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A Conversation with Robert Carter, FedEx Corp. and Sherry Aaholm, FedEx Freight
In this interview, LQ's Advisory Board members take the practitioner's point of view. Their questions raise a wide variety of technology topics with these leaders in the field, but they all share a common thread: Each question and answer serves to better illuminate trends in technology and best practices in this exciting field.
Introduction: The questions for this LQ interview with Robert Carter, EVP CIO Information Technology FedEx Corp. and Sherry Aaholm, SR VP, IT Express and Freight Solutions FedEx Freight, have been prepared by a panel of LQs Board members: Nicholas Seiersen, Senior Manager, BearingPoint LP and LQ Executive Editor; David Closs, John H. McConnell Chaired Professor, Michigan State University & LQs U.S. Executive Editor; Benjamin Gordon, Managing Director, BG Strategic Advisors; Theodore Stank, John H. Dove distinguished Professor of Logistics at the University of Tennessee; David Faoro, Director of Business Improvement, Unisource Canada. LQs Editor and co-publisher raised these questions for discussion in a recently held interview in Toronto with Ms. Aaholm and Mr. Carter.
Nicholas Seiersen, Senior Manager, BearingPoint LP: In developing new IT capabilities, how do you manage the response to articulated customer requirements as opposed to "If you build it they will come" investments?
I must also tell you that there are times when we come together strategically and say that intuitively we think customers we would be excited about a particular initiative,and it may not be something that they have perceived as being part of their overall value. So we have a strategic class of investments as well, called Strategic RY Classes of Investment.
Nicholas Seiersen: What are your plans around Radio Frequency Technology (RFID)? Intuitively, your operations are engineered to bar codes. What benefits would RFID bring?
The technology associated with reading and gathering the information from RFID is probably about one-third of the battle. Most of what needs to happen in logistics information systems involves managing and utilizing that information once you have it. We have invested more than two decades in systems that operate behind the scenes to manage the information about shipments. Fundamentally, we think that this is the hardest part of the set of the events and elements transpiring around this technology. Today, much of that information comes from of bar codes, and its very high volume and fast, involving real-time applications around the globe to make that information accessible to our operations. We think that is a huge part of the investment that is being overlooked; The part of the management systems that helps determine what you do with that information.
We also have a lot of experience in RFID technology. We have 30,000 tractor trailers and trucks with RFID tags on them to tack trucks in and out of terminals. This technology is incorporated into the yard and dispatch management systems.
Editor: Do you see it (RFID) having application in certain vertical markets?
Robert Carter: There are benefits of RFID over bar coding in particular sectors. For example, our driver can press a button as they approach a vehicle and it opens, and as they leave it the vehicle locks. There are other RFID technology applications that allow us to operate more efficiently.
However, when it comes to Electronic Product Code (EPC), the standards to support the use of RFID, at the product-case level and pallet-level, there are still a lot of challenges for that technology to be a perfect information resource. Many things are involved to get a 100 percent read. For example, if there is foil involved in the packaging, or a lot of RF interference, motors, bells, radios, these things can impact the read.
It also allows us to route trucks automatically to bypass the docks facility; We can direct loads to an end-point location, without necessarily having to touch every piece of freight for dock operations. We also have been pilot testing and working with a customers on RFID. With the Wal-mart push (in RFID) a lot of our customers that deal with freight are very concerned about what that technology may do to their profit. They have talked with us and we have helped by doing some testing with them. We have been finding average-to-satisfactory success rates, even on the package tags, because of interference often involved in reading RFID tags.
When customers have a high velocity type product, or a product that is perishable, whether it is pharmaceutical, blood, plasma, for example, that is where RFID makes a lot of sense.
I was was recently at a RFID conference, and we had the question raised, how many people are likely to be impacted by the Wal-mart mandate to use RFID, with compliance set for January next year? Roughly, just under a quarter of the people at that conference were pushing to use RFID.
