Columbus Electronic Freight Management Evaluation

Benefits Realized by Deploying EFM Technology Improvements

Broad Industry Benefits

Industry literature reviews and evaluator experience in successful electronic freight management technology implementations show that quantifying visibility improvement is difficult but important. Quantification is a key factor in many companies' decision to adopt new supply chain technology.

In its September 2007 Aberdeen report A View from Above: Global Supply Chain Visibility in a World Gone Flat, Aberdeen Group included a chart on some 38 companies that responded to the survey with dollar benefits gained through the use of supply chain visibility software. ²¹ The September 2008 Aberdeen report Beyond Visibility: Driving Supply Chain Responsiveness ²² included an expanded survey response from a total of 349 companies. Of these, 101 companies partially or fully estimated the economic impact of supply chain visibility technology. Aberdeen also dug deeper into their expanded survey, looking for additional benefits information. Responding to SAIC and North River requests, Aberdeen completed a second September 2008 report, Supply Chain Visibility Software Benefits. ²³

The box at the right highlights an important finding: the benefits of visibility software grow and become more apparent as users' gain familiarity and experience with their system.

We adapted some of the Aberdeen data, collapsing categories to produce Table 3, which shows the relationship between reported benefits and company size, expressed in revenue. In analyzing the Aberdeen data, we drew several points about the relationships among size of firm and achievement of benefits:

• 46% of smaller firms report benefits of greater than $100,000.
• More than twice as many smaller firms report meaningful benefits (>$100,000) than report no payoff or loss.
• Almost as many smaller firms report significant benefits (>$500,000) as report no payoff or a loss.
• Twice as many large firms report significant benefits (>$500,000) as report no payoff or a loss from a visibility software project.
• Half of the firms that reported measuring benefits were large firms with revenues greater than $2.5 Billion, although only 42% of the 349 companies in the overall survey were large firms.
• For the 23% with more than $3 million in benefits (23 companies), 56% (13 companies) are large companies with revenues greater than $5 billion.

Table 3. Visibility Benefits by Size of Company

Annual Revenue Benefits/Costs Reported	<$50-$250 million	$250 - $2,500 million	$2.5 - >$5 billion
Breakeven or Negative Results	5%	5%	14%
Less than USD $100,000	9%	2%	0%
USD $100,001-$500,000	8%	4%	6%
USD $500,001-$3 million	3%	8%	10%
More than USD $3 million	1%	4%	19%

Source: Adapted from Aberdeen Group, September 2008

Aberdeen analyzed the difference between domestic and global supply chains. Not surprisingly, most firms reporting benefits greater than $3 million had global supply chains; and most firms reporting less than $250,000 had domestic supply chains. This survey response of 101 companies is the largest reporting of quantified benefits that we found in our research and shows that companies do benefit from implementation and use of visibility technologies.

The box at the right provides several examples of how respondents achieved benefits from the technologies.

Next we look beyond the Aberdeen surveys for specific examples of benefits at individual companies, then shift to the benefits documented in the EFM program. Taken together we believe these industry and EFM benefits show the efficacy of well-implemented visibility software.

Productivity Improvement

A key to improving productivity is having up-to-date information about orders and status at each step in the supply chain. Visibility technologies help provide that information and reduce costs. Enhanced information can be used in arranging the transportation with carriers and in managing the shipment as it moves from origin to destination. Efficiency savings to firms that use visibility technologies derive from the use of actionable intelligence provided by or developed from improved data quality and availability. EFM and visibility technologies facilitate the knowledge of what is coming and when it will arrive. Minor adjustments in an individual shipment unit's schedule can save the firm money. When the supply chain is reliable and there is accurate information about anticipated arrival, firms can reduce safety stocks and inventories. Near real-time information improves the synchronization of the supply chain. ²⁴

There are important savings in the administrative costs of supply chain partners throughout the chain. Clearly, activities and processes with manual data preparation and analysis take longer and are likely to have more errors than processes using automated data. Visibility technologies create value as they automate the creation and transfer of data along the supply chain from one partner to another.

Improved Service Quality

While more speed might be most important in some cases, greater delivery time reliability is usually at the core of improved service quality- delivering the product when the customer needs it and when it has been promised. Unpredictably late shipments can cause downstream problems such as lost sales and unhappy customers. One measure in this area is the extent of expedited shipping, which is a supplier's response to unreliable or late shipments. Expedited shipping may achieve the delivery schedule, but at increased cost. Some Capgemini and Aberdeen surveys differentiate between on-time performance by top performing firms and average firms, and the top firms have percentages comparable to those in the table. Variability is also an important aspect of cycle time and Chemlogix found reductions, although it did not report a percentage improvement.

Table 4 shows examples of quantified benefits found in the literature.

