The employ of Forward Stocking Locations (FSLs) has been practiced widely in the Service Parts Logistics (SPL) arena for along time.   
 
The nature of stock held in FSLs close to technicians, and/or customers, will be self-evident to many.  Moreover, we would like to say that these high-turn or critical system parts are held in many and varied styles of location.  However, in our experience, if you set out looking for them in any regional area, you might start your search at a cupboard in a local independent technician’s home garage. 
 
There are SPL logistical systems available that have features that integrate the transfer and stockholding control of these small remote stock-holdings.  In many instances however, on the ground you might find that the stock control practiced in the field by these techs is handled by means of a spreadsheet.  Back in the regional DC you may also occasionally find that the logistics controller has set up stock control out of a phantom warehouse location for each FSL in the regional DC’s bricks-and-mortar based Warehouse Management System (WMS).
 
Variations upon the FSL theme may be one of the emerging channel options in the E-Commerce industry, which in turn means that it is an area of interest for commercial partners, real estate entrepreneurs, transportation companies, and WMS developers.
 
Today, however, we are going to concentrate more on the work-around theme from the situation cited above.  Similar work-around practices are occasionally observed for inventory controls & local domestic transportation labeling where offshore pre-distribution, & inbound central DC hub-skipping, is implemented (the splitting of shipping order transportation destinations at origin according to the regional port nearest their customer, and the labeling goods for destination domestic transport at the origin consolidation point).  
 
If they work, practical workarounds always interest us.  While they may infuriate process cadres, they often provide the best pointers to what is essential when developing more fully-fleshed solutions.  Indeed, in many instances, if a gatekeeper had prevented a work-around being adopted, a better solution may never have been developed. 
 
Merchants and inventory managers all the way back to antiquity have employed the virtual warehouse concept.  Some will have gathered by now, we are enthusiasts of the Hanseatic League merchants, those who adopted this approach and were to become essential to the course of The Renaissance Era.  
 
In many cases the virtual warehouse is still observed in the minds of logisticians today; and a tap of the brow often signals that the logistician knows how to navigate through the system architecture, but also when to look beyond it for solutions.

These same contemporary logistician’s plans might be said to remain ones that are put into effect through systems, rather than being a product of them.  Indeed, sometimes the notions behind system architecture merely reflect a sloppy analyst’s adoption of the mantra that “it takes this to get that, get used to it!”   There are many times when it is best to pragmatically accept this, because when you step out of something that works in a complex system, there are often unknown consequences (Rumsfeld’s “unknown, unknowns”), but there are other times too.  It all depends on the opportunity factor.
 
In the early days of business computing in transportation it was clear that combining jobbing with stored files provided the opportunity to speed up process, and to cut costs once information was captured.  When migrating from manual systems there was a process benchmark, but as systems later regenerated, it got lost.
 
In our own case, we went from the design of systems for jobbing customs invoice line SKU information into reconciled regulatory declarations for international freight shipments,  and then on to high-volume manifesting in the courier/express business, and back again to design narrower solutions incorporated into an existing forwarding enterprise system.  
 
The profound difference between the freight forwarding and the express platforms was that in the former the document of record was mainly created by the transport company, while in the latter it was mainly created by the shipper.   Hence, in the latter instance, the emphasis was more oriented to manifest creation and the capture of event information, whereas the former was on taking responsibility for the accuracy of the primary document of record (legal document of carriage, or the customs entry).   
 
At a deeper level, after dealing with our customer’s commercial invoice data in brokerage, the express business experience led to us later developing a ‘manifest oriented’ view of SKU/order line detail within our customer’s larger freight forwarding shipments.  This was at odds with industry norms. 
 
We also developed the view in express that if we had something inbound, in some circumstances we could immediately run an outbound process, and in turn automatically back-fill the inbound blanks.  If we had a clean physical deck afterwards, and clean data, we were reconciled, and had saved half the process.  And yes, to this day we bemoan clunky warehouse cross-dock processes wherever we encounter them.
 
So for decades our perception of consignments tendered by our customers was not as “shipments” but rather a manifest-of-orders.   Being customer service focused also drilled this deeper into our psyche over time.  When a customer called in respect of a larger shipment, the root cause of the call was usually an individual order within the shipment, rather than the totality.  
 
From this point, we started to conceive the possibility of these Shipping Orders (SO's) being matched one-to-one with sub-bills of lading to enable the direct delivery to our customer’s customer.  This also enabled systemic tracking through established means with the sub-bill structure being a facsimile of the higher bill-of-lading.
 
It meant recording & reporting event information at the sub-bill level, while for reasons of economy processing regulatory and finance transactions at the higher house-bill level.  We could even choose to re-consign the Shipping Order (SO) items domestically at the last minute as they customs cleared into the domestic theatre through the house-bill level destination gateway location. 
 
In later years, at the transportation origin, we came to entirely disregard the said start-and-end points of what was tendered to us as a consignment.  What was shipped was only to become a regulatory shipment when we said so, and we matched those points with the booked unit-load capacity made available by carriers.  
 
The most important element in this equation is that it can be done outside the core freight forwarding system process.  What enters the freight forwarding environment can look for all intensive purposes like a regular freight forwarding or carrier shipment, and it can move like one in the systemic sense from end-to-end.  This is a clear "don’t mess with the established process" statement, or if you will, "don’t try to drag the warehouse data through the freight forwarding or carrier operations system".  
 
What is shipped from the warehouse at a given interval in the above scenario can still be associated for reconciliation purposes, but by employing data and labels generated at the pick-face, it is possible to create a multi-channel transportation environment.  This in turn can create a virtual warehouse experience through the supply chain by means of returned event information.  The only put-aways needed in this described process are for exceptions, all else is inventory-in-motion. 
 
Earlier in this series we made note that the boundaries of our logistical theatre begin with the availability of data, rather than the ownership, or the physical possession.  The said data access point may also determine the limit of us being able to reach back in the transportation side of the supply chain to more effectively address lumpy E-Commerce market induced challenges.
 
If a vendor can incorporate & confirm label data cooperatively, we can even create an outbound process all the way from the vendor’s pick-face.  The primary party-of-interest may then manage the transportation process by means of a combination of routing rules, interventions, and supervision.  This is not merely the Reebok asset-less enterprise scenario we describe here, it is rather the ability to move the transport-versus-warehouse scenario back-and-forth at the last minute in order to optimise replenishment and fill rates.
 
