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CEDA: Supply chain solutions - Using e-commerce to grow capability

Anonymous, Information Age

14/10/2003 13:27:23

Paul Little Managing Director Toll Holdings Ltd

In our market space, managing the supply chain efficiently and transparently is the name of the game. And whether it’s managing a piece of it or the whole gameboard, e-commerce Is just another tool we have to enable the creation of ‘best In breed’ business models.

At Toll we recognise that technology today is cheaper and more readily accessed but it’s how you put this technology together with your physical capability and how you manage the change required that makes the difference, i.e. we don’t believe there is only one tool or package that provides all the answers.

Decisions about IT and e-commerce can either be smart investments or expensive headaches, and if you look hard enough in your own area, I’m sure you could find examples of both. IT strategy must be driven from the overall business strategy. An organisation thinking about the benefits of technology should have a detailed strategic plan in place first.

However, in saying this, the technological advances In our industry over the last decade have made It possible to think about supply chains with a totally different approach. It’s now possible to think about and manage entire supply chains, not just part of them. It’s possible to think about industry supply chains, not just company chain solutions. It’s possible to think about global supply chains, not just national supply chains. And through technology, obstacles will continue to be removed, supply chains will become highly efficient and the cost of moving goods throughout global networks will be reduced.

So what really drives us in the e-commerce space is the capacity to deliver positive, tangible results and outcomes for our customers. That is: • creating a competitive advantage for our customers; • delivering adequate returns for our shareholders; • providing a point of differentiation in the marketplace; and • keeping Australian logistics on the world stage.

The freight logistics sector

Freight logistics contributes about 9 per cent (or$54 billion) of Australia’s GDP and is one ot the biggest sectors in the economy. It is expected that Australia’s freight task will double by the year 2020 and exports will grow some 50 per cent by 2010. Additionally, In comparison with other countries, Australia has low levels of freight task outsourcing.

All of these factors present great challenges and opportunities for growth. But how Is this growth going to be managed? And who will oversee the many challenges and opportunities that lie before us?

3PL vs 4PL= 3.5PL

A quick look at the evolution of supply chain management shows a dramatic shift from internal logistics operations to outsourcing from the mid-1980s to the I990s. In the last decade, transport companies have had to become increasingly sophisticated to keep up with market demands — and many larger players have acquired or aligned with consulting firms, technology providers and other logistics specialists, to raise ever-higher competitive barriers.

In the logistics Industry we talk about third-party logistics providers — 3PLs—and fourth-party logistics providers — 4PLs.

A 3PL owns fleets and warehouses and generally the assets required to move materials for customers through a direct one-to-one relationship. Conversely a 4PL does not own any fleet or warehouses. Its role is to sit above transport companies arid manage the movement of goods across a number of players through the use of sophisticated technology They essentially manage the process through an outsourced solution.

Toll believes that somewhere in the middle of these two models is a successful and sustainable supply chain approach, called a 3.5PL model.

Toll, as a 3.5PL provider, owns and operates its own transport and logistic assets, and at the same time invests heavily in technology to interface with customers.

Australia’s freight and logistics industry has traditionally been very fragmented with some transport and logistics customers handling the freight task themselves or outsourcing their requirements to various providers. This is a very inefficient arrangement for companies and invariably requires significant investment outside core activities. Toll’s integrated model, however, has been based on growing our capability along the entire supply chain — offering a range of transport, warehousing and distribution options and passing the savings back to customers.

Traditionally our industry, like many industries has suffered from a point of difference based on price cornmoditisation; that is, the only perceived way to differentiate one 3PL from another 3PL, was price.

Toll has been able to combine our unique mix of multi-modal assets with the latest technology to produce a service designed for customer-specific requirements.

For some of our clients such as Nike, Arnott’s and Fosters, Toll has designed and equipped purpose-built high-tech warehousing facilities. We’ve also designed and implemented automated warehouse management systems, utilising radio frequency technology arid state-or-the-art materials handling equipment.

In Australia, however, the food and automotive sectors are leading the charge in collaborative. 4PL-style supply chain models.

