Optimization systems are harnessing the information flood
Carriers have never had access to so much good information - about routing and vehicle locations, available capacity and backhaul opportunities, load status and delivery expectations. It's amazing and overwhelming. It's a classic example of the "trying to drink from a fire hose" dilemma, and dealing with it is becoming part of the daily routine for fleets. Help has definitely arrived, however. Optimization systems and their newest counterparts, "intelligent agents," are helping companies truly utilize the information deluge to make better and more timely business decisions. What's more, these decision support tools are increasingly available via the Internet on an ASP (application service provider) basis, bringing them within reach of smaller fleets as well as major carriers.
Optimization systems, computer programs that analyze data according to specific rules or mathematical models and provide recommended courses of action, have been around for some time. The Pilots+ systems from Transport Dynamics, for example, and the suite of decision support tools such as MicroMap and OptiStop from Logistics.com are familiar names.
Intelligent agents, or multi-agents, on the other hand, are relative newcomers to the trucking industry. Basically, they are smaller, more specialized optimization systems, designed to do fairly focused tasks. Instead of existing as separate products, they are typically imbedded within larger, multi-enterprise systems such as logistics management networks.
The Transportation Management System (e-TMS) provided by Descartes Systems Group, FreightMatrix and RHYTHM from i2 Technologies, the CZAR family of products from SMC3, the National Transportation Exchange's Network, Transportation.com's system with Auto-Match functionality, CarrierPoint's Marketplace, LeanLogistics' suite of Internet tools, and Nistevo's system, for example, all utilize intelligent agent technology, as do a number of other networks and systems.
"Intelligent agents are like screens along a data flow," explains Matthew Menner, managing director-sales and marketing for Logistics.com. "They're designed to automate processes, to intelligently pare down the amount of information to be addressed by applying a company's business rules to specific tasks. And the better a fleet is at doing that, the more successful it's likely to be."
"Traditional optimization systems are designed to work when all the data is centralized, and increasingly data is being pooled within companies. However, trading partners today are also attempting to do more things collaboratively," says Warren Powell, director of CASTLE Laboratory, part of Princeton University's Department of Civil Engineering and Operations Research. Powell and his graduate students at CASTLE (Computational and Stochastic Transportation and Logistics Engineering) Lab develop advanced optimization models and algorithms for managing complex logistics systems.
"Multi-agents or intelligent agents are useful when companies are reaching out between organizations and the data resides at more than one place," Powell adds. "There's a need for both types of systems."
LeanLogistics.com Holland, Mich.-based LeanLogistics.com, for example, provides carriers with "Loadhound" agents within the company's electronic freight exchange system to search online for loads that meet fleets' specific load criteria. "You can go out to the system and set up a search agent," illustrates Jeffrey Potts, vp-sales and marketing for LeanLogistics, "and then you can tell your agent: 'I will have a truck delivering a load in Dallas in three days. After that, it's headed to Memphis. You can also say you only want to see refrigerated loads from selected shippers, with certain delivery date requirements, at certain rates," he adds. "The agent can either notify you when appropriate loads show up or automatically bid on them on your behalf."
Loadhound and its shipper agent counterpart, "Nextender," are parts of LeanLogistics new electronic freight exchange, scheduled to launch as this article was going to press. According to Potts, the web-based system is designed to enable carriers to bid and win the right loads directly from shippers, dramatically reducing the time and resources fleets devote to finding loads. It includes a comprehensive suite of logistics planning, management and execution software designed to handle functions such as capacity management, bidding, accepting loads, and payment for services.
"Generally, we focus on Fortune 1,000 shippers and look at their entire volume of transportation," Potts says. "We want them to place all their transportation on the exchange. Most shippers have core carriers they use for 80% to 90% of their shipping. When member shippers initially tender loads, the loads are visible on the system only to their core carriers, who have a time window in which to respond.
"Loads the core carriers can't handle are re-tendered to second tier carriers," he continues, "and any remaining loads are finally available to all other carriers on the system for consideration. It's a real-time system, so as soon as a load is assigned, it's removed from the network along with any other bids that were offered for that load."
According to Potts, LeanLogistics also handles payment of carriers automatically and electronically. "Carriers confirm delivery on the Internet, and five days later we pay them automatically via electronic funds transfer," he explains. "Twenty-five days later, the shipper's account is debited. This means that carriers are paid promptly and shippers still have a 30-day payment cycle. We've contracted with a major bank to handle this payment process, and since it's a private system, the bank pre-qualifies shippers and covers the risk of debt. This payment approach reduces the cost of capital for carriers by as much as 50%," Potts adds.
