TLMT600Wk4

6. Transportation Technologies

By definition, a supply chain includes the flow of information (along with

material) to and from all participating entities. Many, if not most, of the

supply chain problems are the result of poor flow of information, inaccu-

rate information, untimely information, and so on. Information must be

managed properly in each supply chain segment. Information systems

are the links that enable communication and collaboration along the sup-

ply chain. They represent one of the fundamental elements that link the

organizations of supply chain into a unified and coordinated system. In

the current competitive climate, little doubt remains about the impor-

tance of information and information technology (IT) to the ultimate suc-

cess, and perhaps even the survival, of any supply chain management

(SCM) initiative. According to a recent survey of 2,500 large and small

companies, SCM was the largest focus area for future IT investment (as

compared to sales and operations). As Figure 6-1 illustrates, more execu-

tives suggest that IT associated with SCM will see either “Much

Investment” or “Maximum Investment” in the coming years, as compared

to either sales or operations management-related IT.

Figure 6-1 Extent of future planned investment in key business

functions.

Case studies of some world-class companies, such as Walmart, Dell

Computers, and Federal Express, indicate that these companies have cre-

ated sophisticated information systems that exploit the latest technologi-

cal developments and create innovative solutions. Table 6-1 shows repre-

sentative IT solutions, together with the problems they solve.

Table 6-1 IT Solutions to SCM Problems

On the transportation front, one of the most important technology-related

topics is information sharing along the transportation channel (and, fur-

thermore, along the entire supply chain). The primary reason (and this is

by no means the only reason) for having IT in the transportation channel

is to improve communication and decrease complications such as order

mismanagement, improper forecasting, improper ordering, and ineffi-

cient vehicle routing. To understand this better, the next section explores

a phenomenon central to supply chains: the bullwhip effect.

Understanding the Need for Technology: The Bullwhip Effect

The bullwhip effect refers to erratic shifts in orders up and down the sup-

ply chain. Procter & Gamble (P&G) initially observed this effect in the

company’s disposable diapers product, Pampers. Although actual sales in

stores were fairly stable and predictable, orders from distributors had

wild swings, creating production and inventory problems for P&G. An in-

vestigation revealed that distributors’ orders were fluctuating because of

poor demand forecast, price fluctuation, order batching, and rationing

within the supply chain. All this resulted in unnecessary inventories in

various locations, fluctuations of P&G orders to suppliers, and flow of in-

accurate information. Distorted information can lead to tremendous inef-

ficiencies, excessive inventories, poor customer service, lost revenues,

and missed transport schedules.

The bullwhip effect is not unique to P&G. Firms from Hewlett-Packard in

the computer industry to Bristol-Myers Squibb in the pharmaceutical

field have experienced a similar phenomenon. Basically, even slight de-

mand uncertainties become magnified when viewed through the eyes of

managers at each link in the channel. If each distinct entity makes order-

ing and inventory decisions with an eye to its own interest above those of

the chain, stockpiling might be simultaneously occurring at as many as

seven or eight places across the supply chain; in some cases, this leads to

as many as 100 days of inventory—waiting “just in case.”

Thus, information sharing among business partners, as well as among the

various units inside each organization, is necessary for successful SCM. IT

must be designed so that information sharing becomes easy. One of the

most notable examples of information sharing is between P&G and

Walmart. Walmart provides P&G access to sale information of every item

P&G makes for Walmart. P&G daily collects this information from every

Walmart store. By monitoring the inventory level of each P&G item in ev-

ery store, P&G knows when the inventories fall below the threshold that

trigger a shipment. All this is done automatically. The benefit for P&G is

accurate demand information. P&G has similar agreements with other

major retailers. Thus, P&G can plan production more accurately, avoiding

the bullwhip effect. A 1998 industry study projected that $30 billion in

savings could materialize in the grocery industry supply chains alone us-

ing such bullwhip reduction approaches. Indeed, when each part of the

supply chain obtains real-time information about actual end demand,

and when inventory management decisions are coordinated, inventory

levels (and, consequently, costs) are reduced across the supply chain.

Thus, companies might be able to avoid the “sting of the bullwhip”

through information sharing. But exactly what kind of information is

this? Demand forecasts, point of sale, capacity, production plans, promo-

tion plans, and customer forecasts are some of the many forms this infor-

mation can take. A key part of this information relates to the identifica-

tion and visibility of items within the transport channel, their locations,

and the use of this information to make better vehicle routing and load-

balancing decisions. All these help reduce distortions and errors and en-

courage better decision making in the supply chain.

These developments are made possible in the transport channel through

technologies such as electronic data interchange (EDI), transportation

management systems, routing and scheduling systems, automatic identifi-

cation (bar coding and radio frequency identification [RFID]), and control

and monitoring systems (such as location-monitoring systems and tem-

perature-monitoring systems). Some of these are primarily software-

driven technologies (such as EDI, transportation management systems,

and, to some extent, routing and scheduling systems); others are a combi-

nation of hardware- and software-driven technologies (for example, auto-

matic identification and control and monitoring systems).

In this chapter, we discuss many of these technologies—but first we must

understand a key element of technology architecture: hosted systems

(that is, locally hosted and application service provider [ASP]) versus soft-

ware as a service (SaaS). A general understanding of both these concepts

and the differences between them is critical to understanding the work-

ings of all these systems.

Technology Architecture

Modern firms have two primary ways of constructing their technology ar-

chitecture: by hosting their own servers and systems, or acquiring tech-

nology from outside providers.

Hosted Systems/Hosted Software

Hosted software typically implies that the user directly buys a software

solution/application from a publisher or a vendor. More important, the

buyer has the software installed at a data center or “hosting center,”

where either physical or virtualized servers are available. Typically, these

servers are owned, leased, or financed. In addition, the hosting center can

be either local or long distance. When the hosting center is local, the data

and software are stored onsite; with long-distance hosting/ASP models,

data is stored offsite. The buyer then implements the solution and uses it

in the business environment.

