The development of technologies supporting the transmission of information (Information Technologies – IT), such as EDI, as well as the dynamic growth of the Internet over the last few years, has on the one hand facilitated the work of forwarders, and on the other hand led to an increase in customer expectations regarding the quality of services provided. This is by no means about on-line shopping (e-commerce), which has contributed to the growth of retail sales value and, consequently, the growth of demand for transport services. More significant are the changes in the operating methods of entities present in the transport services market.
Thanks to the Internet, faster and cheaper information transfer between shippers and their contractors has become possible. However, the entity offering logistics services is not always able to meet the growing expectations of customers and constantly adapt the software it uses to the changes taking place in its client’s enterprise.
Currently, two basic types of activities undertaken by transport industry enterprises in the field of IT to maintain service competitiveness can be distinguished:
- concentration on supply chain management between manufacturing enterprises and the pursuit of unifying IT systems used by partners providing transport services;
- the ability to track cargo during transport.
As already noted, the aforementioned activities aimed at improving the information transmission system between the client and their contractor should not be confused with electronic commerce, which is rather a new, important tool supporting the distribution system and product promotion. Electronic commerce, treated as a sales offer directed to the client via the Internet, cannot be equated with the flow of information or documents between entities in the transport market. The remainder of the article will present the aforementioned types of activities streamlining information transfer.
Supply chain management and the unification of IT systems
Maintaining a competitive position on the market requires manufacturers to reduce production costs, among other things. One of the first cost items they focus on is inventory maintenance, both in-warehouse and in-transit. The reduction of this cost group is the primary reason why logistics management techniques, such as Just-in-Time, are introduced in companies. It is rare for a manufacturer to adapt its software to that used by its forwarder, which may be incompatible with the programs used by its suppliers and recipients. Rather, the burden is on the forwarder to adapt to the integrated systems already existing at the manufacturers.
This aspect of the development of the transport services market very clearly demonstrates the advantage of large corporations over small and medium-sized enterprises. The latter are unable to finance the development of a complex integrated system that would be adopted by a significant portion of their clients¹ . It is more common to use an existing system created for the order and needs of large forwarding corporations. The carrier is required to provide data from its IT system for the ERP (Enterprise Resources Planning) system operating at the manufacturer.
The functioning of the supply chain is possible provided that the rules of goods flow streams between partners are unified, and this in turn requires the development of a common information flow system for them. To solidify their position vis-à-vis the client, it is usually the carrier or forwarder who undertakes to provide such a system. In the event that the software offered by them is accepted by the client, the latter significantly increases their dependence on the service provider. It is difficult to change a carrier with whom one shares a common computer data exchange system. Changing a once-established document formulation system is costly, time-consuming, and involves the necessity of temporarily shutting down or limiting the efficiency of the integrated system. Thus, by investing in an information exchange system, the carrier or forwarder gains greater certainty of retaining the client, while their client can limit their own logistics costs.
Convincing a shipper to use specific software and, consequently, the services of a given carrier, is not an easy task. In countries with a well-developed economy, manufacturing enterprises often use branded integrated systems, and therefore the software received from the carrier cannot turn out to be a weak link in the supply chain. For this reason, forwarders and carriers are ready to allocate significant amounts to IT development. Software producers are usually tasked with developing a computer system capable of cooperating with integrated systems already existing in manufacturing enterprises, regardless of the specifics of a given industry² .
There is also another possibility of convincing a shipper to adopt one’s own data exchange system. It consists of the cooperation of a carrier or forwarder with the producer of a popular ERP-class integrated system, thanks to which the software producer gains knowledge regarding the needs of transport market entities and the conviction that their software will be promoted among shippers by a large carrier, while the latter gains certainty that the jointly developed system will be characterized by high quality. No less important is the fact that this computer system, and along with it the carrier’s services, will be more easily accepted by an enterprise in which the given producer’s integrated system is already functioning³.
¹ In the period since 1990, United Parcel Service’s expenditures related to IT development exceeded USD 1 billion annually (based on Gordon Forsyth, Moving information, American Shipper, August 1999).
² An example of this type of action may be the cooperation announced in June 1999 by UPS Logistics Group with software vendor Manhattan Associates to develop a supply chain management program for UPS clients.
³ FDX Corp. – the owner of Federal Express – decided to invest in the supply chain management software producer Global Logistics Technologies Inc. (G-Log); FDX’s partner in this venture is SAP – a recognized producer of integrated systems. The software created by G-Log will be installed in the R3 system.
The above article is an excerpt from one of the lectures to be delivered during the training "Forwarding for Logistics Specialists" on December 16-18, 2004, during a training organized by the Center for Management Advisory and Training.