By means of employing a combination of a route code and case data, it may be conceivable to redirect all-or-part of the inventory around primary distribution hubs to those replenishment centres in need at the last minute by means of intervention at primary points right through the transportation cycle. 
 
Hub-skipping a central DC, avoiding a congested port, splitting shipments between transport carriers according to their capacity, splitting modes, or splitting routes in response to capacity constraints, may all be enabled by adopting the view that - it isn’t a shipment until it is loaded (provided that you have determined precisely what you have loaded).

Even in the case of the largest single-brand carriers in the world; the systems, structures, and natures of the people necessarily employed to execute shipments with different characteristics, are at close-hand usually observed to be very different indeed. 
 
There have been attempts at achieving transportation & logistical core operating system convergence among same-branded conglomerates, especially among those that have recently acquired new service lines, but often ill-conceived concepts are observed failing during development or deployment - sometimes spectacularly.
 
At the customer-face in E-Commerce markets we have already noted very different emerging requirements for delivery (home, office, two-person, installation, packaging removal).  Hence, even if there is a single-branded transportation group offering the whole suite of services required, sourcing from a brand doesn’t necessarily mean that you are buying from a single carrier or logistics operation in practical terms.  A single transportation brand's business unit or service elements may have completely different modes of operation, systems, and equipment; managers of those individual services may also have different levels of relative competence in comparison to their competitors in their individual service lines.  
 
Such single-branded transportation conglomerates that we speak of were usually founded upon a single business line, and let's grant here that they have performed sufficiently well in that business unit to establish themselves.  However, many  such  conglomerates find it difficult to unwind a management philosophy, or a manner-of-execution, whose efficacy is peculiarly successful only in their foundation service line's style-of-business. 

Moreover, asset owning transportation businesses have often been encouraged to leverage those "lazy" assets in their balance sheets in order to acquire non-asset owning businesses, or specialist operations.  This same privilege is harder to come by in a non-asset transportation company's balance sheet where the prominent feature is goodwill.  But in such cases that larger transportation & logistics groups have acquired businesses with different service lines, they are often observed to fail to delegate sufficient policy-making authority to those with the required business skills to run the business.  Hence, such transportation conglomerates are often seen in the market financially performing & executing poorly in comparison to  dedicated service competitors.  Where this is observed, there forms a natural inertia for the conglomerate to tear itself apart over time.

We hope to speak effectively here employing our experience, and hope that if we digress, that our case still emerges and  does not appear merely an indulgence.  One significant proposition we offer is that too often transport conglomerates have assumed that their acquired subsidiaries had more to learn from them, than the-other-way-around; and hence their efforts to integrate effective holistic solutions fall short in delivery.

When I started in the forwarding business, my first employer was Brambles-Ruys.  One half of this joint stock company was owned by a large Australian company then called Brambles, and the investment was seen as synergistic with its road transport division.  This same Brambles division was already en-route toward failing spectacularly when attempting to transform itself into a road freight forwarder.  On the other side was the Dutch Nedlloyd liner shipping affiliate company named Ruys.  Nedlloyd were a group that went on to fail in other subsidiary endeavors, as we will testify later.  

Next up was Burlington Northern, a freight railway company that decided that it might be an international freight forwarder; it didn't last. 

Then I was to work for an Australian company named Fliway that blended domestic road freight, express, and international forwarding.   It worked for a good while, its market share underwritten by its high tech transport specialist unit, until such times that business computer sizes were observed as starting to shrink.  Moreover, being in the Australian domestic road & air express freight market during the Mayne/TNT duopoly years was generally fraught for medium sized players - in many instances owing to unexpected union-related issues.  Occasionally such firms had also done it tough while at the wrong end of customer targeted pricing issues from larger competitors, those same issues which came home-to-roost with later regulator activism - all a little too late for us.  Hence our Australian company became just a non-asset based international forwarder/customs broker, with a small international express business that was now operating as a forwarder domestically.

In the meantime, Fliway represented the Purolator Courier global courier network in Australia.  Earlier, while visiting the Purolator US operations, we had already gotten the taste of what it was like to be standing before an impending business failure.   Our first note of alarm was certainly one that stayed with us; and it re-appeared time and again as we foresaw transportation failures elsewhere - it was the sight of many idle vans in very large holding yards.   We visited Purolator's  Indianapolis air hub, and as an indication of their scale in the air express envelope market at least, they probably ranked ahead of Airborne and Emery at the time.  At about 40,000 packages per night, Purolator may have ranked second after Fedex in that envelope sector, because UPS was probably then yet to have ramped up their US domestic air express business in earnest. 

After reviewing the Purolator Indianapolis hub's night operations - and observing their freighter aircraft as they flew in & out of this single central hub from all over the US, and their package sort belt systems, we noticed that the last plane out left a virtually clean deck behind at the hub.  It was at this time that we came to appreciate that finding something that was lost in the Purolator express system was a fraught exercise.  Our thought-line was that perhaps there were more manually marked route coding issues than managed to present themselves in the exceptions area that evening.  Experienced hands told us: "if it was lost - and it didn't pop out on a delivery run tomorrow - you will find it is usually lost for good". 

Later, I was introduced at first hand to the Purolator Courier "War Room" at their Basking Ridge, NJ Headquarters.  The surrounding area is wealthy indeed, and I was even given my first ride in a limo (back to the airport) from there - but sadly it had not rubbed off on Purolator's ability to generate cash. 

While in NY and NJ I did learn a few things about disruptive services.  First there was the helicopter lift of premium express documents from JFK airport to NYC rooftop helipads off the back of inbound banking and advertising documents that had landed just prior on a Concorde service from London.  These were perhaps akin to drone delivery services in their day.  And their rotary wing lift cost per kg for defying gravity was probably significantly lower than for any drone on today's horizon.  We guess also that the likelihood of the said rotary wing device falling on granny's head in the urban jungle in comparison to a modern-day drone en route to a designated back yard may even have been lower?

Another Purolator concept was the introduction of drop boxes in CBD office buildings - these were the secure lockers of their time.  Yet another was the Purolator high speed pick-up-fax-print-and-deliver concept for documents to be moved across the US; it was the 3D printing technology of it's day.  The pursuit of disruption as a key-note part of the attempt to shift Purolator's internal economic paradigm, however, was to fail. The thing I really learned though, was that if someone says there is a "war room" in operation at a large-scaled business, it is probably all over bar the shouting.  Purolator went on to be acquired by Emery, which quickly became Menlo after ingesting Purolator's "war room". 