With the payment stream, the buyer typically has a larger upfront soft-

ware payment, a price for hourly or project-based implementation, possi-

bly an initial provisioning fee from the hosting center, and then a

monthly fee for the rental/usage of the hosting center’s equipment, peo-

ple, and bandwidth. The long-term ongoing fees include the monthly host-

ing fee, an annual software maintenance fee that covers bug fixes and

new versions, and any hourly billed or annual contracted phone support

from the vendor or publisher. Finally, the buyer might have a cost every

few years for the vendor to upgrade the software to the latest version. If

the software is hosted onsite, some of these costs might be eliminated

(such as the monthly fees for renting the center’s equipment and people).

The biggest challenge with such systems is that changes and upgrades to

the system are typically harder to do (because they need to be updated on

various servers running in parallel). In addition, upgrades are often

“patchy,” in the sense that they tend to be rolled out in “blocks” instead of

on a continuous basis.

Software as a Service (SaaS)

In contrast to hosted systems, SaaS applications are typically “multi-

tenant,” meaning that they serve several customers on a single software

installation and database infrastructure. This means that one database

shares multiple end-user customers who are “partitioned” from each

other by one or more security models in the application. As a result, the

initial installation and procurement are either reduced or completely

eliminated. Thus, SaaS is almost always a pure web/HTML-based solution

that is typically sold on a rental model, typically X dollars per month, per

user. This also means that most users can access these applications with

an Internet browser (such as Microsoft Internet Explorer or Mozilla

Firefox), and the initial costs are typically lower. Applications designed

this way are also relatively easier to scale up or down, easier to manage

by the host, and easier to make self-configurable by customers. All other

things being equal, this combination typically makes SaaS applications

more affordable to the buyer especially for smaller applications.

In the long run, SaaS solutions can sometimes turn out to be more expen-

sive, especially if the need for scaling up is large, or if the number of

users increases substantially. However, despite these problems, buyers of-

ten prefer the cash flow management advantages that true SaaS solutions

provide, even if they turn out to be more expensive in the long term. For

example, from a cash flow standpoint, a buyer might find it more accept-

able to implement a software application that charges a flat rate of $250

per user per month, as compared to paying $100,000 upfront for procure-

ment and setup (even though, in the long run, the format might end up

costing substantially more). Table 6-2 shows a quick comparison of the

three models we discussed.

Table 6-2 Comparison of Various Technology Architectures

Electronic Data Interchange (EDI)

In order to facilitate the timely and accurate exchange of information

across organizational boundaries, many firms are turning to EDI. But,

much about EDI remains to be learned.

What Is EDI?

The formal definition of EDI is “the electronic exchange of business docu-

mentation and information in a standardized format between computers,

usually of different organizations.” It is also commonly known as elec-

tronic trading.

As such, EDI is a concept or system of at least two trading partners, a com-

puter system and a communication network. Such interorganizational

computer networks support the exchange of computer-stored informa-

tion across organizational boundaries. In such an arrangement, business

documents such as purchase orders and invoices are exchanged (EDI

messages) electronically. Examples of common EDI transactions that sub-

stitute for conventional preprinted business forms include purchase or-

ders, materials forecasts, and shipment and billing notices. To date, the

Data Interchange Standards Association (DISA) has cataloged standards

for 245 transaction sets, or EDI applications. Many of these transactions

sets are related to general-purpose business exchanges, but others are in-

dustry-specific (transportation, retail, or healthcare industries).

EDI replaces human-readable, paper, or electronic documents with ma-

chine-readable, electronically coded documents. With EDI, the sending

computer creates the message and the receiving computer interprets the

message without any human involvement. One of the first places many

companies implement EDI is in the exchange of a purchase order (PO). In

the traditional method of processing a PO, a buyer or purchasing agent

goes through a fairly standard procedure to create a PO:

1. A buyer reviews data from an inventory or planning system.

2. The buyer enters data into a screen in the purchasing system to create

a PO.

3. The buyer waits for the PO to be printed, usually on a special form.

4. After the PO is printed, the buyer mails it to the vendor.

5. The vendor receives the PO and posts it in the order entry system.

6. The buyer calls the vendor periodically to determine whether the PO

has been received and processed.

When you add up the internal processing time required by the sender

and receiver, and then add in a couple days in the mail, this process nor-

mally takes between three and five days. This assumes first that both the

sender and the receiver handled the PO quickly and then, at every point

along the way, that no errors occurred in transcribing data from a form to

a system.

Now consider the same document exchange when a company places its

purchase orders electronically using EDI:

1. The buyer reviews the data and creates the PO, but does not print it.

2. EDI software creates an electronic version of the PO and transmits it

automatically to the sender within minutes.

3. The vendor’s order entry system receives the PO and updates the sys-

tem immediately upon receipt.

What took up to five days with paper and the postal system now takes

less than an hour. By eliminating the paper-handling from most stages of

the process, EDI has the potential to transform a traditional paper-based

supply chain business process.

Benefits and Applications of EDI

Speed: Speed, whether in the increased velocity of moving products from

design to the marketplace, or in the rapid response of a supplier to cus-

tomer demands, is vital to success. Increased speed can benefit a business

in several ways:

Shorten lead times for product enhancement or new product delivery.

The market advantage of months or even weeks can have a major impact

on profitability.

Do more with less. Staff reductions, which are common in many busi-

nesses, require that fewer people accomplish more work. Handling the

exchange of data electronically might be critical to survival, giving em-

ployees the tools to be more productive while reducing overhead.

Reduced delivery cycle times mean reduced lead times and lowered in-

ventory carrying costs.

