IMPROVING SUPPLY CHAIN COMPETITIVENESS THROUGH THE APPLICATION OF TECHNOLOGY. A CASE STUDY ON A ROUTING AND SCHEDULING SYSTEM by RYAN HOLLANDER 920203095 Thesis submitted in fulfillment of the requirements for the degree of MASTER OF COMMERCE in LOGISTICS MANGEMENT in the FACULTY OF MANAGEMENT at the UNIVERSITY OF JOHANNESBURG Promoter: Prof J Walters October 2008
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IMPROVING SUPPLY CHAIN COMPETITIVENESS
THROUGH THE APPLICATION OF TECHNOLOGY.
A CASE STUDY ON A ROUTING AND SCHEDULING
SYSTEM
by
RYAN HOLLANDER
920203095
Thesis submitted in fulfillment of
the requirements for the degree of
MASTER OF COMMERCE
in
LOGISTICS MANGEMENT
in the
FACULTY OF MANAGEMENT
at the
UNIVERSITY OF JOHANNESBURG
Promoter: Prof J Walters
October 2008
i
Acknowledgements
I would like to acknowledge the following people for their contribution to this study:
• Rosy, my wife, for all her support, care and understanding during the
long hours I have spent compiling this dissertation.
• Temima, my daughter, for all the family time she has sacrificed in order
to allow me to complete this dissertation.
• My parents, Marian and Ivan, for their continuous support and
encouragement to persevere throughout my studies.
• Professor J Walters for his guidance, assistance, patience and
encouragement during my dissertation.
ii
Executive summary
In the last hundred years there has been a technological revolution that has forced
people to change the way they live and run their organisations. This technological
revolution has had a major impact on the business world. Coyle, Bardi and Langley
(2003; 57) have suggested that “the rate of change has accelerated with consequent
negative impacts if organisations do not change.”
With today’s emphasis on cutting costs, streamlining expenses while at the same
time trying to offer a competitive edge with regard to customer service, many
organisations are looking to improve their bottom line and financial performance by
implementing new technology into their supply chains. A popular way for
organisations to speedily reap the benefits of having a more competent and
competitive, technology-enabled supply chain, is by outsourcing their supply chain
needs to a third party logistics organisations. The Star newspaper reported that,
according to Brett Bowes, inefficiencies in the supply chain meant that fast-moving
consumer goods manufacturers and retailers were losing R7 billion every year (The
Star, 16 March 2007; 2). Although there are many auxiliary benefits and advantages
of implementing software systems into the supply chain, the two critical benefits
which justify the expense are reduced costs and improved customer service.
Implementing technology is a costly, challenging and sometimes risky endeavor. This
often results in an unwillingness to change until these organisations outgrow their
systems, or the business environment becomes so complex, that they are forced to
implement new technology. This hesitancy to introduce new technology timeously
could hamper the progress and growth of these organisations, and could also affect
their competitiveness in a highly competitive environment. The purpose of this case
study is to compare the benefits achieved from existing older technology to new
technology, based on a routing and scheduling case study in a large 3PL
organisation.
iii
In order to reach a conclusion about the above-mentioned problem statement, an
investigation was carried out into whether the implementation of a state-of-the-art
routing, scheduling and haulier management system into Clover Logistics has
achieved real benefits, improved the bottom line, as well as resulted in improved
customer service. The investigation takes an in-depth look at Magic, Clover Logistics’
previous management support system and compares it to Optima, Clover Logistics’
new dynamic routing, scheduling and financial management system.
In order to be able to fully comprehend the benefits and drawbacks of the
implementation of Optima into Clover Logistics, the dissertation looks at both the
qualitative and quantitative improvements and drawbacks that have occurred as a
result of the implementation of Optima. As a result of the implementation of Optima,
Clover Logistics saved R1 043 850 per month in 2006 through the optimisation of its
routes and scheduling of its vehicles. This equals an annual saving of R12 562 200.
From the qualitative and quantitative discussions and calculations discussed in this
dissertation, it is clear that Clover Logistics has benefited financially, as well as in
many other spheres as a result of the implementation of Optima into their supply
chain. With an improvement in on-time delivery from 85% to 99%, and a reduction in
incorrect invoices from 40% to 1%, Clover’s customer service levels have improved
drastically, resulting in more satisfied clients and a competitive advantage in the
marketplace.
In conclusion, the dissertation clearly establishes how the casting out of old
technology and the implementation of new technology has led to immense benefits
for Clover Logistics and that old technologies were in fact hampering Clover
Logistics’ bottom line and possibly their position in a competitive marketplace. It is
evident from this dissertation that outdated technology could possibly be hampering
the growth of many similar organisations, just as old technology was hampering the
growth and efficacy of Clover Logistics. It is thus in the interest of organisations to be
more aware of new technologies in the marketplace.
iv
Opsomming
Gedurende die afgelope honderd jaar het ‘n tegnologiese rewolusie plaasgevind wat
mense genoodsaak het om hulle lewenswyse en organisasies te verander. Die
tegnologiese rewolusie het ‘n wesenlike impak op die besigheidswêreld gehad.
Coyle, Bardi en Langley (2003; 57) het die mening uitgespreek dat “die tempo
waarteen verandering toegeneem het, negatiewe gevolge het indien organisasies nie
verander nie” (vertaling).
Met die klem vandag op kostebesnoeiing, die beperking van uitgawes
gepaardgaande met die strewe na ‘n mededingende voordeel ten opsigte van
kliëntediens, poog menige organisasie om te verbeter op hulle finansiële prestasies
en winste, deur die implementering van tegnologie in hul toevoerketting.
Organisasies kan vinnig die voordele van ‘n beter en meer kompeterende
tegnologies gedrewe toevoerketting ervaar, deur die behoeftes van hulle
toevoerketting aan ‘n derdeparty logistieke organisasie uit te kontrakteer. The Star
koerant het gerapporteer (volgens Brett Bowes) dat onbevoegdhede in die
toevoerketting ‘n verlies van R7 biljoen per jaar veroorsaak vir die vervaardigers en
verkopers van verbruikersgoedere wat vinnig versprei en afgelewer moet word. (The
Star, 16 Maart 2007; 2). Alhoewel daar menige byvoordele is wanneer
sagtewarestelsels in die toevoerketting geïplementeer word, is die twee kritiese
voordele wat sodanige uitgawe regverdig, beslis verminderde kostes en verbeterde
kliëntediens.
Die implementering van tegnologie is ‘n duur, uitdagende en soms riskante besluit.
Ditt het dikwels tot gevolg dat organisasies onwillig is om hierdie stap te neem, totdat
hulle bestaande stelsels ontoereikend geword het, of die besigheidsomgewing so
kompleks ontwikkel het, dat hulle genoodsaak word om die tegnologie te
implementeer. Die huiwering om nuwe tegnologie betyds te installeer, kan die
vordering van groei van sodanige organisasies erg rem, en daarmeegaande hulle
mededingendheid in ‘n hoogs kompeterende omgewing beïnvloed. Die doel van die
gevallestudie is om die voordele van bestaande tegnologie op te weeg teenoor nuwe
v
tegnologie, gebaseer op ‘n roete- en skeduleringgevallestudie in ‘n groot 3PL
organisasie.
Om tot ‘n gevolgtrekking vir die bogenoemde probleemstelling te kom, is ‘n
ondersoek geloods om te bepaal of the implementering van ‘n tydsrelevante
roeteskedulering- en vervoerbestuurstelsel werklik voordele inhou, winste verbeter
en gevolglik beter kliëntediens vir Clover Logistics teweeggebring het. Die
navorsingstudie het ‘n in-diepte ondersoek gedoen deur Magic, Clover Logistics se
vorige bestuursondersteuningstelsel te vergelyk met Optima, Clover Logistics se
nuwe dinamiese roete-, skedulering- en finansiële bestuurstelsel.
Om werklik die voor- en nadele van die implementering van Optima in Clover
Logistics te begryp, kyk die studie na beide die kwalitatiewe en kwantitatiewe
verbeterings en tekortkominge wat teweeggebring is as gevolg van die
implementering van Optima. Clover Logistics het ‘n besparing van R1 043 850 per
maand in 2006 gewys deurdat roetes en voertuigskedulering optimaal beplan is as
gevolg van die implementering van Optima. Hierdie besparing beloop ‘n jaarlikse
bedrag van R12 562 200.
Vanuit die kwalitatiewe en kwantitatiewe ontledings en berekeninge wat tydens die
studie gedoen is, is dit duidelik dat Clover Logistics finansiëel, sowel as op ander
gebiede gebaat het by die implementering van Optima in hul toevoerketting. Met ‘n
verhoging in die op-tyd lewering van 85% na 99%, en ‘n afname in foutiewe fakture
van 40% na 1%, het Clover se kliëntediensvlakke drasties verbeter. Dit het meer
tevrede kliënte, en aldus ‘n mededingende voordeel in die marksegment tot gevolg
gehad.
