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Abstract. With the trends of e-commerce and globalization unreliable product delivery. Traditional international
occurring in the economy, an effective global supply chain
transportation by consolidated freight takes 8 to 14
(GSC) management has become a business necessity for a
multinational corporation seeking to secure market share. days, excluding manufacturing lead-time. The inte-
Although there has been much discussion on how a company grated global third-party logistics (3PL) provider can
gains competitive advantages through GSC management, the act as a virtual distributor to form an alliance with GSC
physical distribution of order fulfilment is less discussed in the participants in order to compress the delivery cycle time
literature. Global third-party logistics (3PL) has developed
to two to four days.
into an alternative for the needs of global distribution. In this
paper, the authors present a new application of collaboration This paper introduces a new shipper – carrier
in GSC execution, namely collaborative transportation man- partnership strategy—collaborative transportation
agement (CTM), which can be used to reduce delivery time management (CTM)—as an application of GSC
and improve delivery reliability. A case study is illustrated: the physical distribution. CTM is a new business model
application of CTM by a 3PL provider in a notebook
that includes the carrier as a strategic partner for
computer GSC. The implementation results show that the
delivery cycle time and the total cost are simultaneously information sharing and collaboration in a supply
reduced. chain. The application of CTM promises to reduce
transit times and total costs for the retailer and its
suppliers while increasing asset utilization for the
1. Introduction carriers. The program benefits all three parties
involved: the retailer, the supplier and the carrier.
Owing to escalating global competition and a This paper is organized as follows. In the next
decline in profit margins, most multinational corpora- section, the development of 3PL in GSC is discussed.
tions pursue global sourcing through a global supply The development of CTM and its business model and
chain (GSC) in order to secure market share and object model are presented in section 3. An
improve profits. The practice of e-commerce and the illustrated case study is provided in section 2. The
business trend of mass customization force both final section summarizes our conclusion.
manufacturers and retailers to shorten cycle time by
managing GSCs more effectively. Successful applica-
tions of GSCs, such as that by Dell, have been widely 2. The development of 3PL in GSC
discussed and publicized in the literature. However, the
physical distribution of GSC execution is recognized as Owing to increasing global competition and volatile
its weakest link and can result in inefficient and market demand, effective GSC management is indis-
pensable when it comes to securing market share and
improving profits. The key reasons for the trend of
Authors: J. C. Tyan, Department of Industrial Engineering, Chung Yuan globalization are overcapacity in highly industrialized
Christian University, Taiwan; F. K. Wang, Department of Industrial Engineering countries, significant disadvantages with respect to
and Management, National Taipei University of Technology, 106, Taiwan. labour costs, and the emergence of worldwide informa-
E-mail: fukwun@ntut.edu.tw; T. Du, Department of Decision Sciences and
Managerial Economics, The Chinese University of Hong Kong, Hong Kong, tion networks that connect the information systems of
Republic of China. firms (Arnold 1999). An increasing number of firms are
International Journal of Computer Integrated Manufacturing
ISSN 0951-192X print/ISSN 1362-3052 online # 2003 Taylor & Francis Ltd
http://www.tandf.co.uk/journals
DOI: 10.1080/0951192031000089183
284 J. C. Tyan et al.
combining domestic and international sourcing The typical benefits of a global door-to-door service
through GSCs as a means of achieving a sustainable are shorter delivery cycle times, more reliable transit
competitive advantage (Bonarth et al. 1998). A GSC is times, less complex customs clearance procedures, and
currently viewed as a strategic weapon in the quest for real-time global tracking and tracing systems (Christo-
improved performance and profitability through great- pher 1998). While the unit transportation cost is higher
er availability, quality, delivery and price advantage than that of a traditional consolidated airfreight service,
(Smith 1999, Lee 2000). the total logistics cost is lower as a result of inventory
The principle and methodology of GSC manage- and cycle time reduction throughout the GSC. The
ment are similar to those of traditional supply chain success of such integrated 3PL is determined by its
management (SCM), except that multiple countries are global transportation network, warehousing network,
taken into consideration. Traditional SCM is the and information network. Figure 1 shows traditional
integration of functions from the procurement of raw international shipping with multiple carriers, brokers,
materials to final customer delivery. The GSC model is and airlines. A GSC linked by a 3PL provider (see figure
more complex than SCM as it includes different taxes 2) can reduce the distribution cycle from 8 to 14 days to
and duties, differential exchange rates, trade barriers, 2 to 4 days.
customs clearance, and a sophisticated international
transportation network (Vidal and Goetschalckx 1997).
