National Logistics Management 801-110 The introduction of cost-effective wireless networks and global positioning systems provided additional opportunities that could be exploited by 3PLs. Freight Transportation The freight transportation industry offered multiple modes of shipment,including air,water, truck or rail.In the trucking segment,participants ranged from large,public,multi-national firms such as Ryder,Penske,or Emery Freight to small owner-operated trucking firms.Trucking industry deregulation in the 1980s and early 1990s had resulted in a competitive environment in which price was a predominant factor in deciding on a carrier to transport standard product.To compete,smaller firms often developed specialty services or served niche geographical markets while larger firms expanded into multiple modes of transport and provided service across a wide range of geographies. Sources of differentiation were ultimately limited,however,since the basic requirement was similar: all shippers demanded that goods be transported safely from one point to another in a timely fashion. Price,important to all companies that required the services of a 3PL,was especially important to large,industrial,manufacturing firms,such as automakers.Intent on reducing the delivered cost to its customers,automakers such as Ford,GM,and DaimlerChrysler increasingly looked to better management of its supply chain (the series of transactions and interactions between suppliers, buyers,and intermediaries)to minimize costs while improving quality.An industrial manufacturer could give its preferred partners visibility into internal demand patterns,so that capacity could be scheduled efficiently.This visibility increased when all parties-manufacturers,3PLs,and even suppliers-could participate in electronic data interchange (EDI),directly linking databases and transaction systems.By managing the overall process,information savvy 3PLs enabled streamlined and more efficient management of the supply chain.Additionally,3PLS were motivated to pursue industrial manufacturing contracts due to the size of the contracts. The ability to schedule capacity was critical in the transportation industry.Since every "asset" (e.g.,truck,ocean freighter,airplane,railroad car)had a specific amount of space to offer over a specific period of time,the industry's main product-available capacity-was inherently perishable. The product also changed over time:a truck returning empty from a delivery,for example,had available capacity with zero variable cost,but the capacity and cost of the asset would change as soon as the truck reached the next pick-up point.Information about availability and cost of capacity was difficult to leverage,even when known to the carrier,because of the difficulty and time required to communicate with potential buyers and suppliers.The time it took to complete a transaction could easily exceed the dynamically changing nature of the asset.This was a serious issue for the industry: 6%to 10%of trucking capacity (excluding returning truckloads)was not utilized at any given moment.3 Clearly,any incremental profit that could be generated through better capacity planning would dramatically improve the value of a shipping company's assets. Competitive Environment 3PLs benefited from a number of trends in the shipping and manufacturing businesses.During the 1980s and 1990s,outsourcing became an increasingly common approach to cost reduction,and 78%of industrial suppliers and buyers outsourced all or part of their transportation operations.4 Shippers'efforts to reduce costs also led them to expand the number of modes of transport that they 3Gary Yablon,"Morning Meeting Note:Online Shipping Services,"CS First Boston,January 11,2000,P.3. 4Stacie McCullough et al,"Make/Move Logistics,"Forrester Research,July 1998,figure 2. 3 This document is authorized for use only in Logistics Managment by Chung-Li Tseng from July 2011 to January 2012.National Logistics Management 801-110 3 The introduction of cost-effective wireless networks and global positioning systems provided additional opportunities that could be exploited by 3PLs. Freight Transportation The freight transportation industry offered multiple modes of shipment, including air, water, truck or rail. In the trucking segment, participants ranged from large, public, multi-national firms such as Ryder, Penske, or Emery Freight to small owner-operated trucking firms. Trucking industry deregulation in the 1980s and early 1990s had resulted in a competitive environment in which price was a predominant factor in deciding on a carrier to transport standard product. To compete, smaller firms often developed specialty services or served niche geographical markets while larger firms expanded into multiple modes of transport and provided service across a wide range of geographies. Sources of differentiation were ultimately limited, however, since the basic requirement was similar: all shippers demanded that goods be transported safely from one point to another in a timely fashion. Price, important to all companies that required the services of a 3PL, was especially important to large, industrial, manufacturing firms, such as automakers. Intent on reducing the delivered cost to its customers, automakers such as Ford, GM, and DaimlerChrysler increasingly looked to better management of its supply chain (the series of transactions and interactions between suppliers, buyers, and intermediaries) to minimize costs while improving quality. An industrial manufacturer could give its preferred partners visibility into internal demand patterns, so that capacity could be scheduled efficiently. This visibility increased when all parties—manufacturers, 3PLs, and even suppliers—could participate in electronic data interchange (EDI), directly linking databases and transaction systems. By managing the overall process, information savvy 3PLs enabled streamlined and more efficient management of the supply chain. Additionally, 3PLS were motivated to pursue industrial manufacturing contracts due to the size of the contracts. The ability to schedule capacity was critical in the transportation industry. Since every “asset” (e.g., truck, ocean freighter, airplane, railroad car) had a specific amount of space to offer over a specific period of time, the industry’s main product— available capacity— was inherently perishable. The product also changed over time: a truck returning empty from a delivery, for example, had available capacity with zero variable cost, but the capacity and cost of the asset would change as soon as the truck reached the next pick-up point. Information about availability and cost of capacity was difficult to leverage, even when known to the carrier, because of the difficulty and time required to communicate with potential buyers and suppliers. The time it took to complete a transaction could easily exceed the dynamically changing nature of the asset. This was a serious issue for the industry: 6% to 10% of trucking capacity (excluding returning truckloads) was not utilized at any given moment.3 Clearly, any incremental profit that could be generated through better capacity planning would dramatically improve the value of a shipping company’s assets. Competitive Environment 3PLs benefited from a number of trends in the shipping and manufacturing businesses. During the 1980s and 1990s, outsourcing became an increasingly common approach to cost reduction, and 78% of industrial suppliers and buyers outsourced all or part of their transportation operations.4 Shippers’ efforts to reduce costs also led them to expand the number of modes of transport that they 3 Gary Yablon, “Morning Meeting Note: Online Shipping Services,” CS First Boston, January 11, 2000, p. 3. 4 Stacie McCullough et al, “Make/Move Logistics,” Forrester Research, July 1998, figure 2. This document is authorized for use only in Logistics Managment by Chung-Li Tseng from July 2011 to January 2012