Accuracy: Accuracy in the exchange of business documents is always im-

portant. The traditional paper document exchange requires information

transfer through transcription or data entry, and any such information

transfer introduces errors into the process. Increases in speed are often

difficult to attain because of the need to avoid transcription errors. As

speed increases, so does the likelihood of introducing errors into the

process. Advantages gained by increases in speed can be easily offset by

the high cost of error correction. Several obvious cost savings result from

increased accuracy of information transferred to suppliers and

customers:

Increased customer satisfaction

Reduced overhead required either to detect or to reprocess erroneous

documents

Reduced costs to expedite goods or services that are late or lost

EDI Implementation

In the recent past, several large companies, including large manufactur-

ers and retailers (such as Walmart and Target), have started mandating

that their vendors be EDI-compliant before they even consider doing

business with them. Thus, for many companies, EDI is a critical business

enabler rather than a competitive differentiator. The traditional EDI ap-

plication followed the hosted software approach. However, because many

smaller suppliers either had small or nonexistent IT departments, finding

EDI solutions, writing EDI maps, installing the software, carrying out inte-

gration, and then maintaining it was usually cumbersome. Coupled with

the fact that EDI was itself not a revenue stream, this meant that many

small businesses usually dragged their feet when it came to EDI

implementation.

As a result, many of the newer vendors for EDI are moving toward the

SaaS platform, and EDI is one of the key areas for SaaS adoption. In a

SaaS model, the company that wants to implement the solution simply

contacts the EDI provider and signs up for the service. Because the EDI

provider supports thousands of large trading partners, it often already

supports the required trading partner specification.

SOME WELL-KNOWN EDI PROVIDERS

Covalent

DiCentral

First B2B

Perceptant

Redtail Solutions

WeSupply

Transportation Management System (TMS)

Traditionally, the movement of freight involved a substantial amount of

paperwork, time, and involvement. Suppliers needed to keep track of ev-

ery single shipment made to each downstream channel partner, pay-

ments received and invoices tendered, customs and duties (if applicable),

individual freight of all kinds (FAK) breakdowns, and more. As you can

imagine, shipping departments often had a hard time keeping things

straight, and this often led to missed shipments, misplaced invoices, or

payments not tendered or received on time. All of that led to unhappy

channel partners. A transportation management system (TMS) helps solve

these problems by streamlining several of the cumbersome activities in-

volved in managing freight.

A TMS is a versatile software system that controls and manages various

activities within the transportation channel. It understands which goods

are to be shipped and received. The purpose of the TMS is to manage the

process around the shipment of freight, helping the user select the right

carrier across all modes, rate the movement, tender the load, print the

shipping documents, track the load, bill the correct party for the freight,

audit carrier invoices, and pay the freight bill from the carrier.

Furthermore, the system captures and communicates relevant data on or-

ders, shipments, rates, contracts, vehicles, shipping lanes and routes, and

more. This also ensures easy access to tracking and tracing of activities in

the transportation channel. Thus, a TMS is a system that helps a trans-

portation professional make the right decisions about freight.

Conceptually, a TMS is typically “positioned between” an enterprise re-

source planning (ERP) system (discussed in the next section) and a ware-

house management system (WMS) (see Figure 6-2). In addition, some

companies choose to give their suppliers access to certain parts of their

TMS suite, to ease the process of booking and tracking shipments.

Figure 6-2 Sample IT configuration showing TMS interplay with

other systems.

Benefits and Applications of TMS

Figure 6-3 shows an example of a typical TMS screen. The benefits a TMS

provides are usually reduced labor cost and increased efficiency because

of the core modules that are part of the software. The major modules of a

typical TMS include modules that give users control over the activities in-

volved in freight movement, such as rate shopping/rating, load

tendering/carrier selection, routing and optimization, shipment tracking,

shipment consolidation, payments and invoicing, reporting and score-

carding, and auditing. We discuss some of these next:

Rate shopping and load tendering—Rating is one of the fundamental

aspects of a good TMS. Part of what makes freight management so cum-

bersome without a TMS is the wide variation in carrier contract terms—

especially when it comes to accessorial charges (such as lift gate fees and

fuel surcharges) or FAK consolidation. Quite likely, a single company has

relationships with many freight carriers, with each having its own

method of charging for accessorials and specific lane treatments. In addi-

tion, certain carriers might be eligible to operate only on certain routes or

negotiated lanes. It is critical that the freight manager determine which

carriers are eligible to move the said freight and tender the freight ac-

cordingly. Thus, for a company/shipping manager to make accurate deci-

sions, a TMS must have the ability to create and maintain several carri-

ers, rate tables, accessorials, and contracts in the application. Figure 6-4

provides an example of rate shopping in a TMS.

Routing and optimization—Proper planning of delivery routes has a

major impact on timely order fulfillment, customer satisfaction, and long-

term firm success. Thus, efficient routing and scheduling is a crucial ca-

pability TMS users seek. Good TMS systems use sophisticated mathemati-

cal algorithms and optimization routines to evaluate possible combina-

tions in which routes could be run in the most cost- or time-efficient way

possible. Some TMS solutions provide this as an integrated solution

within the core TMS product; others include this as an “add-on” feature.

Figure 6-5 provides an example of a routing optimizer within a TMS

solution.

Shipment tracking—Maintaining visibility of freight as it moves

through the transportation channel is a critical part of transportation

management. The intransit status of freight can be monitored using a

TMS in conjunction with global positioning system (GPS) navigation tools.

In addition, TMS systems can retrieve order status information through

Serial Shipping Container Codes (SSCC, discussed in the next section).

Among other things, the benefit of this functionality within a TMS is to

provide information to all parties in the transaction about delivery de-

tails (including potential delays, if applicable), and to ensure smooth

functioning of business. Most important, linking channel partners within

a TMS (see Figure 6-2) allows all the partners to view shipment status in-

formation without having to send around tracking numbers for individ-

ual orders.

Payments and invoicing—A TMS helps companies reduce manual entry

of freight bills (carrier invoices), thus speeding up the process of paying

and getting paid, and also eliminating errors. A common practice of TMS

users is to receive freight bills electronically via EDI-equivalent messages

(see the previous section on EDI). This invoice is passed directly from the

carrier system to the TMS and requires no keying of data. Alternatively, if

a carrier cannot pass a freight bill via EDI for some reason, often a TMS

has a web portal that allows the carrier to enter the freight bill (see

Figure 6-6).

Reporting, scorecarding, and auditing—Most TMS solutions allow

users to access two kinds of reports: operational and analytical.

