A Conversation with Joe Gallick
Senior Vice President, Sales, Penske Logistics
and Tom McKenna
Senior Vice President, Engineering and Technology, Penske Logistics

LQ: What are you doing to develop more connectivity capability in terms of best-of-breed software from your clients and your own systems? (Russ Doak) Joe Gallick: Seamless integration of our business process solutions and our customer’s supply chain architecture is critical in achieving the desired results of any logistics outsourcing engagement. While 3PLs have successfully developed or acquired the necessary software to execute transportation and distribution activities, the connectivity with the shipper’s enterprise or functional planning systems is a key requirement of success. At Penske we have invested heavily in our people, processes and technology
to address this need.
For instance,we have successfully hired and trained more than 160 associates in business systems analysis, system/data integration,Web application development, data/telecom network management and risk and contingency planning.These experts, located throughout the world and working collaboratively with our customers and trading partners, are supported by six Sigma-trained project managers who ensure that our integrations are properly mapped,tested,piloted and installed. Using state-of-the-art EDI, XML and proprietary technology, we’re able to process millions of orders and transactions flawlessly, bring them into our data translation and work-flow environment, and direct them to the appropriate tactical-solution
software (TMS,WMS, Cellcom) for execution. Afterward, closing the information loop via secured intranet and extranet applications returns the necessary information to the customer’s host system to enable critical visibility and business intelligence requirements.
Tom McKenna: Increasingly we are also being asked to send financial data directly to our customers’ ERP and general ledger systems, so we have also taken the step of having our transportation management processes SAS 70–certified. This auditing standard is for service providers who can demonstrate they have adequate controls and safeguards when hosting or processing data belonging to their customers.
LQ: What are you doing to ensure your customer is educated about your comprehensive end-to-end supply chain capabilities and integrated handoff of IT expertise and delivery?  (Russ Doak)
Joe Gallick: Communicating with customers would seem at first glance like a natural and somewhat simple activity. Yet numerous studies have revealed lack of effective communication to be one of the leading contributors to failed outsourcing engagements. We use three key formal tools to understand our customers’ business, capture and communicate customer satisfaction, and develop and present continuous improvement initiatives. Voice-of-thecustomer (VOC) surveys allow us to regularly gauge the pulse of the relationship by promoting an open and honest, outside-in assessment of account performance. Customer account retention efforts (CARE) involve quarterly reviews that include quantitative and qualitative assessments, goal resetting and relationship management at the operational and functional levels.
The best way a customer can achieve a full understanding of Penske's supply chain capabilities is through our dedicated customer experience teams (CETs). Each of these multifunctional teams is chartered to develop an in-depth understanding of our customer’s business, proactively pursue improvement initiatives and innovation, and expand the collective knowledge base and experience with the customer.As a result,natural areas of expertise for 3PLs, such as warehousing and transportation, are seeing expansion into the domains of demand planning, supplier resource management (SRM) and strategic replenishment— in a sense, an end-to-end supply chain.
Tom McKenna: Whether our solution includes only the core technology applications needed for our standard logistics management processes or includes technology extensions that customize that solution for any individual customer, the communication tools described by Joe enhance collaboration among our customers’ supply chain, logistics and IT departments. In our experience, such collaboration is vital to successful implementation of every one of our solutions.
LQ: How central is information technology to the value proposition that you offer to customers? Do you feel you enjoy some distinct advantage as a result of the technology you offer? (Tom Goldsby, Ph.D.)
Joe Gallick: In the information age we now live in, it’s become a reality that businesses will flourish or fail based upon the performance of their supply chain. Needless to say, technology is core to this reality and the enabler of the value proposition we present to our customers. The challenge we all face in this environment is to make the correct IT decisions in a dynamic  marketplace.Who are the best providers?
Who will offer the most support? How customizable are the technologies to our customers’ needs? Should we develop the capability internally?
Tom McKenna: Should we consider application service providers (ASPs)? And how do we transition our current systems to a service-oriented architecture (SOA) that promises even greater flexibility?
Joe Gallick: All of these decisions, of course, must address and balance the voice of the customer with the voice of the shareholder (ROI). The distinct advantage we have to offer our customers is the fact that we’ve lived through and made these decisions already, allowing them to receive the full benefits of digitization in real time and with minimum investment and performance risk. Our approach has been a blended one, leveraging best-in-breed technologies with internally developed software and creative middleware to enable specific business processes— customized to fit the needs of each customer, yet within standard platforms that enable us to leverage scale and repeatable processes among many customers.
LQ: Do customers look to you for technology solutions or enhanced process performance — performance that may be enabled through technology?
(Tom Goldsby Ph.D.)
Joe Gallick: This question very much gets to the heart of the preceding one. Oftentimes a customer will come to us with an RFP for a specific technological solution. This is usually the result of a business process assessment that has specified the need for a particular technology (for example,TMS,WMS) and has assigned sourcing this need to a procurement group to address the purchase/ outsource alternatives. Over the years we have learned to resist the obvious temptation and to probe deeper to understand the rationale behind the request, and challenge accordingly.
Logistics service providers must have the necessary IT tools to be considered by any serious buyer. More important, however, is the capability and experience the provider must have to fully understand the underlying processes this technology will support and the performance improvements it is projected to enable.
Additionally, value-stream mapping the processes the technology will support, as well as the preceding and resulting ones,is critical in ensuring the ultimate adoption and usefulness of the tool.
This exercise sometimes achieves a valuable result.While certain technologies may be more robust and have the latest features,a more flexible and nimble solution, tailored specifically to the customer’s processes, may yield the best ROI and results.

Questions for this Executive Interview were prepared by LQ’s board members:
Russ Doak, Director, Supply Chain Logistics, Heli-One and Tom Goldsby, Ph.D., University of Kentucky.

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A Conversation with John Motley
CEO and founder, LOG-NET, Inc.

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LQ: How feasible is it for a 3PL that serves a multitude of customers in disparate industries to develop a single technology platform to address customers’ distinct needs? (Tom Goldsby, Ph.D.)
John Motley: The majority of top 3PLs have technology infrastructure that enables them to support a broad variety of distinct customer needs. However, it is important for users of these services to understand the offering and the value proposition of the particular 3PL.LOG-NET is a provider of such a technology solution.We have spent years enabling a configurable application that is just as happy moving pork products as it is handling the logistics of Tickle Me Elmo.The benefit of such a highly configurable application is that it removes many of the technology constraints of a single platform by using simple customization. However, this quickly makes differentiation among the excellent 3PLs an issue of expertise and execution capability. Armed with a toolkit like LOG-NET, 3PLs can create an enormous number of system solutions for clients.There are three key areas of staff expertise that users of these services should look for:

  1. process management staff who understand the customer’s business and how to adapt the system to support that business,
  2. data and systems engineering staff who are fluent in the e-commerce of the trading partners that is to be implemented, and
  3. staff in the locations that the customer needs who are fluent in support and day-to-day management of both the customer’s business processes and the technology infrastructure used to support it. 3PLs with this type of staff and IT infrastructure typically offer three distinct levels of services,which are usually based on the cost of the service and the level of customization that the customer will be provided. Broadly speaking, these can be described as follows.
  1. Adjunct Services: This offering is an add-on to core transportation, forwarding or brokerage services. It is typically a structured program offered in a broad variety of locations.
    As this is a mass service offered as an add-on, it is typically lower-cost and less customized. A major benefit to this type of service is that it is structured and usually has broad training around the globe, supporting the probability of high quality of service with lower training needs. This is usually identified within the 3PL as a corporate service as opposed to a separate profit-and-loss center within the organization.
  2. Boutique/Customized Services: The boutique service will provide highly customized services where the 3PL integrates with the customer and the procedures and processes are predominantly driven by the customer. These services will be separately priced and will involve custom e-commerce and process integration. Many 3PLs have set up separate integrated or global logistics divisions to cater to this market.These provide benefits that include tremendous alignment with customers’ goals and revenue or cost-reduction objectives.The trade-off is that the custom nature of this type of solution requires more aggressive staffing and management to both deploy and maintain.
  3. Hybrid Custom/Add-on Solutions: Some 3PLs will enable clients to mix and match their core, add-on and custom services. The trade-off in this environment can involve blurred lines of accountability within the 3PL that may not be in the best interest of the customer. Customers should make diligent efforts to understand and clarify roles and accountability for a delivery that may be shared across transportation, forwarding, warehousing and brokerage entities within a 3PL.They should insist on a single point of contact for problem resolution in any area.
    From a technology perspective, applications such as LOGNET are supporting all these types of 3PLs, but there are differences in the size and breadth of technology and process management staff within each 3PL.