Die studie se finale bevinding is dus dat die vervanging van ou tegnologie met nuwe
tegnologie geweldige voordele vir Clover Logistics ingehou het. Ou tegnologie het
Clover se winste benadeel, en daarmee saam hulle posisie in ‘n kompeterende mark
negatief beïnvloed. Daar kan dus uit die studie afgelei word dat verouderde
tegnologie die groei van menige soortgelyke organisasies kan demp, net soos wat in
die geval van Clover se groei en welvaart gebeur het. Dit is dus vir organisasies van
uiterste belang om meer bewus te wees van nuwe tegnologieë in hulle bepaalde
Table of Contents ....................................................................................................................................vi
List of figures ...........................................................................................................................................xi
List of tables ......................................................................................................................................... xiii
List of abbreviations............................................................................................................................... xiv
Figure 2.1 The Value Chain ......................................................................................................... 11
Figure 2.2 The Modern Supply Chain.......................................................................................... 12
Figure 2.3 The Supply Chain Process ......................................................................................... 18
Figure 3.1 Percentage of respondents whose management has requested or received a recommendation to improve transportation performance in 2006 ............................. 44
Figure 3.2 Ordering process ........................................................................................................ 52
Figure 3.3 Transportation management priorities when choosing technology............................ 54
Figure 3.4 Uses of technology in the logistics field...................................................................... 56
Figure 3.5 An example of a vehicle routing problem ................................................................... 62
Figure 3.6 The effects of an advanced routing and scheduling system on CO2 emissions........ 68
Figure 3.7 ABI’s problem: The fixed call cycle............................................................................. 78
Figure 3.9 Example of the predicted versus actual refill needs of a vending machine for four months ........................................................................................................................ 80
Figure 4.1 Definition of primary distribution ................................................................................. 90
Figure 4.2 Predicted and historical request for services as in March 2004................................. 93
Figure 4.3 Clover’s primary distribution flows.............................................................................. 94
Figure 4.4 Clover’s Gauteng primary distribution flows............................................................... 95
Figure 6.7 Gauteng-Eastern Cape: new route versus old route................................................ 193
Figure 6.8 Average fill rate of vehicles per branch (September 2007)...................................... 195
xiii
List of tables
Table 4.1 Information required when adding a new route........................................................ 107
Table 4.2 Information required when adding a new route distance to the distance file........... 107
Table 4.3 Information required when adding a new tariff ......................................................... 108
Table 4.4 Information required when adding a delivery or pick-up point ................................. 108
Table 4.5 Information required when adding a haulier............................................................. 109
Table 4.6 Information required when adding debtor codes...................................................... 109
Table 4.7 Information required when adding reason codes..................................................... 110
Table 5.1 The optimising engines’ parameters ........................................................................ 139
Table 5.2 Information required when adding new hauliers ...................................................... 148
Table 5.3 Information required when adding new clients......................................................... 149
Table 5.4 Information required when adding new sites............................................................ 149
Table 5.5 Information required when adding an area group .................................................... 150
Table 5.6 Information required when adding a new lane ......................................................... 150
Table 5.7 Information required when adding a new tariff ......................................................... 151
Table 5.8 Information required when adding a new charge..................................................... 152
Table 5.9 List of various different charges................................................................................ 153
Table 5.10 Information required when adding a new vehicle..................................................... 154
Table 5.11 Information required when adding a new reason codes .......................................... 155
Table 5.12 Information required when adding new loading bays............................................... 156
Table 6.1 The general feeling of the Optima users towards Optima........................................ 185
Table 6.2 Saving achieved through optimal routing and scheduling of KwaZulu Natal loads 191
Table 6.3 Cost of purchasing and implementing Optima ......................................................... 196
Table 6.4 Saving achieved through optimal routing and scheduling for the last six months of the financial year 2004/2005 .......................................................................................... 197
Table 6.5 Saving achieved through optimal routing and scheduling for the financial year 2005/2006................................................................................................................. 198
xiv
List of abbreviations
• 3PL-Third party logistics (provider)
• AP-Accounts payable
• APS-Advanced Planning System
• AR-Accounts receivable
• BCG- Branded consumer goods
• BPCS-Business Planning and Control System-(Clovers ERP system)
• BR-Branch Replenishment (system)
• CDC-Central distribution centre
• CO2-Carbon dioxide
• CRPS-Customer response planning system
• CRS-Customer response system
• DC-Distribution centre
• DO-Drop-off
• EDI- Electronic data interchange
• ERP-Enterprise Recourse Planning
• ETA-Estimated time of arrival
• FLO-Fleet Logistics Optimiser
• FMCG-Fast moving consumer goods
• GIGO – Garbage-in-garbage-out
• GNP-Gross national product
• GPO-Generation of purchase order
xv
• GPS-Global positioning system
• IDF-Israel Defense Force
• IMS-Inventory management system
• IPS-Inventory planning system
• IS-Information services
• IT-Information technology
• JIT-Just in time
• KM-Kilometre
• KPI- Key performance indicator
• LES-Logistics execution system
• LIS-Logistics information system
• LPS-Logistics planning system
• MRP2 – Materials requirement planning
• NHS-National Health Services
• OVAL- Optimization of Vending and Logistics
• PO – Purchase order
• POD- Proof of delivery
• PU-Pick up
• QR-Quadruple resonance
• RFS - Request for service
• ROI-Return on investment
• SAB-South African Breweries (Ltd)
• SA-South Africa
xvi
• SCES-Supply chain execution systems
• SKU-Stock keeping units
• SMS-Short message service
• SMS-Supply management system
• SPS-Supply planning system
• SR-Service request
• TMS-Transportation management system
• TPS-Transportation planning system
• TR-Transport request
• UOM-Unit of measure
• UPS-United parcel service
• USA-United States of America
• WMS-Warehouse management system
• WPS-Warehouse planning system
1
Chapter 1
1 INTRODUCTION
1.1 Introduction
In the last hundred years there has been a technological revolution that has forced
people to change the way they live and run their organisations. With the rapid rate at
which computer hardware and software has developed, the world of today will only
be a resemblance of the world of tomorrow. This technological age is having a major
impact on the business world. Coyle, Bardi and Langley (2003; 57) have suggested
that “the rate of change has accelerated with consequent negative impacts if
organisations do not change.” All organisations feel the pressure to keep up with the
technological race for fear of falling behind their competitors, or even worse, falling
out of the race.
The first question that needs to be asked is: Is there a need to move to new ways of
doing things? What is wrong with old processes and systems that organisations are
constantly looking to replace them with new ones? These questions can be
answered by understanding how the supply chain has evolved over time and become
more complex, demanding the use of advanced processes in order to control it.
According to Steven Anderson (Anderson, 2005;8 ), the rise in complex supply
chains can be attributed to the fact that transportation options are growing, additional
suppliers have entered the market and the number of products available has
mushroomed. Other factors such as liberated international trade and falling trade
barriers between nations, have also contributed to the rise in the complexity of supply
chains.
Also, with today’s emphasis on cutting costs, streamlining expenses while at the
same time trying to offer a competitive edge with regard to customer service, many
organisations are looking to improve their bottom line and financial performance by
implementing technology into their supply chains. The bottom line includes factors
2
such as reduced costs, improved relationships with supply chain partners and
improved customer service levels amongst other factors. Organisations are
relentlessly searching for technologies that they hope will lead to efficiency,
effectiveness, reduced costs and a competitive edge through differentiation.
Unfortunately, many people involved in an organisation’s decision-making processes
do not fully understand the supply chain process, and often assume that technology
is the ultimate solution in today’s high-tech world. The fact that 53% of midsize
organisations planned to spend more on supply chain technology in 2006 than they
did in 2005 (Enslow, 2006;2), shows that organisations are investing significant
amounts of capital in their supply chains. The question is: Is this money being spent
in the right places, at the right time and with realistic goals in mind?
In order for any technology to be successfully implemented in a supply chain, those
involved need to understand the complexities of the technology that is being
implemented into the supply chain and the function they hope that the technology will
serve in improving that activity. Often, even when there is a proper understanding of
the above, individuals still fail to understand the potential benefits and limitations of
technology which can lead to unnecessary costs and other problems.
Often, the quick turn to technology to solve business problems and improve the
bottom line, has been met with gloomy results. A recent analysis indicated that about
two-thirds of organisations that installed software to improve their supply chains,
realised improved metrics such as inventory turns (it was common to see 100 to 150
percent improvement within two years). The other third experienced unsuccessful
implementations, and actually achieved worse performance than organisations that
did not implement software changes. In other words, poorly conceived software
implementations can hurt organisations more than doing nothing at all (Haggar,
2003; 1).
Supply chain software may often work best in conjunction with older, simpler
systems; and often when investigating and implementing a change of systems,
organisations tend to throw out the old, disregarding its potential value as part of a
new system. Such misinterpretation or misunderstanding of the relationship between
the supply chain and technology often ends up as a disaster.
3
In summary, according to Coyle, Bardi and Langley (2003; 593) the ability to select,
implement and utilise technology can be a key factor in effecting the success or
failure of an organisation. Thus, technology must be viewed as an investment that is
needed to satisfy the information, imperative of the connected economy for velocity,
visibility, rapid decisions and operational flexibility.
1.2 The problem statement
In today’s economy, the speed of information access and delivery is often the
difference between the success and failure of the supply chain. Advertising
campaigns by major software vendors and industry slogans have crept into the
consciousness of the corporate executive looking for a competitive edge (Eckerson,
2006).
The Aberdeen Group (2003;1) reported that “Having exhausted avenues for reducing
headcount and other internal costs, companies are now looking to their supply chain
for cost reduction, innovation and added value.” From here we see that organisations
are constantly looking for ways to improve their bottom line and financial
performance. In the past couple of years, a trend has emerged which shows a
collective focus on exploiting the supply chain in order to reach this goal. This has
been done without attention to the individual organisation’s strengths and
weaknesses which were traditionally seen as the key factors to increasing net profits.
According to a 1999 survey of career patterns conducted for the Council for Logistics
Management, new technologies have become critical in order to compete effectively
(Coyle, Bardi & Langley, 2003; 473). Many software and hardware companies are
selling products that they claim can assist organisations to manage different parts of
their supply chains. These packages each promise to optimise and improve one or
many links in the supply chain - from warehousing to routing. These solutions
promise to dramatically improve business, handle procurement, production,
distribution and even aspects of customer service. The one thing that these different
technology organisations have in common, is that they generally promise to improve
efficiency and ultimately to improve the bottom line. This has created a
misconception shared by many, that by simply implementing technology into the
supply chain is enough to improve profits. However, implementing and actually
4
benefiting from supply chain technology are two different things. In order for the
benefits to show an improvement in profit, many obstacles have to be overcome; for
example, vendor and employee buy-in and clean and accurate master data.
The MCI consumer research lab (Rosen & Weil, 2000) conducted a four year study in
order to understand how people react to new technology. The study identified three
groups of people. The first group being eager adopters, eager adopters are people
who embrace technology as soon as it is released. MCI’s study found 12% of people
to be eager adopters. “Hesitant ‘Prove Its’ form the largest group (59% in MCI's
study). Hesitant ‘Prove Its’ are not anti-technology, nor are they usually technophobic
(although they may be). Rather, they are waiting on the sidelines for someone to
show them how technology can help them. They want to know how technology will
specifically make their life easier. Hesitant ‘Prove Its’ know that technology has
problems and they do not necessarily enjoy dealing with those problems. They would
rather wait on the sidelines until there are no problems”(Ibid). The last group,
resisters, made up 29% of the people involved in the study. Resisters “do not like it,
want it or find it enjoyable” (Ibid). The MCI study concludes that “Across the past five
years, we have seen a strong increase in the use of technology in the workplace by
both Clerical/Support Staff as well as Managers and Executives. Additionally, it
appears that more technological use is being required at home after standard work
hours. In spite of the increased use of technology, rather than being excited and
more accepting of new technology, people in the business world appear to be more
hesitant”(Ibid).
Despite the clear benefits of new technology, hesitancy to adopt new technology is
seen across all fields in the business world. Business Wire (January 2004) reported
that “the reluctance of care providers to adopt new technologies is hampering market
development”.