Operational reports allow managers to streamline freight movement dur-

ing shipping; analytical reports provide managers with the ability to

make postshipment evaluations of carrier performance, customer ser-

vice, and cost. Both types of reports provide freight managers with key in-

formation with respect to future negotiations with freight carriers.

Figure 6-3 A typical TMS solution.

Figure 6-4 Rate shopping in a TMS.

Figure 6-5 Routing application within TMS.

Figure 6-6 TMS screen showing invoices.

TMS Implementation

Originally, a TMS was a licensed application that followed the locally

hosted or ASP architecture. This often required a significant hardware ex-

pense, in addition to the cost of ongoing system maintenance and up-

grades, thus putting TMS solutions beyond the reach of many small busi-

nesses. In some cases, this is still the scenario, but the SaaS model has

overwhelmingly become the “go-to” format for most commercial TMS

providers. In such applications, the user logs on over the Internet to a

server that the TMS provider maintains. The application resides on that

server and is maintained by the software provider. The user pays for the

system on a subscription or transaction basis.

The move to this type of service model has substantially enhanced the ap-

peal and accessibility of TMS for small businesses. In fact, estimates sug-

gest that the global TMS market now exceeds $650 million and clocks an

annual growth rate of around 10 to 11 percent. A large chunk of this

growth can certainly be attributed to the SaaS model that most major

TMS vendors follow. A large number of commercial TMS vendors, how-

ever, support multiple architectures, including SaaS, locally hosted archi-

tectures, and ASP. MercuryGate TMS, for example, allows users to choose

their preferred architecture and even change it after adoption. Figure 6-7

shows a login screen for the MercuryGate TMS in the SaaS architecture.

Figure 6-7 MercuryGate TMS SaaS login screen.

As such, the TMS marketplace sees two distinct kinds of service providers.

The first are the service providers that specialize in standalone TMS solu-

tions (such as MercuryGate TMS). Although these service providers are

typically smaller, they tend to provide highly specialized solutions for

TMS. The other type of service provider is large ERP vendors (such as JDA

and SAP), which provide add-on TMS solutions as part of their larger suite

of ERP solutions. Each of these models has its own advantages, and users

should carefully study which solution best suits their needs before

procurement.

SOME WELL-KNOWN TMS PROVIDERS

AdvantageTMS

IBM Nistevo

JDA

LeanLogistics

MercuryGate TMS

TMW Systems

Routing and Scheduling (R&S) Systems

Because of the vast numbers of trucks dispatched each day, synchroniza-

tion becomes critical if companies are going to provide excellent cus-

tomer service. Routing and scheduling (R&S) systems help many compa-

nies ensure that orders will be delivered to the right place at the right

time.

What Are R&S Systems?

Probably few technological innovations in the field of transportation

have come as long a way in the past 10 to 15 years as vehicle R&S systems

have. The reason for this is simple: In the late 1990s, cellular technology

was still a novelty and available only to relatively limited businesses be-

cause of its high cost. In addition, software-based map databases were

only beginning to be developed, and GPS technology was in its infancy

and, therefore, rather expensive. Although routing software was some-

times available, data such as real-time traffic and weather conditions

were hard to come by (if available). Often the mismatch between the

dispatcher’s available information and the driver’s onground information

on factors such as traffic and road maintenance conditions was large

enough that a mismatch would arise between the routes drivers thought

best and what the system thought best—and the driver was often more

precise. This made it hard for dispatchers and traffic managers to know

with any degree of certainty where their fleets were and how they were

going about their routes. Finally, given that freight volumes fluctuated,

planning vehicle routing efficiently was almost impossible.

Modern routing and scheduling systems allow companies, especially ship-

pers and distributors, to efficiently manage their transportation network

by intelligently allocating vehicles on lanes in such a way as to optimize

cost while satisfying delivery constraints and enhancing customer service

levels. Thus, R&S systems offer the promise of comprehensive “route opti-

mization” in an automated manner by helping build that ideal mix of or-

ders, stop sequencing, and scheduling, together with the shortest, most

cost-efficient driving route to execute it, that will both maximize produc-

tivity for the fleet assets and maintain or improve service performance

for your customers. To do this, such systems use several technologies, in-

cluding real-time dynamic map displays, routing algorithms, vehicle and

driver monitoring systems, and two-way communication systems. Figure

6-8 shows the workings’ of a modern R&S system.

Figure 6-8 Workings of an R&S system.

Benefits and Applications of R&S Systems

Compared to traditional dispatching methods, correctly selected and im-

plemented R&S systems usually result in savings of about 10 to 25 percent

in terms of trucks, drivers, and hours, and around 5 to 15 percent reduc-

tions in total distribution costs. Of course, the exact extent of these sav-

ings is a case-to-case issue and depends on several factors, such as the

type of R&S system implemented, the extent of autonomy provided to the

system, the actual nature of optimization routine adopted by the system

(which is usually different in each system and is often a closely guarded

secret), practical considerations, the original aim of the implementation

(for example, saving costs versus improving service levels). Although

there is some variability in the R&S offerings of various vendors, many of

them offer some basic functional activities:

Functional Activity (F.A.) 1 (Pre-Dispatch)—A key functionality that

R&S systems provide is geocoding addresses and calculating routing.

Stated differently, R&S systems help in locating the latitude and longitude

of sites by matching the address against data contained in a digital map

database; then they determine the best paths through street networks be-

tween sets of sites. As a result, they are able to provide the most efficient

delivery plans for transportation companies. They do this by solving vehi-

cle routing problems using proprietary routing algorithms that allocate

an assignment of stops to routes and terminals, sequence stops, and route

vehicles between pairs of stops. In addition, most R&S systems can dis-

play the results of such optimized routes in both graphical and tabular

forms so that dispatchers can communicate daily route plans to drivers,

loaders, and other personnel.

Functional Activity (F.A.) 2 (Post-Dispatch)—Many R&S systems are

able to monitor factors such as real-time traffic conditions and driver

compliance with regulations and also communicate with drivers in real

time. Thus, in a way, R&S systems often give companies an “eye in the

sky” as far as freight and its transport is concerned. A key element of visi-

bility that such systems often provide is the ability to monitor vehicles re-

motely: For example, if something happens to a truck, from an accident to

a simple flat tire, the dispatcher knows the information immediately and

can quickly arrange for services to help.