LQ: What is the likelihood of technology providers being able to successfully combine ERP and supply chain functional software? Who are or will be the leaders in making this happen? (John Langley Jr., Ph.D.)
John Motley: The end client of the 3PL is clearly driving this set of requirements. In the past 12 months we have seen a major increase in the volume of clients moving to build collaborative frameworks between best-of-breed 3PL and supply chain technology to extend the capabilities of the ERP infrastructure.
Many ERP users are ending their wait for the ERP suppliers to build out their multimodal or international logistics capabilities. The result is requests for deep integration with how the leading ERP applications are being deployed. To the 3PL and supply chain technology providers this means gaining a deep understanding of the data and business process models that the ERP applications operate.
By way of example,we recently deployed several international multimodal solutions for SAP clients.This is an area in which SAP provides very limited fidelity.LOG-NET has built a deep understanding of how SAP uses things like material numbers and line numbers on orders to manage manufacturing, apparel, hi-tech, retail and pharmaceutical clients.This enables us to create fluent dialogues between the SAP instance and the trading-partner community. Significantly, we can also be a layer between the trading-partner community and the ERP application.
When enabled with a 3PL, we can extend the enterprise infrastructure and management process from the clients to their suppliers, using our configuration capability to provide the homogeneous environment the ERP seeks while accommodating the heterogeneity that typically permeates most trading-partner communities.
The leaders in this industry will be those suppliers of 3PL and supply chain IT that provide the highest level of configurability, domain expertise and proven execution in multi-enterprise integration and management. ERP applications are setting benchmarks of business practices,and the 3PL community is responding aggressively to maintain their positions of excellence in supply chain IT.
Questions for this Executive Interview were prepared by LQ’s board members:

Tom Goldsby, Ph.D., University of Kentucky, and John Langley Jr., Ph.D., Professor of Supply Chain Management, Georgia Institute of Technology.

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A Conversation with Robert R. Haney

Director, SeeChange Services Product Management, APL Logistics

:

LQ: How and when will 3PL providers work off a centralized system/software that links all their global operations? Currently each country or office works off their own preferred software, and most are not set up to interface with shippers or receivers. (Sue Gadsby)
Robert Haney: It is our job to deliver consistent service regardless of origin. The APL Logistics approach to global operations is to combine global systems, local staff and strong process discipline.
APL Logistics offers a proprietary mainframe application to manage our customers’ bookings and operations globally. The deployment of a single system across all origins is a key component of our core service.But working from a centralized system that links global operations is only part of the solution.We must have people working in offices at each point of origin around the globe; systems are no substitute for local language and local people.
Finally, our people adhere to strict operational logistics procedures and processes that are governed by a service integrity group, which focuses on operational excellence and consistency across origins. Information exchanges with our global mainframe booking system are monitored and maintained by our in-house team of EDI specialists and by tightly integrated applications that also support exchanges for shippers and receivers. A large importer who is running an ERP system will connect with our global mainframe through standard EDI interchanges, sending the purchase order (PO) and receiving an advance shipment notification (ASN). For the importer, the interface is automated and system-to-system oriented. The vendors at origin may not be prepared to work with EDI, so in order to facilitate data exchange,APL Logistics has developed easily deployed Web-based systems such as PO Manager and Booking Manager. By converting EDI data to a viewable PDF,the PO Manager application allows vendors to review and download POs sent from the importer via EDI.
When ready to book, the factory can use Booking Manager to create and confirm the booking online. For vendors and importers that require more detail, APL Logistics offers an internationally deployed label printing and scanning application and network. This system is also tightly integrated with the global mainframe, allowing a vendor to print and scan labels while stuffing a container and to upload this detailed data file directly to the mainframe. The importer receives the data in its ERP system via EDI as an advanced shipment notification.
All of these systems—from our global mainframe booking system, the EDI interface and the Web-based applications to the internationally deployed labeling and scanning systems—are proprietary to APL Logistics.By owning and maintaining our own systems, APL Logistics is able to flex to support customers’ requirements, which span multiple verticals and are worldwide in scope. Internationally deployed and integrated systems are a core component of an overall 3PL solution. Building and maintaining mission-critical systems means we have the flexibility to support our customers with their complex supply chains.
But the software system is only the beginning. IT alone is not a competitive differentiator in the modern supply chain environment. Technology is just one component of a network of interrelated competencies that must manage and enhance increasingly complex global businesses. IT is a core component of any competitive value proposition, but its strategic relevance is predicated on organizational alignment, process excellence and forward thinking.The IT advantage that APL Logistics offers is a globally integrated platform that complements our operating expertise. It gives customers an end-to-end multimodal decision-making capability that is supported by customer-service and other functional experts.
APL Logistics has positioned technology as an interactive tool that enables our customers to interact with their supply chains. Customers look to APL Logistics to provide technology solutions, but the primacy of IT as the “ultimate solution” is waning. Service providers and customers now acknowledge the importance of balancing IT capabilities with excellence in operations and execution. Customers ask APLL to enhance the overall efficiency and value of their supply chain networks, not simply to provide an IT solution.
Services like PO management,inventory visibility,mode optimization and metrics require a convergence of functional competence.Technology is one spoke in a wheel of capabilities that enable APL Logistics and customers to collaborate on complex solutions and performance improvements.
LQ: How feasible is it for a 3PL that serves a multitude of customers in disparate industries to develop a single technology platform to address customers’ distinct needs? Are technology needs forcing today’s 3PLs to develop smaller market segments to address these needs, or are the tools sufficiently robust to accommodate variation in data capture, communication and processing? (Tom Goldsby, Ph.D.)
Robert Haney: It is feasible for a 3PL to effectively serve customers across multiple verticals. However, the supply chain knowledge and operational flexibility required to deliver consistent operational excellence across disparate industries cannot be purchased with a packaged technology solution. The capacity to effectively serve customers across verticals must be purposefully developed in house and grown through experience. The key requirements for cross-vertical support are end-to-end systems and an effective global implementation team.
This question of feasibility regarding single platforms is appropriate, given how the technology needs of modern supply chain managers are stretching our systems’ capabilities with regard to data integration and system functionality. In order for systems to span multiple 3PL services across multiple verticals, the systems must provide independent support for unique segments of the supply chain while at the same time offering the ability to “plug and play”—in other words, flexing to deliver end-to end solutions.
At APL Logistics, our core systems each address a specific supply chain operation. For example, we maintain systems to address purchase order distribution, label printing and scanning, booking management, consolidation optimization, deconsolidation, origin warehouse, rail management, domestic freight optimization and management, and document management systems, to name a few. Each of these systems can be deployed in a stand-alone mode as needed, or it can be integrated to deliver a complete supply chain solution to support varying models across verticals.
But solving the systems challenge alone is not sufficient to deliver effective cross-vertical supply chain solutions. Knowledge of best practices and vertical-specific implementations must be a core competency of the service provider.At APL Logistics we house this knowledge in our Global Implementation Solutions Group.This team follows clear implementation requirements and development processes and has successfully deployed solutions for a wide range of industries, from retail to automotive to e-goods customers, each with unique supply chain challenges. The ultimate solution is to leverage a combination of flexible proprietary systems and purposefully developed inhouse vertical solution implementation experience. This combination has enabled APL Logistics to effectively deliver internationally deployed solutions that include label and scanning systems for a clothing retailer; warehouse and freight optimization for a chemical supplier, with cross-border customs integration in Latin America; and vendor-managed inventory (VMI) solutions for the electronics and automotive industries.