The food sector: Unilever

In 2002 Toll won the contract to manage Unilever’s entire transport requirements in Australia. Driving this process was Unilever’s recognition that over the next three to five years unprecedented change would occur as they sought to drive significant improvement in its supply chain performance.

The main industry change drivers are: • technology and systems; • globalisation and consolidation; and • integration and collaboration.

Areas requiring specific attention for Unilever were: • improvement of customer service; • reduction of order cycle times; • reduction of transport costs; • reduction of Inventory levels; and • freeing up of finances to support strategic initiatives.

Toll’s motivation was aimed at creating a new service, which would address the in creasing demands of Unilever.

Specifically we wanted to: • manage the entire transport requirement; • coordinate the activities of other service providers; • provide real-time visibility and control • improve internal operational efficiencies; and • exploit multi-customers’ transportation synergies.

Working closely with Unilever, Toll is developing a model, known as MTS — an online Managed Transport Service - which facilitates the planning and execution of a customer’s entire transportation requirement across all sites, modes and carriers. It is currently being rolled out with Unilever and encompasses six transport and logistics functions, supplied by four separate Toll divisions and two Patrick divisions.

The Implementation and change management process has required linking all involved parties into a new, integrated set of business processes coordinated through a national planning and operations centre. This encompasses the management of all service providers working for Unilever and requires unprecedented levels of collaboration.

Progress with the project is well advanced and early indications appear very positive.

Automotive industry: Holden

In 2002 Toll won a major tender to provide Holden with logistical services within Australia. While we were the incumbents, we were short-listed with two other international companies — both of which were 4PL companies with no assets in Australia. but who had global capability, smart technology and strong overseas brand names. So why did we win? in essence, it was because we successfully combined assets and technology to give guaranteed outcomes to Holden on service and price.

In other words, Holden was very comfortable in its relationship with Toll. But if Toll had not been able to produce world-class technology (via ATOM*) to support our operational capability, one of the global 4PLs would have won the tender.

To strengthen Toll’s offering to the automotive market, we have developed ATOM — an automotive industry platform for planning, executing and settling transport activity across inbound original equipment and finished vehicle distribution.

ATOM facilitates: • the automation of order capture; • load planning optimisation; • the automation of cross-dock operations; and • online capability for Track and Trace arid Exception and Alert reporting; all within a performance management framework.

The development of ATOM and the Holden win are significant in a number of ways. Firstly it allows the Australian economy to directly benefit by keeping the delivery of these services to a 100 per cent Australian-owned and operated company. Secondly, the e-commerce solutions demanded by Holden have had a significant impact on the Australian automotive sector at large. in order to become more competitive and reap the benefits of Improving the supply chain for Holden, Toll sought a greater level of collaboration and cooperation between competitors and suppliers, and this has vastly changed the landscape of automotive supply chains available in Australia. It also assists in making locally produced cars viable in the export market.

And finally the development of these technology solutions is scalable to other customers, maximising the opportunity to increase the return on investment.

Conclusion

Toll’s annual expenditure in the total technology area, including telecommunications, is close to $30 million annually. In addition, we directly employ more than 100 people in both the development and management of various systems and platforms across our entire group.

Technology has provided Toll with a unique opportunity to establish a clear point of differentiation with our competitors. Barriers to entry for competitors and barriers to exit for customers have both increased.

The most compelling benefit of our technology capability is the delivery of significantly more efficient supply chains for our customers: • more transparency; • reduced inventory; • improved service levels; • reduce costs; and • seamless integration.

The integration of e-commerce into supply chain management has provided us with ways we can view our business, our growth, the future of our industry and our economy. Not only are we creating a model for supply chain excellence in Australia. we now have the focus, will and capability, to operate globally — to use Australian expertise and Intellect to create sustainable, profitable relationships for our customers, our shareholders and the Australian business community.

*ATOM: AutoLogistics Transport and Operational Management system.

--Paul Little Managing Director Toll Holdings Ltd

This article appeared in the Australian Chief Executive magazine and is reprinted by arrangement with CEDA.