Robert Carter: I call RFID a two-ten technology. This phrase was coined by Bill Gates. Two-ten technologies go something like this. When they hit the media there is a great deal of interest. The first two years, however, tend to be very disciplined with regard to learning about it and people are under-whelmed with what happens. But when you look back over your shoulder ten years later you are astounded at the level of impact it has had on the way things were and the way business has worked. I consider RFID a classic technology.
So there will be disappointments in these first couple of years. Ten years from now many of the systems that monitor and watch shipments and products will be virtually unrecognizable because of just how good this technology will have become.
The other point goes to something Sherry pointed out. The best differentiator and application today is when the information is dynamic and involves date-oriented matter, with set expiry dates. A lot of sensors are being developed for applications like this to track the movement of meat or blood, or pharmaceuticals that may have been exposed to temperatures in excess of 40 degrees Celsius, for example. In these cases, a flag would be sent using RFID technology. So this kind of dynamic information on the RFID offers great potential for these applications.
Nicholas Seiersen: How do make sure your last-mile partners assure the same level of service and visibility as your own trucks provide?
We have standard requirements for our service partners, pickup and delivery and last-mile operations. Our systems people are very adept at creating interfaces and allowing information to go back and forth. These systems work in the background to ensure accountability and compliance reporting. We have years and years of sophisticated compliance reporting.
Sherry Aaholm: We also provide toolkits for those partners, enabling them to have that integration and accessibility, via the Internet, and to help make them look and function like a 4PL.
David Closs, John H. McConnell Chaired Professor, Michigan State University & LQ U.S. Executive Editor: Most technology dollars have historically been put into transaction oriented functions. What role will FedEx play in the future to assist customers in effective planning and coordination systems?
Robert Carter: I love this question, but if I may answer it slightly differently than what he (David) asked for. Classic information technology organizations put their primary focus on cost savings and productivity and that is a big part of what technology companies invest in. Frankly, that is not our primary focus. For years, we have focused on investing in our integrated servers to comply with customs, the information we put out, the capacity to track product for customers and extend competitive advantages - this is our primary focus.
Of course, we invest in productivity technology and transactional technology to improve efficiencies. But the strategic focus on technology is about the customer. How can we make the customer happier and more effective in their business by providing information they need to literally grow revenue? An example is Fedex Insight, a reverse-tracking application that allows you to see everything coming to you. A great example of an Insight user is a bone marrow test facility in New York that tests bone marrow to determine the viability for matches for transplants. We found this testing lab did not know how many of these kinds of samples they would get in a day, nor did they know how many samples to expect to receive from various locations. When they used Insight and acquired information about doctors offices and facilities that had sent them material via FedEx, by midnight they would knew how many extracts to expect the next day, and they could plan according.
Fred Moody, LQ Editor, Co-Publisher: In terms of current and future technology initiatives, how would you position FedEx in relation to other companies such as UPS, DHL, Deutsche Post?
Robert Carter: Two weeks ago we held a technology conference in Colorado Springs. We had the top or second transportation analyst in the United States provide a report. This report was prepared by New York-based Bear, Stearns & Co. Inc. (An excerpt from this report notes that: ...CEO Fred Smith and FDX as a corporation rank at the very top of corporate CEOs and corporations which are the most committed to new technology and at utilizing technology intelligently for competitive reasons...)
Benjamin Gordon, Managing Director, BG Strategic Advisors: UPS and DHL are aggressively building out their asset-light logistics organizations, both organically and through acquisitions. For instance, UPS has spent over $1 billion on logistics acquisitions since 2000. In contrast, FedEx appears to be content to focus on their asset-based ground and air networks. Why not build the asset-light logistics side?