Emery itself didn't know whether it was an asset-owning carrier or a forwarder, but it pretended to be an asset owning operation all the way through in the systemic sense.  Emery didn't last, nor the successor Menlo (which had offloaded the aircraft fleet).  Airborne were to pick up the express traffic from many of the old Purolator global network partners.  They in turn were bought by DHL, and they weren't to last as a full service US domestic express carrier either.    And did I mention the big buckets of losses in each of these transactions? 

Talking of buckets (and I neither want to get too personal or specific here), we have observed among asset owning carriers (or pretenders) across the globe some world-scale accounting buckets.  Some of these so-called operating cost recovery buckets needed to be filled with money by means of internal cost-sharing, and were said to merely cover these organisation's owned or leased asset operating costs.  On occasion I have observed such financial systems in action, often under the label of network costs, and our regular view of them might best be captured by the line 'commercial socialism in action, outcome guaranteed'.   In some instances I saw the perfect expression of that guarantee - it was that everyone was to be hit with network costs, no matter if they actually used the assets.  Yet another thing about cost buckets like these is that sometimes everyone and anyone that is influential within an executive group appears able to find an excuse to tip their costs into one.  Then, finally, there might be accountancy empire expenses tipped into the same bucket, those self-assigned to share the bucket expenses around (including the consulting costs for whatever was trending as the most tax effective manner in doing this).  

Owing to the fact that a global company's corporate history these days concentrates rather more on the forgetting, and less on the remembering, perhaps it is also both indulgent and useful to recall here that some of the old Purolator global network partners (that were independent) were eventually acquired by UPS as initial territory partners in their global network roll out.  We mention this to provide more illustrative depth to the big-fish-eating-smaller-fish churn of the period. 

But let's not leave Europe alone, because after the Purolator adventures, I was then seconded to join Union Transport in Germany.  They were a German trucker and long-term globally located international freight forwarder whose business model was sound in the latter, but fraught in the former; owing-in-part to the impending EU Schengen agreement that was about to remove the import-export desks for truckers across Europe.  When I was sent in to give my impressions of one of Union's major LTL depots, the too-many-trucks-in-the-yard symptom was immediately apparent.  The owners did take a cursory look at a proposal to develop an intra-EU air express network, but perhaps their hearts weren't in it, and they were both smart enough not to go down that track at that time, and equally so to take the offer that shouldn't have been refused.  Besides Union's international forwarding business, there was another healthy corner of Union Transport in their part of the DPD business, but we will leave the discussion of the networked model for that enterprise until another day.

And what happened to Union?  The global shipping line Nedlloyd bought Union Transport for it's "desirable" trucking business, as a part of their fast-moving pan European road freight network roll out plan.  And after missing some notable points in due diligence they were to find that the individual businesses they acquired, and moreover the whole concept, didn't work for them, & they left the field.  It may have also been the last throw of the dice for Nedlloyd in the strategic sense before the Maersk merger (in effect an acquisition).  I haven't mentioned until now that Nedlloyd also had a forwarding business called Damco, a business that then knew how to lose only small amounts of money under a shipping company's ownership, but then they were yet to hit their full straps as it proved later under Maersk.  There was also the Nedlloyd Districenters 3PL, and well, we won't say.

Next up, while not being an employee, I was invited inside the operations of the Frans Maas-Yellow Freight partnership.  These were EU and US truckers whose concept was based upon the notion that LTL (less-than-truckload) domestic transport appeared in their eyes to be similar to LCL (less-than-container-load) international freight forwarding; so why not get into that business on a door-to-door basis between the EU and US?   What could go wrong?

At least in the case of the German Frans Maas operations, when I was asked to tour their operations teaching their people about international air freight consolidation procedures, they had covered the subject at forwarding school in Hamburg, and we had something to work on.  And yes, they were surprisingly effective in the short time we worked together.  When I visited Yellow Freight HQ at Overland Park, however, my first impression again was "war room".  Every tractor and trailer Yellow were operating across the US was said to be a light on the big electronic board before me.   Subsequently it proved that my first impression was enough, according to Yellow's  performance in the decade following.  Yellow do survive today, however, based upon the bail out capacity generated when their unions were finally cornered; and owing to market power finally having succeeded in increasing US domestic LTL prices at spectacular rates above CPI from the noughties onward  (and perhaps it was just a coincidence that Fedex and UPS were acquisitive new LTL market entrants in the intervening period).

At the Frans Maas interval time, our Australian Fliway operations began being progressively acquired by the US freight forwarder Fritz, who themselves were on the path to dot-com era NASDAQ listing glory.  It was at that time that we first learned that our long-held theories surrounding a forwarder's need to concentrate on their net earnings, which in turn were calculated out of accurate individual job-based accounting, should be set aside in order for our reporting to more prominently feature the far higher (yet hardly material) gross revenues.  It turns out, however, that a company like Expeditors (one among the few that held the line in respect of our aforementioned "net earnings are king in forwarding" proposition) has done far better in their share price over time than the top line and bucket accounting obsessed carriers beloved by Wall Street analysts to this day.  

In the meantime a decent Intertrans forwarding acquisition was picked up by Fritz,  and it brought in a strong US freight forwarding IT platform, but the powers that be decided that "global" systems were the only way forward.  One such system we recall that was under our global assessment panel's review at that time was based upon an offering from an erstwhile logistics warehouse IT platform provider.  These clever folk had decided that the international freight forwarding transaction was logically similar in structure to domestic inter-warehouse transfers.  Again, what could possibly go wrong?   Our review panel strongly recommended rejection of the proposition, and it was a small victory.  The platform itself went off into obscurity as far as I know, but such concepts are still known to turn up on occasion.  Perhaps the DHL Global Forwarding folk, those behind their global IT forwarding platform venture, the same which has hit such troubled waters, had similar-styled, even if different brainwaves.