Questions for this Executive Interview were prepared by LQ’s board members:
Sue Gadsby, Director, Procurement, Apotex Inc.,. and Tom Goldsby, Ph.D., University of Kentucky.

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A Conversation with Donald G. Maltby
Executive Vice President of Logistics Services, Unyson Logistics

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LQ: How are 3PLs using IT to coordinate the supply chain requirements for companies across several modes of transport? (David Closs, Ph.D.)
Donald Maltby: I believe that all 3PLs should use IT to integrate with the customer’s supply chain, as technology enables the 3PL to be unbiased in providing the customer with solutions. The 3PL must be well versed in all modes of transportation and must also have the ability to connect to these modes through technology enhancements. This will give the customer visibility throughout the supply chain and can eliminate backroom costs. If the 3PL does not have that ability, its effectiveness will be limited in managing that customer’s supply chain. Customers look to the 3PL to provide continuous improvements. The 3PL must be focused on process improvement and deliverables,which are driven through technology, resources and innovation.
LQ: Has your firm developed proprietary systems?
Donald Maltby: We do both.We bought our TMS, the core operating system, and a financial package,and we have built our Web-enabled tools around that for customer, vendor and supplier interface and for general Web portals for customers to place orders. It is a lot different than it was 10 years ago, when you could not interface with other software. Today many shippers are up against IT constraints, and they can’t get the IT resources they require. A 3PL must therefore be flexible in how it can integrate,whether it is with an ARP or an old legacy system. Nowadays it is just a transfer of files.
Years ago it involved a lot of complicated integration. Many clients initially inquire how much IT will be required on their part, and we respond that it is very little.
LQ: How do you create better visibility using IT in regard to cost and product in the supply chain? (Russ Doak)
Donald Maltby: The 3PL provides better visibility through integration of IT into its supply chain and those of all the underlying carriers, irrelevant of mode. IT enables the shipping public to have visibility in their supply chain way upstream, through all modes of transportation. It allows firms to drive cost out of that supply chain by optimizing not only the network of that customer but also the network of the 3PL.
This allows customers to collaborate both internally and externally within the 3PL marketplace. If a 3PL is doing business with major retailers across the U.S. and Canada, it is getting files from all those retailers,which allows them to look at multiple customers to drive cost down.
LQ: To what extent may we see technology providers collaborating with 3PLs to improve the software they may use to better manage themselves and their customer relationships? (John Langley, Ph.D.)
Donald Maltby: As in all business, technology partners are now shrinking. The 3PL is on the leading edge in providing technology solutions to its customers.What you are seeing now is that TMS applications have to be enhanced, and that is done with the 3PL in mind.Web-enabled tools that are user-friendly and easy to deploy are now accessible to the 3PL marketplace.Those discussions focus on how we can improve the product or the technology to service the 3PL, which then enhances the value to the customer.
LQ: What are the major impediments to achieving global supply chain visibility and how will the technology sector step up to help improve in this area? (John Langley)
Donald Maltby: One major impediment is a lack of good information. The technology to provide visibility is easily accessible in the marketplace, and the ability to receive data from shippers and customers is a critical piece of that.Technology to provide visibility across countries and modes is in place today.The problem is the quality of the data that is going into the system from the shipper, not the technology itself. I do not see technology as being the impediment.We must learn how to manage.We must be able to accept that the product or service is out there today and we need it to succeed. It takes effort to implement initially,but it is worth it.
LQ: As you grow your business,you can expect to apply more and more effort to managing legacy applications and customer customizations. How are you dealing with this challenge? (Nicholas Seiersen)
Donald Maltby: We believe in customized solutions for our customers. As we grow our business,we are always trying to enhance our technology.The 3PL marketplace must tailor its solutions to meet the demands of the customer. The core requirements of the customers are often the same: these needs are visibility, driving cost and process improvement.
These are the drivers from a 3PL perspective, although there are variations that make our customers’needs slightly unique. A 3PL must be ahead of the curve in order to provide customized solutions to its customers,and must continually reinvest in new applications.
LQ: What are you doing to create the right balance between agility and lean-process business practices? (Russ Doak)
Donald Maltby: As a 3PL you must focus on who you are and what you do. Our tagline is “Unyson is a major 3PL that is the best at offering multimode transportation and guaranteed savings.”Once you have established a business relationship with a client, the question is “Does it fit?” If it does not, you need to move on. 3PLs need to clearly define where their strengths lie rather than spin their wheels; otherwise they will have a lot of technology and staffing costs. The right balance is understanding value, delivering that value and being able to move toward that value all the time.
LQ: As more companies look at order fulfillment and getting closer to their customers, how are you preparing for this trend? (Russ Doak)
Donald Maltby: More customers are looking at their footprint and asking, “Am I in the right marketplace? Am I in position to service my customers? Am I providing the service and cost to meet my customer demand?” These are all important questions that will separate you from the competition.What you are seeing on a global level is customers evaluating their supply chain to take out costs and be closer to their customer to deliver the value they promised. What we are seeing more of, especially over the past 10 months, is network modeling.

Questions for this Executive Interview were prepared by LQ’s board members:

David Closs, Ph.D., Michigan State University; Russ Doak, Director, Supply Chain Logistics, Heli-One; Tom Goldsby, Ph.D., University of Kentucky; John C. Langley Jr., Ph.D., Georgia Institute of Technology; and Nicholas Seiersen, Senior Manager, KPMG, and LQ Executive Editor.

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A Conversation with Steve Blough
President, MercuryGate