Neither our management nor I may see this the same way. The logistics side of UPS and DHL is far from asset light. Yes, they do leasing and third party work, in excess of a billion dollars. But this is a very asset intensive business. When it is appropriate, we provide fulfillment and warehousing, and border facilities for our customers. We tend to do that very specifically to drive business and grow our networks. And we do not handle do not handle a 4PL where we are carrier-agnostic; in those businesses we grow our networks because that is far more profitable than running warehouses.
Sherry Aaholm: It is difficult to control information if you are asset light, and use other parties. This is a very information intensive organization. A non-asset based company cannot provide you with the level of visibility that an asset-based organization can.
Benjamin Gordon: Over the next three years, what new services and/or capabilities will be the big drivers of FedEx's growth? (Executive Editors addition: What types of services and technology support will be the big drivers in this regard?)
Robert Carter: The amount of goods and product that move across borders has increased and we believe we have a global network second to none. And we have information systems that support that network, which are second to none, to allow our company to be an important part of that trend.
Theodore Stank, John H. Dove distinguished Professor of Logistics at the University of Tennessee: With all the concern about vulnerability in international supply chains, what technology solutions is FedEx applying to improve security? (e.g., RFID, GPS, etc.)
Both from a physical and information standpoint, a huge emphasis is on security and visibility. Much of what goes on in the world of security regarding the movement of goods is really driven by visibility. We know who sent it, who is going to receive it and what it is. We probably do a better job than anyone in the world with information on both ends of a shipping transaction through our network.
Comparatively, if you look at ocean going trade, or rail or other sectors, there is an incredible amount of anonymity and, therefore, vulnerability in product that moves through systems that have a low degree of visibility. We are constantly involved with authorities around the world, and in police action that catches people who are doing things they shouldnt do, because the information we have about shipments is so good.
We work with agencies worldwide and we are very respected and known for our secure environment. The physical security around our aircraft, our trucks, our facilities, is very good. And there is a high degree of emphasis that the Strategic Management Committee, which is at the top of our corporation, places on this regularly, with respect. The safety of our employees, this is of paramount concern. And the safety and concern for our customers is also of paramount concern. This is an area where you have to be focused on every kind of scenario and capability.
Theodore Stank: How is FedEx dealing with supply chain technology requirements in developing markets such as China?
Robert Carter: At its core, information systems empower all of FedEx. Information and visibility about shipments moving into and out of China, manifests, duty, content, inbound and outbound - all are core offerings. We have a joint venture partner in China right now that is making some of that information available real time.
This goes back to that earlier question about being asset light. For a third party it is very difficult to have this information unless you have a very strong footprint of your technology in that provider.
Our largest customer in China is HP, which moves an incredible amount everyday out of China. We share volumes of information with HP about the goods that they have on that supply chain and air express freight. So we have not focused just on an individual transactional level. We are working very closely with our customers to provide them with all of the information they want about shipments and movements.
David Faoro, Director, Business Process Improvement, Unisource Canada, Inc: For large-volume shippers, you provide hardware and shipping software to automate the shipping process. (This product is called the FedEx Ship Manager.) There are also many third party software providers who sell shippers essentially the same software, although with two differences. The first is cost, and the second is the ability to include any carrier they want in the carrier listing. Do you see FedEx enhancing its shipping software by allowing shippers to use the software for other carriers? The analogy could be airlines and their reservation systems software.
Robert Carter: I think what is most important to recognize with high-volume shippers is the need to integrate into systems. Yes, there are some stand-alone systems that are very FedEx-centric in what they do. But the big server-base technology that we provide for customers is integrateable into their current systems. That is what all of the third parties we work with use to integrate FedEx capabilities into their systems. To achieve this, we provide them with the software component or an onsite server... If you are using a server that has the FedEx services, then rating, routing, tracking invoicing, dispatch, supplyall of these things are are available and we provide integration kits for our customers and integration support for our customers to build that into their system. There are third parties that can get you onto a stand-alone multi-carrier shipping solution. We offer our services to those third parties, so if that is what you are looking for in your business it is available to you in the marketplace.