And the Fritz business? They were acquired by UPS, with the publicly announced business case made for the acquisition featuring Fritz's  systems and people.  After being acquired by UPS, there were substantial UPS investments with management rotations from the express carrier's talent pool, many of them the same that had apparently been duly diligent during the acquisition.   And then UPS bought the financially troubled Menlo, and immediately set about merging it with Fritz (convinced that the Menlo asset-carrier styled systems together with additional dips into UPS's asset carrier trained management talent pool would make the difference).  Again, with all that learning absorbed in advance, what could go wrong?  Perhaps the next earning report will prove that they have made it work?  
     
So eventually today we get to our case.  The organisational nature of the transportation companies an E-Commerce merchant chooses to engage with today is no small matter.  The idea that integrated logistics in conceptual terms necessarily means that merchants might  engage with a single transportation & logistics brand globally, and across many service lines, should have been regarded as contentious decades ago.  And this matter would have been settled by now if there were better financial market analysts, and those that were otherwise had been held to account.  More-deals-is-good-deals has, however, won out; and that is solely down to loose money.

If trends toward specialisation, and/or the emergence of channel fracturing, in turn leads to substantial changes in E-commerce transportation tasking, we contend that the optimal organisational nature of the logistics enterprises employed will likely now come to the fore.  On the other hand, we are not endorsing views such as the following, those that might forecast Amazon's ability to become a significant effective third party or asset-operating logistics & transport organisation in their own right.

www.businessinsider.com.au/amazon-logistics-facilities-update-2015-10

(nb: we highlight "Disclosure: Jeff Bezos is an investor in Business Insider" extracted from the above report.  We have made comments before in respect of their PR prowess that you can take-or-leave, yet perhaps too this report may have been useful backgrounding and well-timed for ensuing contract negotiations)

At this point, however, we return to contemplate the various emerging transport-versus-warehouse scenarios and the multi-channel approaches that we have discussed earlier in this series. And on the tech side, in essence, major E-commerce shippers are - over time - likely in the real world to be routinely forced to dis-aggregate the transportation transaction (in both the financial and routing sense) from the order & shipping process at the E-Commerce portal. 

In a practical sense, we believe that larger organisations are all doing this already.  Our guess, as surmised some time ago in this blog, is that Amazon's past logistical follies were connected with the UPS surge in long distance US domestic express transport moved through the UPS Louisville central air hub during the Xmas peak 2 seasons ago.  If so, the employ of long distance overnight domestic air transportation for either replenishment of local distribution centres, or initiating customer direct delivery for small consumer orders from remote fulfillment centres, is likely not to be economically sustainable for an E-Merchant.  However, it is also likely to be commercially imperative to make the high cost deliveries if the E-Commerce market fabric of the largest E-merchandisers is threatened.  Such measures as UPS's announced employ of car parks as temporary distribution centres last Xmas may hence be cited more as evidence of that threat, rather than as an effective solution.

And, in such cases where E-Commerce orders rely upon locating & verifying alternate sources of supply within an E-merchants supply chain, before initiating the transport order, it will in all likelihood lead to complexities best managed behind-the-scenes rather than at the user interface.

The prospect of local stocks running dry ahead of replenishment in a lumpy peak season market as described, is almost a given. The on-line consumer's reaction is also a given; and conditioning them otherwise likely impossible if stocks or substitutes are available from alternate bricks & mortar locations.   Therefore, most major E-Commerce shippers are likely to be drawn toward employing a similar cascading metric of transport-versus-warehouse solution in their supply chain over time.  In turn, this means that the appropriate transport transaction will necessarily need to evolve to be the most effective and economical for the transport task based upon the different locations from which the order is fulfilled.  Moreover, we question under this scenario whether single-branded organisations have what it takes to retain the levels of business that they enjoy in this sector today.
 
We have spoken earlier about the above in terms of demand management, fulfillment centre locations, and emerging multi-channel E-Business models.  On another day, we will return to these things and will seek to incorporate the issue of how to broadly measure, and most effectively employ, available transport capacity when planning an E-Commerce supply chain. 

And we thank you for your patience on an especially long day in the posting.

The world of transport & logistics is like a Meccano set, you can be smart about the method of putting your pieces together, but you can’t necessarily control the shape of many of those pieces.   Moreover, those that are good solution designers & managers, take the time to familiarise themselves with the attributes and limitations of the individual pieces and connectors. 

For the casual reader, we will start by unraveling two acronyms used frequently below:

A 3PL is a 3rd Party Logistics or transport provider, one who is neither the buyer or the seller for the goods.
A 4PL is a 4th Party Logistics provider, one who is neither a buyer, seller or carrier/logistics warehouse operator

In the transportation world there are widely held to be two distinct groups of transport operators.  The first group are asset owning transportation companies (carriers / 3PLs), the second is non-asset owning transportation companies; either freight forwarders [also 3PLs] or transportation management [4PL] companies.
 
At times, enterprises may also choose to own or lease significant transport & storage assets in their own right.  And in a hybrid situation the enterprise may employ a third party to manage those assets, or consultants to assist in their transportation & logistic network design.
 
3PL logistic operators, those that principally provide warehousing and distribution services, are another species in the logistical arena.  These 3PLs are more approximate in their orientation & outlook to asset-owning transport operators than the non-asset owning transport operators (freight forwarders).  Many 3PL logistic operators further provide or manage transportation services, and these in turn can be either owned-asset operations, or non-asset based (3PL, freight forwarder, or 4PL).
 
To an outsider, these structural classifications may appear tangled, but the business case for each stands when underwritten by the specific roles they play in the supply chain network
 
Logistical solutions are crafted by, with, or for, shipper principals.  In the main, the crafting of a solution is a collaborative effort.  The shipping or receiving customers, the parties which contract with carriers, forwarders, 3PLs, or 4PLs, are usually the ultimate arbiter of process design.   Naturally, the sanctity of design is disturbed when propositions are demanded, and contracted, and yet this plan proves not to be economically feasible for one-or-all of the parties in the wider supply chain.
 
Dysfunction is also assured when the shipper’s customer-facing value proposition falls short in logistical execution as a result of failures in the shipper’s supply chain, &/or their logistic & transportation network’s operational performance.
 
In the E-commerce arena, in particular, a confused environment is emerging in the tech-based logistical and transport solutions being offered to E-tailer merchandisers.   In many instances, tech app providers appear to profess that they have moved into the 4PL space.  There are, however, significant open issues in respect of tech-based products aspiring to add value in that area.  An app with limited input data, may provide even more limited service depth, and can be a recipe for dysfunction if a website plug-in is all that sits between an E-Commerce merchant and a consumer in logistical terms.
 