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LQ: How is the MercuryGate TMS solution designed to support a 3PL business?
Steve Blough: MercuryGate is designed for the many-to-many world of the 3PL. MercuryGate’s inherent hierarchy allows the 3PL to set up carriers, contracts and configurations and leverage them as needed across its many customers. At the same time, customers may have unique requirements that demand either simple tweaks of the base setup or perhaps completely unique configurations. MercuryGate also allows the 3PL to set up template models that can be used as a seed for setting up a new client; thus 3PLs can develop best-ofbreed solutions and be prepared whenever a customer requests that type of model. All of these things together allow the 3PL to rapidly board new customers with little to no change within the application, leveraging existing setups throughout the solution.
LQ: Will the solution support different-sized 3PLs from small to large-tier ones?
Steve Blough: MercuryGate’s TMS supports all 3PL sizes.The solution is designed so that a small company starting out can get value from having a technology solution for their new customers,while an established tier-one 3PL can bring all its customers into the solution. The beauty of MercuryGate is that it not only supports 3PLs with this model but allows 3PLs to board clients of any size as well.We have customers that board large corporations within the TMS as well as small, tierthree-size shippers. For example, we have a large 3PL that started out doing fewer than 300 shipments a month with fewer than 100 customers.They now have more than 30,000 customers and are moving more than 100,000 shipments a month.The architecture works.
LQ: That’s interesting from a setup perspective,but how does the solution support the many different business models that the 3PL may need to use to compete in today’s marketplace?
Steve Blough: The architecture described above allows the 3PL to use different business models between customers and even within a given customer. The 3PL can use a gainshare model to win business with a customer and then migrate to a buy/sell model, either uplifting rates or having a completely different rate for the client. For example, we have a client that charges its customer based on the quantity of a given SKU, but of course they pay a per mile charge, container charge, etc.We not only enable 3PLs to do freight management functions but also provide the ability to perform brokerage operations.
LQ: So what’s involved in maintaining these rating deals?
Steve Blough: The deals are managed through what MercuryGate calls contracts. Contracts are easily set up and maintained by the end user. Rates can be uploaded as an Excel spreadsheet for truckload, ocean, rail, air freight—really any mode. However, LTL carriers typically involve tariffs (for example, SMC3, MARS) that are already loaded into the system, so the contract simply points to that tariff. Users also have access to all the LTL service information for direct and indirect service areas as well as all the carrier terminal information. Other contracts utilize Web service calls directly to the carriers, with an account code that returns the negotiated rates.The parcel carriers were the first to start this process but now we see this growing into the LTL space as well.
MercuryGate takes its reuse capability into the business model as well,by allowing users to copy contracts and reuse setup information.We also offer the ability to set up profiles for uplifts, gainshare, and so on, as well as profiles for groups of accessorial charges such as fuel and liftgate that may be shared and reused by many contracts. Customer contracts may also be set up that span multiple clients, or they may be customer-unique. Customer and carrier rates may be linked together or behave separately,as needed.The result of all this flexibility is a system that is easy to maintain and grow.
LQ: So if everybody uses your solution, how do they distinguish themselves in the marketplace?
Steve Blough: Here is where the MercuryGate TMS really shines.The system may be customized to meet each company’s unique processes. Customizable workflow and screen design allow 3PLs to brand the solution to meet their unique value proposition.We have many large and small 3PLs in our system—each has a unique way of viewing transportation, and thus unique solutions that it provides its customers.
LQ: Many shippers are looking to the 3PL to coordinate their supply chain across all modes of transportation. How does MercuryGate facilitate this coordination?
Steve Blough: MercuryGate’s TMS supports all modes of transportation such as parcel, LTL, truckload, air/air freight, rail,intermodal and ocean.As the 3PL looks for ways to move the freight, the system optimizes the selection across all the available modes, based on the level of service required and routing guides, if desired.The solution looks for cost-cutting alternatives across all shipping points. However, MercuryGate can even go one step further in that it looks not only across a given shipper but between the different 3PL customers as well. This functionality allows the 3PL to look for backhaul capacity as well as to combine shipments from multiple clients on a single load.
LQ: Does that ability to view shipments from all the different clients extend to the transportation optimizer as well?
Steve Blough: Mojo, MercuryGate’s transportation optimizer, allows the 3PL to optimize shipments from all clients continually. One of the shortfalls of many of the existing transportation optimizers on the market is that they were designed for a single shipper. Very few 3PLs want to look at their shipping portfolio one shipper at a time. Add in the complexity of cross-docking and the problem gets magnified. Mojo is extremely powerful for the non-assetbased 3PL that is shipping from many different customer origins to many different customer destinations. Mojo leverages existing contracts, location information, etc. to determine the most cost-effective way to move the freight for all or part of the 3PL customer base.
LQ: What about visibility for the 3PL customer? How can it see its information as needed?
Steve Blough: The architecture I just described not only provides for rapid boarding of new clients but also allows for segmentation of the data as appropriate for 3PL customers, and even the customers of customers. That information may then be disseminated by several methods. The first method allows the 3PL to communicate to the shipper electronically. Whether as XML messages or standard EDI transactions, the information can be sent automatically to the customer. For example, many of our 3PL clients act as the truckload carrier for the freight.The customer wants a standard shipping process setup, so MercuryGate receives a 204 tender and responds with a 990 message indicating whether or not the tender was accepted.
As the freight moves, the TMS sends tracking messages (EDI 214 messages) to the customer with status messages as they are received from the actual carrier.
Finally, for invoicing the customer, a 210 EDI message may be sent at the appropriate time. Of course, not all customers want or can even use EDI or XML, so for those clients we have a really slick portal access that provides a dashboard focus for exception management as well as reporting. The beauty is that each user may access its information by what it knows.Thus the customer can enter an order number and see all shipments fulfilling that order. Suppliers may enter a purchase order number and see how the shipper wants the goods delivered, enforcing carrier compliance for inbound moves.
LQ: One of the issues many collaborative software packages face is the education necessary to enable infrequent users to use the solution. How does MercuryGate address this usability issue?
Steve Blough: MercuryGate has several ways to access the system. For power users, there is the standard interface. While still very user-friendly,that robust interface does require some education to effectively use the system. For less frequent users MercuryGate has utilized a dashboard concept with different portlets. Portlets are assigned to roles, and then any user with that role can access the authorized portlets. For example, we have an “Add Shipment Wizard” portlet that steps the infrequent user through the process to create a shipment.With context help and user defaults, the Add Shipment process is a very simple one. Of course, dashboards and portlets are not used just for customers. Vendor/suppliers, carriers,management teams and really any role you may think of can be set up with a dashboard, focusing those users on what they need to see, based on what they are allowed to see.
LQ: Software as a service is getting a lot of press these days as many of the larger companies are striving to get into that market. How does MercuryGate sell the TMS solution?
Steve Blough: First of all, MercuryGate is a software company.We offer our software in a SAAS model as well as for license purchase, where the customer hosts the solution. That being said, almost all our clients have chosen to use our on-demand model, which they can quickly get up and running within days. This model allows them not only to test-drive but also, and more important, to use the application before they must lay out large capital expenditures.
In fact, our deals usually stipulate that no payments are required until the 3PL is up and running in a production environment, proving the ROI measurements are based on sound practices.
Customers may start out in the ondemand world or not.Of course,the ondemand world offers a network of carriers, customers, and so on that are already hooked in and doing work.We have found that many clients prefer to build their own network, so our model does not require sharing data between all parties. However, even users that do not participate in the network as a whole get great value from messages that are already mapped between parties and the other functionality I’ve listed. For example, many large-package retail corporations are customers of many of our 3PLs. Once the original map was created to these large corporations, other participants in our solution were able to leverage those formats and still be on a “private”network.
LQ: One of the common issues with technology solutions is getting the data in and out of the system. This integration issue is complicated in a 3PL world because they deal with so many different companies. How does the MercuryGate TMS facilitate integration?
Steve Blough: MercuryGate’s TMS was built with a very open architecture, allowing importing of any data structure into the application. The standard import format and the most flexible is the XML message structure. Of course, many users do not get data in the XML format, so MercuryGate offers the ability to map into XML format for many of their clients. However, users often opt for starting out with simple importing of an Excel spreadsheet of shipping requests. Column data may be in any order; by simply changing the name of the column, the spreadsheet may easily be imported into the TMS.Of course, we also communicate with many of our involved parties using EDI or EDIFACT messages, as appropriate.
LQ: 3PLs are often required to respond to clients’ RFPs that more than likely involve a large amount of manual effort. What, if anything, can MercuryGate offer a 3PL to assist in responding to RFPs?
Steve Blough: A TMS should do more than just manage transportation movements from an execution perspective. In order to grow,3PLs need to be able to respond quickly and effectively to requests from potential customers. Using MercuryGate’s open architecture, 3PLs can easily import tens of thousands of shipments, rate them against their contracts for both buy and sell, and use the robust reporting capabilities to produce a quick response. Rates can easily by modeled and what-if scenarios run to ensure that all participants understand the implications of the response. This process allows the 3PL to automate what is typically a very manual process today. Combine this with MercuryGate’s transportation optimizer Mojo, and the 3PL is armed with a very effective automated tool for responding to RFPs.We have found that when you combine the ease of importing the data with the ease of setup, many of our 3PL clients can quickly set up customized demos of their solution for potential customers. This has proven to be a very powerful sales tool for the 3PL.
LQ: What if a 3PL or one of its customers has a need that is not currently being met by your software?

Steve Blough: We work closely with all our 3PLs to improve our software in a way that allows them to better manage their own processes as well as those of their customers. Our solution has been built with the close collaboration of many leading 3PLs, both large and small, to ensure that the end product has built-in ease of use.