Table 4. Quantified Benefits in Industry from Visibility Technologies

Productivity
Reduced Transportation Costs	20-30% improvement (Viking Logistics) 1 30% reduction (Infor) 2 Reduced expediting of shipments 75% (Distribution Group) 3 Reduced cost/parcel by 14% (Lifeway) 4
Reduced Administrative Costs	Reduced processing effort by 8-15% (Accenture) 5 Reduced transportation overhead 10-30% (SCD) 6 Reduced costs of manual data capture and entry 10-15% (Dow) 7 20% faster response to rate evaluations (Globalink) 8 Reduced administrative costs by 50% (Sunoco) 9
Improvements in Inventory and Shipping	Increased shipment consolidation by 5-25% (SCD and Chemlogix) 10 Reduced safety stock inventory by 20% (Dow) Reduced inventory levels 25-60% (Viking Logistics) Improved transportation controls and reporting by 2-5% (Chemlogix)
Service Quality
Reduction in time to resolve in transit problems by 50% (Dow) Improvements in delivery performance by 16-18% (Viking Logistics) Improved reliability of delivery time to 90% (Dow) Improved on time delivery performance from 94% to 97% (P&G) Improved cycle time by 10-50% (Distribution Group)
Shipment Integrity 11
Visibility cost savings (7%) Increase in on-time deliveries (12%) Increase in access to supply chain data (50%) Increased timeliness of shipping information (30%).

Qualitative Benefits in Industry

In computing a project's ROI, the consulting firm Business Objects looks beyond comparing quantified direct and indirect benefits to total cost of ownership. Especially when costs exceed quantified benefits, Business Objects recommends consideration of intangible or qualitative benefits before deciding against a project. ²⁵ Higher customer satisfaction and loyalty are among the most important qualitative benefits. Other examples are improved operational flexibility to implement postponement strategies and improved back office flexibility to respond to new regulatory requirements, such as Customs' mandate for more detailed shipment information prior to container loading. We examine qualitative benefits with the same categories of benefits used earlier for quantitative benefits.

Productivity Improvement

We found interesting industry discussions of unanticipated or unpredictable performance benefits from visibility and other data improvements. Software and network provider GT Nexus and consultant Business Objects both noted dynamic allocation of inbound inventory and better warehouse capacity planning as useful qualitative benefits. ²⁶, ²⁷ They also identified an unanticipated productivity improvement from visibility technologies: cross docking increased when distribution centers had and used more precise and up-to-date knowledge of when shipments will arrive and when they need to be shipped out to customers. Increased cross docking reduced temporary shipment storage and re-handling.

Dow Chemical reported that a qualitative benefit of visibility software is better management of inventories and production. Stanford noted that the right tools "tremendously improve visibility and timeliness of information" to detect data inaccuracies earlier. Stanford also noted that automation can eliminate process steps, reduce the time it takes to perform remaining tasks and make it possible for lower-skilled workers to perform higher-level tasks. GT Nexus explained that visibility technologies can provide a better understanding of total landed costs.

Improved Service Quality

High quality customer service supports customer retention and growth. GT Nexus and Business Objects identified two qualitative and unanticipated service improvements from visibility technologies:

• More effective back order prioritization. Knowing what shipments will arrive when allows better planning of deliveries to customers.
• Better responses to new customs/trade requirements such as the so-called 10+2 information that will be required by Customs and Border Protection (CBP) for import shipments starting in 2009 (identification of the overseas origin, U.S. destination, and contents of a shipment). Automatically available end-to-end supply chain data can help satisfy enhanced customs requirements. Many commercial visibility software packages include such compliance support capabilities and the vendors provide updates as requirements change.

Other documented service improvements include:

• Higher customer confidence (Dow Chemical).
• Greater flexibility, allowing implementation of postponement strategies (consultant Boston Logistics). ²⁸
• Reduction in out-of-stock conditions (Proctor and Gamble)
• Eliminated manual track and trace of orders, reducing costs and the opportunity for errors while helping increase delivery reliability and customer satisfaction (Proctor and Gamble).
• Reduction in alerts for late pick ups or deliveries (Chemlogix).

These qualitative service improvements reflect agile supply chains that adapt quickly and easily to customer needs and supply chain disruptions. Appropriate technologies, such as Web Services and SOA, speed the reconfiguration of applications and processes when changes occur. Agile supply chains also provide timely exception reports and facilitate corrective actions.

Improved Shipment Integrity

Shipment integrity includes loss and damage, theft, and cargo security. While not the subject of most industry research or the CEFM deployment test, visibility software can improve shipment integrity. If you improve end-to-end shipment visibility, then there is less opportunity for shipments to be delayed en route with greater exposure to theft and other security threats. And if something goes wrong, improved visibility may enable a supply chain manager to learn about the problem and take corrective action sooner. Some visibility software solutions include exception alerts to warn of late shipments and other problems. In a recent conference presentation, Dow described elimination or early detection of product theft by using supply chain visibility technologies.

