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Can Technology Drive a New Deal Between Shippers and Carriers?

by Fred Moody

At a recent Council of Logistics Management (CLM) event, Yellow Freight Canada President Dan Goodwill and Unisource Canada Inc. Vice President Michael Barnhart depicted how technology is driving a “New Deal” between carriers and shippers. Just as the term the “New Deal” defined a dramatic shift in U.S. economic policy in 1935 and created a living legacy of controversial solutions, today’s technology is also transforming with meaningful debate one of the most vital components of the Canadian economy.

The keynote participants as well as moderator Karl Young, Arthur Andersen, did not provide a detailed map to show the impact of technology on logistics. Instead they opted to provide an agile reconnaissance over the landscape of technology and logistics. Specifically, the keynote speakers of the CLM Toronto Roundtable took stock of what shippers are looking for in their strategic partners as well as how carriers are adapting to those requirements by means of technology. They also examined whether carriers are truly providing shippers with technologies to improve their supply chains.

Nick Seiersen of KPMG asked Goodwill and Barnhart if they may have put “too rosy a tint on the new deal” and inquired whether the Internet may result in a heightened emphasis being placed on price as the basis of business.

Dan Goodwill, who joined Yellow Freight Canada less than a year ago, noted that with significant investment Yellow has taken galactic strides in creating and applying technology in a short duration to put his company in a leadership role. This mirrors the way shippers and logisticians, large and small, have shown they want to communicate and take stock of their orders through the supply chain. It’s evidenced by some 9,000 Yellow Freight Internet users who registered at the company’s Web site this past December, with up to 100 customers coming online weekly, up from 1,000 registered users in June last year. With the recent spate of fuel price increases, Yellow even has a “Current Fuel Surcharge” Web page to reflect the volatility of diesel fuel prices. “The fuel surcharge on the site is adjusted up or down each Wednesday,” Goodwill noted, adding, “We are just trying to cover these costs.”

On the other hand, Unisource’s Michael Barnhart told CLM delegates that even though it’s still early, having assumed his position at Unisource a year ago, he concurred, and expected technology will be the key differentiator between his firm and others. With up to $60 million in annual logistics expenditures, Unisource Canada is one of the largest in Canada’s logistics field and Barnhart has expectations that his carriers’ technology will contribute to the dynamics of the relationship between Unisource and its customers.

Unisource, which has been acquiring new interests, now has 24 distribution centres and a total of 1.8 million square feet of distribution space. Barnhart stated Unisource is in the process of acquiring information and conducting in-depth studies that involve all aspects of its logistics operations in order to strike a strategic approach for the future.

Unisource Canada also has one of the country’s largest fleets with up to 240 vehicles in its stable and makes considerable annual expenditures on outsourced transportation, too. In Toronto, the company’s distribution centres ship fine papers, business papers, coated papers, paper towels and fine tissue, packaging equipment, as well as many supply and maintenance items. “The diversity of product means you get to see the full spectrum of what exactly makes the customers happy and it also shows where you need to concentrate more,” Barnhart stated.

Barnhart’s view of technology and the Internet’s business applications is lensed by his focus on the customer. It is not uncommon for a Unisource customer to call at 10 a.m. and expect a delivery to be made at lunch, “because at 1 p.m. they say ‘we’re setting up the printing presses,’ ” he pointed out and added “they’re not kidding.”

As a result, Unisource customers benefit from high levels of service with one point of contact and one service number.

From the customer’s point of view, logistics must be a seamless operation, from the time they place an order to delivery, Barnhart emphasized. The customer is not interested in whether the delivery of an order is subcontracted or handled internally. “It simply does not matter to the customer who is involved. The customer wants one company to be responsible to ensure that the right product arrives on time.”

As customers’ expectations have continued to grow, Unisource’s logistics operations have become more tightly tethered to its partners so that, in effect, it operates in logistics and transportation with its partners as one company.

The value of relationships with carriers has continued to grow with technology’s expanding role, he noted. A 98 percent on-time delivery track record was a key differentiator in prompting customers to use one company over another years ago. But today an outstanding delivery record is considered as a basis for business. In addition, asset-based differences and meeting the highest levels of safety are perceived to be essentials.

“Logistics used to be about trucks and warehouses and planes,” Barnhart said. “Today, logistics is primarily involved with keeping information moving ahead of the products – and sharing it – and if you are doing this well, you are going to win,” he concluded. Goodwill also placed information in an ascendant position as a differentiator in business. “All of the industry leaders are saying the same thing today. In transportation the battle is not going to be waged on how fast the trucks go or the size of trailers. It is going to be based on information.”

Goodwill highlighted the fact that Yellow Freight System’s ability to provide its customers with more timely and better information via new technology will enable it “to make faster decisions than its competitors can. This is why our company is pouring so much money into it. We know it is and will be a key competitive differentiator.”

But Nick Seiersen of KPMG asked Goodwill and Barnhart if they may have put “too rosy a tint on the new deal” and inquired whether the Internet may result in a heightened emphasis being placed on price as the basis of business.

Barnhart cautioned that the Internet does seem to have an implicit penchant to “take products and services and reduce them to a commodity with one primary criteria: ‘the lowest price gets it.’”