Before we comment further on the 4PL (Transportation Management) issue, we will return to cite our experiences operating in the 4PL field.   Those that have long been involved in the industry may recognise that the major drive behind 4PL sector growth in the 1990’s was also a tech based offering, usually then branded under the Freight, Audit, and Pay (FAP) generic marketing label.   The said services were usually offered to companies who engaged many domestic carriers.  They were also usually otherwise quite constricted in terms of adaptability to service the international freight or specialist transportation sectors. 
 
In the first instance, these FAP systems were designed to monitor carriers billings to ensure that they were charging the right amount.  Their secondary function was to consolidate bills in order to lower the accounts payable processing costs for a shipper customer.   However, as the major carriers systems themselves became more rating automated, and less fallible weight and cubic dimension tests were implemented, the value proposition for Freight, Audit and Pay technology based offerings diminished.
 
From this point, the appendage of the Transportation Management marketing label emerged in order to value-add to the FAP business case.  A Freight, Audit, and Pay system, one that has grown a few operating features and reports, is often still observed as being at the backbone of many 4PL offerings.
 
It is from this point, one of diminishing service returns, that questions over the newly labelled 4PL’s value-add process started to be asked in earnest.  If there was sufficient “transportation management”, then the value proposition stood up; otherwise, given more automated E-business processes & integration that have opened between shippers and carriers, it might be defeated. 
 
In terms of our own 4PL operating experience, we quite clearly recall a meeting where we were interrogated, in the most abrupt terms, by one of Australia’s most formidable domestic transport executives, on the subject of the very same value proposition.  To paraphrase, he wanted to know, just what value we were adding as a 4PL when placing ourselves between him and one of “his” most significant customers?
 
And so, at a point approximately one elevator pitch past the above-mentioned styled confrontation, the 4PL may get a solid indication whether their business case will go the distance.   Moreover, the same business case must have already been locked in beyond doubt with the shipper in advance to survive such a contest.  In these circumstances, the matter of a carrier’s market power in these “enlightened” days can mostly be set aside in regulatory terms, largely because significant market player carriers can apparently determine their interests individually, without conspiring with others, and still arrive at the same conclusion in respect of decisions on whether to offer services to intermediaries, and at what pricing support level they do so.
 
We have encountered both better and worse answers from 4PLs in respect of their value-adding.  Moreover, for some major shippers, the element of payment processing centralisation and improved reporting on overall network performance in a single format remains attractive.  If there is sufficient economic value, there might also be introduced outstanding continuous network performance tuning, which can be achieved through the efforts of a bird-dog styled service exception chaser.  Carrier contracting &/or price management are also usually essential propositional elements to maintain the 4PL model's value (even if this is seldom welcomed on the carrier/forwarder side). 
 
4PL's systems have struggled to evolve & effectively internationalise to the same extent that E-Commerce has done in the past two decades.  None-the-less, disparate modes of transportation are more likely to underwrite a transportation management based 4PL engagement than those purely relying on same-looking transportation vendor arrangements (ie: those with a similar yet multiple carrier option shipment offer rubric executed through a merchant’s E-Commerce portal). 
 
In other words, if you are going to be involved in “transportation management” in the emerging E-Commerce age, we propose that you had better be an experienced and effective transportation manager.  And by extension, you will also want to be a good freight forwarder, one who can negotiate effectively with asset-owning carriers, and bring solutions together from disparate sources – both in geographical and capability terms.
 
If a 4PL vendor is just offering multi-vendor portal access with multiple pricing options for third party transportation vendors, it might be construed that they are merely pitching for a transfer of the responsibility for carrier selection & service quality outcomes to the E-Commerce buyer.

Alternately, in praise of apps as "connectors", their employ has quite a lot to offer the transportation industry internally, and at the margins, as stated earlier.  This is especially so in the case that participants have their credentials and performance management effectively handled elsewhere.  Connecting an independent sub-contract driver to third parties and communicating rudimentary information that would otherwise have to be captured manually is such a case.  Public weighbridges, permit agencies, inspection stations, grain aggregator sheds/silos, rail ramps, and empty shipping container depots are among those that come to mind.  Anywhere with a slot system or queue is an open invitation for app developers dealing with a vehicle and independent driver employing his mobile device, because they have the most to gain (in time-is-money terms) by communicating a rudimentary amount of information accurately & in a timely fashion which in turn cuts queuing at a location; or alternately alerts the driver in advance of impending delays or rejection. 

For the E-Merchant, however, the commercial realities are that ownership of the delivery efficacy issue will ultimately return to them in the real world.  Further, any multi vendor offering suite will in time become necessarily limited to the number of vendors the E-Merchant, or its transport manager, can engage and practically manage at the right price.  An  additional selectivity issue, however, lies with the need to ensure carrier capability for each and every stock-keeping unit offered for sale.  The emerging scenario includes a matter we spoke of earlier in this series; the broader array & larger sizes of E-Commerce goods now being shipped.
 
Next time, we will delve a little further into the Meccano pieces.  We will examine transportation capabilities in combination with brand and organisational issues.

Another significant point of demarcation in the logistical framework is the traditional view of inbound versus outbound transportation processes, and we will discuss the said matter today. 
 
Inbound transportation & logistics process is also observed as being significantly different for inbound materials logistics for a manufacturer, as opposed to the process employed for finished consumer goods purchased by brand owners or marketers/distributors from vendors, as it is yet again for aftermarket spares.
 
Merge logistics can also be employed, especially so at Supplier Owned Inventory (SOI) hubs.  These position inbound materials close to factory locations, under processes normally designed by the yet-to-be-owner. Another merge logistics process, among many, can be seen en-route from production to consumer with new agricultural equipment or automotive vehicle make-ready hubs where accessories are installed at locations close to, yet ahead of, final delivery.
 
Irrespective of the legal ownership of the inventory, in the case of SOI or make-ready hubs, there is usually more transparency & inventory detail provided to the receiving party ahead of shipping than is the case for purchasers of regular consumer goods inventory from vendors or screwdriver plants.  It is sufficient at this point that we mark this as noteworthy, because we will be returning to the matter at a later time.
 