Functional Activity (F.A.) 3 (Post-Delivery)—Onboard computers con-

nected with modern R&S systems often capture key information such as

how a vehicle is driven, idle time, hard braking, open doors, and more.

This can be used in device training programs as appropriate. For exam-

ple, getting drivers to eliminate engine idling is traditionally a challenge

for fleet managers, given that idling strains the engine and is prohibited

in some locales. For instance, in New York City, vehicles that idle for more

than 3 minutes face up to a $2,000 fine. Data that R&S systems capture

has been useful in developing training programs for drivers to reduce

such behavior.

R&S System Implementation

As we have mentioned, few transportation technologies have developed

as much in the past 10 to 15 years as R&S systems. It has been suggested

that automated route plans help companies average 10 to 25 percent

fewer trucks, drivers, and hours. Additionally, companies are known to

realize 5 to 15 percent reductions in total distribution costs or 8 to 20 per-

cent reductions in miles and hours for service fleets through R&S system

implementation. Current market estimates indicate that the price of an

R&S solution depends on factors such as the size of the fleet and the ex-

tent of functionality desired. As such, whereas traditional R&S implemen-

tations were on hosted systems, the SaaS model seems to be catching up

in this arena, with several of the newer companies preferring this

approach.

SOME WELL-KNOWN R&S PROVIDERS

DNA Evolutions

ESRI

IBM ILOG

MJC2

Optrak

Route Solutions

Telogis

Automatic Identification

To save time and increase data accuracy, many companies are moving to

automatic identification applications to increase inventory visibility.

What Is Automatic Identification?

Automatic identification and data capture (AIDC) is a method of automati-

cally identifying objects, collecting data about them, and entering that

data directly into computer systems (with no human interference).

Transportation technologies that are usually considered a part of AIDC in-

clude bar codes and RFID.

Bar Codes

The ubiquitous bar code is probably one of the most common technolo-

gies used in transportation management and is also one of the last things

one thinks of when considering the term high-tech. However, a fair

amount of technology goes into this rather mundane (and sometimes bor-

ing) element of the supply chain.

The original use of bar codes was to identify railcars. As the railcar rolled

past a trackside scanner, it was identified and, inferentially, its destina-

tion and cargo were read. Over time, however, the bar code has been

used for several other functions, including point-of-sale (POS) data cap-

ture (through the UPC/EAN/GTIN ), internal inventory tracking, and data

capture during transportation (SSCC). Of these, the Serial Shipping

Container Code (SSCC) is most relevant from a transportation standpoint,

so the bulk of the discussion focuses on this topic. First, however, you

must understand some of the science behind the bar code.

The most common form of a bar code is the linear bar code, wherein the

data is coded as a binary code (1s and 0s) through a series of lines and

spaces. The lines and spaces are of varying thicknesses and are printed in

different combinations. To be scanned, the code must be accurately

printed and must have adequate contrast between the bars and spaces

(which is why a bar code is typically in black and white). Scanners em-

ploy various technologies to “read” codes. The two most common are

lasers and cameras. Scanners can be fixed position, as with most super-

market checkout scanners, or hand-held devices, often used in taking

inventories.

Coding conventions in bar codes can be of various kinds. At the retail

level, the most common coding convention is the Universal Product Code

(UPC), which is the coding convention used for labeling consumer prod-

ucts in many countries, including the United States, Canada, the United

Kingdom, Australia, and New Zealand. In its most common form, the UPC

consists of 12 numerical digits that are uniquely assigned to each item

type. The first six to nine digits of a UPC are referred to as the company

prefix and are assigned by a nonprofit organization (GS1). This sequence

of digits uniquely identifies a company and remains constant on all its

products. The next set of digits is called the product number. Product

numbers uniquely identify individual stock-keeping units (SKUs). Unlike

the GS1 company prefix, product numbers are assigned by each company

and do not need to follow any set convention. The last character is called

the check digit. Using some form of check digit generator, this digit is cal-

1

culated using a mathematical calculation based on the first 11 digits of

the UPC code.

Note that the UPC is not the only form of bar code available. For internal

operations (nonconsumer items), especially internal inventory counting

applications, companies often use other types of codes, such as Code 39.

Another common coding format that finds extensive use in transporta-

tion is Code 128. The key difference between the UPC and Code 128 is that

the latter was developed to accommodate letters along with numbers and

can thus support alphanumeric information. It finds extensive use in the

transportation industry because it can be used to encode shipping labels

and mailing addresses. (For example, USPS delivery confirmation stickers

are printed using Code 128.) Most kinds of information can be printed on

a Code 128 bar code (see Figure 6-9).

Figure 6-9 Sample Code 128 bar code.

The Serial Shipping Container Code (SSCC): A Special Tool in Transportation Management

The SSCC is a data coding and communication standard designed to pro-

vide a standard code and symbology system that all parties (including

manufacturers, transporters, distributors, and retailers) can use to track

and trace shipments. The SSCC runs on the Code 128 format and was de-

signed to support as wide a range of applications within the distribution

system as possible. When coupled with shipment information provided in

advance by means of EDI, the SSCC supports applications such as

shipping/receiving, inventory updating, sorting, purchase order reconcili-

ation, and shipment tracking.

In its most common form, the SSCC is a standard coding system designed

to identify and label shipping containers. For the purposes of the SSCC, a

container is defined as “the smallest physical unit which is not perma-

nently attached to another unit at any point in the distribution process,

and which therefore will be handled as a separate unit by the sender or

recipient of goods.” The beauty of the SSCC is that several different types

of information can be encoded with appropriate prefixes (called applica-

tion identifiers). For example, appropriate application identifiers on an

SSCC shipping label can identify information such as a shipment’s

EAN/UCC article number, important variable characteristics such as the

number of items in the shipment, special handling instructions, expira-

tion dates, and more by simply scanning an SSCC-compatible bar code.