“When asked why they are hesitant to accept new technologies, Americans largely
claimed that lack of familiarity with the technology (42 percent) and general dislike of
the technology (41 percent) were the main issues. The numbers show hesitancy on
the consumer side mainly resulting from lack of knowledge of the benefits of each
technology, said Miller.” (Trend O.X.Y.G.E.N., 2005)
5
Implementing new technology is a costly, challenging and sometimes risky endeavor.
This often results in an unwillingness to change until organisations outgrow their old,
often in-house-developed systems and processes or the business environment
becomes so complex, that they are forced to implement new technology. This
hesitancy to introduce new technology timeously could hamper the progress and
growth of these organisations, and could also affect their competitiveness in a highly
competitive environment.
1.3 Research aims
The primary objective of this dissertation is to contrast the limitations of older
technology in the supply chain to the benefits achieved from utilising new technology
in the supply chain.
This will be achieved by investigating whether the implementation of a state of the art
routing, scheduling and haulier management system into Clover Logistics, a leading
third party logistics provider in South Africa, has achieved real benefits and improved
the bottom line of the organisation as compared to using their in-house developed
operational systems.
The dissertation seeks to add value to the industry by showing that it is in the interest
of organisations to be aware of the benefits of new technologies in the marketplace.
The results gained from this case study are specific to Clover Logistics; however,
because Clover Logistics is a leading third party logistics organisation, the results of
this case study could be expected in other 3PLs ( it is important to note that Clover
Logistics is both an in-house logistics provider as well as a 3PL for external
companies).
1.4 Methodology of study
This study was based on relevant literature, as well as a case study in which a
specialised state of the art routing, scheduling and haulier management system has
been implemented into the supply chain of Clover Logistics.
6
The literature generally comprised of related publications, as well as articles and
statements which were analysed in the light of the relevant case study. The
dissertation also quotes other case studies where technology has been implemented
into the supply chain, and assesses whether or not benefits were achieved.
The most advantageous way for the author to contrast old technology against new
technology was through a case study. Through the use of a case study where old
technology was replaced with new state of the art technology the author was able to
directly compare the limitations of old technology with the benefits and advantages
of new technology. The case study comprised an evaluation of Clover Logistics
which is at present finalising the implementation of state-of-the-art software to
schedule loads and communicate with its hauliers. The organisation’s procedures,
costs, customer service and relationships with external hauliers, as well as other
important factors were assessed before and after the implementation of the
technology in order to evaluate the benefits and drawbacks of the new technology.
All benefits that could be quantified in numbers were then analysed using statistical
procedures.
The case study initialy involved surveys with personnel involved in all aspects of the
implementation and daily use of the routing, scheduling and haulier management
system, including Clover Logistics personnel, Opsi systems personnel, warehouse
personnel as well as the outsourced hauliers personnel. The surveys, conducted via
e-mail, were carefully analysed along side all relevant documentation that was
generated by Opsi systems and Clover Logistics at the time of the project. Follow up
meetings were then held with the relevant people to clarify and substantiate the
information obtained from the surveys and documentation.
1.5 Scope of the study
This dissertation mainly focuses on the application of technology in supply chain
management. In order to fully understand the application of technology in supply
chain management, a case study of Clover Logistics which is at present finalising the
implementation of state of the art software to schedule loads and communicate with
its hauliers, was looked at and analysed.
7
Clover Logistics provides a number of services including warehousing, secondary
distribution, primary distribution, sales and merchandising, management information
systems, credit control and a large number of other services. This dissertation will
focus on Clover Logistics’ primary distribution as the use of technology has been a
critical element in their growth and has ensured the stability of the organisation as it
continues to grow.
Owing to the fact that only one case study was focused on, principles learnt from this
study only apply directly to Clover Logistics. Reference was also made to studies that
have been conducted in other organisations’ supply chains, adding scope to the
applicability of the research.
1.6 Exposition of the study
This section describes the chapters that the thesis covered.
1.6.1 Chapter 1
The first chapter includes an introduction to the dissertation. This chapter looks at the
problem statement, the objectives and methodology of the dissertation.
1.6.2 Chapter 2
Chapter two begins by defining logistics, and specifically, third party logistics. A large
portion of chapter two is devoted to discussing outsourcing and the benefits and
disadvantages of it. The chapter then goes on to discuss the need for good
management and improved control when outsourcing, specifically to a third party
logistics organisations. This includes the need for better collaboration and
communication with its subcontractors and clients, as well as the need for better
sharing of information with its partners, sharing that is largely an electronic exchange
of business information. Chapter two begins to examine the need and role of
information systems in the supply chain, specifically in third party logistics
organisations. This is discussed in more depth in the following chapter.
8
1.6.3 Chapter 3
The third chapter examines the historical development of how and why technology
became a tool utilised in the logistics industry. Different technological systems
available in the supply chain are briefly discussed. The chapter then takes a more
focused look at routing and scheduling systems and debates their values, problems,
and positive and negative contributions to the supply chain. A few case studies of
where technology has been implemented into the supply chain and the result thereof,
are briefly reviewed. The need and importance of high quality data when
implementing and using technological systems is also discussed in this chapter.
1.6.4 Chapter 4
As a case study, Clover Logistics is examined in some depth in this chapter. The
case study includes the problems and issues in the processes of the organisation,
prior to the implementation of the new technology.
1.6.5 Chapter 5
Chapter five takes a deeper look at the implementation of transport and information
management software into the supply chain of Clover Logistics. An analysis of the
challenges faced when implementing the new software into Clover Logistics’ supply
chain, is investigated. The chapter then takes an in-depth look at the implemented
software and the new processes that have been created at the organisation with the
implementation of the software.
1.6.6 Chapter 6
The sixth chapter consists of a comparison between the old and new systems and
processes at Clover Logistics. The benefits and downfalls obtained from
implementing new technology into the supply chain are quantified. It is important to
note that not all achievements such as customer service can and is quantified in
numbers. The results are then discussed and analysed.
9
1.6.7 Chapter 7
Chapter seven summarises the study on a chapter-by-chapter basis, and draws
overall conclusions in the context of the study.
10
Chapter 2
2 THE DEVELOPMENT AND GROWTH OF LOGISTICS
2.1 Introduction
With the growth of industrialisation, urbanisation, globalisation and mechanisation,
the end of the twentieth century saw a more informed and educated consumer. This
new, informed consumer led to a new competitive environment which meant that
consumers would no longer be satisfied with the standard products and services they
had been provided with in the past, and would demand higher standards and
improved services. Owing to this, organisations began to realise that if they
continued operating with the same processes and strategies, they would no longer
be able to meet the expectations of the new, more demanding consumer, and would
eventually cease to exist.
This more demanding consumer led organisations to begin looking at new ways to
increase their competitive advantages. Once it became clear to organisations that
their core product can only be improved and become more competitive up to a
certain point, organisations started looking elsewhere for ways to improve their
competitive advantage in the marketplace. Two main ways were identified to help
increase competitiveness, those being reduced cost and improved service.
In the endeavour to reduce costs and offer an improved service, organisations began
scrutinising every aspect of their organisation and soon found that their supply chain
was an area than needed lots of attention. This led to organisations successfully
improving their competitive advantage through supply chain optimisation, improved
supply chain management, outsourcing of an organisations’ non-core needs, and the
use of technology to optimise and manage the supply chain.
This chapter will begin by looking at what the supply chain is, and how it fits into the
greater value chain of an organisation. The chapter will then proceed with a definition
of logistics, the birth and growth of the third party logistics organisation and the need
for good management and improved control in third party logistics organisations.
11
Chapter two will then go on to explain the need and role of information systems in the
supply chain, specifically in third party logistics organisations.
2.2 The value chain
In order to gain a greater understanding of logistics, it is necessary to take a look at
the greater framework, that being the value chain and the supply chain of which it is
part.
The value chain is an orderly approach to examining the development of competitive
advantage which was developed by M. E. Porter in 1980. The chain consists of a
series of activities that create and build value which in the end adds up to the total
value delivered by an organisation. As can be seen in the figure below, the
organisation is split into 'primary activities' and 'support activities’ (Marketingteacher,
2007; 1).
Figure 2.1 The Value Chain
Mar
ginInbound
LogisticsOperations
OutboundLogistics
Marketingand Sales
Service
Primary Activities
Technology Development
Procurement
Firm Infrastructure
Human Resource ManagementSupport Activities
Margin
Mar
ginInbound
LogisticsOperations
OutboundLogistics
Marketingand Sales
Service
Primary Activities
Technology Development
Procurement
Firm Infrastructure
Human Resource ManagementSupport Activities
Margin
Source : WMEP, 2007; 1
Included within the primary activities are inbound logistics, operations, outbound
logistics, marketing, and sales and service. Included in the support activities are
procurement, technology development, human resource management and firm
infrastructure. The main objective of Porters’ value chain was to improve overall
efficiency of an organisation in order to obtain a competitive advantage.
12
According to a survey done by IndustryWeek Magazine (HighJump Software,2005),
some of the changes organisations have experienced with Value Chain Management
are listed below:
• Costs Savings 62% Improvement
• Increased Market Share 32% Improvement
• Reduced Inventory 51% Improvement
• Higher Quality 60% Improvement
• Faster Delivery Times 43% Improvement
• Customer Service 66% Improvement
2.3 The supply chain
The primary activities of the value chain make up the supply chain. Beamon defines
the supply chain as an integrated process wherein a number of various business
entities (i.e., suppliers, manufacturers, distributors and retailers) work together in an
effort to: (1) acquire raw materials, (2) convert these raw materials into specified final
products, and (3) deliver these final products to retailers(Beamon, 1998; 281). This
chain is traditionally characterised by a forward flow of materials and a backward flow
of information (Ibid).
Figure 2.2 The Modern Supply Chain
Goods picked
Loads Dispatched
StoreReplenishment
Salesscanned
at checkoutSale updatesthe storeforecast
Store demandgenerated
Purchase ordergenerated
Supplier deliversto depot
Goodsreceived
and unloaded
Supplier Depot
StoreConsumer
Goods picked
Loads Dispatched
StoreReplenishment
Salesscanned
at checkoutSale updatesthe storeforecast
Store demandgenerated
Purchase ordergenerated
Supplier deliversto depot
Goodsreceived
and unloaded
Supplier Depot
StoreConsumer
Source: IGD, 2007; 1
13
The supply chain can be broken down into three distinct flows, namely the product
flow, the information flow and the finance flow. In the traditional supply chain, orders
were the only information exchanged between firms. Now, however, companies are
learning the importance of sharing demand and inventory data, in order to allow
companies down the supply chain to be better prepared for events that occur up the
supply chains. This bi-directional flow of information is critical to supply chain
optimisation and success.