The LeanLogistics software is available without charge in ASP format, he notes, and there are no membership fees. Shippers pay a negotiated flat fee for each shipment successfully handled through the system, and carriers pay only a "negligible" transaction fee to the bank. "We want to make it advantageous for both parties to participate," Potts says.
Nistevo.com Like LeanLogistics, Minnesota-based Nistevo utilizes intelligent agent technology within its web-based suite of logistics services, which features private and semi-private trading exchanges; contract management; and tools for shippers, carriers and third-party logistics providers (3PLs) to collaboratively manage the shipment and delivery process.
"Our network is a supply-side optimization system," says Kevin Lynch, president and CEO of Nistevo. "The goal is to enable the creation of 'adaptive' supply chains where planning and execution are merged. In order to do this, you have to be able to see what is happening and to affect what is happening on the fly. The extremely fast optimizers or agents in the system were developed specifically to enable decision-making at the points of execution. In other words, you don't plan first and then execute on Nistevo.com, you execute intelligently."
Nistevo.com's Collaborative Execution services are at the action epicenter of the network - the front lines for this combined planning and execution process. Using various operational tools, shippers, carriers and 3PLs share visibility of products in the logistics pipeline and are able to work together to manage the shipment process from creation, to load tendering through final delivery, according to Lynch. Even exceptions to price thresholds or in-transit schedules are pro-actively managed via Nistevo's intelligent "EventAgent."
The Exchange functions also make use of agent technology to help carriers obtain time-forward visibility for shipper demand, as well as to create new bids, submit forward and excess capacity into the Exchange, and see appropriate backhaul opportunities for the loads they accept. "We essentially sit between the shipper's and the carrier's tendering signal and show the carrier opportunities for backhauls on every load," says Lynch. "Every time a carrier accepts a load from us, he gets more backhauls." For shippers, the Exchange also provides the opportunity to make use of one another's empty backhauls or to combine partial outbound loads.
The network is not just intended to handle extra loads and excess capacity, though. "Our shippers utilize approximately 600 different contract carriers through agreements involving about $10 billion in total spending," Lynch says. "We put those contracts on the exchange and manage, not disrupt, them. This enables member partners to do things like establish, negotiate, and approve lanes and rates, and monitor activity against their contracts."
Nistevo.com members do not pay per-use fees, according to Lynch. Instead, shippers pay an annual subscription of $3,500 per location/per traffic manager, while carriers are charged $1,000 per year/per connection. "If a fleet is centrally tendering, that means the annual cost is just $1,000," he says.
Transport Dynamics The dot-com companies are not the only ones merging Internet and intelligent agent technologies, however. Suppliers of large-scale, installed optimization systems are also developing multi-agent capabilities designed for Internet-based applications.
"We are currently developing yield management and bid analysis systems or agents," says Derek Gittoes, managing director for Transport Dynamics, Princeton, N. J. "Everyone is building Internet exchanges for posting loads and carrier capacity. We've worked out a system to enable carriers to filter out the loads that are best for their fleet.
"For example, a regional TL fleet knows where its drivers and regular customers are and their typical shipping patterns. We can model that to see where they'll be apt to have excess capacity or shortages," Gittoes explains. "Then we can poll or sweep all the online loads available through the various exchanges and bring all the information concerning those possible new loads to one spot.
"Then we can add all the loads from this process to the loads the carrier has already booked for existing customers," he continues. "Finally, the system can compare them all to see which loads are best, to see how the online loads compare with the best booked loads.
"The new bid analysis agent, which we are working on with The Transportation Consulting Group, operates in somewhat the same way to allow carriers to analyze the profitability of potential new freight and determine what pricing structure makes sense," Gittoes adds. "The system simulates how the fleet would operate with the bid freight versus historic freight and then runs that information through the activity-based costing model developed for us by The Transportation Consulting Group."
The availability of optimization software for internal and collaborative decision support should be a boon to fleets large and small, which are struggling to leverage all the valuable information that technology is making available to their operations.
There is a corollary problem, however, that optimization systems can't help. What happens when your various shippers expect you to do business with them using various logistics optimization systems?