Before we leave this general subject in respect of inventory detail and inbound logistics processing, we want to mention the notion of buyer consolidations and vendor compliance.  Before in this blog, we have mentioned the Sears Roebuck Asian export buyer consolidation and vendor compliance programme that we first came across decades ago.  Essentially, instead of performing the inbound logistics process wholly at destination in the USA, inventory was receipted to case ID level, and was made available in a process called pre-distribution.  This process as-a-whole enables the creation of multi-vendor export consolidations by a buyer’s logistic-transportation representatives to individual regional fulfillment DCs in the destination country.  Re-documentation services were usually provided under specific power-of-attorney. 
 
The buyer consolidation process also provides the opportunity to re-route orders at the last minute if the buyer is seeking to optimise stocking levels at regional destinations to be in line with emerging demand patterns, or to optimise available transport capacity across modes, carriers, or routes. 
 
Unfortunately, and especially so given the positive elements tactically enabled as stated above, we do not believe the buyer consolidation / vendor management programme adds sufficient value in most contemporary circumstances.  This is due to the inherent process clunkiness introduced into the supply chain in comparison to other options available, those that might see disintermediation maintained for large-scaled e-commerce consumer & B2B markets.
 
So while we are yet to make much of a dent today in respect of describing the transport network fabric possibilities, we have started to illustrate the widely variant locations within the supply chain where fulfillment and/or demand optimisation processes have been undertaken.

We are yet to look at the various optimum originating fulfillment centre location possibilities, those points from which merchandise delivery despatches may best occur.  Nor at the optimum moves to bring inventory forward from production source to those locations, but we will get to that in time.
 
Today however, we will touch upon “last-mile delivery” disruptive technologies before we get deeper into our case.  We are advancing the aforementioned in the sequence in order to remove any expectation that mobile app’s & disruption are an essential destination, or feature prominently within our mix of logistical solutions.
 
At a recent transport tech incubator session we attended, the idea of developing apps that might contribute in that enterprise was widely discussed & fervently admired.   While it wasn’t practical to make a detailed case on our position, I recall expressing a note of caution in a number of respects on the obstacles to success for such an undertaking.  While we are concentrating our review on core logistical design and transportation process execution, we do acknowledge the possibilities for the effective employ of mobile apps in solutions.  Indeed, there are many good ones already adding value at the margins.

However, the first obstacle for those seeking to significantly disrupt a large existing transportation market is the likely countervailing political efforts of the three parties likely to be threatened by the disruptive efforts.  Those parties would be:

1. Organised Labour
2. Integrated Transportation Corporations
3. The Disrupted State Tax and/or Franchise-Licence Issuing Authority

 
These three parties will be formidable players in any strong independent state.  If you launch from a global hegemonic state base - with political / lawfare backing in your pocket - and your prioritised markets are weaker subordinate or non-aligned states – then you are in for a scrap & yet might have some prospects of early success.  Otherwise we wish you good luck - but in the real world we wouldn’t take the odds on the likelihood of your success.   
 
The prospects of disruptive success in the US are quite low.  This can be evidenced, in part, by the political heavyweight Fedex’s court case loss in which unions and government both took great interest in the outcome:
 
www.forbes.com/sites/robertwood/2014/08/27/fedex-misclassified-drivers-as-independent-contractors-rules-ninth-circuit/
 
In the cited case, the use of independent contractors can be seen as either an age-old practice or a disruptive one.  This depends on the local legislative record, but often the matter has long been a tug-of-war and a fluid (or hybrid) situation  exists.  Yet the case stated above involved two of our three cited parties facing off against the other in the practical sense (if you discount the unionised integrated transport competitors); imagine if the interests of all three were to align against you?
 
You may have also noted that we inserted the following quote in the comments section against a blog entry highlighting evidence that supports the notion that the quality of business school advice on feasibility doesn't often translate that well in the real world:
 
“The concept is interesting and well-formed, but in order to earn better than a ‘C,’ the idea must be feasible” — A Yale University management professor in response to Fred Smith’s paper proposing reliable overnight delivery service. (Smith went on to found Federal Express Corp.)
 
Yes, it may be the very same company whose disruptive efforts have been dealt a recent legal blow, but in their prime years they have overall been winners.  And the point of difference as we understand it with Smith was that it was his military logistics experience that underwrote the understanding of his opportunity – moreover this in itself may have been enough, given that perhaps it was just urban folklore that commonly held that Smith spent time in Australia (after one of his tours of Vietnam) with Gordon Barton’s IPEC express business before returning to the US.  Barton had started his express interstate operations about a decade ahead of the other two great express entrepreneurs, Larry Hillbloom of DHL, and Smith, who both got traction in the early 1970’s.

And so too, we drew upon our own experience when raising issues relating to the engagement of contract couriers (cross town messengers) in the manner proposed by many developing what they believe will be effective disruptive technologies employed for “last mile deliveries”. 
 
There are two specific examples concerning personnel and process in this sector that we will address.  The first is the three probable reasons that UPS first rose to prominence nearly a century ago as a cross town parcel delivery service in the US.  The first was workforce discipline; the second was the quality of customer facing presentation, and the third the quality of their engineering method (Taylorism).  None of these factors is necessarily addressed (wholly or effectively) by disruptive technologies in-and-of themselves.
 
The second example is our personal experience of working with young sub-contractor couriers, those that were actively supervised by single branded employers who in turn were required to guarantee service quality.  When such young sub-contractors first enter the business, they usually do not know how to budget their vehicle, fuel, or other expenses.  Without experience they do not know how to navigate effectively & economically – and route planning (which can now be aided by tech) is only one part of the equation.  Human negotiation issues and risk avoidance are larger factors.  
 
So while there are many new entrants into the sector, there is a massive drop-off rate.  In a situation where disruptive tech apps put individual deliveries out-to-bid, it is highly likely that under-pricing will be the norm; turnover of staff will be greater, and service quality will be lower, despite any required-for-payment milestone derived attempts at discipline attempted by e-commerce masters.  As many cross-town courier radio operators said, back in the day, “it’s like running a kindergarten!” 
 
The last and most important factor in creating effective mass transportation process is the avoidance of what we call “clunkiness”.  In short, clunky transactional process costs far more than a smoothly geared one.  The bidding of individual transportation transactions through a mobile application will usually add process compared to an integrated delivery-route or technology-suite operation.   If the job bid-offer-response engagement is employed – there will likely be fracturing of optimal pick up or delivery runs.  This will result in lower density in comparison to a driver who turns up at a single dock, and has an expectation of picking up many shipments for delivery (or alternately one who has a standard pick up route); and subsequently sets about his or her transactional delivery work on a single plan whole-of-run basis.  
 