As time goes by and technology continues to improve our lives, customers have
become used to constant improvements, and hence have become more demanding.
“To achieve in today’s customer competitive markets, manufacturers are being forced
to look beyond the essentials of the bare product in order to cope with customer
demands. To achieve this, they need to involve every link in their supply chain and
encourage them to become active participants in the process” (Desbarats, 1999; 4).
No longer is an organisation able to compete on the basis of a product alone.
Instead, complete organisational supply chains have begun competing against one
another (Desbarats, 1999; 3). “Manufacturing needs to accept that unless it creates
value in a form that can be perceived by the consumer, it is easily reduced to low
commodity margins “(Ibid).
“Satisfying the end customer can only take place when the entire supply channel
from materials supplier to retailer are linked closely together in the pursuit of
innovative ways to improve service value, reduce channel costs, and create whole
new regions of competitive space” ( Roethlein, Ackerson ; 2 ).
Optimising an organisations’ supply chain is no longer a choice for organisations, but
has become compulsory if they want to compete as “competence in supply chain
management will be a key determent in gaining a sustainable competitive advantage”
(Spekman, Spar, Kamauff, 2001; 2).
2.4 What is logistics?
The word logistics is derived from the ancient Greek word ‘logos’ (λόγος), which
means “ratio, word, calculation, reason, speech, and oration” (Wikipedia, 2007a). The
14
word logistics was first used in the military service to describe the process of
supplying a war zone with troops, supplies and equipment (Wisegeek).
2.4.1 The definition of logistics
According to the IDF (Israeli Defense Force), this military definition can be broken
down into different components such as:
• the planning, development, acquisition, storage, transportation, supply,
maintenance, evacuation and destruction of equipment (including
weapons, ammunition, etc.);
• force transportation and monitoring;
• evacuation and medical care for casualties (medical services);
• acquisition, construction, maintenance, and operation of buildings and
facilities;
• acquisition and rendering of services.
(Technological and Logistics Directorate, 2007; 1)
Although the term logistics was initially used exclusively in the military field, over time
it has come to refer to a major sector of the business environment.
There are several reasons why logistics has developed into the organisational
environment.
I. Deregulation – “As the economies in North America evolved in the 1970s
and 1980s, transportation deregulation changed the competitive
landscape of business. Carriers were free to charge their customers
(Shippers) a competitive rate for their shipments. Warehousing companies
that typically acted as surplus inventory storage locations, married up with
transportation companies to offer customers full-service solution
capabilities. This formed the beginning of the 3rd party logistics business
and paved the way for outsourcing logistical activities” ( About .com,
2007a ).
15
II. Globalisation – In order to gain a competitive advantage, manufacturing
organisations started moving their manufacturing facilities to countries with
low-cost labour. This resulted in a new logistics network being developed
in order to move the manufactured product from the country of production
to the consumer.
III. Information technology – The growth of computers and software meant
that tasks that were in the past manual and costly, could now be
automated. This change led to concepts being developed like just in time.
According to Coyle, Bardi and Langley (2003,39), logistics has come to be defined in
the business sector as “the process of planning, implementing, and controlling the
efficient, cost effective flow and storage of raw materials, in-process inventory,
finished goods and related information from point of origin to point of consumption for
the purpose of meeting customer requirements”. There is a wide range of definitions
available for the term ‘logistics’ (Webster’s Dictionary, American Heritage Dictionary,
Council of Logistics Management, United States Department of Defence as cited in
Logistics World). Although all different, they share the common idea of delivering the
right product to the right place at the right time in the most effective manner in order
to ensure the lowest costs and optimum level of customer service.
2.5 The need for organisations to focus on their core product
“Traditionally, marketing, distribution, planning, manufacturing, and the purchasing
organisations along the supply chain operated independently” (Ganeshan & Harrison,
22 May 1995; 1). This never only occurred when each organisation was owned and
operated as its own entity, but occurred even when the above were departments of a
single organisation. To make matters worse, these organisations or departments
often had their own objectives which were often conflicting.” Marketing's objective of
high customer service and maximum sales dollars conflicts with manufacturing and
distribution goals. Many manufacturing operations are designed to maximise
throughput and lower costs with little consideration for the impact on inventory levels
and distribution capabilities” (Ganeshan & Harrison, 22 May 95), “The result of these
factors is that there is not a single, integrated plan for the organisation” (Ibid).
16
The constant conflict described above often led to an organisation focusing on its
core product, without paying much attention to the support departments, such as
sourcing and logistics. These departments received little attention with limited focus
on their strategic importance or cost.
According to Ganeshan and Harrison over time organisations have come to realise
that there is a need for a mechanism through which these different functions can be
integrated together, a mechanism through which a competitive advantage can be
achieved due to reduced costs and improved customer service (Ganeshan &
Harrison, 22 May 1995; 1). Supply chain management is a strategy through which
such integration can be achieved.Only once a company realises that its different
departments and organisations are part of a holistic entity, can it begin and attempt to
optimise its supply chain through an integrated approach.
However, even once companies have become aware of this, they often do not see or
understand the possible benefits of working as a link in the expanded supply chain.
Traditionally, every company worked as an individual unit, controlling its own
resources without worrying much about the supplier or customer higher up or lower
down the supply chain. For example, in an effort to keep storage and the associated
costs down, retailers would prefer not to hold stock, but rather force the wholesaler to
hold the stock. This did however not eliminate the expense, but rather pushed it to
another link in the supply chain.
2.6 Supply chain optimisation
In the past few years, certain factors have suggested that focusing on a core service
as well as partnering with other members of the supply chain, can lead to greater
efficiency, reduced cost and hence larger profits. For example, if the retailer,
wholesaler and producer worked together they would find a way to reduce stock
altogether, and would hold stock at the link in the supply chain at which it is cheapest
for everyone.
In an increasingly competitive and globalising business environment, it is not
sufficient for organisations to merely produce high quality products. With
organisations producing similar goods and services, the matter that is commonly
17
raised is, "Where lies the weakest link and the resulting competitive differentiator?"
(Ram Mohan, 21 December 2006). In the past, organisations could compete on the
basis of their products alone, however, with a changing and developing competitive
environment, they are now forced to compete on the basis of the organisations’
supply chain strategies (Ibid).
“A killer product is only successful if it gets to the right customer at the right price at
the right time,” says Levi. “Apple’s supply chain technology is the (sic) really the silent
contributor to the company's success in executing the product innovation”
(Trebilcock, 27 July 2007; 1).
Optimising the entire supply chain as a whole will not only significantly reduce stock-
outs and reduce lead time, but it can also significantly reduce the logistics costs.
According to Martin Bailey, “the total logistics costs make up 15, 2% of South Africa’s
gross domestic product (GDP) a high figure when compared to trading partners such
as the US where logistics costs are 8,6% of the GDP” (Bailey, 2 March 2006; 34). If
South Africa can improve its general optimisation of its supply chain and reach
American standards, products can be up to 6.6% cheaper, giving the consumer more
disposable income and hence the ability to buy more and grow the economy .
Other benefits of managing the supply chain include risk reduction. “It is clear that the
impact upon business can be reduced if the potential risks are proactively managed,
and there is a well-conceived and constructive business plan in place” (Finch; 3).
At its highest level, a supply chain is comprised of two basic integrated processes:
(1) the Production Planning and Inventory Control Process, and (2) the Distribution
and Logistics Process (Beamon, 1998; 282).
However, when these two processes are broken down, many more processes are
involved in the supply chain which can be seen from the next diagram:
18
Figure 2.3 The Supply Chain Process
Suppliers
Manufacturing Facility
Storage Facility
Transport Vehicle
Retailer
Distribution Center
Production Planningand Inventory Control
Distribution and Logistics
Suppliers
Manufacturing Facility
Storage Facility
Transport Vehicle
Retailer
Distribution Center
Production Planningand Inventory Control
Distribution and Logistics
Source: Beamon, 1998; 283
2.7 The advantages and complexities of effective transport optimisation and
management
There are many areas in the supply chain which have room for improvement and
optimisation. Optimising the transport function is only one of the many areas where
the supply chain can be improved.
As can be seen from the following points, transport optimisation is certainly a link that
has much room for improvement. Below are a few of many examples of how,
according to High Jump Software, transportation management systems can rapidly
reduce costs (High Jump Software, 2005).
I. By automating the management of an organisation’s contracts through the
use of a software system to handle all of an organisation’s contacts and
tariffs, a reduction in administrative costs can be achieved by avoiding
mistakes made by manual invoicing.
II. Through optimising an organisation’s routes, schedules and loads, a
reduction in annual transport costs can be achieved.
III. A reduction in annual transport costs can be achieved through least-cost
mode or haulier selection.
19
IV. “By automating the tendering process a company will yield savings greater
than a simple reduction in staff time spent dialing for diesels. Automation
of tendering helps ensure routine conformance to a least-cost carrier
selection program. The automation of a tendering process also means
carriers receive complete, accurate information on tendered shipments the
first time, every time. In the past, automated tendering was limited to large
companies and large carriers where an electronic data interchange
connection was available and cost-effective for both parties. This simple,
reliable methodology can replace a myriad of phone calls attempting to
reach the desired carrier representative. Additionally, the carrier receives a
complete and accurate communication of the shipment detail without a
time-consuming phone conversation” (Ibid).
V. In light of the current extremely competitive transportation environment,
the ability to accurately record and assess performance across the supply
chain has become of great importance and value.
Maintaining a competitive advantage in today's demanding business environment
requires continual process improvement and cost reduction. Previously, in order to
lower costs, many organisations focused on transportation in an effort to control
supply chain costs and help ensure on time delivery.
Recently, however, effective transportation management has become more complex
due to several industry trends:
• the rising cost of fuel, insurance and drivers’ wages;
• the growing shortage of the availability of transportation needed that has
led to an environment in which organisations have to get "service at any
cost";
• consolidation of the transportation provider industry. Many large
corporates are buying up all the smaller transportation organisations;
• progressively more demanding customers;
• increase in transportation regulation.
(High Jump Software. 2005)
20
In South Africa, the new Credit Act (National Credit Act No. 34 of 2005, section 5 of
Schedule 3) that came into effect in 2007, is making it more difficult for hauliers to
borrow capital to increase their fleet as demand grows, which is in turn leading to
higher costs of transportation and increased complexities (Naidoo, 1 October 2007).
The above complexities in transport management along with other new complexities,
have led to the growth of outsourcing an organisation’s transport needs.
2.8 Why outsource?
In general, outsourcing is done in order to allow a firm to focus on its core
competencies. Examples of this can be seen below.
