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Who’s Who? Sorting Out the e-Logistics Players Part 1: The Situation

Written By: Scott A. Elliff
Published On: October 31 2002

Who’s Who's Who? Sorting Out the e-Logistics Players

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Executive View   

The fundamental promise of e-commerce is to empower the customer. In transportation, logistics and other "behind the scenes" aspects of e-commerce, new services and capabilities are beginning to fulfill this promise, not just for Fortune 500 companies but for small and medium firms and for those with specialized requirements as well. These solutions range from "e-gistics" auctions and marketplaces, through software and support tools available over the Internet, including a whole new category of Internet Logistics Operators.

This article outlines some of the latest developments in this fast-moving field, and provides background and context to help companies better understand the alternatives available to them today and identify which approaches provide them the greatest value.

About this note: This is a three-part note. Part One covers the current situation with respect to transportation and logistics. Part Two discusses traditional solutions. Part Three covers new solutions designed to address today's changing e-commerce environment.

Introduction   

Armed with just a mouse and a web browser, both businesses and consumers can now access an almost unlimited choice of products and services, compare prices and features on a real time basis, and execute transactions nearly instantaneously. In many industries, this increased competition has helped squeeze out inefficiencies, lowered prices, and in effect leveled the playing field for the "little guys" - medium and small businesses and individual consumers - who did not previously have the time or resources to manually access the full potential of the marketplace. Now they can use the Internet to more effectively "pick and choose" what best meets their needs.

Making purchases, whether clicking a book choice from Amazon or conducting an auction for supplying industrial widgets, has been the focus of e-commerce to date. What happens "behind the scenes" in processing orders, shipping products, storing and moving inventory, and related activities is a mystery to most of us - a mystery that comprises about $1 trillion in today's economy, nearly 10% of Gross Domestic Product.

Sure, you've sold it, but now you have to ship and deliver it. What services and methodologies are available to help shippers meet these e-commerce challenges?

Fortune 500 corporations have long employed a variety of approaches to help them gain a competitive advantage in managing their supply chains and satisfying customer needs. But many of the "traditional" approaches are expensive and simply out of reach for most companies. What's new is that e-commerce is bringing transportation and logistics services and capabilities that are available to everyone - big and small - and are thus helping to fulfill the real promise of e-commerce.

From "e-gistics" auctions and marketplaces, through software and support tools available over the Internet, and including a whole new category of Internet Logistics Operators, this article profiles some of these exciting new approaches and helps you identify which approaches might provide the greatest value for you.

The Situation   

There are few better candidates for e-commerce than the arcane and traditional industries of transportation and logistics services. Not only are they a significant component of the economy, they are especially ripe for new ways of doing business.

Transportation

Despite all the advertising and the everyday visibility of overnight package delivery services, over 80% of America's freight is still shipped by truck. At $500 billion, truck transportation is the largest single component of overall logistics costs - and has all the characteristics that you'd want if you were seeking to build a better mousetrap:

  • The customer base is large and diverse, with over two million businesses that ship products. While Fortune 500 companies are the biggest shippers, of course, small and medium sized companies that may typically spend say $1-10 million in transportation are a substantial share of the overall market. For these shippers, e-commerce should help with the often difficult task of finding trucking companies that can provide both superior rates and consistently high quality.

  • The supply market is extremely fragmented, with nearly 200,000 separate trucking companies today, 95% of which have fewer than 25 trucks in their fleet and serve limited areas of the country or specialized market segments. Using e-commerce techniques should help both buyers and sellers better find each other and set prices on a more competitive basis.

  • By some accounts, nearly 30% of the miles traveled by these trucks are empty, not loaded with product on board but still incurring costs for drivers, gas, and depreciation. Using e-commerce should allow better matching of supply and demand in a way that more efficiently fills available capacity and reduces total costs.

  • Pricing for the transportation industry, with its long history of regulation, still tends to be very complicated, with a variety of tariffs and discounts that vary by distance, weight, type of product, level of priority, need for specialty services such as unpacking or set up at the destination, and related factors. For small companies shipping products in less-than-truckload amounts, for example, pricing has used a National Motor Freight Classification system that includes over 10,000 different product codes and classifications - and has spawned an entire industry devoted to auditing the compliance of shippers with the system. Surely e-commerce can develop a simpler approach to this whole process.

Logistics   

As many consumer dot-coms learned last Christmas, and as many business-to-business shippers are learning every day, getting orders is only the beginning. Fulfilling them - quickly, completely, accurately, reliably, and efficiently - is the key to ongoing success. E-commerce has tremendous potential for this full range of logistics related activities - warehousing, inventory management, picking and assembling orders, and so forth:

  • In industry and after industry, studies have shown that there are significant levels of total inventory in the overall supply chain. While these "buffer stocks" help ensure that stores and factories and other customers have products when they need them, they also represent a cost that everyone pays. The overall cost of storing, financing, handling, and insuring inventory represents about $400 billion today. E-commerce can no doubt play a role in increasing the efficient use of inventories and driving them down to lower levels.

  • Warehouses and distribution centers comprise literally billions of square feet of space today. What's more, it's a growing industry. First, more and more products are being produced and held in anticipation of that happy day when the consumer or the business buyer clicks on the "Submit Order" button,. Second the size of those orders and shipments is decreasing, leading to more and more total activity and resources needed to handle all those individual orders. As with transportation, e-commerce should especially be able to help small and medium sized businesses to develop relationships with the diverse set of warehouse providers that they need to handle their products for customers all across the country.

This concludes Part One of a three-part article e-Logistics. Part Two discusses the traditional solutions and how they work in today's environment. Part Three covers new solutions made possible by e-commerce.

About the Author   

Scott A. Elliff is President of Capital Consulting & Management, Inc. (CCMI) and specializes in helping companies improve their overall effectiveness in supply chain operations - procurement, manufacturing, inventory management, logistics, and transportation and related activities.

He can be reached by email at scott_elliff@CCMIservices.com, through www.CCMIservices.com or by phone at (703) 370-2607.

 
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