Engaging with occasional E-commerce customers, those often most likely to look to employ easily accessible disruptive mobile apps, creates less efficient hand-overs than regular business customers, and hence bad transactional economics for contractors in comparison. 
 
The difference in the cost of picking up one delivery versus many deliveries sourced at the one pick-up location is great.  If it is a bid-price based system – the complication and time spent bidding & accepting must be contemplated.  Can the mobile app have equal performance to a carrier drivers’ device?   Are the mobile scanning / labelling features comparable in quality and efficiency?

Capturing transportation sector business with disruptive tech apps & under-trained independent staff that bid too low can be no panacea if they are likely to under-perform over time in both consumer and E-tailer eyes.  It is also a different style of engagement in comparison to a taxi driver substitute who in practice is actively supervised by the customer for the duration from ride acceptance, and in the main is doing one task at-a-time.
 
We also recall a decade or so ago reviewing one such clunky tech-based centralised system being employed for emergency response transport services in the Service Parts Logistics (SPL) sector.  The service was primarily based upon employing mobile text message based bids & responses with active milestone supervision.  In our experience, the level of intervention required to supervise such multi-party & multi function transactions would be best described as ugly in logistical terms.  And in reality, over time, on the ground, it often ended up not being individual contractors responding to engagements, but rather local quartermaster styled operators that distributed work behind the scenes.  In these instances additional clunky process is simply disguised. 

Clunky process design may at times create a series of windows for greater active supervision and intervention in the transportation world, but it is incompatible with today's price ascendancy in the E-Commerce world.  

And yet there are several other transportation network models we can draw upon for possible components in our solution frameworks, and we will look at those next time.

Besides the derisory view of the practice known as “channel stuffing”, there are many other commercial practices that create “lumpy” inventory challenges for logistics and transport professionals.

We already touched upon this matter of “lumpiness” in respect of gramophone records (the production run / peak demand issues).  However, we can also extract a little more from the new agricultural machinery market scenario in this respect.

It may be self-evident to many, but we were once surprised ourselves to discover just how inflexible complex equipment manufacturers in the agricultural sector professed that it was necessary to be, in respect of their directly translating their long-range forecasts into actual shipping order volumes.

Even so, for a global agricultural manufacturer, if demand was down in one market and had risen in another, we were informed that they were likely to be able to recast their order book if common equipment was being manufactured. They may even have been able to tweak orders and specifications before hard milestones / deadlines during the manufacturing process.  But the reality, as we saw it in the agricultural equipment market, was often that the long-range forecast order quantity of units usually actually shipped years later, in spite of severe market demand rise & fall in the intervening period.

A more regularly encountered instance of induced shipping order lumpiness, one  that bemuses transport people the world over, is the end-of-month, end-of-quarter, or end-of-financial year shipping push ritual.  Be it driven by an enterprise’s regular accounting / budget / earning / reporting practices, or the sales commission incentives put in behind them; or even by multinationals that play pass-the-parcel (of unsold inventory to related / inter-company parties at tax appropriate prices); the facts on the ground are that these periodic shipping pushes-and-pulls have long created extreme lumpiness in logistics and transportation channels.

How we have best responded to all these cited examples of lumpiness in the past is naturally our best leaping-off-point for the design of solutions, when similar lumpy features arise in the on-line commerce age.

And when we say that specific innovative logistical solutions should be crafted from a wide base of understanding, perhaps the Latin may help annotate the proposition:  nanos gigantum humeris insidentes (we are but dwarfs standing on the shoulders of giants).




From this point onward, however, we should start talking about the shaping of logistical solutions.  The long introduction has already seen some asking us to cut-to-the-chase.  Perhaps this reflects a situation where, for many, solutions are simply things that you cut-and-paste; and in their mind that’s the smart thing to do?

One of the saviors for enterprises that have adopted cut-and-paste logistical solutions for their on-line consumer markets (in the tech sector in particular) in recent times, has been the continual shrinkage during the period of the unit sizes of the items they have been shipping.  Navigating capacity issues arising with existing transport and logistics channel capacity, even as their shipped unit volumes grew exponentially, was perhaps made a little easier.  Still, looking at the e-tailers actual bottom line results, it might hint at the depth of logistical under-performance elsewhere.

Several recent pointers, however, (like computer tablets morphing back into laptops, or smart phones growing-in-size) probably indicate that we are reaching the limits of gaining systemic logistical capacity as a result of the said unit volume shrinkage trend in the sector as-a-whole.  Moreover, bulky deliveries also appear to now be a new frontier in the B2B and home delivery markets that will make their mark, as discussed here:

www.bloomberg.com/news/articles/2015-09-25/why-fedex-has-a-delivery-headache-from-trampoline-you-got-online

In the transport sector, this is a turn of events (in respect of individual shipment size growth) that transgresses the haulage capacity issue.   Starting from the point of a decade or so ago, when most deliveries entailed a delivery vehicle operated by one man making a delivery to a commercial delivery dock, with available lifting equipment, and being easy offload; to the new scenario - where consumer goods deliveries often require two men, timed arrival appointments, with the need of an on-hand receiver with security access, and perhaps the need of difficult furniture removal styled set-down, and even tech-courier styled equipment assembly or installation, and removal of packaging may also be contemplated.

Even given the prospect of further advances with roll-up LCD panels and knock-down furniture/appliances, we see an altered & more fragmented landscape of logistical features entering into the mainstream discretionary on-line consumer market.

In some ways, however, those operators in the “Third Party Logistics” warehousing and distribution sector will be quietly pleased at this latest turn of events, as the on-line consumer marketer’s physical stock size profile is seen to grow.  This isn’t surprising, given that the most commonly heard lament in the 3PL sector in past decades concerned mid-contract physical volume shrinkage, and the consequent offloading of liabilities (like under-utilised warehouse leases and excess staff) onto 3PL contracted vendors.

The 3PL industry sector has generally performed woefully in financial terms in the same three decades that the industry itself grew remarkably.  3PLs continued to grow in spite of poor yields because large transport conglomerates kept chasing top line revenue growth opportunities arising fro their customers' outsourcing & integrated logistical-transport enterprise strategy by making acquisitions/investments despite the past financial performance of the 3PL's.  Even so, many 3PLs have folded along the way.

