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A Conversation with Derek J. Leathers
Senior Executive Vice President and Chief Operating Officer, Werner Enterprises,
and President, Werner Global Logistics


LQ: How are 3PLs using IT to coordinate the supply chain requirements for companies across several modes of transport? (David Closs, Ph.D.)
Derek Leathers: In today’s environment, 3Pls must provide supply chain management systems that support the planning,execution and tracking of shipments that span multiple modes. Some examples of capabilities that should be provided are mode optimization, automated carrier selection and integrated information exchange.
LQ: How is your firm taking an integrated supply chain perspective regarding air freight,and point-to-point air freight in particular. How are you applying technology to facilitate these shipments/trade? (David Closs)
Derek Leathers: We understand that every international supply chain needs both ocean and air service capability to be effective. Because Werner Global Logistics is licensed as
both an air and ocean provider,we have fully integrated airfreight cost and transit options into the mode-optimization and carrier-selection processes within our global freightmanagement systems and service.In many cases a proactive plan of advance air shipping that precedes ocean shipments will better match delivery demands, balance costs and optimize inventory levels. Effectively managing a large air-carrier base is an essential component.
LQ: What can your company do to avoid the heavy congestion of major air-freight airports such as Chicago or Toronto, and instead use more targeted point-to-point air freight from offshore to mid-sized to small airport facilities?  (David Closs)
Derek Leathers: Heavy international air congestion is a direct result of substantial lift in and out of these core gateway airports. Increased flight frequencies can help congestion, but the fact remains that direct international air carriers are focused on the primary gateways and are not found at midsized to small cities.Regarding domestic U.S. air freight,several alternatives exist,including smaller regional air centers and expedited ground shipping. In addition, using fleets such as Werner Expedited Services is a way of reducing congestion by diverting shipments away from the large air centers altogether.
The essential element in all of this is to maintain a comprehensive network of air service providers that serve alternative airports on a scheduled basis, and back that up with a comprehensive ground network to create options and flexibility in the supply chain.
LQ: What are you doing to create better visibility using IT in regard to costs and product in the supply chain? (Russ Doak)
Derek Leathers: Our proprietary Internet-based TMS applications have allowed us to move from load- and order-level visibility to SKU-level visibility across the supply chain. When we receive the order-level details, we have applications that validate PO and SKU-level information at the front end and then display that SKU level throughout the shipment’s life cycle. On the cost side of things, getting down to SKU-level detail allows us to push SKU transport-costing information to our customers at the shipment level.This rationalizes sourcing decisions on inbound product and allows for detailed cost-to-serve data on outbound freight management programs.
LQ: What are you doing to develop more connectivity capability in terms of best-of-breed software from your clients and your own systems? (Russ Doak)
Derek Leathers: Some of the recent technologies we have implemented or are in the process of implementing to enhance our connectivity with customers, partners and service providers are Web services, email EDI and federated directory services. These technologies, on top of our already flexible, secure information-exchange capabilities, allow us to integrate at multiple levels. The ability to support varying encryption standards such as AS2 and SFTP offers us secure options when exchanging information with trading partners.
LQ: What are you doing to ensure that your customer is educated about your comprehensive end-to-end supply chain capabilities and integrated handoff of IT expertise and delivery? (Russ Doak)
Derek Leathers: Our TMS solutions are hosted applications. Our personnel manage the optimization and management functions while extending the visibility to our customers in a platform they are comfortable with, so there isn’t a high degree of handoff of technical expertise.We do,however,put a lot of focus on the front end of training and implementing these systems.We assign an implementation team that is the conduit between systems, operations, sales and the customer to design, execute and support our TMS programs.
These applications are also supported by online tutorials for remedial training of any stakeholder in the process.
As far as educating our customers,we focus primarily on face-to-face meetings to define our supply chain technology and any new functionality that we are bringing to the marketplace.
We meet with all our freight-management customers quarterly to discuss current operating practices and future trends and expectations, along with a recap of our entire portfolio and any new services that might be beneficial.