In a June 2008 report, Gartner said that some software vendors were enhancing their products to support the 10+2 information requirement for 2009. Visibility software and enhanced supply chain data cannot guarantee compliance with 10+2, but automated data makes it more likely and easier to accomplish. Gartner noted that without software with 10+2 capability, most shippers won't have mechanisms in place to capture the data, organize it, and provide it to CBP in the required time frame. ²⁹ Maintaining the shipment integrity helps assure high quality customer service and saves money through better management of the supply chain.

Benefits Delivered by the EFM Program

The Columbus EFM deployment test featured an independent evaluation that examined quantified and non-quantifiable benefits that would result from implementation of EFM for all shipments in the host supply chain. ³⁰ A CEFM evaluation report documented the results, which are summarized in this section. The final pages of this section compare the broad industry and CEFM findings and then describe benefits anticipated in the Kansas City EFM case study.

Based on test data and Chinese, Hong Kong, and U.S. labor rates and discussions with the Columbus partners, we quantified the labor savings that could accrue to each partner as a result of improved information from EFM. We computed daily savings for CEFM identified for the particular partners.

While the quantified savings accrued primarily to the individual supply chain partners, we made a key assumption that a derivative benefit could accrue to the shipper or supply chain owner through the long-term use of EFM technologies: it is in the supply chain owner's interest for its partners to become more efficient. For example, more efficient manufacturers and freight forwarders may be able to reduce their rates to the shipper.

We interviewed each supply chain partner to gauge CEFM user reactions and their insights about the impact of CEFM if it were fully implemented and integrated with existing operating management systems. Most of the conversations centered on higher-level supply chain productivity categories such as cycle time, transit time, and schedule adherence. Users seemed confident that CEFM data, if integrated with transportation management capabilities, would improve the higher-level business metrics.

Table 5 summarizes the benefit findings of the CEFM deployment test and validates them with information from the industry studies of EFM-type of solutions. We believe the table shows how CEFM filled current information and visibility gaps that have been identified by other studies and surveys. This table helps to interpret the level of benefits that can be achieved by different types of partners along different supply chains - like smaller, less automated partners, or partners without visibility over other supply chain members.

Table 5. CEFM Benefits

EFM Function	Category	CEFM Benefit	Industry
PO Booking and Tendering	Productivity	$27/day (Chinese manufacturer labor); 5 minute per PO savings, a 75% reduction. 2 data elements vs. 8 data elements	Large firms place a high importance on electronic tendering of shipments i
On-demand status reports	Productivity	$25/day (overseas forwarder labor); Reduced labor on pre-alert by 76 minutes/day, a 66% reduction. Get booking data 1 day, improve planning of shipment. $173/day (forwarder report preparation and distribution center priority shipment processing); 28 minutes saved airline research and 178 minutes saved in preparation of DSR, a 50% savings. booking data available 3 days sooner.	With visibility into in-transit, order/supplier events and trade document status, 78% of companies are able to easily access data needed for decision-making. ii
	Service Quality	Broker could prepare documentation on Sundays and process 18% more shipments each week. $11/day in shipper time saved researching priority shipments; based on savings of 27 minutes per day.	Dow Chemical reported a 50% reduction in the time to identify and research in-transit problems as a result of visibility technology implementation. iii
	Data quality and availability	Customs broker receives shipment information 4-6 hours sooner in CEFM; Allowed processing of clearance earlier.
Robust XML messages based on automated event data (ex.ASN)	Productivity	$24/day (at the Container Freight Station - CFS) for less error correction research; 6% fewer errors at $4/error. $16/day (CFS) for reduced EDI error correction; calculated at $3/error.	44% of respondents do not have online visibility into trade document flow and 36% are planning to enhanced their current capabilities in this area. iv
	Data quality and availability	CEFM Advanced Shipment Noticed (ASN) available 6-8 hours sooner than EDI ASN ASN received by all partners (pre-CEFM only a few partners received the EDI message) Improved available of robust messages reduced the number of trips from the warehouse floor to the office to investigate missing or incorrect data. Current EDI accuracy at CFS is 65% whereas EFM messages were 90% accurate or better.	Time savings were achieved in Export Documentation compared with phone, fax, and Excel spreadsheet. "Can do them all in one place." v
Automated messaging (status messages)	Productivity	Reduced info exchanges from 22 to 16 exchanges in CEFM 15 manually-initiated exchanges vs. 2 in CEFM	50.4% of inbound status information is received daily vs. only 24.8% receiving it in real or near real-time. vi
	Data quality and availability	10% improvement in data availability on warehouse floor (ASN); allows better staff planning and forecasting of workload. 100% improvement in direct, near real-time airline status information. Previously, the forwarder had to research the information and provide it in manual status reports; on demand status reports available sooner and more accurately than manually prepared reports. Eliminated need for re-keying of data, so fewer data entry errors; quicker response to shipment discrepancies.	Alerts to late or delayed shipments were very important to 47.8% of survey respondents, making it the most critical capability in achieving better efficiency and effectiveness in operations. vii The same staff can handle increased levels of business - Sunoco reported 50% per shipment savings in administrative costs from improved visibility and improved data accuracy from reduced manual data entry. viii

