Peter Bradley is an award-winning career journalist with more than three decades of experience in both newspapers and national business magazines. His credentials include seven years as the transportation and supply chain editor at Purchasing Magazine and six years as the chief editor of Logistics Management.
It ain't easy being blue. Actually, it hasn't been easy for some time. Once the ruler of the technology domain, IBM, widely known as Big Blue, has learned a lot about the vagaries of the market. Over the past two decades, the glob- al giant has confronted a downturn in business tech spending and a wide-scale shift in demand away from IBM's original flagship product, the mainframe computer, to the PC. And it has withstood assaults on virtually every aspect of its global busi- ness hardware, software, IT services, semiconductors and more.
or a company that had long dominated the industry, IBM proved unexpectedly vulnerable to attack. Time and again, its more nimble rivals managed to undercut IBM on price and respond more swiftly to a capricious market. In comparison, the corporation looked like a lumbering giant.
Part of its problem was sheer size. The company, which reported $91 billion in revenue last year, has diverse operations in more than 60 countries and customers in 161 countries. Its global supply chain alone, according to a 2005 white paper from Forrester Research, represents a $39 billion spend, 78,000 products with almost infinite configurations, 33,000 suppliers, and 16 manufacturing plants in 20 countries. It's safe to conclude that IBM is not an easy ship to steer.
The company was also handicapped by history. As recently as a decade ago, each of IBM's 30 divisions operated its own supply chain, according to the Forrester study. Every business PCs, hard drives, servers, semiconductors, mainframes handled its own supply planning and demand forecasting, chose its own parts suppliers, ran its own manufacturing operation, used its own billing and invoicing systems, and picked its own carriers, brokers, forwarders and so forth.
Predictably enough, the result was a fragmented, high-cost operation that frequently proved to be its own worst enemy particularly where customer service was concerned. The company's sales force was spending 20 percent of its time on fulfillment issues. The divisions were unable to work together for the customer's benefit. And at every turn, IBM forfeited opportunities to take advantage of economies of scale.
Time for an overhaul
That began to change four years ago. When he took over as IBM's CEO in 2002, Sam Palmisano announced an initiative to transform the slow-moving giant into a flexible and responsive competitor. As part of that initiative, he created a new division, Integrated Supply Chain (ISC), whose mission would be exactly what the name implied: to dismantle the 30 networks and create a single unified supply chain. The ISC would be responsible for procurement, manufacturing, logistics and fulfillment across the company and around the world.
To boost the corporation's agility, the ISC would outsource non-core functions (which would allow it to, say, redesign its distribution network almost overnight). To improve responsiveness, the ISC would link all of the players in the supply chain from the raw materials supplier to the customer. To boost efficiency, it would adopt a unified set of processes that would transcend divisional and geographic boundaries. A business process in New York would be mirrored in New Delhi; a process in the PC business would be echoed in the server business.
That seems straightforward enough, but it wouldn't be easy. Carrying out the plan would require commitment from the top. It would require managers accustomed to running their own shows to cede control of their processes. It would require changing the way the company measured supply chain performance. And because all supply chain partners internal and external would need to be linked, it would require technology integration on an unprecedented scale.
When in doubt, send it out
When Palmisano's marching orders came down, the logistics operation found itself well ahead of the game. Unlike its peers in, say, manufacturing or fulfillment, logistics had already begun its transformation.
As part of an initiative that predated the ISC, IBM had already centralized logistics functions worldwide, creating a unit that today represents a cost center of about $1.5 billion. The 1,200-person group manages inbound and outbound transportation, import and export operations, and reverse logistics. Each year, it ships more than two billion pounds of goods everything from semiconductors to mainframes.
That earlier initiative had done more than just bring logistics under a single governance structure, however. It had set another transformation in motion the logistics unit's shift from an asset-based service provider to a non- asset-based lead logistics provider that plays a strategic, rather than a tactical, role in the business.
"You look back [more than] 10 years, we were an asset-based distribution business for IBM," says John Drury, manager of global logistics in ISC."We had warehousing,trucks and material handling equipment." That might have represented a big advantage if IBM had been able to coordinate all the pieces. But the company was unable to pull it off. "We were very fragmented, with a lot of loose pieces," Drury reports.
Those assets also saddled IBM with high fixed costs, a problem for a company that experiences wild swings in demand. "We have highly skewed demand," Drury says. "We could have as much as 80 percent of demand during the last two weeks of a quarter." As a result, the company frequently ended up paying for capacity it didn't use.