Another common lament heard from 3PL vendors during the period, was that customers that had shifted their focus from the delivery of physical goods to services were demanding unit pricing while increasingly under-delivering on the unit volumes promised. This trend could continue as existing tech conglomerates seek to cross over into the media sector. 

The maintenance of satisfactory KPI levels in the 3PL sector often also required out-of-scope IT infrastructure enhancements & investments.  These investments are fundamental when seeking to improve logistical solutions and adapt to new channel realities as they emerge.  Customers issuing 3PL tenders usually take no account of the need to fund such post contract initiatives & are seldom given the budget to fund cooperative projects;  and hence it is unsurprising when  3PL's are not prepared to research, fund, develop, & assume the risks of IT projects if the payback on their side is limited.    If this scenario unfolds, an enterprise has locked-in degrading levels of performance, and the identified issues might only be resolved when the next 3PL contract tender is released.     

As a result of the above, contracts often fail to deliver either the revenue or yield required to satisfy 3PL vendors’ budgetary expectations.   Fights over contract specification have been legend in the sector, and even though there is inherent risk to an enterprise of a collapsing supply chain, as a result of a failed 3PL contract; the 3PL vendor often came out the worse-for-wear.

Another thing about transportation facing trends is that one-thing-often-rolls-over-another which in turn underwrites disruptive potential.  The sources for the potential disruption, in contemporary times, as I see them are:

1. The growth of personal consumer goods deliveries to homes or CBD front-of-office by both on-line and bricks-and-mortar based retailers
   
2. An expectation that the existing lumpiness created during holiday seasons by on-line orders, & the consumer’s delivery expectations, will continue to grow
3. The need for new home delivery distribution arrangements (like pick-up centres / locked boxes located in parking lots, or nearby public transport hubs)
4. An increase in the frequency of deliveries received by on-line B2B purchasers
5. Reconfigured delivery driver or staff skills, with more part-time /  occasional / out-of-hours workers
6. Less delivery vehicle efficiency in overall logistical terms

We might also say that we foresee a kitting up at the delivery-face for a prospective increase in the number, and diversity, of delivery channel options made available by the on-line commerce sector.  Some of this will be based upon the consumer’s circumstances & demands, some of it upon the time-of-year, and more again derived of the changed physical characteristics of the goods being delivered. 

However, we are only speaking here about responding to emerging consumer & B2B demand scenarios for final delivery.  As we progress through the series, and remaining mindful of the same scenarios mentioned above, we will head further back towards source to examine solution possibilities for the outbound logistics task.

These days, we often come across the derisory expression “channel stuffing” in merchandise business analyses.  Many say it is the practice of booking revenue on occasions where product has been transferred to third party distributors.  It is said, in many of these instances, that the liability in case of a non-sale to an end-user is retained by the maker or marketer that had earlier booked and reported the revenue.

The description of “channel stuffing” is often confused by accounting practices for the booking of revenue and whether or not an arms length sale has been completed.   Sometimes instances so described turn out to be a straight out “revenue accrual” styled fraud, where revenue is booked without a transactional sale being completed or effectively guaranteed.

However, often the pretence of a contracted sales off-take agreement, one where buying unit volume quotas have been forced upon brand dependent distributors or reseller dealers are presented as if they are effective arms length transactions, which  is highly dubious in many circumstances.  The question always has to be asked, if the sales channel cannot move the product, upon whom does the ultimate liability for losses attributed to delayed, forsaken, or heavily discounted sales of inventory fall?
 
If a dealer has little collateral, then the re-seller agreement can practically found to be secured mainly by the value of the stock/inventory remaining in the channel.  Then there is the matter of the consideration of the risk to the prospects for the manufacturer/marketer’s future sales.  Or in other words, unless they can replace those resellers that they might choose to drive into liquidation for non-payment for inventory they could not shift with more effective ones, what happens to their future sales?
 
Often we have seen cases where a third party reseller is caught with stock they cannot shift, & many other resellers in the sales distribution channel are in the same situation.  It is often not feasible for the manufacturer/marketer to do anything else other than offer the reseller a deep discount (or credit) on the unsold stock already booked in the past as sold at a certain higher price, in order that the reseller may then shift it, and remain a going concern.
 
Whatever happens, despite all the attempts at denial, if stock is not sold - often those claiming to have offloaded the risk are found to have borne the greater burden of resulting liability in the real world.  We saw evidence of this with Australian miner’s supposed long-dated coal off-take export agreements with large Chinese importer customers, those same “firm legal contracts” that were effectively torn-up by some of the Chinese entities soon after the GFC.  We equally note the oft-cited cases of dealer channel stuffing in the US auto industry.  
 
On the other side of the coin, we also see evidence of the same false risk transfer scenario emerging for brand owners / marketers in respect of their outsourcing of consumer goods production to third party vendors (including those sometimes referred to as screw-driver operations).  Those brand owners may believe they have effectively transferred to their third party vendors their minimum production volume & hence pre-shipment related budget risk.  But in such cases where an unanticipated downturn in end-consumer sales for any given stock-keeping unit occurs, where will the weight of liability fall?  They too may well find themselves forced, due to existential realities, to bale out their vendors.   So in this respect too, perhaps the reality is that product still in the pre-shipment phase in contractual terms, may be of interest to us in respect of our logistical theatre-of-interest.  

So again today, we are plainly still just back-grounding ahead of our long promised delivery of a raison d’être for pursuing smarter design & process method for multi channel logistics and transportation solutions.

Our position statement today is that, after material has been produced, it effectively enters a distribution & logistical theatre.  The same theatre may see stock in play for a short or a very long period.

The controlling party in the distribution transactional chain may kid themselves that the de-risking of their organisation by contractual means is more important than the need for them to retain a singular vision of the logistical theatre’s efficiency & execution; but they are usually found to have done so at their own long-term expense.

Perhaps the Americans stumbled upon this concept accidentally, when they began classifying the critical party to an international shipment using the term "Principal-Party-of-Interest" (PPI)?  And they proceeded to incorporate this terminology into their regulatory-security framework, instead of seeking to rely solely upon strict notions of the legal ownership of the goods being shipped.

The Americans adopted the said terminology for sound practical reasons - and we hope our reasoning proves equally solid as we develop our case.