Much of our growth is due to mining additional opportunities within our existing customer base.
LQ: Are you developing better business intelligence for your customers to ensure that they have the information to improve the way they manage their processes? (Russ Doak)
Derek Leathers: We regularly perform network analysis for our customers to identify ways to improve the efficiency of their supply chain. In addition, we extend dynamic Webbased reporting, OLAP data cubes and GIS capabilities to our customers, which allows them to analyze their supply chains. Some of the metrics we provide are vendor compliance, cost per unit, service level and overall program savings reporting.
LQ: How do you ensure that your IT capabilities distinguish your company from competitors in terms of its expertise in regions and its people, and as an enabler of best practices? (Russ Doak)
Derek Leathers: We do not see ourselves as having a regional IT advantage over our competitors, as our systems have been developed with global logistics solutions in mind.
LQ: What creates your unique value proposition for the customer? (Russ Doak)
Derek Leathers: Using our internal IT resources, we take a multistep approach to offering value to our customers.With the customer’s input, we diagnose logistical needs and recommend solutions that we offer. Our proprietary advancements have allowed us to offer customizable systems to our customers. This strategy allows us to be a more dynamic provider, to go where our partners need us and broaden our target market.
LQ: How and when will 3PL providers work with a centralized system/software that will link all their global operations? Currently each country or office works with its own preferred software, and most are not set up to interface with shippers or receivers. (Sue Gadsby)
Derek Leathers: Since Werner has grown organically, we are not saddled with the burden of acquired or disparate systems that have to be integrated with each other.All our global operations, as well as our customers, partners and service providers, use the same supply chain management system on a day-to-day basis.
LQ: How much budget is allocated for technology by the top 10 3PL providers? (Sue Gadsby)
Derek Leathers: At Werner we are very progressive in applying technology to provide supply chain management solutions. We currently budget about 6 percent of revenues for IT.
LQ: What research and services are available to shippers on RFID technologies? (Sue Gadsby)
Derek Leathers: Werner has partnered with a university that is leading research in this area,which has allowed us to participate in research and development of this technology.
LQ: What software or equipment is being adopted to monitor temperature-controlled cargo? Can real-time tracking be available for shippers? (Sue Gadsby)
Derek Leathers: Most trailer-tracking technologies offer the ability to add temperature sensors.This data can be logged or viewed in real time; it can also be used to trigger dashboard warnings or electronic alerts to potential problems. The primary issue with this technology is cost. Our experience has been that shippers do not want to cover the cost of implementing this technology.
LQ: When or how can shippers begin to use Web-based shipping? Will shipping volume play any part in this program? (Sue Gadsby)
Derek Leathers: Web-based shipping and vendor entry is a current product of Werner’s.Turning on this system can be completed in a matter of a few days. Shipping volume is not a major hurdle in implementing this program. As soon as we can coordinate the tutorial process for customers and vendors,we can be up and running.
LQ: How central is information technology to the value proposition that you offer to customers? Do you feel you enjoy some distinct advantage as a result of the technology you offer? (Thomas Goldsby, Ph.D.)
Derek Leathers: Information technology is an integral part of our service offerings and value proposition.We feel that we have best-in-class system solutions that we can customize for each customer’s specific needs.We go all the way to branding customer logos on our TMS applications, so when our customers extend the TMS resource to their vendors and suppliers, it appears to be their own internal application to increase market share. Most software providers provide the same base technology,but when we can wrap it in an application that is customized and uses the terminology of that customer or industry, we believe it gives us a clear advantage.
But we do not want to overlook the executable portion of our programs.As mentioned,software applications that service providers use have many of the same algorithms we use in our optimization and analysis applications.The difference is that we customize and tune those systems in direct correlation with the customer’s problem and overlay that with the commitment to execute our solution.