In 1995, the logistics organization began to shed those assets. "We knew we had to be asset free," Drury says. "As we rationalized manufacturing and the supply base, we had to be nimble and flexible."
A little help from its friends
It wouldn't be running warehouses or fleets anymore, but the logistics group was about to find that managing a stable of service providers brought challenges of its own. One of them would be integrating the technology used by suppliers with IBM's (and other partners') systems. Information technology-related tasks would represent a large part of the suppliers' responsibility. To cut down on redundant IT costs and processes, IBM wanted the suppliers to take over as much of the IT work as possible.
For help building interfaces that would allow suppliers to use their own systems but still integrate smoothly with IBM's, logistics harnessed the brainpower of IBM's internal experts. "We leverage as much as we can from our brethren," Drury says.
The corporation's world-class tech specialists designed Web-based middleware, for instance, that simplifies the process of connecting (or disconnecting) a carrier or supplier. "We now have a common global 'onboarding' process," Drury reports. Today, when a new supplier comes into the system, the first thing the team does is look at requirements downstream, he says. "Then we figure from a technology architecture standpoint what we need to do to map them into the pipeline."
Drury estimates that to date, IBM has brought about 200 logistics suppliers on board using the new process. That has gone a long way toward streamlining operations, even though the company has cut its supplier base in recent years. Today, its top 10 logistics providers account for a whopping 78 percent of the logistics spend. For instance, a single supplier manages all outbound product shipping in Europe. Another manages all parts logistics for the Europe/Middle East/Africa region.
IBM's internal experts have helped the logistics staff resolve other technical difficulties as well. For example, says Alan Kohlscheen, international trade compliance manager in ISC, there was the problem of missing documents. "We were spending way too much time looking for them. But if you followed them upstream, [you learned that] they originated in someone's ERP system. It makes no sense to print them when they are available in the pipeline." With assistance from the IBM Research staff, the logistics group was able to rein in those wayward documents, he reports. "Now we have the ability to put documents in the pipeline and associate them."
These and other projects have helped slash costs and improve logistics performance. In the Forrester Research white paper, Navi Radjou, a vice president of Forrester's IT Management research team, provides the example of a joint ISC/IBM Research initiative to improve customer service. Radjou reports that the team developed a logistics algorithm that allows IBM to deliver 95 percent of the 50 million spare parts it ships each year within a two- to four-hour window.
All for one and one for all
By unifying processes, IBM's logistics group has eliminated untold duplication and waste. Kohlscheen cites invoicing systems as an example. "It was unbelievable how many invoicing systems we had," he says. "We had well over 100. Once we converged all those, we got real cost savings and streamlined processes."
It has also brought other unexpected yet welcome benefits. One of those is a reduction in border crossing delays. As part of its effort to develop standard import management procedures, the company worked out a common trade compliance process. "We [now] have a strict set of standards for complying with trade regulations," Kohlscheen says.
Coming up with that process wasn't particularly difficult, Kohlscheen notes. "What it really comes down to is a good instruction set that we communicate early on with the contract manufacturer or other [supplier]," he says. But it has nonetheless reduced the risk of delays caused by Customs problems, Drury reports. Today, fewer shipments are held up at border crossings over compliance issues, which has had the net effect of cutting cycle times. "That makes a big difference," he says.
In fact, a January report by the research firm Aberdeen Group cited IBM's re-engineered import processes as a best practice in international logistics. In particular, the report cited the progress IBM had made toward increasing the visibility of import transactions. Among other benefits, improved visibility lets staff members fix problems before they can cause shipment delays and gives the company a better handle on landed costs and cycle times. Further, the Aberdeen report says, IBM improved its ability to outsource or "in-source" parts of the import processes as conditions warranted, which required developing "plug and play" IT capabilities both internally and with suppliers.
As with many IBM outsourcing initiatives, the solution shifted greater IT responsibility to brokers but also implemented tools to give IBM greater visibility into import transactions and to make greater use of electronic data feeds to reduce manual data entry. On top of that, IBM designed middleware that enabled the creation of a single "data services gateway" that collects all commercial invoice and customs clearance data, so it can be automatically fed to internal IBM systems.
