagemet offerigs, cotact global.supplychai@tcs.com About Tata osultacy Services Ltd (TS) Tata osultacy Services is a IT services, cosultig ad busiess solutios orgaizatio that delivers real results to global busiess, esurig a level of certaity o other firm ca match. TS offers a cosultig-led, itegrated portfolio of IT ad IT-eabled ifrastructure, egieerig ad assurace services. This is delivered through its uique Global Network Delivery ModelTM, recogized as the bechmark of excellece i software developmet. A part of the Tata Group, Idia s largest idustrial coglomerate, TS has a global footprit ad is listed o the Natioal Stock Exchage ad Bombay Stock Exchage i Idia. IT Services Busiess Solutios osultig All cotet / iformatio preset here is the exclusive property of Tata osultacy Services Limited (TS). The cotet / iformatio cotaied here is correct at the time of publishig. No material from here may be copied, modified, reproduced, republished, uploaded, trasmitted, posted or distributed i ay form without prior writte permissio from TS. Uauthorized use of the cotet / iformatio appearig here may violate copyright, trademark ad other applicable laws, ad could result i crimial or civil pealties. opyright 2015 Tata osultacy Services Limited TS Desig Services I M I 07 I 15 For more iformatio, visit us at