But technology also has the power to provide benefits that transcend price issues for the customer, Unisource and carriers, Barnhart explained. “One of the key factors is that we expect a high level of customer service. If you are competing on price by itself, you turn customer service into a commodity, and when you are moving thousands of orders per day, you do not have time to deal with 40 carriers lined up at our doors. The Internet is a good solution for some small companies that just want to compete on price,” he said, referring to low-volume solutions. “In the high-volume areas you need partnerships in place and your expectations well defined.”

If the Internet is a remarkable tool for exploring and seeking more competitively priced products, it also affords a powerful panoply of means to coalesce the strengths of carriers and shippers to the customer’s benefit. To begin with, added information sharing via new technology can reduce supplier turnover and it can “enable us to work together as partners and save both of us time in working things out instead of looking for new suppliers and customers. If you have a good partnership with a carrier you can fine tune a lot of things through shared information,” Barnhart noted. As an example, he pointed out that when orders are late for delivery, technology can be an excellent new means for his carrier to communicate directly with his customers and provide single-source accountability. “Don’t tell me a delivery is going to be late,” he suggested. “Tell my customers first. This is one way how technology can help.”

Technology seems to be making business go seamlessly and its ramifications in the marketplace are having a massive impact on the way carriers, shippers and customers interact with each other. But Goodwill remains undaunted by the notion that the Internet may put more focus on price as a key criterion in driving business. “It does not phase me,” Goodwill said. “I think we need to be alert to those opportunities,” he continued, referring to Web sites such as amazon.com and adding: “they will require companies with the assets to handle this new channel for sales. This will require the services of companies like ours.”

Since Yellow Freight implemented a password-protected system to setup customers for business via myyellowfreight.com in April last year, the award-winning Web site has already had one redesign as of December to provide an enhanced presentation and easier navigation system for consumers. The first of its three-phase plan for 2000 is now nearing completion. Consumer-specific quotes and Exact Express rate quotes will soon be available, as well as the ability to assign quote numbers and store specifics about quotes.

Not surprisingly, the company’s clients are giving its management feedback. Yellow Online users spent up to 46,000 hours browsing the Web site in December 1999, Goodwill reported, emphasizing that while technology may be a powerful fulcrum to transform the way his company works with customers, he is particularly proud of the way this has been done. “At the front end of our business we have people who understand not only the business of integrated logistics, but also the highly technical language of E-Business.”

Yellow Freight, which has more than 25,000 employees, 384 terminals in North America, 400,000 customers and up to (US) $2.6 billion in annual revenues has included in its marketing vision a stated goal “to deliver innovative business and innovative information solutions that are critical to the success of Yellow and its business partners,” with a range of E-Commerce initiatives that include: an E-Commerce Support Group, A Customer Service Centre, Web-based services and a joint-venture with iShip.com. Shortly before press time, Yellow also announced the formation of Transportation.com, in which it has a majority interest.

A delegate noted to Goodwill that Yellow Freight Systems has invested a lot in the Internet and cautioned this may not be perceived to be an advantage to those shippers and logisticians who are not interested in communicating their requirements and orders via the Internet. “How does your pricing structure reflect this huge investment in technology?” the delegate inquired.

Goodwill answered that this is a cost of doing business in today’s economy. But each Yellow Freight customer is dealt with individually. “As far as the burden of these costs being passed onto the shipper...to a certain extent they are,” he responded, candidly. “We have spent more than a $100 million over the last few years in technology and we have a huge budget for the year 2000. There are a lot of things we want to accomplish and there is going to be considerable evolution in the years ahead as customers begin to get a feel and taste of these various applications. Customers are going to want more and more.”

But even if the burden of the investment is passed on, there are many benefits, from greatly improved efficiencies, to real-time accountability about the status of shipments, to reduced time costs for small and large shippers alike. “Our research is showing that a surprisingly large number of our customers are smaller customers that are Internet friendly,” Goodwill stated. “In fact, with a large number of these customers, the Internet is the only point of contact we have with them.” Goodwill likened the Internet to “a great leveler” in many ways, enabling smaller shippers to find a lot of information that colleagues in larger corporations may not have. “So you cannot say that just larger corporations are taking advantage of this thing,” he noted.

When asked about the joint-funding of technology-oriented solutions Goodwill responded and chortled with enthusiasm. “I think that concept is wonderful. It shows a commitment to a long-term relationship and gets away from a transaction-based relationship. It truly shows we are trying to understand each others’ requirements.” Barnhart stated that such joint investments are, indeed, underway. In particular he alluded to sharing databases as a significant investment between carriers and shippers. Barnhart also said that partnership agreements between shippers and carriers can allow for the sharing of savings in cost reductions. “That just enhances both our companies and provides a great motivator to further improve operations.”

Yellow Freight has also established an E-Commerce Support Group to assist its sales team and work with shippers to talk the customer’s language in terms of technology. “One of the things our company identified as a sales issue is our sales people are not fully equipped to handle a lot of the technological discussions that are going on...any better than many sophisticated shippers, and that is why we established this support group,” Goodwill explained.

Using more technology and information sharing between shippers and carriers is sometimes punctuated by unforeseen areas for improvement and benefit. Barnhart stated that he would like to see the actual order number received from his company as the key to tracking that order throughout the supply chain, so that it is always available to Unisource’s customer. Internally, he looks forward to technology facilitating a comprehensive analysis of each individual order to improve operations and supply the company’s sales and marketing team with valuable information.

“In terms of future vision,” Barnhart noted summarily, “the whole logistics chain is becoming like one virtual company.”