Anticipated Benefits of Kansas City Adoption of EFM

As described earlier, the Kansas City team's priority is measuring the impact of EFM's improved data quality and availability on operational productivity and service quality. Their goal is to monetize operational metrics and calculate EFM's ROI for the case study supply chain. The Kansas City case study will use EFM for all shipments during the several month deployment, a combination of coverage and duration that should make it easier to assess EFM effects. The Kansas City team also has a significant advantage since most case study metrics are collected now in the normal course of business; this will simplify baseline identification and EFM impact assessment.

The collection and use of these metrics is important as the USDOT executes the Kansas City and future EFM case studies. These case studies and the benefits documented from them seek to validate the benefits identified in the CEFM deployment test and those documented in frequently prepared surveys such as those generated by Aberdeen and Capgemini.

Productivity Improvement

Five of the nine metrics are quantitative measures of productivity, all of which will support ROI calculations.

• Faster asset turn time: EFM's more timely, accurate and available data on inbound containers and containers already available for processing should help warehouse management to increase efficiency in planning, unstuffing and returning containers to the ocean carrier.
• Lower demurrage payments: The team expects the improved quality and availability of visibility data from EFM to help reduce demurrage payments to carriers. Faster turn time achieved with better information will lead to better use of allowed free time and lower demurrage payments.
• Less management labor to monitor inbound shipments: Currently, managers check on inbound status when they become aware of in transit problems. EFM may provide three benefits in this area:
  • Improving the efficiency with which management staff obtains in transit status;
  • Reducing management labor-hours to resolve problem shipments. EFM's near real-time status data for all shipments should allow quicker identification of and response to in-transit issues; and
  • Providing additional data such as the Customs Entry Number, which will allow better access to historical shipment information.
• Lower warehouse labor costs: The lack of reliable estimated time of arrival (ETA) information for inbound containers leads to over- and under-staffing of the warehouse with part-time labor. If EFM provides significantly better ETA information, managers will improve the match of labor resources and workload
• Better container capacity utilization: EFM's better visibility into operations at the origin may enable managers to increase container cube utilization, reducing transportation costs. This is the only new metric for the case study

In addition to these quantitative metrics, there will also be qualitative indicators in the areas of service quality and data availability/quality.

Improved Service Quality

• Better inbound lead time reliability: In addition to supporting labor efficiency, delivery reliability is an important indicator of service quality in its own right.
• More optimal outbound order fulfillment: To the degree EFM helps improve reliability of container ETAs, it would also enable warehouse managers to better optimize outbound shipments to their customers. In the long-term, this could result in reduced outbound shipment costs.

Improved Data Availability and Quality

• Improved accuracy of inbound shipment information: Currently, when a purchase order includes several containers that are loaded at the same time, the PO system requires each container to have a unique estimated receipt date. These estimates seldom match the actual arrival dates and may be several days off. Improved data accuracy would support several of the quantitative benefits.
• Improved frequency of data updates: Near real-time updates would be much faster than visiting web sites or making phone calls.
  • Better access to data: EFM in Kansas City will have a web portal so that less automated supply chain partners may provide and receive data more quickly, efficiently and accurately than before.
  • Improved use of EFM data: EFM in Kansas City will provide access to canned and ad hoc reports, improving users' access to archived shipment data. The reports would supplement EFM's current automated status and on-demand reports and enable better forecasting, such as shipment planning.

The Kansas City EFM case study has the potential to realize indirect benefits from other freight technology projects in the region. DOT supports the coordination of these efforts:

• Kansas City Trade Data Exchange (TDE): Like EFM, the TDE seeks to provide actionable knowledge to a variety of supply chain partners, including government entities like DOT and CBP. A key part of this initiative's five-layer architecture includes the automated transmission of shipping documentation, expected to accelerate transit time.
• Kansas City Cross-Town Improvement Project (C-TIP): This project aims to improve information exchanges among private and public stakeholders involved in truck travel in the Kansas City region. A software development effort, C-TIP includes the development of four applications designed to reduce freight congestion, provide real-time traffic information, improve equipment utilization and better support intermodal transfer planning.

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