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A Conversation with Scott Kirk

Executive Vice President, E.J. Brooks Company

:

LQ:Will North America continue to fortify security initiatives?
Scott Kirk: As you are aware the C-TPAT program requirements currently only cover imports into the U.S. I firmly believe that over the next two years, export requirements will also be added to the program. C-TPAT recently signed a reciprocity agreement with Canada (PIP). PIP members now are required to utilize ISO 17712 High Security seals on all cross border conveyances, containers, trucks, rail car doors and tanker hatches. From what I have read, the requirements of the agreement mirror both C-TPAT and the WCO/AEO (Authorized Economic Operator) programs, both of which require the use of ISO seals. Therefore, Canada’s imports become U.S. exports. This will be the beginning of fortification.
On the southern border,Mexican Customs has their own seal approval, which currently is not compliant with ISO 17712. But they are reviewing this standard for the future. Mexico is also piloting a new security initiative modeled after the WCO/AEO (Authorized Economic Operator) program called ACS. Once the security programs between the U.S. and Mexico are reconciled, a reciprocity agreement may also occur.When this happens all of North America will require ISO seals for both imports and export logistics, a further degree of fortification.
With regard to ocean carriers, the U.S. is being pressed at WCO meetings in Brussels to include the container sealing of U.S. exports. Expanding the C-TPAT program to include exports will facilitate a reciprocity agreement between the EU and the U.S.,which is targeted for 2009.
LQ: Can you explain what you see occurring in the air cargo security area within North America and how it is connected to C-TPAT?
Scott Kirk: In November 2007 C-TPAT issued recommended minimum security criteria covering air carriers, particularly on issues regarding the international supply chain activities. Both CBP and the TSA are members of the Department of Homeland Security (DHS). The goal of C-TPAT is to work closely with the TSA which has jurisdiction over airport security.There will be collaboration between the C-TPAT validation process and the TSA “known shipper program” to minimize duplication. Although the TSA has not fully announced all of the details of the Certified Cargo Screening Program (CCSP),the program will adopt many of the C-TPAT security elements and will partner closely with C-TPAT during the pilot phase.
This screening program relates to passenger aircraft that also carries cargo both domestic and internationally. Both the TSA cargo screening and C-TPAT programs are voluntary,but differ in terms of what becomes certified. C-TPAT certifies companies; TSA will certify screening facilities.
LQ: With regard to current government security initiatives, what is voluntary and what is mandated?
Scott Kirk: C-TPAT and the TSA cargo screening programs are voluntary.However,the U.S.Congress is demanding more progress on implementing the various security initiatives. In 2002, the 911 Commission was formed to recommend steps to avoid such a terrorist event in the future. Five years later, Congress concluded that laws should be passed to establish specific timetables.
The 911 Recommendations Implementation Act (H.R.10) was passed and it requires that 50% of all cargo being tendered for shipment on passenger aircraft must be screened by February 1, 2009 and 100% must be screened by August, 2010.This is a massive program involving 15 millions lbs. of U.S. cargo being shipped daily that must be screened and inspected to the piece level.
The SAFE Port Act (H.R. 4954) was also passed in 2007. It calls for the use of CSD’s (conveyance security devices) on 100% of the containers entering the U.S. in 2008 and 100% screening of containers by 2012,which is still under discussion.
Adding to the confusion, within the SAFE Port Act there was a requirement that if the CSD program could not be implemented by April 15, 2008, a letter was to be sent to Congress by DHS to confirm this. Then, six months later (October 15, 2008), the use of mechanical ISO 17712 complaint seals would be mandated to be used on all containers entering the U.S. This trigger date has passed, but this has not been well communicated. Please be aware that the 8,400 C-TPAT shipper members representing approximately 50% of the container volume, will now become 700,000 shippers that will be mandated to use mechanical seals.
The security initiative programs maybe voluntary, but the implementation of the programs are mandated such as the mandate for mechanical seals on October 15th.
LQ: There is some confusion about electronic seals. What are the differences between a Conveyance Security Devices (CSD’s) and E-seals (electronic seals)?
Scott Kirk: A CSD and an E-Seal are not the same, except that they are both electronic. A CSD is a container door sensor similar to the way a home alarm system works on windows and doors at home.When the contacts separate, the alarm sounds alerting the owner that there is an intruder.The only problem is when used in a harsh environment on a container, the contacts can easily send out a false alarm. An E-seal is placed on an outside container door hasp and will alert only when it is physically breached; it will not be activated simply shaking a container in-transit.
A CSD uses active RFID technology. E-seals can use both active and passive RFID as well as a wireless technology called Zigbee which connects to a GPS system.
A CSD is normally fixed to a container system and can only be read point-to point (port-to-port). An E-seal can be connected by wireless connection to a GPS system giving it 24/7 visibility.You can activate an E-seal at the manufacturing level in Asia, for example, and visually track in “real time” to the final destination, such as a distribution center in Chicago.
A CSD is usually tied to a system, which uses fixed readers and an infrastructure that can be very expensive.
An E-seal can be part of a system that doesn’t need an infrastructure, but it is web-based with no infrastructure costs.
LQ: When will electronic seals (Eseals) become more accepted in the market?
Scott Kirk: Electronic seals are the future that is fast approaching.First, it is very important that international standards be established and that has occurred. Brooks has been working on electronic seals for over eight years and has developed a variety of patents for protection.We are currently selling E-seals on an OEM basis.As more logistics and security e-processes are introduced by government and industry, Eseals must be adapted. E-seal reading is essential for validation while not slowing down cargo acceptance.
What has held up the mass market of E-seals so far has been the decision about what technology to use; The ROI associated with the high cost of infrastructure and the per unit cost of the system itself. A few years ago every Eseal was active RFID. Today other technologies such as the internet, passive RFID, GPS cellular are being introduced, which is reducing costs. Including the reusable feature as part of product design has also assisted in establishing a positive ROI.
Another change is the value proposition being provided today. In the past, the value of the E-seal only related to the security of the cargo. However, today’s E-seal, when connected to a web based GPS tracking system, can provide cost effective 24/7 visibility of the goods,which can increase logistics efficiency. Also, Brooks has a GPS system that will also allow the shipper/logistics partner to monitor conditions within the container by using sensors (temperature, humidity, acoustics and light) and monitor it all on a laptop with a browser, using an ID and password. If there is a problem they will be notified by email.
So today the value propositions are tracing and tracking, container monitoring and security 24/7. The least expensive part is adding the E-seal for security. In addition, we are providing our interested parties with a leasing program when lowering internal capital is a requirement.
This broader value proposition appears to be accelerating the adaptation of E-seals on a global basis.
LQ: With all of these standards and mandates are shippers/seal manufacturers complying?
Scott Kirk: E.J. Brooks Company bases its total marketing program on compliance. We also believe that compliance companies provide compliance seals. With this in mind, Brooks has established a leadership role within the International Seal Manufacturer’s Association (ISMA) along with other members to establish compliance rules and regulations that are strictly enforced.
The first criterion was to insist that the ISMA membership, which represents approximately 80% of high security seal sales globally, be ISO 9001:2000 compliant. This requires that all business practices from the product design to customer service processes are efficient and must be annually audited by a third party,not only at the manufacturing level, but also at the headquarters as well. My opinion is that any seal purchaser should demand to see an ISO 9001 certificate from their seal supplier.
ISMA also mandates that all members must test their high security seals according to the performance criteria of ISO 17712 by a certified ISO 17025 independent testing lab. This requirement is consistent with the ISO 17712 standard and is called out in C-TPAT and the WCO /AEO program CBP is begining to request ISO test results during their C-TPAT validations, which will also help develop market compliance.

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A Conversation with Derek J. Leathers
Senior Executive Vice President and Chief Operating Officer, Werner Enterprises,
and President, Werner Global Logistics

:

LQ: How are 3PLs using IT to coordinate the supply chain requirements for companies across several modes of transport? (David Closs, Ph.D.)
Derek Leathers: In today’s environment, 3Pls must provide supply chain management systems that support the planning,execution and tracking of shipments that span multiple modes. Some examples of capabilities that should be provided are mode optimization, automated carrier selection and integrated information exchange.
LQ: How is your firm taking an integrated supply chain perspective regarding air freight,and point-to-point air freight in particular. How are you applying technology to facilitate these shipments/trade? (David Closs)
Derek Leathers: We understand that every international supply chain needs both ocean and air service capability to be effective. Because Werner Global Logistics is licensed as
both an air and ocean provider,we have fully integrated airfreight cost and transit options into the mode-optimization and carrier-selection processes within our global freightmanagement systems and service.In many cases a proactive plan of advance air shipping that precedes ocean shipments will better match delivery demands, balance costs and optimize inventory levels. Effectively managing a large air-carrier base is an essential component.
LQ: What can your company do to avoid the heavy congestion of major air-freight airports such as Chicago or Toronto, and instead use more targeted point-to-point air freight from offshore to mid-sized to small airport facilities?  (David Closs)
Derek Leathers: Heavy international air congestion is a direct result of substantial lift in and out of these core gateway airports. Increased flight frequencies can help congestion, but the fact remains that direct international air carriers are focused on the primary gateways and are not found at midsized to small cities.Regarding domestic U.S. air freight,several alternatives exist,including smaller regional air centers and expedited ground shipping. In addition, using fleets such as Werner Expedited Services is a way of reducing congestion by diverting shipments away from the large air centers altogether.
The essential element in all of this is to maintain a comprehensive network of air service providers that serve alternative airports on a scheduled basis, and back that up with a comprehensive ground network to create options and flexibility in the supply chain.
LQ: What are you doing to create better visibility using IT in regard to costs and product in the supply chain? (Russ Doak)
Derek Leathers: Our proprietary Internet-based TMS applications have allowed us to move from load- and order-level visibility to SKU-level visibility across the supply chain. When we receive the order-level details, we have applications that validate PO and SKU-level information at the front end and then display that SKU level throughout the shipment’s life cycle. On the cost side of things, getting down to SKU-level detail allows us to push SKU transport-costing information to our customers at the shipment level.This rationalizes sourcing decisions on inbound product and allows for detailed cost-to-serve data on outbound freight management programs.
LQ: What are you doing to develop more connectivity capability in terms of best-of-breed software from your clients and your own systems? (Russ Doak)
Derek Leathers: Some of the recent technologies we have implemented or are in the process of implementing to enhance our connectivity with customers, partners and service providers are Web services, email EDI and federated directory services. These technologies, on top of our already flexible, secure information-exchange capabilities, allow us to integrate at multiple levels. The ability to support varying encryption standards such as AS2 and SFTP offers us secure options when exchanging information with trading partners.
LQ: What are you doing to ensure that your customer is educated about your comprehensive end-to-end supply chain capabilities and integrated handoff of IT expertise and delivery? (Russ Doak)
Derek Leathers: Our TMS solutions are hosted applications. Our personnel manage the optimization and management functions while extending the visibility to our customers in a platform they are comfortable with, so there isn’t a high degree of handoff of technical expertise.We do,however,put a lot of focus on the front end of training and implementing these systems.We assign an implementation team that is the conduit between systems, operations, sales and the customer to design, execute and support our TMS programs.
These applications are also supported by online tutorials for remedial training of any stakeholder in the process.
As far as educating our customers,we focus primarily on face-to-face meetings to define our supply chain technology and any new functionality that we are bringing to the marketplace.
We meet with all our freight-management customers quarterly to discuss current operating practices and future trends and expectations, along with a recap of our entire portfolio and any new services that might be beneficial.
Much of our growth is due to mining additional opportunities within our existing customer base.
LQ: Are you developing better business intelligence for your customers to ensure that they have the information to improve the way they manage their processes? (Russ Doak)
Derek Leathers: We regularly perform network analysis for our customers to identify ways to improve the efficiency of their supply chain. In addition, we extend dynamic Webbased reporting, OLAP data cubes and GIS capabilities to our customers, which allows them to analyze their supply chains. Some of the metrics we provide are vendor compliance, cost per unit, service level and overall program savings reporting.
LQ: How do you ensure that your IT capabilities distinguish your company from competitors in terms of its expertise in regions and its people, and as an enabler of best practices? (Russ Doak)
Derek Leathers: We do not see ourselves as having a regional IT advantage over our competitors, as our systems have been developed with global logistics solutions in mind.
LQ: What creates your unique value proposition for the customer? (Russ Doak)
Derek Leathers: Using our internal IT resources, we take a multistep approach to offering value to our customers.With the customer’s input, we diagnose logistical needs and recommend solutions that we offer. Our proprietary advancements have allowed us to offer customizable systems to our customers. This strategy allows us to be a more dynamic provider, to go where our partners need us and broaden our target market.
LQ: How and when will 3PL providers work with a centralized system/software that will link all their global operations? Currently each country or office works with its own preferred software, and most are not set up to interface with shippers or receivers. (Sue Gadsby)
Derek Leathers: Since Werner has grown organically, we are not saddled with the burden of acquired or disparate systems that have to be integrated with each other.All our global operations, as well as our customers, partners and service providers, use the same supply chain management system on a day-to-day basis.
LQ: How much budget is allocated for technology by the top 10 3PL providers? (Sue Gadsby)
Derek Leathers: At Werner we are very progressive in applying technology to provide supply chain management solutions. We currently budget about 6 percent of revenues for IT.
LQ: What research and services are available to shippers on RFID technologies? (Sue Gadsby)
Derek Leathers: Werner has partnered with a university that is leading research in this area,which has allowed us to participate in research and development of this technology.
LQ: What software or equipment is being adopted to monitor temperature-controlled cargo? Can real-time tracking be available for shippers? (Sue Gadsby)
Derek Leathers: Most trailer-tracking technologies offer the ability to add temperature sensors.This data can be logged or viewed in real time; it can also be used to trigger dashboard warnings or electronic alerts to potential problems. The primary issue with this technology is cost. Our experience has been that shippers do not want to cover the cost of implementing this technology.
LQ: When or how can shippers begin to use Web-based shipping? Will shipping volume play any part in this program? (Sue Gadsby)
Derek Leathers: Web-based shipping and vendor entry is a current product of Werner’s.Turning on this system can be completed in a matter of a few days. Shipping volume is not a major hurdle in implementing this program. As soon as we can coordinate the tutorial process for customers and vendors,we can be up and running.
LQ: How central is information technology to the value proposition that you offer to customers? Do you feel you enjoy some distinct advantage as a result of the technology you offer? (Thomas Goldsby, Ph.D.)
Derek Leathers: Information technology is an integral part of our service offerings and value proposition.We feel that we have best-in-class system solutions that we can customize for each customer’s specific needs.We go all the way to branding customer logos on our TMS applications, so when our customers extend the TMS resource to their vendors and suppliers, it appears to be their own internal application to increase market share. Most software providers provide the same base technology,but when we can wrap it in an application that is customized and uses the terminology of that customer or industry, we believe it gives us a clear advantage.
But we do not want to overlook the executable portion of our programs.As mentioned,software applications that service providers use have many of the same algorithms we use in our optimization and analysis applications.The difference is that we customize and tune those systems in direct correlation with the customer’s problem and overlay that with the commitment to execute our solution.