2.8.1 Examples of where outsourcing makes business sense
I. “If an organisation is assembling airplanes, then serving lunch to
employees is not a core competency, doing it internally is a distraction and
hence most companies use catering companies when available”
(Baudin,2004;337).
II. “Intel is turning raw silicon into microprocessors using multi-billion dollar
wafer fabrication plants, and may well consider that inbound and outbound
logistics is not their core competency “(Ibid).
Thomas remarks that although the concept of outsourcing a total department of an
organisation is relatively new, outsourcing to some degree has existed for years
(Thomas, September 2002). Using rented vehicles instead of private fleets, freight
payment plans, freight forwarders and public warehouses, are just a couple of
examples.
There are as many reasons for outsourcing. Many of these reasons are unique to
specific organisations and industries, but in general, there are several identifiable
advantages to subcontracting an organisation’s logistics requirements
(Lynch, 2000, 7).
21
2.8.2 Advantages of outsourcing
I. Return on Assets
Organisations are constantly looking for funds to fund their growth and the
expansion of their core service. Through outsourcing one’s logistics
needs, organisations can reduce investment in logistics-related services
and equipment such as warehouses, vehicles, materials handling and
picking equipment. The saving in capital can in turn be used for core
product expansion (Quelin, October 2003, 647; Lynch, 2000, 7).
II. Personnel Productivity
As discussed above, by outsourcing an organisation’s logistics needs,
capital can be saved for core product expansion, as well as, personnel. As
a result of an organisation’s outsourcing its logistics department, the
internal personnel are freed up and therefore can focus on their core
product without distraction. This especially affects the top management
whose management expertise is often stretched across many departments
(Ketler, Willems, 2000; 2; Lynch, 2000, 7).
III. Flexibility
Outsourcing an organisation’s logistics needs, allows for greater flexibility.
“As new markets and new products are developed, it often is impossible to
predict future logistics needs accurately. Likewise, as existing market and
product characteristics change, logistics needs change as well. New customer
service requirements, ordering methods and competitive offerings all influence
a firm's logistics practices; and the use of a contract provider greatly reduces
the risk of misplaced or outdated facilities and equipment. According to a
study conducted by the European Management Journal the third most
important criteria when choosing to outsource is to gain flexibility”(Lynch,
2000, 7; Slaughter & Soon, July 1996; Quelin, October 2003, 647).
22
IV. Labour Considerations
With the increase in unions and the complexities of labour law,
outsourcing an organisation’s labour can avoid many potential labour
issues. When labour issues arise, the issues can merely be passed
onto the contractor, allowing an organisation to avoid spending time,
money and effort dealing with the issue (Lynch, 2000, 7; Slaughter &
Soon, July 1996; 6; Ketler & Willems, 2000; 2).
V. Cost
A third party service provider that specialises in a particular service,
can often supply the service at a lower price than it would cost an
organisation to provide that service in-house. Other times, although the
costs may be slightly higher, it may still make sense to outsource the
service due to saving on capital. According to a study conducted by the
European Management Journal, the most important criteria when
choosing to outsource is lowering costs. Outsourcing also allows an
organisation to convert fixed costs into variable costs (Ketler & Willems,
• Röra’s Home Nursing......................32% saving
Third party logistics providers
• Value Logistics ...............................11% saving
Service industry
• First Garment Rental.......................22% saving
As can be seen, financial savings of between 10% and 50% were achieved through
the implementation of routing and scheduling software in the case studies discussed.
ABI Vending was however able to achieve a saving of 50% on their distribution costs
through the implementation of routing and scheduling software alongside other
logistics prediction software.
The case studies above show that great savings can be achieved through the
implementation of routing and scheduling software, however, even greater savings
can be achieved when routing and scheduling software is combined with other
optimisation software. The importance of and the necessity to combine routing and
scheduling software with other logistical optimisation and management tools, are
discussed in the subsequent paragraphs.
According to a report entitled “What Companies Want in Their Next-Generation
Supply Chain Solution” (AberdeenGroup, May 2006c), the results show that
automating freight payment is a priority for many organisations striving to be leaders
in the marketplace. “In addition, companies that have yet to deploy shipment
optimisation should consider doing so in the short term. With hefty fuel surcharges
and more stringent enforcement of accessorial charges, static route guide or rules-
83
based shipment decisions lead to higher-cost decisions in a surprising number of
cases. A move to technology that will be able to do per-shipment optimisation,
especially if one has a mix of parcel and less than truckload shipments or a mix of
less than truckload shipments” (AberdeenGroup, May 2006c; 25). The report
concludes that one should at least do the basics with regard to haulier collaboration,
such as sharing tactical forecasts and moving to electronic tendering with an
organisation’s larger hauliers (AberdeenGroup, May 2006c; 25).
Although forecasting software in collaboration with routing and scheduling software
delivers great savings, there is a real need for other types of software to be used in
the process of managing and handling an organisation’s fleet. “Many manufacturers’
focus on profit management is hampered today because business processes that
impact on revenues are managed manually or are only partially automated, leading
to significant inefficiencies”. “Poor tracking of expired contracts, discount profitability,
and out-of-contract pricing, as well as poor reconciliation of charge-backs, leads to a
great deal of revenue leakage within manufacturing organisations” (Pivotal
Corporation, 2006; 2). According to a report by the Pivotal Corporation titled
Managing Quotes, Contracts and Pricing for Higher Profits, organisations need to
look more closely at the way they quote, contract, and price their products and/or
services and need to implement tools to improve their process efficiency if they wish
to maximise their profit opportunities. Organisations need to start moving away from
using standard spreadsheets and small in-house departmental database applications
as their “ERP” systems, as these applications will not be agile enough to handle the
new needs of a growing economy (Pivotal Corporation, 2006; 2).
The case studies discussed above have shown the importance of utilising technology
in an organisation in order to be able to compete effectively in the marketplace. The
case studies have shown that by implementing technology into only one link in the
supply chain, is not enough to achieve overall efficiency and organisations wishing to
compete in today’s business environment, need to implement a set of
complementary technologies in order to achieve the desired results.
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3.5 Importance of high quality master data
After discussing the need for software in the supply chain and having discussed case
studies to prove the benefits, it is critical to understand the need for and importance
of quality master data.
According to Webopdeia (2007), garbage in garbage out (GIGI) “is a famous
computer axiom meaning that if invalid data is entered into a system, the resulting
output will also be invalid”. Simply stated, the results of any system will only be as
good as the master data that is entered into it.
Only once organisations understand the importance of their master data and start
taking ownership of it, will the outcome of the software systems produce the desired
results.
According to Sean Aspoas (Aspoas; 25 May 2007) of Opsi systems, obtaining master
data from an organisation in order to build the foundations of a database is a
constant challenge. Simple data such as customer addresses is often not available.
This is only the beginning of the challenge as the next challenge arises when an
organisation is required to compile master data on a daily basis, such as a daily list of
customers, or jobs that have to be executed. It can take months to build a simple
database due to the lack of competency of organisations with regard to master data.
A 2006 survey conducted by Business Week Research Services and HP (Hewlett-
Packard Development Company, 2007) found that “52 % of executives surveyed said
there was pervasive recognition of data as a corporate asset throughout their
organisation. Another 37 percent said there was some recognition of data as a
corporate asset within pockets of the organisation” (Hewlett-Packard Development
Company, 2007). The survey concludes that businesses and IT executives are slowly
realising that data is a valuable resource.
Three main issues characterise information quality. First is the availability of the
information required to make the best possible decisions. Second is the accuracy of
the information. Third is the effectiveness of the various means that are available to
communicate needed information. Unfortunately, logistics managers do not always
have the information they need to make effective decisions. Often, the most common
85
reason is that many managers are uncertain of their information needs, and thus,
have difficulty understanding and relaying those needs. Another reason for not
having the right information is that staff charged with providing information, give the
logistics manager what they think is needed or what they find convenient or cost-
effective to provide. Often, this is quite different from what the logistics manager truly
needs.
As can be ascertained from the above paragraph, pushing the right, high quality
master data into a software system is critical if organisations would like to reap the
benefits of the software system. However, collecting and maintaining high quality
master data is a continual challenge that requires constant management and
resources from an organisation.
3.6 Summary and conclusions
Chapter three began by looking at the initial use of technology in the supply chain in
the early 1980s. The true breakthrough in logistics technology performance came
when new ways were identified to substitute information for work content. This led to
logisticians taking advantage of powerful optimisation tools which optimised inventory
management, network, routing and transport optimisation, slotting optimisation in
warehouses, and so on. Despite the benefits of utilising technology in the logistics
department, the logistics department was among the last to join the personal
computer bandwagon as organisations did not yet understand the importance of their
logistics network in providing a competitive product.
As organisations began to understand the importance of their logistics network, they
started to outsource this non-core, yet highly critical function of their organisation.
This led to the creation of the 3PL and then the creation of software to manage the
relationship between an organisation and its 3PL.
Utilising technology in the supply chain has many advantages; however along with
the advantages, come the disadvantages. These advantages and disadvantages, as
well as the general benefits of utilising technology have been discussed at length in
this chapter. Although there are many auxiliary benefits and advantages of
implementing software systems into the supply chain, the two main critical benefits
86
that have to be achieved in order to justify the expense are reduced costs and
improved customer service. It needs to be remembered though that simply
implementing technology is not necessarily going to reduce costs and improve
customer service, as has been discussed. The appropriate technology needs to be
implemented at the right time in the correct way. Even once the appropriate
technology has been implemented at the right time in the correct way, there is still the
issue of master data, which needs to be of high quality and inputted at the
appropriate time in order to ensure a desired outcome. Organisations need to
remember that the implementation of a software system can make matters even
worse if software is implemented in lieu of correcting a broken distribution process.
When it comes to automating bad processes, software merely enables faster flow of
bad information (Haggar,2003; 1).
This chapter also focused on routing and scheduling software. The constraints when
routing and scheduling vehicles, as well as the benefits of good routing and
scheduling are discussed. Other issues such as the impact of efficient routing and
scheduling on the environment are also discussed.
Chapter three explains why organisations are prepared to spend millions of rands on
software systems which are not their core product in which they specialise, and from
outside the organisation does not appear to directly benefit their core product. By
explaining the absolute necessity of implementing technology into an organisation’s
supply chain, the chapter illustrates the critical importance of technology in the supply
chain of an organisation, and confirms that organisations will not be able to survive in
today’s competitive environment without utilising the appropriate technologies.
Chapter three concludes by looking at numerous case studies where technology has
been implemented into the supply chain, as well as a couple of routing and
scheduling case studies. In conclusion the importance of high quality master-data,
and the negative effect that poor master data can have on an organisation, is
discussed.