IBM began rolling out the import management processes in South America. It has now expanded them into India, Australia, Canada and the United States, the report says, and will continue with the expansion. The company has connected its brokers and more than 33,000 suppliers to the gateway, along with carriers, forwarders and even some government agencies. The Aberdeen report says that as a result of the effort, IBM's electronic integration costs have plummeted to 3 cents from 35 cents per transaction which represents a $400 million reduction in data processing costs.
$20 billion and counting
The results of the ISC initiative to date have been nothing less than sensational. By the end of 2004, according to the Forrester report, the changes had saved IBM a total of $20 billion. Logistics costs had dropped by 21 percent, and inventory had been trimmed to its lowest level in 30 years. Furthermore, IBM's measure of customer satisfaction had improved by two full percentage points. That may not sound like much, but each point of improvement represents the equivalent of $3 billion a year in revenue.
Despite the success IBM has enjoyed so far, the search for ways to cut costs and streamline operations continues. "We need to dig deeper," Drury says. Adds Kohlscheen, "Continuous improvement is baked into the global process."
The way that shippers and carriers classify loads of less than truckload (LTL) freight to determine delivery rates is set to change in 2025 for the first time in decades, introducing a new approach that is designed to support more standardized practices.
But the transition may take some time. Businesses throughout the logistics sector will be affected by the transition, since the NMFC is a critical tool for setting prices that is used daily by transportation providers, trucking fleets, third party logistics providers (3PLs), and freight brokers.
For example, the current system creates 18 classes of freight that are identified by numbers from 50 to 500, according to a blog post by Nolan Transportation Group (NTG). Lower classed freight costs less to ship, ranging from basic goods that fit on a standard shrink-wrapped 4X4 pallet (class 50) up to highly valuable or delicate items such as bags of gold dust or boxes of ping pong balls (class 500).
In the future, that system will be streamlined by four new features, NMFTA said:
standardized density scale for LTL freight with no handling, stowability, and liability issues,
unique identifiers for freight with special handling, stowability, or liability needs,
condensed and modernized commodity listings, and
improved usability of the ClassIT classification tool.
The new changes look to simplify the classification by grouping similar articles together and assigning most classes based solely on density – the most measurable of the four characteristics, he said. Exceptions will be handled separately, adding one or more of the three remaining characteristics in cases where density alone is not adequate to determine an accurate class.
When the updates roll out in 2025, many shippers will see shifts in the LTL prices they pay to move loads, because the way their freight is classified – and subsequently billed – might change. To cope with those changes, he said it’s important for shippers to review their pricing agreements and be prepared for these adjustments, while carriers should prepare to manage customer relationships through the transition.
“This shift is a big deal for the LTL industry, and it’s going to require a lot of work upfront,” Davis said. “But ultimately, simplifying the classification system should help reduce friction between shippers and carriers. We want to make the process as straightforward as possible, eliminate unnecessary disputes, and make the system more intuitive for everyone. It’s a change that’s long overdue, and while there might be challenges in the short term, I believe it will benefit the industry in the long run.
Business leaders in the manufacturing and transportation sectors will increasingly turn to technology in 2025 to adapt to developments in a tricky economic environment, according to a report from Forrester.
That approach is needed because companies in asset-intensive industries like manufacturing and transportation quickly feel the pain when energy prices rise, raw materials are harder to access, or borrowing money for capital projects becomes more expensive, according to researcher Paul Miller, vice president and principal analyst at Forrester.
And all of those conditions arose in 2024, forcing leaders to focus even more than usual on managing costs and improving efficiency. Forrester’s latest forecast doesn’t anticipate any dramatic improvement in the global macroeconomic situation in 2025, but it does anticipate several ways that companies will adapt.
For 2025, Forrester predicts that:
over 25% of big last-mile service and delivery fleets in Europe will be electric. Across the continent, parcel delivery firms, utility companies, and local governments operating large fleets of small vans over relatively short distances see electrification as an opportunity to manage costs while lowering carbon emissions.
less than 5% of the robots entering factories and warehouses will walk. While industry coverage often focuses on two-legged robots, Forrester says the compelling use cases for those legs are less common — or obvious — than supporters suggest. The report says that those robots have a wow factor, but they may not have the best form factor for addressing industry’s dull, dirty, and dangerous tasks.
carmakers will make significant cuts to their digital divisions, admitting defeat after the industry invested billions of dollars in recent years to build the capability to design the connected and digital features installed in modern vehicles. Instead, the future of mobility will be underpinned by ecosystems of various technology providers, not necessarily reliant on the same large automaker that made the car itself.