Most enterprises establish a virtual integrated company 3. Collaborative transportation management
with their suppliers by implementing an e-business
model in order to address the information flow and the The level of collaboration among all players in the
finance flow of a GSC. However, the integration of a chain determines the success of a GSC. Classic SC
physical distribution in a GSC appears to be the weakest collaboration is found in retailer and supplier partner-
link due to the high level of investment needed to ship programs (Lummus and Vokurka 1999), such as
construct a global distribution network. quick response (QR), continuous replenishment policy
The trends of e-commerce and mass customization (CRP), and vendor managed inventory (VMI), which
via the Internet have challenged enterprises to deliver aim to reduce inventory and provide quick responses to
their finished goods within one week, as with Dell consumer demand. The most recent developments in
Computer’s five-business-days online model. The tradi- collaborative planning, forecasting, and replenishment
tional international shipping practice with extensive (CPFR) aim to improve further the retailer – supplier
consolidation operations (Crainic 2000) takes 8 to 14 relationship. However, the carrier relationship with SC
business days exclusive of manufacturing cycle time, as players was not considered until the introduction of
shown in figure 1. The new economy calls for alliances CTM.
to be made with 3PL providers in order to manage GSCs
effectively by focusing on each player’s core competency
(Lieb and Randall 1999, Aichlymayr 2000b). Most high- 3.1. Historical perspective of CPFR and CTM
tech companies select global door-to-door 3PL providers
such as FedEx, UPS and DHL to streamline distributions The historical perspective of CPFR and CTM can be
and to reduce delivery cycle times. traced back to the early development of VMI for the
Airport Airport
retailer and supplier partnership. VMI—sometimes distribution carriers. The capacity constraints of carriers
called rapid replenishment—is a ‘pull’ replenishing may distort the SC efficiency by delaying the distribution
practice designed to enable a vendor to quickly respond transit time. VMI causes more delay effects in the GSC
to actual demand. The motivation behind VMI strategy distribution of multi-airline and multi-carrier interna-
is that both parties work together to maximize the tional transportation systems, as depicted in figure 1.
competitiveness of the supply chain. Under the VMI CPFR was developed by the Voluntary Interindustry
system, the supplier decides on the appropriate Commerce Standards Association (VICS) in order to
inventory levels of each of the products (within address the first deficiency of VMI. CPFR is a nine-step
previously agreed upon bounds), and the appropriate business process model for value chain partners to
inventory policies to maintain these levels (Simchi-Levi coordinate sales forecasting and replenishment in
et al. 2000). The most obvious benefits of the VMI order to reduce variance between supply and demand
arrangement are inventory cost reduction for the (Aichlymayr 2000a). Under CPFR, both parties mu-
retailer and total cost reduction for the supplier. tually look at information and compare calculations.
Improvements in productivity and service levels lead Manufacturers and retailers share forecasts, including
to larger profit margins and an increase in sales. POS (point of sale), on-hand and delivery data. They
In spite of the numerous benefits of VMI, some review the data together and collaborate in working
concerns have to be taken into account. Aichlymayr with forecasting discrepancies (Schachtman 2000). A
(2000a) investigated the VMI implementation and sub-committee under the VICS recently initiated a new
reported that out of ten VMI implementations, only shipper – carrier partnership strategy known as CTM in
three or four achieved great success. Another three or order to reduce transit times and inventory-carrying
four showed some benefits but not as many as antici- costs for the retailer and its suppliers while increasing
pated, and two or three did not show any benefits at all. asset utilization for motor carriers (Cooke 2000). CTM
To the best of our knowledge, there are two major aims to resolve the second deficiency of the VMI system.
deficiencies with the VMI system that prevent it from
enabling an efficient and agile SC. The first deficiency is
that the VMI system places too much responsibility on the 3.2. CTM business model
manufacturer. Typically, the retailer dictates the rule so
that the manufacturer does not have much choice. The make-to-order market driven by mass customi-
Furthermore, the manufacturer is responsible for any zation and e-commerce is forcing retailers and manu-
inventory discrepancy. The second deficiency is that the facturers to shorten planning cycles, compress
VMI system does not consider the collaboration with manufacturing lead time, and expedite distribution.