The following chapter is going to take an in-depth look at a case study of Clover
Logistics, and will examine the problems and issues in the processes the
organisation used prior to the implementation of the new technology.
87
Chapter 4
4 CLOVER LOGISTICS’ PAST SYSTEMS AND PROCESSES
4.1 Introduction into Clover
4.1.1 Organisational Overview
Clover was established in 1900 and is currently the leader in the dairy industry in
South Africa (Clover, 2007b; 1). Its mission is “the superior procurement, production,
marketing, sales and distribution of branded consumer goods (BCG) to customers in
the southern African region at bench marked costs, with margins sufficient to ensure
Clover's long term growth”(Ibid). Clover aims “To reach every southern African
consumer on a daily basis with our most admired branded and trusted products, in
order to create sustainable long term value for all shareholders" (Ibid).
The Clover Group is currently the biggest dairy group in South Africa, with a turnover
in excess of R4,3 billion and a staff complement of approximately 6 300.”Clover
collects some 30% of South Africa's milk and processes it in 13 factories and
distributes its range of well-known dairy and related products through 23 national
distribution depots and seven large agents”(Ibid).
“If you were to knock on the average South African's front door, the chances that
you'll find a Clover product are pretty good. It comes as no surprise, since Clover is
one of the few brands that have earned a place among the world's top two percent of
brands for the emotional bond it has with its consumers” ( Bizcomunity.com, 2008;1).
In order to distribute its products to its customers in a cost effective and efficient way,
Clover established Clover Logistics.
As a result of Clover realising the critical importance of logistics in their organisation,
and the fact that it impacts on four separate departments in Clover’s supply chain
Clover decided to form an organisation to handle all their logistics needs - Clover
Logistics.
88
The four departments identified by Clover that have a direct impact on logistics are:
• The commercial department, which is responsible for general product-
related issues including price and brand-related issues.
• The production department which is responsible for operating the
various factories producing Clover’s range of products.
• Clover’s planning department responsible for ensuring that there is
enough stock of the required product at the various DCs (distribution
centres) or the CDC (central distribution centre) at the correct time.
• Clover Logistics’ distribution department ensures the storage and safe
delivery of products from the factory to the customer, as well the
distribution of products.
(Clover Logistics, 2007a; 2)
4.1.2 Background to Clover Logistics
“The wide availability of Clover products, from the local corner cafés to the
hypermarkets, is the result of the Clover Group’s world-class distribution
infrastructure, which has been built up over 100 years and which has culminated in
the formation of a focused distribution operation in 2002, called Clover
Logistics”(Clover, 2007b; 1). Clover Logistics was formed in order to focus on the
increasingly important function of distributing Clover’s products. To ensure the
optimal use of Clover’s in-house and subcontracted fleet, Clover Logistics decided to
procure loads from external sources such as Unilever South Africa, Eskort Processed
Meats, Today’s Foods and Mageu in order to fill up their empty legs. It did not take
long before Clover Logistics evolved from an in-house logistics department to a
specialised third party logistics provider. Today Clover Logistics specialises in the
distribution of products for Clover, Clover Beverages, Danone, as well as a large
number of third party organisations. Clover Logistics is the largest 3PL that focuses
on the chilled and frozen distribution channel in South Africa (Clover, 2007b; 1). It is
responsible for storing and moving a variety of products including milk, margarine,
chicken, chocolate milk, sauces, soups and a variety of other products. The products
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distributed are divided into three temperature ranges namely frozen, chilled and
ambient.
Clover Logistics provides a number of services including warehousing, secondary
distribution, primary distribution, sales and merchandising, management information
systems, credit control and a large number of other services.
This dissertation will focus on Clover Logistics’ primary distribution for the following
reasons:
• Clover Logistics’ primary distribution has grown in only a few years to be
a leader in the distribution industry.
• The use of technology has been a critical element in their growth and
has ensured the stability of the organisation as it continues to grow.
• Clover Logistics’ primary distribution covers a wide range of different
logistical aspects including outsourcing, the transportation of in-house
loads, as well as loads for third party clients and the use of state of the
art technology throughout its organisation.
Of all the services offered by Clover discussed until now, only “primary distribution”
falls under the Clover Logistics’ primary planning division which will be discussed in
the case study further on.
Owing to the fact that Clover Logistics’ operates in the FMCG industry, they have to
deal with the specific characteristics that are typical to the FMCG industry, such as a
high replenishment rate, high frequency of orders, and delivery in all market
segments on a daily basis and within the specified ship-by-period (the period in which
the product has to be delivered to the customer in order that it can be sold before it
expires) for the product.
4.1.3 Background to the primary distribution function in Clover
Primary distribution is the distribution of raw materials and finished products between
the different production facilities and warehouses. Primary distribution very seldom
comes into contact with the final customer. The definition of primary transport is
illustrated in the diagram below.
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Figure 4.1 Definition of primary distribution
PRODUCTION
DISTRIBUTION CENTRE
CROSS-DOCK
CENTRAL
DISTRIBUTION
CENTRE
DISTRIBUTIONCENTRE
SATELLITE
Secondary Transport
FINISHED GOODS WAREHOUSE AT THE
FACTORY
PRIMARY RECEIVING AT BRANCHES
CUSTOMER
Primary Transport
PRODUCTION
• RAW MAT• PACKAGING
Primary Warehousing Secondary Warehousing
PRODUCTION
DISTRIBUTION CENTRE
CROSS-DOCK
CENTRAL
DISTRIBUTION
CENTRE
DISTRIBUTIONCENTRE
CROSS-DOCK
CENTRAL
DISTRIBUTION
CENTRE
DISTRIBUTIONCENTRE
SATELLITE
Secondary Transport
FINISHED GOODS WAREHOUSE AT THE
FACTORY
PRIMARY RECEIVING AT BRANCHES
CUSTOMER
Primary Transport
PRODUCTION
• RAW MAT• PACKAGING
Primary Warehousing Secondary Warehousing
Source: Clover Logistics, 2007a; 6
As can be seen by the dotted red line in figure 4.1, primary distribution is responsible
for the transportation of the following:
• SKUs (Stock Keeping Unit) from the factories to the CDCs. This includes
all the products manufactured by Clover Dairy, including all Clover SKUs
such as milk, fruit juices and yogurt.
• SKUs from the CDCs to the CDCs. This includes all the products
manufactured by Clover Dairy, as well as products of Clover Logistics’
clients, including Unilever South Africa, Eskort Processed Meats,
Today’s Foods and Mageu.
• SKUs from the CDCs to the DCs. Products are then transported from the
DC to the customer through the use of Clover’s secondary fleet.
• Full SKU loads from the CDCs directly to the Customer. Clover Logistics
found that it would be more efficient to deliver directly from the CDC to
customers who ordered full truck loads. This eliminates storage and
handling at the DC, as well as the need for a secondary vehicle to
deliver the product from the DC to the customer.
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• Factories to factories requirements. Raw material as well as partly
manufactured products needs to be moved between the production
facilities.
• Crates and pallets between relevant locations. All crates and pallets that
are moved from the production facility through the CDCs and DCs need
to be moved back to the production facility in order to be re-used.
• Loads procured from external sources to avoid empty legs. Clover
Logistics initially decided to procure loads from external sources such as
Unilever South Africa, Eskort Processed Meats, Today’s Foods and
Mageu in order to make use of their empty legs. Although these external
loads were initially only procured to fill empty legs, Clover Logistics now
does all types of loads and warehousing for external sources and has
developed into a fully-fledged 3 PL.
(Clover Logistics, 2007a; 8)
As a result of the redesign of Clover’s distribution network over the past few years,
each factory now specialises in the manufacture of certain products and the Central
Distribution Centers (CDC) no longer form part of the factory and operate at their own
sites as a separate entity. This has led to a more complicated distribution process.
Clover Logistics has also experienced a large increase in business from third parties
over the past few years, making the business more complex and difficult to manage.
4.1.4 Clover Logistics’ mission statement and objectives
The mission statement of Clover Logistics primary distribution is to “maximise the
shareholders returns by ensuring that the correct products from Clover, as well as the
primary principles (Clover Logistics’ customers), are delivered from the factory to the
depot in the right time and place and with the necessary retention of quality in order
to create a competitive advantage for Clover and their principles” (Clover Logistics,
2007b; 3).
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Clover Logistics have defined the following objectives as critical in order to be able to
live up to their mission statement:
• Thorough and comprehensive planning of the primary distribution
network in order to optimise service and cost. The plan then needs to be
successfully implemented on a daily basis.
• The minimising of the transport costs without negatively impacting the
overall service level. This includes choosing between own transport
versus contractors, efficient load utilisation and return load utilisation.
• The optimal scheduling of vehicles and loads in order to ensure that the
correct load leaves and arrives within the correct time frame as agreed
upon with the customer.
• The effective management of the Central Distribution Centres and/or
factory stores.
• Ensure that the quality is maintained throughout the supply chain (Cold
chain, damaged, soiled, contaminated).
• The development and marketing of primary distribution service products.
• The efficient management of the distribution division.
4.1.5 Clover’s current operational requirements and their predicted growth
Clover Logistics is constantly growing and as a result of this continuous growth, the
distribution operation is getting more and more complex and difficult to manage. On
20 March 2003 the following statistics applied to Clover Logistics’ primary
distribution.
• Number of dispatch points: ...................................................50
• Number of drop points: .........................................................50
• Number of routes: .............................................................1210
• Number of different SKUs: ................................................1207
• Request for service per peak month: .........An average of 3000
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• Request for service average per month: ....An average of 2400
• Number of trips per peak month: ...............An average of 2300
• Number of trips average per month: ..........An average of 1800
• Lead time for long-life products:..................................48 hours
• Lead time for fresh products: ......................................24 hours
• Number of Clover in-house vehicles: ....................................55
• Number of subcontracted vehicles :.............. An average of 83
• Business outsourced:.........................................................60%
As seen in the above mentioned statistics, Clover Logistics has a large number of
subcontracted vehicles. As a result of the large fluctuations between peak and of-
peak periods, it makes business sense for Clover Logistics to subcontract to external
hauliers during peak periods, rather than purchase in-house vehicles that would sit
idle during off-peak periods. Clover Logistics’ also uses subcontracted vehicles
during off-peak periods in order to benefit from the savings on capital outlay and
other such benefits.