The SSCC is particularly suited to identifying customer-specific product

mixes, enabling better tracking of merchandise that is packed differently

from one order to another, or where products are picked and packed to

meet individual orders, and still have a need to be identified.

The value of the SSCC really becomes apparent when it is coupled with

applications such as EDI and TMS systems in the transportation channel.

Figure 6-10 illustrates this best. Note that, in the figure, solid lines repre-

sent physical movement of goods, whereas broken lines represent the vir-

tual movement of information. The overall process can be explained as a

series of steps:

Step 1: Orders are triggered at the manufacturer/vendor/upstream chan-

nel partner level, based on various customer requirements.

Step 2: Cases are prepared according to orders. Each case has its own

SSCC.

Step 3: Cases are assembled into pallets. Each pallet gets a unique SSCC.

Step 4: Pallets are physically loaded onto trucks, railcars, or other vehi-

cles while the SSCC information is virtually transmitted to the TMS.

Step 5: The bill of lading is created.

Step 6: The order information, including the SSCC, is transmitted to the

customer by way of EDI in the form of an advance shipment notification.

Step 7: The customer/downstream channel partner receives the SSCC via

EDI and uses it to efficiently and quickly process the shipped goods upon

receipt.

Figure 6-10 The value of the SSCC in the transportation network.

Radio Frequency Identification (RFID)

RFID is an automatic identification method that supports storing and re-

motely accessing data by way of specialized tags. It is important to note

the distinction between the two primary types of RFID technology, active

and passive tags. An RFID tag is called an active tag when it is equipped

with a battery that can be used as a partial or complete source of power

for the tag’s circuitry and antenna. On the other hand, a passive tag does

not contain a battery; its power is supplied by the reader. When a passive

RFID tag encounters radio waves from the reader, the coiled antenna

within the tag forms a magnetic field. The tag draws power from it, ener-

gizing the circuits in the tag. In general, active RFID tags have a greater

read-distance than do passive tags. Active tags are also considerably

larger than passive ones. Figure 6-11 shows a sample passive RFID tag.

You likely have used RFID tags without even realizing it—for example, if

you have ever paid your traffic toll using a “pass” on your car windshield,

you have almost certainly used an RFID tag. Readers installed at key

checkpoints (tollbooths) check for compliance and deduct the appropriate

total from your account.

Figure 6-11 Sample RFID tag.

RFID readers can usually read only a small range of frequencies. For this

reason, few different frequencies are going to be used significantly to

simplify the system. Three popular frequencies are currently available on

the market. Each has its own niche market that it caters to. The most ro-

bust frequency is 125 KHz; it can be read through metal, water, and prac-

tically any other surface. These chips are the most expensive, generally

costing between $2 and $10 dollars, and they are typically used only on

larger, more expensive items. The most common example of the 125 KHz

chip is in the Mobil SpeedPass. Its range is about 4 to 6 feet in a car driv-

ing at 100 mph. A less expensive chip is the 13.56 MHz chip, which costs

about 50 cents. It can transmit its signal through water but not metal and

has a read range of only about 3 feet. The most common frequency in use

today is 915 MHz or UHF (Ultra-High Frequency). UHF can read up to 20

feet in open air; however, it cannot penetrate water or metal.

How RFID Works

The basic working of an RFID system is simple and can be illustrated

through a three-step process (see Figure 6-12). An RFID-equipped system

essentially consists of three parts: an RFID tag, an RFID scanner, and a

database. The RFID tag holds key information about the product in a spe-

cialized format called the Electronic Product Code (EPC) in binary form.

The EPC is an extension of the basic UPC bar code that is carried by most

retail items in retail stores, except that it has an added ability to store in-

dividual item information. When an RFID scanner is switched on, it gen-

erates an invisible “balloon” of electromagnetic energy. Any tags that fall

within this balloon receive this energy and get “charged up.”

Consequently, they begin reflecting the energy in the form of data stored

in them. The scanner receives this binary data and enters it into the

database.

Figure 6-12 Workings of an RFID system.

RFID Applications in the Supply Chain

Within North America, a significant portion of the rush toward RFID

comes from the mandates major retailers issue to their suppliers to be-

come Generation 2 (Gen 2)-compliant. Among these retailers, Walmart is

one of the most vocal advocates driving the push toward RFID usage by

adopting the EPC. Other examples include Target, Best Buy, and Staples.

Walmart issued its first mandate in June 2003, wherein it mandated its

top 100 suppliers to tag pallets and cases beginning in January 2005; all

suppliers were to follow suit by 2006. The initial mandates were quite

stringent, but it has been repeatedly suggested that Walmart has re-

treated at least a little in terms of its original mandated deadlines, osten-

sibly because of lack of buy-in at the supplier level.

It is easy to see why retailers more strongly champion the push toward

RFID than other members in the supply chain: Research has shown that

RFID-equipped products have a replenishment rate faster than non-RFID-

equipped ones, suggesting that the benefits of the replenishment are

greatest at the store level. For example, in a pilot study, Walmart stores

incorporating RFID-enabled goods reported a total savings of more than

$1.7 billion over similar ones that did not incorporate RFID.

For the most part, manufacturers have been slow to adopt this technology

and are meeting retailer mandates based on a “slap and ship” operation,

essentially adding a step to order fulfillment operations. One of the often-

cited and primary benefits of RFID is that it aids in stockout reduction; 70

percent of the time, responsibility (and blame) for stockouts rest with the

retailer. Although stockout reduction benefits both the manufacturer and

the retailer, it seems that manufacturers are making the larger invest-

ment to improve customers’ operations. Moreover, a substantial portion

of the information generated by tagging rests with the end retailer, and

although attempts have been made to share this information, issues such

as consumer privacy have arisen, making data sharing a difficult proposi-

tion for trade partners. Finding the return on investment (ROI) for RFID

has proven challenging for manufacturers and retailers alike, and it rep-

resents a significant limiting factor to widespread adoption of the tech-

nology. In general, RFID adoption varies on which stage of the supply

chain you work in. According to recent research, RFID adoption rates look

somewhat like Table 6-3. Note that the percentages do not add up to 100

percent because the same business process can support multiple

dimensions.

