Scan the latest management texts and one phrase continually pops off the page: integrated supply chain. References to it, and its first cousin the collaborative supply chain, are voluminous. There’s little disagreement to its meaning, defined by one author as “a systems approach to viewing the supply chain channel as a single entity rather than a fragmented set of parts, each performing its own function.”

With ever-expanding global sourcing upsetting once level playing fields, manufacturing and retail executives have come to appreciate that they ignore supply chain integration at their peril. As consultants are quick to tell them, fundamental to the successful enterprise today is a convergence of partners collaborating to share channel risks and rewards in optimal synchronization.

“Over the past decade,” declares Hau L. Lee and Seungjin Whang of Stanford, “a combination of economic, technology and market forces has compelled companies to examine and reinvent their supply chain strategies. To stay competitive, enlightened companies have strived to achieve greater coordination and collaboration among supply chain partners.”

Central to achieving this coordination, write Lee and Whang, is to “manage the supply chain as one overall process rather than dozens of independent functions.”

Logistics transportation coordination ranks high among the prominent process modifications needed to sustain an integrated supply chain. Not that the reliable flow of shipments hasn’t always been important, but in the context of global competition it becomes more critical than ever.

“Customers are demanding more integration,” notes Dawn Salvucci, JDA Software Group Vice President, Transportation and Logistics. “As we see supply chains getting longer, there’s a lot of variability in landed costs. Companies need to be able to go further back up-stream into their supply chain for more accurate information on transit times and cost. Transportation is the holder of all that information.”

Kevin Higgins, Transplace Vice President for International Logistics, agrees that the alignment of transportation providers is becoming a higher priority than it used to be. “We have gotten to a point where it’s time to go to the next level with collaboration,” he says. “We’re seeing our customers want to go to more integrating of their logistics processes with us, especially with the rising cost of fuel on national and international shipments.”

As an example, he cites a seven-store furniture retailer offering high-end product at mid-range price. “They had a freight forwarder managing their imports and transportation from Asia when they came to us and said ‘we need help.’ They needed someone who could provide management and visibility to the whole process. We said ‘perfect, that’s why we’re here.’”

The result was an integrated shipping process from origin to distribution center. “They told us their store models, growth plan, the products they’re importing and their pain points as to transport and visibility.” The Transplace value-add? “They can say ‘we just got off the phone with a factory in India, they need to ship to us in ten days’ and we’ve got the ocean and land transport pieces negotiated and all put together.”

JDA Software, which acquired supply chain management software provider Manugistics in 2006, is similarly expanding into this emerging practice area with a new Collaborative Capacity Management product.

“We believe in the concept of running your systems through one platform,” explains Dawn Salvucci. “This enables companies to take the demand forecast and convert that base forecast into something that is consumable for transportation and demand for containers.” Residing on a Web-based portal, it can be pushed out to transportation partners.

“A shipper can share it with logistics providers and carriers to lock in rolling capacity from several weeks to several months in advance.” 

It’s admittedly no easy thing to develop the capability to implement such sophisticated processes. As with all enterprise-wide solutions, much of the challenge is internal.

“It requires a lot of business change,” admits Dawn Salvucci. “A lot of companies are not doing any forecasting with their transportation except for seasonal requirements.” 

Until the capacity crunch of 2004, the transportation landscape in which logistics managers tended to operate was one of abundance, a ‘capacity will be there when we need it’ approach. Although taking transportation availability for granted anymore is a thing of the past, IT linkages between forecasting and logistics services remain under-developed.

Even when a collaborative framework exists, implementing the physical movement of goods in a timely, integrated manner remains challenging. All the more so when the supply chain is international, entailing movement from foreign factory to ship to domestic transport. Being able to enable and guarantee such reliable integration ranks high on the agenda of transportation providers these days.

“We absolutely see more demand for integrated service,” notes John Carr, President, Americas and Europe, YRC Logistics. “YRC Worldwide recognized this some time ago, we’ve put in a lot of effort to meet customer requirements from purchase order management to customer delivery.” He cites China as an example of where YRC has geared up its resources (to the point of recently buying a large land transporter in that country) to be able to go from source to ultimate U.S. delivery.

Surprisingly, such integrated service is not priced as a premium product. “When you look at the efficiency you can bring into the supply chain at each touch point,” notes Carr, “that reduces our costs which we can pass to the customer.” He figures such integration can result in a 10 percent reduction in customer cost. “Our customers are looking to us to bring double digit continuous improvement initiatives, this is one way.”

The most difficult challenge in achieving this, he notes, has more to do with the customer’s internal organization that with YRC’s logistical expertise or asset utilization.

“A lot of customers still have their transportation system in silos. They’re making separate decisions about origin country, then about transportation, then on to customs brokers, then who’s going to do final delivery. It’s our customers ability within their organization to allow the procurement of these services to be looked at as one integrated solutions instead of as multiple functional services that allows us to maximize our effectiveness.”

Steamship operators started feeling the sense of urgency from shippers to provide integrated shipping with a reliable delivery date a few years back, observes Bryan Black, Hyundai Merchant Marine (HMM) Senior Vice President, Trade Management and Services. “Companies are now recognizing that inventory carrying costs and lost opportunities in the marketplace far outweigh cost savings on the transportation side.”

While speed to market remains important, reliability is becoming the main consideration to ocean shipping customers. “I may have the fastest ship but if you can’t depend on me getting your cargo on that fast transport time consistently and with true reliability, I’m much less valuable to you. The congestion in California three years ago highlighted the problem. Just because a carrier can get to port doesn’t necessarily guarantee delivery.”

This emphasis on reliability (and in fleets with more fuel efficient vessels, prompted by the high price of oil) coincides with the need to be able to offer shippers fast-changing options. Shippers want alternatives depending on what they need at different times.