LQ: Do customers look to you for technology solutions or enhanced process performance—performance that may be enabled through technology? (Thomas Goldsby)
Derek Leathers: Absolutely. Over the years one of our primary growth areas has been organically driven, with our existing customers pushing the envelope and challenging us to design more efficient processes and create value through technology. We continue to make considerable investments in technology, and most of those investments are in direct response to our customers asking us to solve a particular problem. There are only so many things you can do with rates to address costs and find areas of improvement. Our motivation is to find those not-so-obvious cost components and apply technology to reengineer those processes—costs such as procurement activities,productivity and personnel.
LQ: Trading partners are placing greater emphasis on inventory visibility up- and downstream in the supply chain.Given the important connection that 3PLs fulfill in supplier– customer relations in the supply chain,how much emphasis is placed on 3PLs’ providing immediate and clear visibility of inventories they hold and transport? What methods or tools are used to provide this visibility? (Thomas Goldsby)
Derek Leathers: Significant emphasis is placed on visibility. Customers who rely on in-transit visibility can reduce onhand inventory levels.Visibility is a top priority for 3PLs,and the type of visibility is important. The value of the visibility increases significantly when product-level information (PO, SKU, quantity) is included.Web-based TMS systems, flexible information exchange and direct interaction with suppliers is how Werner Global Logistics manages this visibility worldwide.
Most freight forwarders have freight movement capability, but the systems integration to provide order-level visibility is beyond their scope of services.
LQ: To what extent might we see technology providers collaborating with 3PLs to improve the software that 3PLs may use to better manage themselves and their customer relationships? (John Langley Jr., Ph.D.)
Derek Leathers: This collaboration usually takes place in user conferences,where 3Pls that are using the software push for future enhancements. Outside of this forum we have not seen a lot of collaboration between software providers and 3PLs.
LQ: What is going to happen in the long term to the supply chain software companies that clearly have a narrow, functional focus instead of a broader, supply chain focus? (John Langley Jr.)
Derek Leathers: W. Edwards Deming once wrote, “It is not necessary to change. Survival is not mandatory.” While perhaps it’s not that dramatic, software companies that have a narrow, functional focus are essentially faced with four basic outcomes: maintain their narrow, functional focus but have best-in-class focus and the ability to “plug and play” with other, broader supply chain software; change, and develop broader supply chain capabilities through development and/or acquisition; be acquired by larger, more broadly focused supply chain companies looking for their functional expertise to enhance their product; or maintain their narrow focus and face a difficult market to survive in, one in which customers continually demand more and broader expertise from all their partners.
LQ: What are the major impediments to achieving global supply chain visibility, and how will the technology sector step up to help improve in this area? (John Langley Jr.)
Derek Leathers: Major impediments to achieving global supply chain visibility include limited supplier systems capability and a very paper-intensive manual process for most countries.Internet IT advances in electronic clearance, compliance management and settlements will play a role in improved visibility and real-time data.
LQ: Discuss the pros and cons of using a legacy/internal ERP system versus a purchased system like SAP or Oracle in terms of integrating with current and prospective customers. (Chris Norek, Ph.D.)
Derek Leathers: The pros of legacy/internal ERP systems are that they address the customer’s specific needs without additional features and functionalities that they don’t utilize. This allows these systems to be more straightforward for the users. They may also provide a competitive advantage if developed correctly, and savings in consulting fees and annual maintenance can be gained by this approach.You also eliminate dependency on an outside vendor that could change strategic direction, get purchased by another provider or go out of business.
The con of legacy/internal ERP systems is maintaining IT staff to develop and enhance the system, as operating systems and the technologies they are based on change. In addition, a customer may not have the expertise to develop some of the more advanced capabilities or implement the industry standards that mainstream ERP systems provide.
LQ: What is your strategy for developing IT solutions for customers in advance of their needs, versus developing as requested? (Chris Norek)
Derek Leathers: Werner is in a unique position in that our IT department interacts with both internal and external customers: our supply chain management system is both extended to customers and used to manage our internal operating divisions.This interaction allows IT to gain first-hand knowledge of customer challenges, which helps guide future supply chain management system development.Having this global perspective helps keep development ahead of most customers’ needs.