Table 6-3 Frequency of References by SCM Dimension

Control and Monitoring Systems

What Are Control and Monitoring Systems?

Control and monitoring systems represent modern technological methods

of gathering data and, in some cases, performing commands and control

over a vehicle, fleet, or cargo. Although in this context several different

types of monitoring systems can be visualized, we restrict our discussion

to overviews of two categories or monitoring systems: location monitor-

ing systems (GPS), and temperature control and monitoring systems.

Location Monitoring Systems

Currently, two competing location monitoring systems exist in the mar-

ketplace: the U.S.-backed Global Positioning System (GPS) and the Russian

Global Navigation Satellite System (GLONASS). In addition, others are in

various stages of development (such as the Europe-backed Galileo

Positioning System). Among these, the GPS system is by far the most

widely used one, so most of our discussion revolves around it. Note that

the basic technology behind the other systems is similar; if and when they

become more popular, the science discussed here will still apply, with

some minor modifications.

The GPS refers to a network of 31 operational satellites that orbit the

earth at a height of about 12,500 miles from the earth’s surface. The satel-

lites orbit the earth at a speed of about 2.4 mph, completing one rotation

of the earth about every 12 hours. This means that, on any given day, a

satellite is above the same spot twice. More important, however, the satel-

lites are arranged relative to each other in such a way that at least four

satellites are visible in the sky from every point on earth at any given in-

stant. These satellites transmit their location through specialized digital

radio waves, also called pseudo-random code. GPS-enabled devices receive

these signals and calculate the time lag involved (typically in nanosec-

onds) between when the satellite sent the signal and when the receiver

received it. Given that radio waves are electromagnetic energy and travel

at 186,000 miles per second (mps), the time lag between sending the sig-

nal and receiving it allows a GPS-enabled device to calculate the exact dis-

tance between itself and the satellite. By calculating such a distance be-

tween itself and all the visible satellites in the sky (at least four at any in-

stant, as we mentioned earlier), a receiver can precisely pinpoint its loca-

tion at that time instance. (Note that GPS receivers can typically accu-

rately estimate their location to within about 65 feet of the real location

using this approach.) This approach is known as trilateration. We give a

brief example of trilateration in the following example—note that, to sim-

plify the concept, we illustrate it in a 2D space. In reality, 3D trilateration

works similarly.

How GPS Works

Suppose you are parachuted into a totally unknown place, maybe some-

where in the middle of a remote rural location. You run into the local gas

station, buy a pack of gum, and ask the clerk where you are exactly. The

only answer she is able to give you is, “You are 120 miles from Lexington,

Kentucky.” Although this is a useful bit of information, it still does not

solve your problem. You could be anywhere on a circle with a radius of

exactly 120 miles of Lexington, Kentucky, in any direction. The possibili-

ties are endless (see Figure 6-13a). Just as you begin to wonder what to do

next, the person behind you at the checkout counter says, “I know that

you are exactly 85 miles from Columbus, Ohio.” This second piece of in-

formation helps you pinpoint your location a little better, because there

can be only two locations that are 120 miles from Lexington, Kentucky,

and 85 miles from Columbus, Ohio (see Figure 6-13b). Now suppose that

the store manager comes in and says, “You are 100 miles from

Indianapolis, Indiana” (see Figure 6-13c). If you had these three pieces of

information and a map of the United States, you would be able to deduce

that you had parachuted into Middletown, Ohio. This is how trilateration

in a GPS system works, except that it is carried out in a 3D space rather

than a 2D one.

Figure 6-13 How GPS works.

GPS Applications in Transportation

Apart from the obvious applications of GPS, including vehicle routing and

real-time traffic monitoring, several other GPS applications allow trans-

porters to manage their freight more efficiently. For example, route ad-

herence monitoring is a special application of asset tracking that involves

GPS. Route adherence monitoring (also called geofencing), uses sophisti-

cated algorithms along with real-time location information collected via

GPS to analyze and display location data, enabling commercial dispatch-

ers and, conceivably, law enforcement officials to quickly address excep-

tions such as route deviations, entry to restricted areas, and developing

schedule failures. Similarly, GPS technologies allow remote monitoring of

drivers’ adherence to such issues as compliance with speeding regula-

tions and hours-of-service (HOS) rules.

Temperature Control and Monitoring Systems

The transport of perishable cargo requires special thought, equipment,

and care. A common agent of natural decomposition is heat, which can

break down compounds to their natural state, thereby degrading them.

Refrigeration throughout the transportation channel is often used to ei-

ther slow down or eliminate this process of decomposition. Such a tem-

perature-controlled supply chain is called a cold supply chain (cold chain).

It can be understood as the transportation channel that involves the

movement of temperature-sensitive items along a supply chain through

thermal and refrigerated packaging methods, thereby creating a tempera-

ture-regulated environment all through the channel. Cold supply chains

have several technological elements, including temperature-controlled

warehouses, specialized packaging material, reefer vessels, and tempera-

ture-monitoring sensors. A discussion on temperature-controlled ware-

houses is beyond the scope of this chapter and will likely be covered in

most standard warehousing texts. However, we cover the other elements

of the cold chain in this section.

Cold Chain Packaging Technologies

Packaging technologies in temperature-controlled supply chains involve

one of two types: passive shippers or active shippers. Passive shippers can

be understood as packages that maintain a temperature-controlled envi-

ronment inside an insulated enclosure, using a finite amount of precondi-

tioned coolant in the form of chilled or frozen gel packs, phase-change

materials, dry ice, or others. Passive shippers are “rated” based on the

amount of time that they can hold the payload at the said temperature.

Typical ratings include 24, 48, 72, and 96 hours. Active shippers, on the

other hand, use electricity or some other fuel source to maintain a tem-

perature-controlled environment inside an insulated enclosure under

thermostatic regulation. Thus, the key difference between active and pas-

sive shippers is that whereas active shippers have some technology avail-

able to proactively cool them, passive shippers typically have no such

ability. Typically, active shippers are larger in size and more expensive

than passive shippers. As a result, active shippers are typically pallet-

sized or larger and are useful for large, bulk cargo. Passive shippers, on

the other hand, are typically smaller and lighter and are useful for

smaller shipments.

