Big Box retailers-the Wal-Marts, Targets, Best Buys and Home Depots-are changing the face of retail both in the stores and on the highways. Customers now take it for granted that they'll have a wide and rapidly evolving variety of products available at ever more competitive prices. In order to meet these expectations, (and remain in business) those hyper-retailers depend on a finely tuned supply chain. This is putting more and more pressure on every aspect of the entire value chain, from product sourcing straight through to delivery.

The larger retailers sit in an unparalleled position of power. Their influence is so all-encompassing that they control both access to the customer and the entire supply chain. "The reason they [the big box retailers] have been able to offer such a big selection at such ridiculously low prices is because they were managing their supply chains," says Robin Lanier, a consultant with the National Retail Federation (NRF). Vendors are adapting their services to meet standards set by these massive retailers, and raising the bar on service offerings and levels across every component of the supply chain.

With an emphasis on decreasing costs and increasing profit margins, retailers are focused on driving out non-core costs. This means they are carrying lower inventory levels, maintaining high SKU turns and forcing a general compression in the order time cycle. This approach is pushing more exposure on to the vendors, forced to carry more of the inventory costs and thus in turn, find efficiencies within their own operations. It's not news that the big retailers are pioneers when it comes to supply chain innovations.

What is new is that management has now expanded beyond vendors to include transportation providers.

To be sure, transportation has long been a key focus for many larger retailers. These days, though, it's no longer simply a matter of moving goods from warehouse to a store. The cost of moving goods is now accounted not just in the time and distance goods travel, but also with the way merchandise is loaded, received and unloaded. There are issues such as multiple delivery locations, home deliveries, returns management, time-sensitive promotional deliveries-the list is endless. "It has become much more complicated and has required even greater communication," says Lanier.

Retailers look for partnerships and full services

With the growing complexity of the supply chain, most larger retailers have moved away from using dozens of different carriers. In order to streamline the processes of getting products to customers, retailers are looking to develop partnerships with select carriers who offer a varied suite of services. "We find it's generally the case that the larger retailers are looking for companies with broad capabilities and lots of technology," says Bill Zollars, CEO, Yellow Roadway. His company provides some level of service to just about every major retailer in the U.S. Zollars says that he has seen a real demand for end-to-end service in order to achieve a consistent, reliable result from his clients. In turn, the big retailers are more interested in developing longer term relationships with their transportation providers.

Scott Arves, President, Transportation Sector, Schneider National, agrees. Schneider National is one of the country's leading transportation firms and services some of the largest retailers in the U.S., listing Wal-Mart, Sears, and Target among its clients. Arves uses the example of promotional campaigns to explain how important full-service partnerships have become. "When you need to get 500 loads to multiple stores, and they all need to be there by Monday, you need to plan and to have greater flexibility to load and stage product delivery," he says. That requires cooperation at both ends. Schneider uses its entire suite of services, including truck, intermodal and brokerage, to ensure on-time delivery. Meanwhile, on the client side, there is commitment to having 'driver friendly' freight and greater delivery time flexibility.

This partnership arrangement is resulting in a change in the configuration of the trucking industry itself. As carriers increase in size and develop more sophisticated services, the smaller transportation companies are finding it hard to compete. "I suspect that we'll start to see 4 or 5 major players with broad capabilities, as well as niche players with specific abilities emerging," says Zollars. The smaller independent is being squeezed out.

Retailers demand more accuracy and reliability...

Arves identifies four key retail trends that he believes are having a significant impact on the transportation industry: continuing pressure for on-time service, more focus on in-stock items, a general compression in the time of the order cycle, and an increase in items being moved for promotional purposes. The convergence of these factors has resulted in huge pressure on the carriers to ensure accuracy and consistency in their deliveries.

Quick Response stocking, which is the equivalent for retail of Just-In-Time (JIT) in manufacturing, demands that shipments move more frequently and often in smaller lots. With less inventory on hand, and shorter order cycles, orders must be correct because there is no time to fix mistakes. Technology plays a very important role in expediting this process. Software planning systems such as Transportation Management Systems (TMS) or Warehouse Management Systems (WMS) allow for better planning up front, which will hopefully prevent delays, or identify bottlenecks in advance so that contingency plans can be made. But ultimately, the burden falls on the carrier to ensure that the right product is at the right store at the right time. Too many mistakes and the retailer will find a new transportation partners.

...and want ever increasing visibility throughout the supply chain

As order cycle times continue to decrease, and retailers focus on inventory reduction, visibility across the supply chain becomes all-important. It is crucial that stores know what will be delivered when, where and if there are to be delays, why. This is where technology comes in. Visibility can take many forms, beginning with GPS systems to keep track of where the trucks are, to the latest technology, radio frequency identification (RFID), which keeps track of the individual parts of the shipment and provides more precise information. "Supply chain functionality is a key factor among retailers," says Britt Wood, Senior VP, Industry Relations, Retail Industry Leaders Association (RILA). Wood believes that the larger retailers' move toward RFID will lead the way for even more data synchronization among the retailers' partners.

Firms that are succeeding in the highly competitive transportation world are certainly utilizing technology to its fullest. Technologies that used to be considered leading edge-EDI, real-time shipment information, data sharing-are now standard.