286 J. C. Tyan et al.
With shorter planning windows and the overall objec- the final shipment contracts, outlined as the results of
tive of minimizing inventory in the value chain, collaborative tender acceptance and shipment terms.
transportation has become a critical area in the process. Shipment status is continually updated throughout the
Today, transportation is reactionary. Retailers, manu- distribution cycle and any exception is identified during
facturers, and carriers constantly find themselves in step 10. Step 11 is the resolution of delivery exceptions.
conflict with each other in order to resolve shipment- The payment stage involves steps 12 and 13. Invoicing
level issues. This produces excess inventory and under- discrepancies are greatly reduced with the communica-
utilized carrier equipment. CTM is an independent yet tion of shipment attributes, such as weight, freight class,
concurrent process with CPFR, building on the same and destination between carriers and shippers, in step
relationships between retailers and manufacturers, but 10. Any payment exceptions identified in step 12 are
incorporating new information and steps within the collaboratively resolved in step 13. Finally, the review
carriers. It extends CPFR’s end-at-order confirmation, phase involves measuring the distribution performance
continues through to shipment delivery, and includes against the KPI in step 14 and seeking opportunities for
payment to the carrier. It then creates the carrier as continuous improvement.
part of the SC player to reduce costs, increase asset
utilization, improve service, increase revenue, and
improve end-customer satisfaction. 3.3. Implementation issues of CTM
CTM is a new process for carriers, involving them in
five key business activities: the creation of a joint CTM is a new business model for integrating
business plan, order forecasting, order generation, transportation management with SCM. The proposed
freight order confirmation, and carrier payment CTM model is generic and can be modified to fit a
processes (Browning and White 2000). The CTM specific SC application. We are interested in the
business model was proposed by VICS and consists of application of CTM in GSC from the perspective of
14 steps. The CTM process can be further divided into 3PL providers. The primary implementation issues are
three distinct phases: planning, forecasting, and execu- therefore discussed below.
tion, as shown in figure 3. The benefits of CTM are the first issue to be
The planning phase makes up steps 1 and 2. In step addressed. The application of CTM provides individual
1, the trading partners establish a collaborative agree- benefits as well as SC benefits. The most obvious benefit
ment to define the relationship in terms of freight to 3PL providers is the ability to develop business plans
shipment, exception handling, and key performance with their key customers to fulfil distribution require-
indicator (KPI). Step 2 involves aggregative planning to ments better. This is achieved through proactive
determine resource and equipment requirements by participation in the planning, forecasting, and execu-
matching with the planned shipment. The forecasting tion phases of CTM. The manufacturers and distribu-
phase includes steps 3 to 5. By sharing order and tors, in turn, benefit from better transportation transit
shipment forecast in step 3, the carrier gains insight times, visibility to shipment status, and the payment
into the changes of planned volume and adjusts the process. The collaboration in execution between
equipment requirement accordingly. Exceptions due to trading partners creates SC competitiveness and value.
the manufacturer, the distributor, or the carrier are Other benefits include reduced costs, increased reven-
generated in step 4 and resolved collaboratively in step ue, an improved service level, improved end-customer
5. Unlike with the traditional one to two days’ advanced satisfaction, and increased asset utilization (Browning
notice of potential shipments; the carrier has ample and White 2000).
time (one to four weeks depending on the forecasting Technology requirements for CTM are the next
horizon) to handle the resolved volume. issue to be discussed. In order to foster collaboration,
The execution phase consists of four stages: ship- new information and technology (IT) is needed to link
ment tenders, distribution, payment, and a review in between the carrier and the manufacturer/distributor.