Figure 4.2 Predicted and historical request for services as in March 2004
Source: Clover, 2003a; 1
Figure 4.2 depicts the monthly historical and monthly projected vehicle trips as in
March 2004. All data prior to March 2004 is actual data and all data post-April 2004 is
predicted, based on predicted new business. Analysing the month of August 2004,
Primary Distribution Requests/Trips
500
1000
1500
2000
2500
3000
3500
2003
01
2003
02
2003
03
2003
04
2003
05
2003
06
2003
07
2003
08
2003
09
2003
10
2003
11
2003
12
2004
01
2004
02
2004
03
2004
04
2004
05
2004
06
2004
07
Requests
Trips
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the number of trips executed by Clover Logistics is expected to grow from 2500 trips
in 2003 to over 3100 trips in 2004, which is a growth of over 25%. With an annual
growth rate of approximately 25%, Clover’s operations became more complicated
and challenging.
4.1.6 A look at Clover Logistics’ primary operational and financial complexities
Figure 4.3 represents Clover’s primary distribution flow. The network has over 700
primary legs in and around South Africa with over 4000 different charges which
depend on the length of the leg and are haulier and client specific. Distribution has to
take place to and from 23 Clover factories, as well as a large number of client
factories.
Figure 4.3 Clover’s primary distribution flows
Pretoria
Port ShepstonKokstad
Upington
George
Nelspruit
Kimberley
Queenstown
Bredasdorp
Beaufortwest
Boksburg hub
Slabberts
Ga Rankuwa
Vredendal
Potchefstroom
Welkom
City Deep
Cape Town
East London
Port Elizabet
Merebank
Empangeni
Polokwane
Newcastle
Bloemfontein
Lichtenburg
0 100 200 300
Kilometers
Boksburg Hub Hub dependant CDC dependant
Pretoria
Port ShepstonKokstad
Upington
George
Nelspruit
Kimberley
Queenstown
Bredasdorp
Beaufortwest
Boksburg hub
Slabberts
Ga Rankuwa
Vredendal
Potchefstroom
Welkom
City Deep
Cape Town
East London
Port Elizabet
Merebank
Empangeni
Polokwane
Newcastle
Bloemfontein
Lichtenburg
0 100 200 300
Kilometers
Boksburg Hub Hub dependant CDC dependant
Source: Clover Logistics, 2007a; 9
Although figure 4.2 does not look complicated, an in-depth look at the Gauteng
distribution network better illustrates the complexity.
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Figure 4.4 Clover’s Gauteng primary distribution flows
PALLETS/WEEK
140
175
115 67
30 15
184 84
9 462
45 48 82
1,300 100
564
291 140 141 48
267
11 1,045
716 103
15 21 2,549 97 60
665 84
6,611 60 1,882
GAUTENG - GAUTENG : CHILLED : PRODUCTS : CURRENT
Boksburg
Friesland
Clayville Fresh
Clayville UHT
City Deep
MayfairSprings
Boksburg Hub
Pretoria
Clayville Factory
Unifoods Factory
Gauteng to Ext Ext to Gauteng
Mague
Manhattan
Woolworths
Spar South Rand
Spar North Rand
Fonterra
Cold StorageFresh Connection
Eskort Heildelberg
Source: Clover Logistics, 2007a; 14
Figure 4.4 represents the weekly flow of pallets in Gauteng. The blocks attached to
the arrows represent the number of pallets that need to be moved between the
various CDCs, DCs, production plants, as well as customers who order full truck
loads. Figure 4.4 also includes the pallets that need to be collected from external
clients such as Mague. As can be seen in figure 4.4, with the number of pallets that
need to be transported between the relevant locations on a weekly basis, the need
and potential for an advanced routing and scheduling system is evident.
Figure 4.5 shows one of Clover Logistics’ typical routes. As can be seen in the
illustration, a truck would take a load from the Gauteng region to Port Elizabeth, it
would deliver the load in Port Elizabeth, and would then go and pick up a load in
George from Lancewood (as seen by the black line) and deliver it back to Gauteng.
Although the optimal route would be to go from George directly back to Gauteng (as
can be seen by the red line), Clover’s current scheduling system could not handle
such a “complex” route and the associated charges, and hence the vehicle would be
96
forced to go from George back to Port Elizabeth and then return to Gauteng (as seen
by the blue line). The inability of Clover’s current scheduling system to handle
“complex” routes has led to millions of rands being wasted on inefficient routes.
Figure 4.5 Non-optimal route network
Source: Developed by the author for the purpose of the study
In order to efficiently administer an average of 2700 service requests per month, as
well as invoice the correct external clients for their associated loads, and at the same
time remunerate the subcontracted hauliers accurately, (based on 4000 different
types of charges), complex processes and systems are needed. Paragraph 4.2 will
discuss Clover Logistics’ past scheduling and financial processes.
4.2 Clover’s previous systems and processes
4.2.1 Clover Logistics’ previous system setup
In the past, Clover Logistics operated many different stand-alone solutions. These
solutions included the following:
• BPCS-Business Planning and Control System-Clover’s ERP system
• BRs-Branch Replenishment System- Clover’s SKU prediction system
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• Transport Request System known as the “Magic” system
Each system fulfilled its individual task, and most communication between the
systems relied on manual data capturing from one system to the other.
This section will focus on Clover’s previous transport request system known as the
“Magic” system. The Magic system was Clover’s transport planning system and
interacted with Clover’s BR system as well as with Clover’s BPCS system, as will be
described further on.
The Magic system which was positioned on a terminal server located at the Clover
Roodepoort office block, was utilised from Clover’s Primary Distribution Command
Centre located in Boksburg, using terminal services. Magic relied on the DB400, a
database engine which was located at Clover Roodepoort.
4.2.2 General Overview of Clover’s Magic System
The Magic Transport Request System was developed in-house, by Clover’s IT
department in the mid 1990s to assist the Primary Distribution Department to
administer the bookings of transport requests to and from various delivery points.
Magic is the development environment that was used to develop the Transport
Request System, however the Transport Request System soon became known as
the “Magic” system. Clover Logistics has a number of other systems that were
developed using the Magic environment, including their call centre system, their
stock capture system and their branch replenishment (BR) system. Clover’s
Transport Request System will be referred to as the Magic system for the purpose of
this study.
The operational side of the transport request system Magic was run by two users
whose sole responsibility was the Magic system. One user was responsible for
inputting the relevant information and taking the information through the daily Magic
process, and the other user was responsible for following up on the current status of
the loads and capturing the relevant information back into Magic.
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The transport request system (Magic) consisted of a large number of tedious manual
steps, which if not performed, would not produce the required results.
The following is a summary of the process the user would have to follow when
entering a new service request into the system and taking it through the various
steps.
Figure 4.6 The Magic process flow
Step 7- The accounts department picks up that a trip has been done on the BPCS and pays the haulier
- The accounts department manually feeds the accounts receivable information into Pastel based on information in Magic system and invoices the client
Step 1a- BR predicts necessary stock and
generates orders for each DC.- The order is then captured
manually into an e-mail and sent through to Clover’s planning
department for planning
Step 1bOutside clients such as Escort e-mail mail their transport request
though to the to Clovers planning department for planning
Step 6The Magic user generates a purchase order in Magic and
sends it to BPCS.
Step 5The Magic user receives
confirmation via phone that the transport request has been delivered and marks it as
delivered in Magic
Step 4The Magic user receives
confirmation from the haulier or Clover’s internal fleet that they
can and will perform the requested transport request
Step 3- The Magic user then decides
whether to use an internal Clover vehicle or outsource the load to
an external haulier.- The Magic user then allocates
the transport request to the relevant haulier
Step 2The Magic user manually captures
the transport request into the Magic system from the e-mail sent
to him
Step 7- The accounts department picks up that a trip has been done on the BPCS and pays the haulier
- The accounts department manually feeds the accounts receivable information into Pastel based on information in Magic system and invoices the client
Step 1a- BR predicts necessary stock and
generates orders for each DC.- The order is then captured
manually into an e-mail and sent through to Clover’s planning
department for planning
Step 1bOutside clients such as Escort e-mail mail their transport request
though to the to Clovers planning department for planning
Step 6The Magic user generates a purchase order in Magic and
sends it to BPCS.
Step 5The Magic user receives
confirmation via phone that the transport request has been delivered and marks it as
delivered in Magic
Step 4The Magic user receives
confirmation from the haulier or Clover’s internal fleet that they
can and will perform the requested transport request
Step 3- The Magic user then decides
whether to use an internal Clover vehicle or outsource the load to
an external haulier.- The Magic user then allocates
the transport request to the relevant haulier
Step 2The Magic user manually captures
the transport request into the Magic system from the e-mail sent
to him
Source: Developed by the author for the purpose of the study
The user would have to capture a request for service manually, and then link it to a
haulier, and a pre-defined tariff. Order numbers would then have to be linked to the
request for service in order to be able to determine the number of pallets for that
request for service. A transport request would then be generated and sent out to the
haulier via fax or e-mail for confirmation, which the haulier would sign and fax back.
After the haulier has confirmed that it is able to pick-up and deliver the necessary
load, the load is monitored manually until it is delivered. The delivery is captured
manually on the system and a purchase order is then generated for the haulier. From
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the information available on the system, load utilisation and cost allocation can be
determined and calculated for a specified period.
In order to fully understand Magic’s strengths and weaknesses, it is necessary to go
through the main process of capturing an order and the process involved in taking
the order from the beginning stage of its cycle right through to the end.
4.3 An in-depth look at Clover’s previous legacy system
The following is a step-by-step explanation of the Magic process, which will be
discussed in more detail in the following sections of this chapter
I. Capturing a Request for Service(RFS)
II. Allocating a haulier to the RFS
III. Generating a transport request schedule
IV. Receiving confirmation from the haulier
V. Confirming a haulier for a transport request
VI. Confirming delivery of a transport request
VII. Generating purchase orders
4.3.1 Capturing a Request For Service (RFS)
The Magic process begins when the Magic user manually captures a transport order
known as a request for a service. The details that need to be captured into the RFS
are gathered via telephone conversations, e-mails and faxes sent from the
distribution centres, as well as from external clients.
The manual capturing of RFS by the Magic user illustrates the inefficiency of the
Magic system, as the Magic user has to retrieve the e-mail and manually capture the
applicable information into Magic. This manual step creates room for errors and
makes inefficient use of the Magic user’s time.
This request needs to include the following six fields:
• Pick-up and drop-off points
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• Number of pallets
• Type of vehicle
• Pick-up date and time
• Drop-off date and time
• Type of transport - primary, direct, crates, factory-to-factory, returns or
income from the delivery point
Once the above fields have been entered, an order number would then have to be
linked to the RFS in order to be able to determine the number of pallets for that RFS.