LQ: Do customers look to you for technology solutions or enhanced process performance—performance that may be enabled through technology? (Thomas Goldsby)
Derek Leathers: Absolutely. Over the years one of our primary growth areas has been organically driven, with our existing customers pushing the envelope and challenging us to design more efficient processes and create value through technology. We continue to make considerable investments in technology, and most of those investments are in direct response to our customers asking us to solve a particular problem. There are only so many things you can do with rates to address costs and find areas of improvement. Our motivation is to find those not-so-obvious cost components and apply technology to reengineer those processes—costs such as procurement activities,productivity and personnel.
LQ: Trading partners are placing greater emphasis on inventory visibility up- and downstream in the supply chain.Given the important connection that 3PLs fulfill in supplier– customer relations in the supply chain,how much emphasis is placed on 3PLs’ providing immediate and clear visibility of inventories they hold and transport? What methods or tools are used to provide this visibility? (Thomas Goldsby)
Derek Leathers: Significant emphasis is placed on visibility. Customers who rely on in-transit visibility can reduce onhand inventory levels.Visibility is a top priority for 3PLs,and the type of visibility is important. The value of the visibility increases significantly when product-level information (PO, SKU, quantity) is included.Web-based TMS systems, flexible information exchange and direct interaction with suppliers is how Werner Global Logistics manages this visibility worldwide.
Most freight forwarders have freight movement capability, but the systems integration to provide order-level visibility is beyond their scope of services.
LQ: To what extent might we see technology providers collaborating with 3PLs to improve the software that 3PLs may use to better manage themselves and their customer relationships? (John Langley Jr., Ph.D.)
Derek Leathers: This collaboration usually takes place in user conferences,where 3Pls that are using the software push for future enhancements. Outside of this forum we have not seen a lot of collaboration between software providers and 3PLs.
LQ: What is going to happen in the long term to the supply chain software companies that clearly have a narrow, functional focus instead of a broader, supply chain focus? (John Langley Jr.)
Derek Leathers: W. Edwards Deming once wrote, “It is not necessary to change. Survival is not mandatory.” While perhaps it’s not that dramatic, software companies that have a narrow, functional focus are essentially faced with four basic outcomes: maintain their narrow, functional focus but have best-in-class focus and the ability to “plug and play” with other, broader supply chain software; change, and develop broader supply chain capabilities through development and/or acquisition; be acquired by larger, more broadly focused supply chain companies looking for their functional expertise to enhance their product; or maintain their narrow focus and face a difficult market to survive in, one in which customers continually demand more and broader expertise from all their partners.
LQ: What are the major impediments to achieving global supply chain visibility, and how will the technology sector step up to help improve in this area? (John Langley Jr.)
Derek Leathers: Major impediments to achieving global supply chain visibility include limited supplier systems capability and a very paper-intensive manual process for most countries.Internet IT advances in electronic clearance, compliance management and settlements will play a role in improved visibility and real-time data.
LQ: Discuss the pros and cons of using a legacy/internal ERP system versus a purchased system like SAP or Oracle in terms of integrating with current and prospective customers. (Chris Norek, Ph.D.)
Derek Leathers: The pros of legacy/internal ERP systems are that they address the customer’s specific needs without additional features and functionalities that they don’t utilize. This allows these systems to be more straightforward for the users. They may also provide a competitive advantage if developed correctly, and savings in consulting fees and annual maintenance can be gained by this approach.You also eliminate dependency on an outside vendor that could change strategic direction, get purchased by another provider or go out of business.
The con of legacy/internal ERP systems is maintaining IT staff to develop and enhance the system, as operating systems and the technologies they are based on change. In addition, a customer may not have the expertise to develop some of the more advanced capabilities or implement the industry standards that mainstream ERP systems provide.
LQ: What is your strategy for developing IT solutions for customers in advance of their needs, versus developing as requested? (Chris Norek)
Derek Leathers: Werner is in a unique position in that our IT department interacts with both internal and external customers: our supply chain management system is both extended to customers and used to manage our internal operating divisions.This interaction allows IT to gain first-hand knowledge of customer challenges, which helps guide future supply chain management system development.Having this global perspective helps keep development ahead of most customers’ needs.
LQ: Do you build or buy your supply chain software solutions? (Chris Norek)
Derek Leathers: Over the past 12 years Werner Enterprises has developed a dynamic supply chain management system capable of integrating with industry-leading enterprise resource planning and warehouse management systems that customers typically own, as well as proprietary customer systems.This supply chain management system is in its fifth major revision and supports international, brokerage, intermodal,air cargo, truckload, less-thantruckload and small-package freight movements. Some of the key features of the system are automated carrier selection, robust information exchange and network analysis and design, as well as mode, continuous-move, order, load and cube optimization.
LQ: Connectivity is one of the most basic supply chain IT enablers.Many connections in the supply chain remain customized batch EDI links.What are the barriers to adoption, and when will the promise of new technologies like Web 2.0—or even Web 1.0—deliver and make this easier? (Nicholas Seiersen)
Derek Leathers: At Werner we have developed an email-based information exchange system in addition to traditional and custom EDI exchanges.This allows us to meet customers, carriers and partners where they are technologically. Based on the number of companies using this service, I estimate it will be some time before Web 2.0 and Web 1.0 are adopted by a significant number of companies. Outside the U.S. is another story. In China, for example, it is hard to find companies, particularly service providers, that are EDI capable. Most transactions are still initiated by phone.
LQ: One of the barriers to greater supply chain optimization and advanced planning systems adoption is a lack of trust resulting from poor understanding of the science behind these tools. Does the 3PL have a role to play? (Nicholas Seiersen)
Derek Leathers: Absolutely.Trust can be established through solid analytics. Performing multiple analyses up front and then implementing the findings in small trials can establish confidence in these systems. The 3PL is in a unique situation in that it sees so many different scenarios with different businesses, so it is well suited to apply this knowledge in developing a solution. At Werner we have a long history of developing and implementing optimization solutions. We are currently deploying our genetic algorithm framework to further enhance our optimization systems.
LQ: As you grow your business, you can expect to spend more and more effort managing legacy applications and customer customizations.How are you dealing with this challenge? (Nicholas Seiersen)
Derek Leathers: In developing our systems we have to make them as flexible as possible.This means developing them so that they can integrate with other systems on multiple levels.3PLs are not in a position to drive customer technology changes, so they must be adaptable.
LQ: It has been said that the worst way to innovate is to ask the customer. Better—being the customer. Best—becoming the customer of the future. Can you comment on what drives your new system development priorities? (Nicholas Seiersen)
Derek Leathers: With a sizable IT staff, Werner has the ability to address numerous development efforts simultaneously. We also utilize an extensive partner network and a “chasing the sun” development strategy to accelerate the development cycle. This being said, there are always more projects than there are IT personnel to support them.We prioritize development efforts by understanding the customers’ needs and developing to those needs in a phased approach. For example,if a customer truly needs a certain functionality now, we do not attempt to develop the entire project before releasing the needed functionality. This enables us to address the core needs quickly.
LQ: How would you see IT outsourcing working for you? (Nicholas Seiersen)
Derek Leathers: At Werner Enterprises we believe we can achieve the benefits of outsourcing without the risk associated with systems developed by offshore companies. We do this by partnering with domestic firms that understand our business and are willing to engage in long-term relationships. In addition, we have also established our own IT offices in countries like Mexico and China, where excellent IT talent is readily available. This model allows us to maintain quality control of our development process while gaining the benefits of outsourcing.