Cold Chain Temperature-Monitoring Technologies

Temperature monitoring is a key element of cold supply chains. Often if

the freight has been found to have violated specified temperature ranges,

the recipient can reject the entire shipment. Some of the most common

monitoring technologies are chemical tracer-based, RFID-based, and uni-

versal serial bus (USB)-based.

Chemical tracer-based temperature-monitoring systems are the oldest, and

possibly cheapest, systems for monitoring temperature integrity and com-

pliance throughout the transportation network. Such systems are often

little more than tags treated with specialized chemicals so that they

change color or show certain visible signs when they are exposed to cer-

tain temperatures. The visual sign is typically irreversible, indicating that

after the tags have been “exposed,” they cannot revert to their original

look and color. Such tags and systems are useful in identifying whether

temperature violations have occurred somewhere during the transporta-

tion process. However, they are less effective in identifying when such vi-

olations might have occurred. In addition, they are not very useful in

identifying whether multiple violations have occurred. (If multiple viola-

tions do occur, usually only the first one gets recorded, because after

recording the first violation, the tag is “spent.”) As a result, use of such

tags is decreasing.

RFID-based temperature monitors are typically small, credit card-size,

semiactive tags that are preprogrammed to “fall asleep” and “wake up” at

predetermined time intervals. For example, such a temperature sensor

can be installed on a shipment of temperature-sensitive goods and be pre-

programmed to wake up and take the temperature of the

carton/pallet/container every two hours. The tag can then report the tem-

perature to a real-time data-collection device through an RFID reader and

go back to sleep for the next two hours. In essence, then, the tag can en-

sure temperature compliance visibility in a much more detailed and

granular manner than the first type of tag. With the widespread use of

RFID technology, such tags are finding substantial use in transportation.

USB-based systems gather temperature compliance data with a USB de-

vice that is connected to a port in the temperature-monitoring device

(usually a digital thermometer). Upon delivery, it is removed from the de-

vice and connected to a computer’s USB port. The results can then be

emailed to the shipper immediately. Often such USB-based systems can

work in conjunction with those based on RFID.

Summary

This chapter has highlighted several different technologies that play a

role in the transportation of freight. Moreover, we have looked at the dif-

ferences between technology architectures (locally hosted, ASP, SaaS) and

how these relate to various transportation-related technologies (such as

EDI, TMS, R&S, RFID, and control and monitoring). The field of technology

is evolving rapidly, and firms are discovering new ways to leverage tech-

nological resources to drive value. The field of transportation manage-

ment is no exception to this phenomenon. We therefore expect that the

field will continue to evolve and that new innovations will continue to

drive value in transportation management.

Key takeaways from this chapter include:

Technology can help companies avoid the sting of the bullwhip effect.

Technology implementation can be of three types: locally hosted, re-

motely hosted, or SaaS.

EDI helps support the electronic exchange of standardized documents in

electronic format directly between channel partners.

A TMS is a specialized software tool that supports various activities

within the transportation network, including rating the movement, ten-

dering the load, printing the shipping documents, tracking the load,

billing the correct party for the freight, auditing carrier invoices, and pay-

ing the freight bill from the carrier.

R&S systems allow companies, especially shippers and distributors, to

efficiently manage their transportation network by intelligently allocat-

ing vehicles on lanes to optimize cost while satisfying delivery

constraints.

Automatic identification and data capture (AIDC) methods automatically

identify objects, collect data about them, and enter that data directly into

computer systems. These include bar codes and RFID.

Control and monitoring systems represent modern technological meth-

ods of gathering data and, in some cases, performing commands and con-

trol over a vehicle, fleet, or cargo. These include location monitoring and

conditioning (temperature) monitoring.

Endnote

1. Universal Product Code/European Article number/Global Trade Item

Number

For Further Reading

Chopra, S., and M. Sodhi (2007), “Looking for the Bang from the RFID

Buck,” Supply Chain Management Review 11(4):34-41.

Clients First Business Solutions (2011), “Cloud, SaaS and Hosted...What’s

the Difference?” www.erpsoftwareblog.com/2011/05/cloud-saas-and-

hosted-whats-the-difference/. Accessed 24 September 2013.

Coyle, J., J. Langley, B. Gibson, R. Novack, and E. Bardi, “Supply Chain

Management—A Logistics Perspective,” Cengage Publishing, 8th ed. (New

York: Cengage, 2008).

Hugos, M., Essentials of Supply Chain Management, 3d ed. (Hoboken, NJ:

Wiley, 2011).

Farrell, J. (2013), “GPS Made Simple,” VIGIL, Inc.

Kumar, S., Connective Technologies in the Supply Chain, 1st ed. (Boca

Raton, FL: Auerbach Publications, 2007).

Rao, S. S., and T. J. Goldsby (2007), “Radio Frequency Identification in

Supply Chains: Looking to Process Improvement as a Source of Financial

Return,” Proceedings of the CSCMP Educator’s Conference, Council of

Supply Chain Management Professionals: Lombard, IL.

Sharma, V., Information Technology Law and Practice: Law & Emerging

Technology Cyber Law & E-Commerce, 3rd revised ed. (New Delhi, India:

Universal Law Publishing Co. Ltd., 2011).

Stroh, M., A Practical Guide to Transportation & Logistics, 3rd ed.

(Dumont, NJ: Logistics Network, Inc., 2006).

Treleven, M. D., C. A. Watts, and P. T. Hogan, “Communication Along the

Supply Chain: A Survey of Manufacturers’ Investment and Usage Plans

for Information Technologies,” Mid-American Journal of Business

2000;15:53–62.

Watts, C., V. Mabert, and N. Hartman, “Supply Chain Bolt-ons: Investment

and Usage by Manufacturers,” International Journal of Operations &

Production Management 2008;28(12):1219–1243.