Bob Meyers, president and CEO of Transport Corp. of America, already has one solution in the works - bridge building. "Transport Corp. is a long-time Logistics.com customer. We're utilizing a number of the company's optimization tools and we're installing more," he says.
"We do get requests from shippers, however, to use certain other supply chain tools," adds Meyers. "The customer is always right, but training our people on the use of multiple systems is a challenge.
"To solve the problem, we're currently building an HTML 'bridge,' in this case, between us and Nistevo," Meyer explains. "This will enable our people to see the same screen they're used to working with. They'll enter information just like always, and our bridge system will populate Nistevo's screen forms with the necessary data."
Meyers, like other fleet executives, sees a need for both proprietary and collaborative decision support systems. "We want to be able to analyze our own network to see where we have the most opportunities," he says. "I also expect that we'll have to build a hybrid system or intelligent agent, however, to see if we can augment our internal solution with an internal/external solution. We will want to be able to scan exchanges for instance, for outside opportunities."
Whether fleets install large-scale optimization systems or benefit from the built-in intelligent agents that are beginning to populate Internet-delivered logistics management software, decision support systems seem destined to become part of routine operations for many more fleets. "I can't see how carriers can deal with all this load data without smart agents," says Warren Powell.
Gittoes agrees. "Regardless of what technology you're talking about, they all drive to the same thing - much more information being delivered. The companies that can act faster and more intelligently on that information will be the winners," he says.
"Today, the only way to be faster and to make better decisions is with software support," Gittoes adds, "and the only software designed to support the decision-making process is optimization software."
Optimization systems: Computer programs that analyze large volumes of data according to specific rules or mathematical models to provide decision makers with recommended courses of action (also called decision support systems).
Intelligent agents: Specialized, mini-optimization programs designed to automate specific processes, which generally involve using data from more than one source, by applying a company's business rules to the tasks. Agents are intended to act as the carrier or shipper would when certain conditions occur.
Engines: Very job-specific software programs developed to do particular functions, such as data searches or rate calculations. "Engine" is sometimes used interchangeably with "agent."
Southeastern Freight Lines, based in Columbia, S. C., is one of the country's top LTL carriers. It's also one of the pioneer users of optimization systems. About seven years ago, Southeastern began using SuperSpin from Logistics.com to help determine when it should be doing direct loads versus going through one of its break bulk facilities. The fleet, which has 2,500 tractors and 6,500 trailers in its dry van, linehaul operation, today is also using optimization software in scheduling and dispatch. Optimization has helped the company grow its business, according to J. Braxton Vick Jr., senior vp, and there's no turning back now.
How do you use SuperSpin in your operation today?
SuperSpin is an advanced linehaul network planning and optimization tool. It allows us to look at our freight and determine where it makes sense to do direct loads instead of routing the freight through one of our break bulk/freight consolidation facilities. The system considers both costs and service. We have transit days in the program, for example, so we can tell if we won't be able to make a next-day delivery commitment. It also looks at our whole linehaul operation at once, something that's almost impossible to do by hand anymore.
When we have any changes in freight volumes, for instance, SuperSpin helps us adjust rather quickly. It's also great for when we're adding new facilities. We can do what-if scenarios to determine how placing a new terminal at a particular location will impact our operation before we move ahead with construction.
How is optimization used in scheduling?
For the past several months, we've been working with Logistics.com as a co-developer of their OptiSchedule system. At Southeastern, about 80% of our linehaul business is regularly scheduled runs. The system computes how many regular runs we'll have per night based on our history. It allows us to evaluate our schedules on a more timely basis than we have been able to in the past, when the process took three or four months working with spreadsheets and printed schedules. We expect to see a 2-3% savings on our linehaul operation as a result, and that's big dollars.
How does the dispatching system work?
OptiDispatch is a planning and tracking tool. As we're operating every night, it churns all the data and gives us recommendations for how to handle the 20% of our business that's "extra"; in other words, the loads that fall outside our regular scheduled runs. Our six dispatchers handle about 1,500 extra loads per night. Instead of looking at our history, the system looks at what's going on right now. If there are changes or updates, the system may give us a new recommendation based on that information.
Do you have advice for companies considering optimization systems?
No matter what company you're talking about, you need to have a top person as an advocate if you're going to successfully implement any new information technology system. You also want to document as many cost-savings as you can. It's difficult, of course, because some of the savings are "soft dollars," and because there's no good benchmark. When all is said and done, you just do it because it's the right thing to do, and you make sure it's fully implemented and fully utilized.