“In the past,” recalls Black, “so much of the cargo was shipped to the West Coast and then land-bridged inland. Now you have to offer a trans-Pacific option, a Suez Canal option, a Panama Canal option.” There’s “more sheer volume” going to more distribution centers throughout the United States, notes Black. “When containerization first started, service was port-to-port and that was it. Now, there are very few places in the country where you don’t see a container.”

The complexity of shippers’ supply chains has meant that “transportation providers have to offer additional services” that emphasize timeliness. In the case of Hyundai Merchant Marine, with particularly good relations with railroads out of Tacoma, they are able to directly load containers onto intermodal rail on the dock. ‘Store door delivery,’ where the shipper contracts with vessel operators for direct delivery to distribution centers, is an example of a product HMM offers to more fully serve customers in this new context of time sensitivity, with HMM contracting directly with the trucker for ‘last mile delivery.’ 

“What shippers have seen is that as they extend their supply chain out migrating from domestic to intercontinental,” observes Bill Villalon, Vice President, Global Contract Logistics and Product Development, APL Logistics, “the variability of delivery time has increased substantially. Regaining that predictability and reliability is the biggest challenge we’re seeing from shippers.”

Often the customer’s first priority is not speed but rather confidence. “They need predictability,” underscores Villalon. “The emerging big idea in intercontinental shipping is Time Definite. It’s been lacking in the intercontinental space because of the multiple hand-offs and complexity. This will be the next battleground.”

To that end, APL Logistics offers Ocean Guaranteed, an intercontinental less-than-container load product, in collaboration with Con-Way. “We looked at the market where LCL products are highly variable, so much so that if customers had small shipments, they’d fly it because they could not live with extended transit times. They wanted to ship in LCL quantities but with a day definite delivery commitment.”

The market void being filled for shippers was guaranteed shipments from eight Asian ports at 25 percent of the typical air freight rate, with shipments arriving sooner than they would with standard ocean ground carriage.

APL Logistics provides consolidation at origin and offers preferential stowage and discharge capability. “Late gate in Asia,” explains Villalon, “first off in the U.S. (Port of Los Angeles) and then slotted into Con-Way domestic. In addition to having two networks linked in a system that provides visibility from port-to-door, there is a very simplified pricing scheme that is priced in kilograms; customers don’t have to worry about pricing regimes.”

Since its introduction in late 2006, Villalon reports great demand. “We’ve seen increases every week throughout the year.” He reports that on-time performance has been 98.5 percent since inception (there’s a 20 percent customer refund for failure to do so). This is a track record performance that is comparable to air.”

APL Logistics is about to launch a full container version of the product with day definite delivery to the entire U.S. “The gap in the marketplace we initially saw on the LCL side we believe also exists with FCLs.”

But, as Villalon concedes, this kind of integration isn’t easy to do. “There were certainly challenges in doing the engineering and process design to make sure everything flowed well, but in our working with Con-Way we’re philosophically very like-minded.”

The biggest reason this works, he believes, is because “we’re able to leverage two asset-based networks. The fact that I’ve got a relationship with sister company APL Liner is key because we control our terminals, we can control and prioritize shipments—what goes on last/comes off first is totally under our control. If you have a late ship, you can do things in your terminal to make up for that.” And Con-Way also controls its own terminals, “that’s part of the secret sauce.”

Traditional domestic air freight is also being incorporated into the integrated global supply chain in ways that weren’t previously common.

 American Airlines, which has been supporting U.S. domestic business since the 1940’s working in conjunction with trucking companies, has continued to build out its trucking network as it expanded internationally. Those trucking partners now comprise an integral part of the AA transportation equation.

 “Each month, American moves about 360 million pounds to its air freight gateways via its trucking partners,” notes Carl Frey, Manager, AA Cargo Operations. The network is expected to grow even more in 2008 to support expanding an expanding international flight schedule.

A new element is being added to American’s solution offerings, as company officials have just announced plans to expand Expedite.fs—AA Cargo’s premium freight product that guarantees a customer’s shipment travels as booked with flight-specific priority boarding and the fastest possible flight connections, to include scheduled trucking segments.

“By expanding the Expedite.fs guarantee to include routings on American Airlines scheduled truck services,” notes Frey, “AA Cargo further enhances its ability to provide customers priority boarding and faster hub connections to more than 250 AA Cargo destinations on four continents.”

Further evidence of the demand for seamless transmodal service is the extent to which even purely domestic air carriers are being linked into global supply chains.

Dave Hinderland, Director, Cargo Marketing and Business Development for Southwest Airlines, has seen growth in freight volume of 10 percent of late, much of which he attributes to international shipments which Southwest re-tenders to or from international carriers: “We get a lot of supply chain,” he observes, noting that Los Angeles is his biggest cargo market which benefits from both import and export. “Everything from computer chips to flowers and live crabs.”

Reflecting the growing demand for the integration of domestic with global supply chains, Southwest’s goal is to expand the reach of its cargo services. “We’ve got the domestic infrastructure in place,” notes Hinderland, “now we’re in the process of building global alliances with international airlines that want to partner. We’re building relationships with international carriers so we can inter-line with them.” The big attraction Southwest offers is its extensive daily flight routings as a point-to-point carrier to both major and secondary markets (3500 daily departures in the Southwest system). “We have frequency and availability.”

To that end, Southwest has recently increased the weight limit on its Next Flight Guaranteed product from 150 to 200 pounds. “Before, because we turn our flights so quickly, we couldn’t take large pieces,” Hinderland explains. Customer demand for speed to market and one-stop shipping prompted the airline to amend its weight restriction policy (“now when a pallet under 200 pounds comes off the truck, we can aggregate the whole shipment”).  wt