order to manage the whole distribution cycle. The The IT requirements of CTM proposed by the VICS are
shipment tenders stage starts from steps 6 to 8 of CTM. vendor and platform independent, such that any
Step 6 is the creation of order/shipment tenders based trading partner entering into a collaborative relation-
on the resolved order forecast. Any exceptions based on ship will not be hindered by technical limitations
latest equipment availability, pickup and delivery (Browning and White 2000). The IT integration of
requirements are identified in step 7 and resolved CTM across the entire SC can be achieved by the
collaboratively in step 8. The distribution stage—steps 9 development of IT standards, IT infrastructure, e-
through 11—involves the physical distribution and the commerce, and a supply chain system (Simchi-Levi et
visibility of the shipment status. Step 9 is the creation of al. 2000). In practice, a committee comprising technical
Collaborative transport management 287
professionals from all trading parties handles IT core concept of CTM is to resolve these transportation
requirement and the integration of CTM. exceptions collaboratively. In order to achieve the
Organizational infrastructure is another factor of benefits of CTM, empowered designated personnel
CTM implementation. It is identified as the most from each party are essential.
important enabler of successful SCM implementation
(Marien 2000). It sets commitments and regulates all
parties so that they accept their responsibilities and 3.4. Object model of CTM
share both the gains and the risks, as outlined in step 1
of CTM. GSC is a highly dynamic system and any In order to provide CTM in global third-party
changes to it may impact the distribution activities. The logistics, figure 4 presents an integrated and evolutional
288 J. C. Tyan et al.
In the execution phase of CTM, IT integration was provider consolidated daily and monthly delivery
first identified to facilitate the collaboration. A new performance reports to the manufacturer by e-mail in
CTM integrator was developed by the 3PL provider to order to manage delivery performance.
link with the manufacturer’s ERP system in order to The CTM project was implemented progressively
retrieve shipping information during the shipment and three key shippers had entered into collaboration
tender stage. Outbound and inbound customs clear- with the 3PL provider by June 2000. Through an
ances are an important process for international aggregate planning process, the 3PL provider acquired
shipping. The shipment manifest and commercial additional aircraft capacity in October to accommodate
invoice were tendered to the 3PL provider through volume growth. Two KPIs identified by the 3PL
the CTM integrator before the actual shipment pickup provider were the delivery service level measured by
in order to process pre-clearance (i.e. to prepare and percentage on-time deliveries and delivery cycle time
submit customs clearance before the actual shipment measured by days. The delivery and cycle time
arrived at customs) so as to eliminate customs delay. performances of the 3PL provider in 2000 are shown
Once the shipments were picked up, a pickup in figures 7 and 8, respectively. The service level
confirmation notice was sent back to the manufacturer achieved a progressive improvement, except in October
through the CTM integrator. A Web-API provided by 2000. The actual average delivery cycle time was
the 3PL provider enabled the manufacturer to access consistently smaller than the expected delivery cycle
the real-time tracking status via the Internet. The time, with a larger gap after the implementation of
shipper was to be notified of any delivery exceptions CTM in June.
through e-mail and phone. The end customer could This project reports that there are many improve-
then check the delivery status via the Internet or ments, such as aircraft capacity utilization, reduction of
through customer service. The IT integration of the operating cost due to information sharing, staff
CTM model in the GSC is shown in figure 6. scheduling accuracy, and billing accuracy. In return,
The 3PL provider assigned a dedicated team to the manufacturer benefited from reduced inventory
coordinate the CTM execution phases and initiate costs, improved delivery reliability, and increased
collaboration in order to resolve any exceptions during revenue, as shown by volume trend. Besides the
shipment tender and delivery. In addition, to review immediate, tangible benefits, the CTM project also
shipment forecasts and resolve any exception items the showed that collaboration between a carrier and a
3PL provider conducted a daily cross-functional con- shipper increases the competitiveness of a GSC. The
ference call. With the support of an integrated system, three major successful factors of this project were
the 3PL provider could draw up an invoice with identified as IT integration, effective communication
detailed proof of delivery in order to facilitate invoice and coordination, and continuous organizational com-
exception identification and resolution. The 3PL mitment.
290 J. C. Tyan et al.
Figure 7. The shipment volume and delivery performance of Figure 8. The delivery cycle time trend of CTM application
CTM application in 2000. in 2000.
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