Questions for this Executive Interview were prepared by LQ’s board members:

David Closs, Ph.D., Michigan State University; Russ Doak, Director, Supply Chain Logistics, Heli-One; Sue Gadsby, Director of Procurement, Apotex; Tom Goldsby, Ph.D., University of Kentucky; John C. Langley Jr., Ph.D., Georgia Institute of Technology; Chris Norek, Ph.D., Senior Partner, Chain Connectors, Inc.; and Nicholas Seiersen, Senior Manager, KPMG, and LQ Executive Editor.

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A Conversation with Lucas Kuehner
Managing Director, Panalpina US
and Michael Davies
Head of Logistics and Supply Chain Solutions, Panalpina USA

LQ: How are 3PLs using IT to coordinate the supply chain requirements for companies across several modes of transport? (David Closs, Ph.D.)
Lucas Kuehner: The trend in supply chain management is to make use of collaboration platforms that allow modeling of all stakeholders within the supply chain. These stakeholders include suppliers, customers, warehouse and DC facilities, and so on.
They also include 4PLs and LLPs in conjunction with executing 3PLs, freight forwarding and domestic transportation companies.
Michael Davies: In order to maximize the value of those collaboration platforms that Lucas mentions, it is vital that data access rights and Web visibility are configured to provide end-to-end visibility—and in some instances, where required, with limited visibility and reporting for specific parts of the supply chain.
Lucas Kuehner: The data and transaction histories provided by these platforms can be used to improve forecasting and develop optimized models for intermodal transportation chains, based on required lead times, cost and economies of scale such as development of consolidation/ deconsolidation synergies. Everyone in the supply chain must team up to help implement these integrated platforms so we can deliver optimized solutions.
LQ: What are you doing to create better visibility using IT in regard to costs and product in the supply chain? (Russ Doak)
Lucas Kuehner: Panalpina’s state-of-the-art supply chain collaboration platform allows us to model all stakeholders in the supply chain,which,as mentioned earlier, is an essential element in implementing successful supply chain management solutions.The application provides real-time visibility on the purchase-order, transport-order and delivery-order levels, and,when required, the application can manage at a line-item level as well.
Michael Davies: Regarding cost management, it is vital that data warehouse databases are set up and configured.These configurations are database driven. In a best-case scenario, a 4PL executes all supply chain activities on behalf of a customer, allowing the 4PL to manage end-to-end cost data.
However, most companies do not pursue single-sourcing strategies and/or they outsource only parts of their supply chain. Therefore the challenge for cost-data management is usually twofold: initially, each LSP needs to provide the cost data to the customer, and second, the customer needs to consolidate the data from each LSP in order to obtain a global cost picture.
Lucas Kuehner: One of the advantages we have is that Panalpina operates business data warehouse systems that provide cost data on various parameters and in various layers of detail.This allows us to provide our customers with visibility at the level they require.We can provide them with the full spectrum of visibility or modular output, as dictated by their needs.
LQ: As more companies look at order fulfillment and getting closer to their customers, how are you preparing for this trend? (Russ Doak)
Michael Davies: Panalpina has acted as a fulfillment agent for warehousing and distribution services for many years. This means that we have gained an in-depth knowledge of high-velocity supply chain setups in which buffer inventories and order sizes are decreased but order frequency is increased. Components of such SCM setups are just-in-time, just-in-sequence and VMI, as well as postponement and kitting strategies.The latter components allow our customers to push their products further downstream in the supply chain—closer to their customers—thus reducing cycle times,accessing synergies in component manufacturing,and reducing their total logistics spending. In addition, such concepts allow our customers to better synchronize their marketing activities with their logistics setup. Reverse logistics and spare-parts logistics are becoming integral parts of such service requests as well. After-market service is gaining importance.
Lucas Kuehner: As part of a global company,we can provide our customers with the entire portfolio of Panalpina’s products and solutions.This means that Panalpina can act as a fulfillment service provider not only on a local but also on a global basis, aligning various facilities across the globe and implementing programs such as buyer’s consolidation on the origin side and DC-bypass programs on the destination side.
LQ: Do customers look to you for technology solutions or enhanced process performance—performance that may be enabled through technology? (Thomas Goldsby, Ph.D.)
Lucas Kuehner: Yes,many of our customers seek a combination of both. Information as a vital part of a complex supply chain is improved by intelligent IT solutions, which help improve visibility, reporting and forecasting, based on better availability of historical data as well as broader availability of integrating, forecasting and simulation models.
Michael Davies: Indeed, supply chain models often require a vast amount of basic data in order to be executed with a certain validity.
LQ: Trading partners are placing greater emphasis on inventory visibility up- and downstream in the supply chain.Given the important connection that 3PLs provide in supplier– customer relations in the supply chain,how much emphasis is placed on 3PLs’ providing immediate and clear visibility of inventories they hold and transport? What methods or tools are used to provide this visibility? (Thomas Goldsby)
Michael Davies: Inventory visibility on different levels, such as order level or inventory level, is a standard requirement for large and medium-sized clients. Clients acknowledge that inventory visibility and reporting is one key element in streamlining supply chain management solutions by reducing buffer stocks, based on better information management and reducing unnecessary warehouse and DC facility layers while simultaneously ensuring that service levels are not negatively affected. Modern collaboration platforms commonly provide inventory visibility on the order level, and some are able to realize them on the line-item level.Where such platforms are not able to provide inventory visibility on a line-item level, backbone warehouse management execution systems are normally interfaced to provide both layers of visibility.Web-based reporting and customizing functions are commonly requested by customers as well.The customer wants to have a set of predefined reporting templates available, but he also wants the possibility of creating ad hoc and customized reports.
LQ: How and when will 3PL providers work off a centralized system/software that will link all their global operations? (Sue Gadsby)
Lucas Kuehner: One has to distinguish between 3PL and logistics execution, freight forwarding and domestic transportation. The nature of these industries is different and they are themselves highly specialized. A seamless information exchange will be realized by a service-oriented systems architecture.
Michael Davies: Most global 3PLs, LLPs and other integrators are currently in the process of integrating such a serviceoriented architecture.The complexity of integration,multiple legacy systems and adding modern supply chain collaboration platforms requires detailed planning, interface design, testing and execution. Such a process can take a few years until full synchronization within a service-oriented architecture is in place.
LQ: Currently does each country or office work off its own preferred software? And are most not set up to interface with shippers or receivers? (Sue Gadsby)
Lucas Kuehner: That may be true for some of the smaller players.Panalpina has a global software application suite in place for our core freight and logistics operating systems. The systems are tailored regionally to meet local needs, such as when integrated value-added tax setups are required or when local regulations require special transmissions. Such locally configured systems and modules are integrated within the global application landscape.
Michael Davies: The future trend will be to further roll out Panalpina’s supply chain collaboration platform seamlessly, integrating shippers and receivers by various means. These can be as rudimentary as standard phone or email communication or through more sophisticated methods such as Web-based order entry, exchange of flat files or integrated and automated EDI solutions.
Such a bandwidth of different alternatives for onboarding suppliers and customers is key for global supply chain tools. Several main global sourcing areas are lagging behind in IT connectivity and high bandwidth connections—a good example of the latter is often found in parts of inland China.
LQ: What software or equipment is being adopted to monitor temperature-controlled cargo? And can real-time tracking be available for shippers? (Sue Gadsby)
Michael Davies: Panalpina enables temperature- controlled transport in close conjunction with our network of dedicated and selected carriers. The tracking of temperature- controlled cargo can be facilitated by GPS positioning devices. Because of the high cost of these devices, real-time monitoring of temperature will not be broadly realized within the 3PL,LLP and 4PL industry within the short to medium term.
LQ: To what extent might we see technology providers collaborating with 3PLs to improve software that can be used by 3PLs to better manage themselves and their customer relationships? (John Langley Jr., Ph.D.)
Michael Davies: Technology providers are already collaborating with major 3PL companies—or they have in-house logistics and SCM experts who act as consultants—when designing solutions for the logistics, transportation and supply chain industry. It is not surprising that large players in the technology market with sophisticated expertise in modern database applications have acquired smaller companies to in-source the process. This allows them to execute knowledge required to design a state-of-the-art supply chain application.
One good example was the acquisition of Peoplesoft by Oracle to improve their transport managing system (TMS) application suite.
Lucas Kuehner: Panalpina has recently decided to replace its forwarding systems with SAP’s transport managing system solution in order to support all our modes of transport.We have enjoyed a close working relationship with SAP, and in the next three years we will be making investments in the new system. It will be integrated as a standard feature in other SAP modules such as our customer relationship management (CRM).
LQ: Discuss the pros and cons of using a legacy internal ERP system versus a purchased system like SAP or Oracle in terms of integrating with current and prospective customers. (Chris Norek, Ph.D.)
Lucas Kuehner: In general, system connectivity is a key driver of modern supply chain management. In light of this, the discussion of legacy enterprise resource planning systems versus off the- shelf solutions such as SAP or Oracle is not the most important. IT departments must be able to deliver EDI connectivity using various standard protocols such as EDIFACT, X12 and RosettaNet in a short time with competitive development costs.
Michael Davies: An intelligent mapping of fields between customer and provider systems is a must—this includes stripping technologies and cross-referencing. The usual disadvantage of legacy ERP systems is that they were developed as stand-alone solutions over the decades, with initial limited functionality. As supply chain management emerged and global data visibility became more important, many companies struggled with integrating the internal application landscape. If a service-oriented IT architecture cannot be achieved with internal legacy ERP systems because of rigid code limitations, an advantage of external ERP systems can be the flexibility of data base driven setups. However, if internal ERP systems provide such flexibility,the mapping is again of high importance.
Lucas Kuehner: An additional trend in the industry is that 3PL customers are more familiar with the integration of standard ERP systems such as SAP and Oracle. This is also an indication that experience with EDI mapping and systems integration is limited in customers seeking 3PL services.Some customers have never developed EDI interfaces, and thus such integration is always a consulting service offered by 3PL IT departments.

Questions for this Executive Interview were prepared by LQ’s board members:
David Closs, Ph.D., Michigan State University; Russ Doak, Director, Supply Chain Logistics, Heli-One; Sue Gadsby, Director of Procurement, Apotex; Tom Goldsby, Ph.D., University of Kentucky; John C.Langley Jr.,Ph.D., Georgia Institute of Technology; and Chris Norek, Ph.D., Senior Partner, Chain Connectors, Inc.

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