Pilot Air Freight is a carrier that services Wal-Mart.com through its Pilot Home Delivery Service. The company provides home deliveries to customers that order over-sized items on-line from Wal-Mart.com. John Hill, Senior VP Sales, Pilot, says they get their delivery information through EDI downloads from Wal-Mart. Once a delivery is made, that data goes directly into both Pilot's and Wal-Mart's systems. In addition, Pilot offers an Internet tracking feature that allows all the players, including the customer, to find out exactly where the shipment is at any given time. This information sharing is particularly important when dealing with the retailer's customers. "We're managing the customer's expectation level," says Hill. Information needs to be immediately accessible in order to ensure customer satisfaction.

Technology is being implemented on the road as well, beyond the home office. Drivers have had to become more technologically literate. Many trucks have computers right in the cabs, allowing drivers to access and enter shipment information instantaneously. "Our drivers have certainly had to adapt to new technology," says Zollars. At Roadway, the company has a digital dispatch system with a computer in every truck. Yellow operates a computerized docking system that drivers have learned to utilize.

Globalization is huge

Globalization, too, is having a huge impact on transportation. "The amount of exports out of China has had a profound effect," says Paul Svinland, Director, Transportation and Logistics Program, ICG Commerce.

Lanier agrees. She sees the biggest supply chain issues facing retailers coming from the international arena. The problem is that a tremendous amount of goods are coming into the ports, but the country lacks the infrastructure to deal with it. "The infrastructure is crumbling and there aren't enough roads or rail capacity," says Lanier. She tells the story of the international transportation manager of one large retailer who told her that the goods movement in the U.S. was not large enough or sophisticated enough to handle his company's business.

This carries over to the trucking industry. "There are tremendous shipping imbalances," Arves says, with everything coming from the coast inland, and very little going back. For ground carriers, this is difficult to handle. "Pricing and equipment flows reflect this situation," comments Arves. It's not cost effective to send an empty truck to the coast, so carriers have to find alternate methods of transportation if available, or try to increase shipments to the coast to balance the trade.

According to Zollars, the retailers are also looking for alternate transportation solutions, and are beginning to diversify the ports that they use. "Certainly, we see the use of alternate ports, as well as more air shipping and expedited services," he says. Use of these alternate ports is also creating a demand for new rail routes, intermodal facilities and better truck routes. In addition, retailers have changed the way they handle the goods once they arrive at the port. It used to be that these goods were shipped to a distribution center where they were broken down and made store-ready (i.e.- tagged and packaged). That's no longer the case. "According to the retailer's vendor codes, the merchandise comes in floor-ready," says Lanier. And, because they require less work, the very largest retailers have now located international distribution centers within miles of the port.

This de-emphasis on distribution centers is creating one of the few bright spots for the smaller carriers. In this shot haul area, they have the advantage. "There is a market for the small independent on the short trip from ports out," says Jonathan Gold, VP International Trade Policy, RILA.

Trucking has its own issues

Aside from having to meet the needs of an extremely demanding retail sector, trucking is facing some huge issues of its own. In addition to a lack of capacity, the Hours-of-Service rulings and increasing fuel costs have put huge pressure on the industry. Within the industry, consolidations and the loss of services are growing. "Between 2000 and 2003, 11,500 trucking companies went under," says Arves. "In the past 20 years, this is the worst balance in demand versus capacity that I've ever seen."

Ironically perhaps, industry consolidation coupled with a recovering U.S. economy and the new model retail supply chain has resulted in a bit of a shift in the power balance between truckers and customers. There is now, say experts, greater demand for truck services than there is capacity. The retailers can demand all they want, they say, but if there aren't enough trucks, there will be service delays. "These are uncharted waters," says Svinland. "The carriers are no longer getting beat up over rates. They can set the rates dues to the capacity issue." One way this is playing out is that trucking companies can be a little pickier in whom they choose to service. "At Schneider, we make sure to rationalize who we serve and who we don't. We're a lot more aggressive in turning over that bottom ten percent" says Arves.

The lack of capacity has been a major force in encouraging those partnerships between retailers and their transportation providers. Customers are looking to ensure that capacity will be there when they need it. It's made issues such as on-time deliveries and accuracy even more important, because there are no idle trucks and/or drivers that can be called into service if there's a glitch.

The larger transportation players have been able to deal with the capacity issue by adding to their own fleets when necessary. "We look at our customer mix and make sure it's the most profitable one," says Zollars. "Then we'll add capacity." But if the bottleneck is the result of infrastructure issues, say at the terminals, the problem still remains. "I have retailers who tell me that their supply chain is running 2-3 days late [as a result of infrastructure issues]," says Lanier.

It's unlikely that consumer demand will decrease any time in the near future, so it's a pretty good bet that big retailers will continue to thrive. Some argue that the big retailers don't see themselves as suppliers of consumer goods, but as logistics companies. It's a good point, agrees Lanier. "These guys focused on dominating their transportation areas and supply chains as a way to reduce costs. You could even use that to define them." That said, it's likely that demands from these 'logistics companies' will be driving issues in the ground transportation industry for a long time to come.