With fuel prices on the rise, drivers in short supply, a diverse product mix and strict customer requirements, order fulfillment has become an increasingly complex process. Consumer goods (CG) manufacturers are faced with uncontrollable costs that are squeezing the margins in an already competitive market, and the spotlight is turning to transportation management to help manage costs. Specifically, companies are looking to optimize the loads being shipped via various methods, whether truck, ship or rail. In addition to keeping on top of the rising cost of fuel, pressure to be green has companies striving to make shipments more efficient.
To get a better understanding of current transportation utilization in the CG industry, CGT partnered with ORTEC this month to ascertain what the challenges are in this critical process and how companies are attempting to improve their load efficiency. We also took a closer look at who is responsible for load management, how much flexibility companies have in adjusting orders to optimize shipments and if technology is being leveraged. The results aren't surprising - current load optimization rates leave room for improvement and companies who take advantage of existing technology to make improvements will realize substantial cost savings, particularly for fuel.
Current Status
Before getting into the complexities of load management, it's important to understand current usage levels. Figure 1 shows the level of cube utilization in the respondents' given mode of transportation, whether its truck, rail or ship. The good news is that one-third of those surveyed are utilizing more than 90 percent of their given mode of transportation. The bad news is that two-thirds are far less efficient with 17 percent utilizing 50 percent to 74 percent of loads and 10 percent are shipping half-empty containers. When considering weight utilization, the numbers are almost identical, with one-third using more than 90 percent and 30 percent utilizing less than 74 percent. Many companies (38 percent) both weigh out and cube out shipments, but 38 percent just cube out and 24 percent just weigh out.
Environmentalists would argue that even 90 percent is inefficient, yet with the complexity in load rules companies are sometimes forced to set capacity limits lower than they would in ideal situations with no restrictions. When we asked our respondents about the percentage of shipments they are forced to set lower capacity limits to ensure adherence to load rules, 20 percent responded that this practice impacts more than 90 percent of their shipments. Another 10 percent set lower capacity limits on 75 percent to 89 percent of shipments, but a full 50 percent reported that this practice impacts less than 50 percent of shipments.
Order Complexity = Shipping Complexity
In addition to load rules, CG companies must adhere to business rules involving order and shipment quantities that sometimes adversely impact a company's ability to reconcile optimal loads with ordering quantities. Sometimes customer orders are received and processed without much emphasis on real cube or weight utilization, particularly for standard turn business. If the customer has been sending orders that consume 28 floor positions in a normal 53-foot trailer, those orders are usually accepted and shipped on 28 floor positions without looking at what else could go along with that shipment.
Business rules enforced by customers, however, often dictate how much flexibility suppliers have regarding order quantities. We asked about three types of orders: the majority of our respondents are able to increase (upsize or add swing items) to stock transfers or VMI (62 percent) and sales orders (60 percent), but only 38 percent are able to combine interplant and customer direct orders.
Calculating Loads
Calculating the optimal load is a challenge all CG companies face, and unfortunately, it is a manual process for many organizations. Figure 2 depicts how most companies manage stackability and weight constraints when managing shipments. For some companies, technology plays a role: 26 percent leverage spreadsheets while the 30 percent that responded "other" are using formal enterprise software systems. Many rely on past experience (44 percent), oftentimes in conjunction with a technology-based tool, but 11 percent are still guessing.
Less than one-third of those surveyed believe their current technology solves their load building requirement, despite attempts to provide tools to help. This is often due to the complexity of managing orders in conjunction with load optimization goals. Many traditional TMS and WMS solutions only look at cube or weight, for example, and do not take into account full order footprint, including business rules and loading restrictions that must be adhered to. Promotions add another wrinkle as they are balanced with turn replenishments to try and avoid out of stocks at the retail shelf. All of these factors must be combined to truly optimize loads and reduce costs.
Execution
Regardless of how the load is calculated, building a shipment is often a manual process and success depends on people executing properly. Figure 3 shows the division of labor between warehouse personnel and customer service personnel. Warehouse personnel are called on to ensure that pallets are built optimally and decisions on cutting and splitting orders are made in conjunction with customer service. Customer service is typically not involved in ensuring asset utilization or building optimal pallets, while 41 percent of companies surveyed claim that warehouse personnel are relied upon for asset utilization, cutting/splitting orders, and building pallets.
To get instructions to those warehouse personnel, particularly pickers and loaders, technology is again found in various forms. Graphical instructions are provided by 39 percent of companies, while past experience or guesswork is used by 33 percent of respondents.
Current Status
Order Complexity = Shipping Complexity