LQ: Do you build or buy your supply chain software solutions? (Chris Norek)
Derek Leathers: Over the past 12 years Werner Enterprises has developed a dynamic supply chain management system capable of integrating with industry-leading enterprise resource planning and warehouse management systems that customers typically own, as well as proprietary customer systems.This supply chain management system is in its fifth major revision and supports international, brokerage, intermodal,air cargo, truckload, less-thantruckload and small-package freight movements. Some of the key features of the system are automated carrier selection, robust information exchange and network analysis and design, as well as mode, continuous-move, order, load and cube optimization.
LQ: Connectivity is one of the most basic supply chain IT enablers.Many connections in the supply chain remain customized batch EDI links.What are the barriers to adoption, and when will the promise of new technologies like Web 2.0—or even Web 1.0—deliver and make this easier? (Nicholas Seiersen)
Derek Leathers: At Werner we have developed an email-based information exchange system in addition to traditional and custom EDI exchanges.This allows us to meet customers, carriers and partners where they are technologically. Based on the number of companies using this service, I estimate it will be some time before Web 2.0 and Web 1.0 are adopted by a significant number of companies. Outside the U.S. is another story. In China, for example, it is hard to find companies, particularly service providers, that are EDI capable. Most transactions are still initiated by phone.
LQ: One of the barriers to greater supply chain optimization and advanced planning systems adoption is a lack of trust resulting from poor understanding of the science behind these tools. Does the 3PL have a role to play? (Nicholas Seiersen)
Derek Leathers: Absolutely.Trust can be established through solid analytics. Performing multiple analyses up front and then implementing the findings in small trials can establish confidence in these systems. The 3PL is in a unique situation in that it sees so many different scenarios with different businesses, so it is well suited to apply this knowledge in developing a solution. At Werner we have a long history of developing and implementing optimization solutions. We are currently deploying our genetic algorithm framework to further enhance our optimization systems.
LQ: As you grow your business, you can expect to spend more and more effort managing legacy applications and customer customizations.How are you dealing with this challenge? (Nicholas Seiersen)
Derek Leathers: In developing our systems we have to make them as flexible as possible.This means developing them so that they can integrate with other systems on multiple levels.3PLs are not in a position to drive customer technology changes, so they must be adaptable.
LQ: It has been said that the worst way to innovate is to ask the customer. Better—being the customer. Best—becoming the customer of the future. Can you comment on what drives your new system development priorities? (Nicholas Seiersen)
Derek Leathers: With a sizable IT staff, Werner has the ability to address numerous development efforts simultaneously. We also utilize an extensive partner network and a “chasing the sun” development strategy to accelerate the development cycle. This being said, there are always more projects than there are IT personnel to support them.We prioritize development efforts by understanding the customers’ needs and developing to those needs in a phased approach. For example,if a customer truly needs a certain functionality now, we do not attempt to develop the entire project before releasing the needed functionality. This enables us to address the core needs quickly.
LQ: How would you see IT outsourcing working for you? (Nicholas Seiersen)
Derek Leathers: At Werner Enterprises we believe we can achieve the benefits of outsourcing without the risk associated with systems developed by offshore companies. We do this by partnering with domestic firms that understand our business and are willing to engage in long-term relationships. In addition, we have also established our own IT offices in countries like Mexico and China, where excellent IT talent is readily available. This model allows us to maintain quality control of our development process while gaining the benefits of outsourcing.

Questions for this Executive Interview were prepared by LQ’s board members:

David Closs, Ph.D., Michigan State University; Russ Doak, Director, Supply Chain Logistics, Heli-One; Sue Gadsby, Director of Procurement, Apotex; Tom Goldsby, Ph.D., University of Kentucky; John C. Langley Jr., Ph.D., Georgia Institute of Technology; Chris Norek, Ph.D., Senior Partner, Chain Connectors, Inc.; and Nicholas Seiersen, Senior Manager, KPMG, and LQ Executive Editor.

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