Regular online readers of DC Velocity and Supply Chain Xchange have probably noticed something new during the past few weeks. Our team has been working for months to produce shiny new websites that allow you to find the supply chain news and stories you need more easily.
It is always good for a media brand to undergo a refresh every once in a while. We certainly are not alone in retooling our websites; most of you likely go through that rather complex process every few years. But this was more than just your average refresh. We did it to take advantage of the most recent developments in artificial intelligence (AI).
Most of the AI work will take place behind the scenes. We will not, for instance, use AI to generate our stories. Those will still be written by our award-winning editorial team (I realize I’m biased, but I believe them to be the best in the business). Instead, we will be applying AI to things like graphics, search functions, and prioritizing relevant stories to make it easier for you to find the information you need along with related content.
We have also redesigned the websites’ layouts to make it quick and easy to find articles on specific topics. For example, content on DC Velocity’s new site is divided into five categories: material handling, robotics, transportation, technology, and supply chain services. We also offer a robust video section, including case histories, webcasts, and executive interviews, plus our weekly podcasts.
Over on the Supply Chain Xchange site, we have organized articles into categories that align with the traditional five phases of supply chain management: plan, procure, produce, move, and store. Plus, we added a “tech” category just to round it off. You can also find links to our videos, newsletters, podcasts, webcasts, blogs, and much more on the site.
Our mobile-app users will also notice some enhancements. An increasing number of you are receiving your daily supply chain news on your phones and tablets, so we have revamped our sites for optimal performance on those devices. For instance, you’ll find that related stories will appear right after the article you’re reading in case you want to delve further into the topic.
However you view us, you will find snappier headlines, more graphics and illustrations, and sites that are easier to navigate.
I would personally like to thank our management, IT department, and editors for their work in making this transition a reality. In our more than 20 years as a media company, this is our largest expansion into digital yet.
We hope you enjoy the experience.
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In this chart, the red and green bars represent Trucking Conditions Index for 2024. The blue line represents the Trucking Conditions Index for 2023. The index shows that while business conditions for trucking companies improved in August of 2024 versus July of 2024, they are still overall negative.
FTR’s Trucking Conditions Index improved in August to -1.39 from the reading of -5.59 in July. The Bloomington, Indiana-based firm forecasts that its TCI readings will remain mostly negative-to-neutral through the beginning of 2025.
“Trucking is en route to more favorable conditions next year, but the road remains bumpy as both freight volume and capacity utilization are still soft, keeping rates weak. Our forecasts continue to show the truck freight market starting to favor carriers modestly before the second quarter of next year,” Avery Vise, FTR’s vice president of trucking, said in a release.
The TCI tracks the changes representing five major conditions in the U.S. truck market: freight volumes, freight rates, fleet capacity, fuel prices, and financing costs. Combined into a single index, a positive score represents good, optimistic conditions, and a negative score shows the opposite.
A coalition of truckers is applauding the latest round of $30 million in federal funding to address what they call a “national truck parking crisis,” created when drivers face an imperative to pull over and stop when they cap out their hours of service, yet can seldom find a safe spot for their vehicle.
According to the White House, a total of 44 projects were selected in this round of funding, including projects that improve safety, mobility, and economic competitiveness, constructing major bridges, expanding port capacity, and redesigning interchanges. The money is the latest in a series of large infrastructure investments that have included nearly $12.8 billion in funding through the INFRA and Mega programs for 140 projects across 42 states, Washington D.C., and Puerto Rico. The money funds: 35 bridge projects, 18 port projects, 20 rail projects, and 85 highway improvement projects.
In a statement, the Owner-Operator Independent Drivers Association (OOIDA) said the federal funds would make a big difference in driver safety and transportation networks.
"Lack of safe truck parking has been a top concern of truckers for decades and as a truck driver, I can tell you firsthand that when truckers don’t have a safe place to park, we are put in a no-win situation. We must either continue to drive while fatigued or out of legal driving time, or park in an undesignated and unsafe location like the side of the road or abandoned lot,” OOIDA President Todd Spencer said in a release. “It forces truck drivers to make a choice between safety and following federal Hours-of-Service rules. OOIDA and the 150,000 small business truckers we represent thank Secretary Buttigieg and the Department for their increased focus on resolving an issue that has plagued our industry for decades.”