The order number is generated by Clover’s business planning and control system
(BPCS). BPCS has all the relevant SKU information associated with it, including the
number of pallets that need to be transported. The user is not forced to link the RFS
to an order number and could manually enter how many pallets needed to be
transported into the RFS. The majority of the time the user would manually enter the
number of pallets, instead of linking the RFS to an order number, which meant that
cost allocation could not be done for the products on the orders.
When multiple loads are entered that need to be delivered on the same vehicle,
either from the same pick-up or same drop-off points, the date and time for that
specific pick-up or drop-off must be exactly the same, so that the correct transport
request can be created. If the date and time of the two RFSs are not exactly correct,
it will not be possible to deliver the two RFSs on the same vehicle. This inability to
easily handle multiple shipments on the same vehicle, is one of the major problems
with the Magic system. Clover needed a transport management system that can
handle multiple shipments on one vehicle with different pick-up and drop-off
locations.
A detailed diagram depicting the process flow of capturing a RFS and linking an
order to an RFS, can be seen in annexure 4.1 and 4.3 respectably.
After following the above procedure, an order for transport known as a “request for
service” is created.
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4.3.2 Allocating a haulier to Request for Service
A transport order (known as a RFS) must exist before it can be allocated to a haulier.
In order to allocate a haulier to the request for service, the following fields need to be
entered:
• A route code must be entered that already exists in the route file. A route
file is a predetermined route linked to the standard kilometres for the
route.
• A hauler code must be entered and must already exist in the haulier file.
• The status of the request for service must be updated to “A” to indicate
that a haulier has been allocated to the request for service.
• The request for service then needs to be manually linked to a predefined
tariff code based on the haulier code, route code and vehicle that was
assigned to it.
The fact that each RFS needs to be linked to a predetermined route that is linked to
the standard kilometres for the route, is another one of the issues with the Magic
system. Having the need for a predefined route takes away Magic’s ability to plan
dynamically and results in sub-optimal routes as discussed above with relation to
figure 4.5.
A detailed diagram depicting the process flow of allocating a haulier to a RFS can be
seen in annexure 4.2.
After following the above procedure, a haulier is then allocated to a transport order
(RFS).
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4.3.3 Transport procurement
I. Generating a transport request schedule
Before a transport request schedule is generated, a transport order (RFS) must exist,
it must be linked to orders (or contain the number of pallets to be transported) and
allocated to a haulier. The following fields must be manually entered into the system
before a transport request schedule can be generated:
• Whether the transport requests must be e-mailed must be specified.
• If two or more transport orders (RFSs) are found with the same tariff
code, the requested date and time for pick-up or drop-off and the
transport request numbers are not allocated yet, the user is prompted if
the requests for service found must be allocated to the same transport
request.
• If the print option was specified, then an e-mail is sent out to the haulier
allocated to the RFS on the transport request, asking the haulier if they
are able to perform the transport request.
A detailed diagram depicting the process flow of generating a transport request can
be seen in annexure 4.4.
After following the above procedure, the RFS is updated and sometimes an e-mail is
sent to the haulier. If an e-mail is not sent to the haulier, the Magic user either
phones or faxes the haulier to inform them of the transport request.
II. Receiving confirmation from the haulier
The haulier will receive the RFS mostly via e-mail, or sometimes by phone. The
haulier will then print the e-mail, write on it whether he is able to fulfil the RFS, sign it
and fax it back to Clover.
Once the haulier has accepted the RFS, the user must enter the applicable transport
request number and update the transport request to ‘Received’.
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The manual capturing of an accepted RFS by the Magic user is another aspect of
inefficiency in the Magic system, as the Magic user has to retrieve the fax and
capture the applicable information into Magic. This manual step creates room for
errors and results in inefficient use of the Magic user’s time.
A detailed diagram depicting the process flow of receiving a confirmation from a
haulier can be seen in annexure 4.5.
After following the above procedure, the RFS is updated to a status of ‘Received’.
III. Confirming a haulier for a transport request
This step involves a confirmation by the haulier for the trip. The following steps must
be followed in order to confirm the hauler for a trip:
• The user must enter the applicable transport request number.
• The user must then check the applicable box indicating whether the
haulier confirmed or rejected the trip.
• The user then has an option for Magic to send an e-mail to the pick-up
and drop-off delivery points as indicated on the RFS.
If the haulier rejects the trip, the user allocates another haulier to the TR, and the TR
starts again from step three.
A detailed diagram depicting the process flow of confirming a haulier to a transport
request can be seen in annexure 4.6.
After following the above procedure, the transport request status is updated to
rejected or confirmed, depending on the haulier’s response, and an e-mail is sent to
the pick-up and drop-off delivery points.
4.3.4 Confirming delivery of a transport request (Tracking the load)
At this stage the delivery of products is confirmed. The user knows when a shipment
has been delivered as the trip is monitored by the Magic user via telephone.
• The user must enter the transport request number.
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• Only transport requests that have a status of ‘Confirmed’ can be marked
as delivered.
• The delivery date and time must be entered and recorded into the
relevant locations.
A detailed diagram depicting the process flow of confirming the delivery of a transport
request can be seen in annexure 4.7.
After following the above procedure, the status of the RFS is changed to “D”, to
indicate that the request for service was carried out.
Ideally, this step should be performed either automatically as a result of integration
with satellite tracking, or should be performed by the receiving warehouse. The fact
that the Magic user has to track the load and manually confirm its delivery, is
inefficient and time consuming.
4.3.5 Financial administration
I. Generating purchase orders
At this stage, the user now needs to generate purchase orders for transport orders
(TRs) that have been delivered.
• The user can select to generate a purchase order for a range of
transport requests or for all the transport requests.
• A purchase order can only be generated for RFS that have been marked
as delivered, and once the delivery date and time has been entered into
the system.
• The user must go and look at the tariff file where all the tariffs are stored,
and retrieve the amount that is applicable to pay the haulier for the trip.
• An amount that was quoted to the haulier must exist, and the amount
quoted must be the same as the amount in the tariff file. If the amount
quoted is not the same as the amount in the tariff file, then the user is
prompted whether or not to accept the quoted amount.
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• The cost centre, branch code, account number and item must exist in
the Company file on BPCS.
• If all the above validations are adhered to, the purchase order is posted
into the BPCS.
• An entry must be made manually in the BPCS to reflect the generation of
purchase orders. It must be marked as ‘GPO’ (generation of purchase
order). This entry is another example of extra manual work that has to be
performed as a result of a non-integrated system.
A detailed diagram depicting the process flow of generating a purchase order can be
seen in annexure 4.8.
After following the above procedure, the status of the transport request is updated to
‘Posted’ and a purchase order is generated for the haulier.
II. Paying the haulier and charging the client
The accounts department picks up that a trip has been done on the BPCS. Once the
accounts department has received an invoice from the haulier, it checks whether the
invoice matches the purchase order on the BPCS and pays the haulier.
Magic does not handle accounts receivable. The accounts department manually
feeds the accounts receivable information into the Pastel accounting system, based
on information in the Magic system, and invoices the client through Pastel. No
checks are done comparing what is entered in Pastel and what was in reality
executed in Magic, leaving a large gap for errors and potential fraud to occur. (Clover
Logistics, 2001)
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Figure 4.7 Gap created in the accounts receivable process
Create Request for Service in Magic- BR sends e-mail to planners- Planners manually create RFS
Create Transport Request in Magic- Source a haulier- Confirm a haulier- Deliver TR
Create a Purchase Order in Magic
Send Purchase Order through to BPCS- Run accounts payable process to pay haulier
Manually Enter Accounts Receivable Information in Pastel- Send invoice to client eg: Escort
Non-integrated process creates a gap for fraud and errorsX
Create Request for Service in Magic- BR sends e-mail to planners- Planners manually create RFS
Create Transport Request in Magic- Source a haulier- Confirm a haulier- Deliver TR
Create a Purchase Order in Magic
Send Purchase Order through to BPCS- Run accounts payable process to pay haulier
Manually Enter Accounts Receivable Information in Pastel- Send invoice to client eg: Escort
Non-integrated process creates a gap for fraud and errorsX
Source: Developed by the author for the purpose of the study
4.3.6 Master Data Management
The following master data has to be entered in Magic in order to allow it to produce
the purchase orders.
• Routes
In order for Magic to calculate the correct tariffs for a haulier, a route has to be
created from every pick-up point to every delivery point. This route has to have a
distance that is entered manually into the system. New routes are entered into the
system by the operations manager.
107
Table 4.1 Information required when adding a new route
Information Requirement Description
Route code Unique route code
Pick-up point Pick-up point code
Drop-off point Drop-off point code
Route description Description of the route
Number of kilometres Number of kilometres between pick-up and drop-off point
Comments Any comments concerning this route
Active/Inactive Whether the route is in use or not Source: Developed by the author for the purpose of the study
• Distances
Although the distance between two points has been entered into the route file, a
separate file has to be maintained with the distance between pick-up and delivery
points. This is needed as Magic is not able to access the distance from the route file
when calculating tariffs.
Table 4.2 Information required when adding a new route distance to the
distance file
Information Requirement Description
Pick-up point Pick-up point code
Drop-off point Drop-off point code
Number of kilometres Number of kilometres between pick-up and drop-off point Source: Developed by the author for the purpose of the study
• Tariffs
A tariff has to be created for every specific route and specific haulier, a specific
number of pallets, and a specific vehicle. The tariff is valid for a predefined time
period.
108
Table 4.3 Information required when adding a new tariff
Information Requirement Description
Tariff code Unique tariff code.
Route code The code of the route that this tariff applies to
Haulier code The code of the haulier that this tariff applies to
Vehicle code The code of the type of vehicle that this tariff applies to
Number of pallets The number of pallets that this tariff applies to
Tariff description A description of the tariff
Tariff price incl VAT Amount that is to be charged for this route including VAT
Tariff price excl VAT Amount that is to be charged for this route excluding VAT
Must VAT be included Yes/no (whether VAT must be included)
Active/Inactive Whether the tariff is in use or not Source: Developed by the author for the purpose of the study
• Delivery points
The delivery point is entered but not placed in a geographical location on a map.
Magic routes are not calculated through the use of a map, and hence the actual
geographical location of a delivery point is not important.
Table 4.4 Information required when adding a delivery or pick-up point
Information Requirement Description
Delivery/pick-up point code
Unique delivery/pick-up point code
Delivery point description
A description of the delivery point
Delivery point type Depot or customer
Delivery point address The address of the delivery point
E-mail address or phone number
The default contact detail of the delivery point must be entered
Contact person The contact person at the delivery point
Delivery/pick-up point name
Delivery or pick-up point name
Source: Developed by the author for the purpose of the study
109
• Hauliers
Table 4.5 Information required when adding a haulier
Information Requirement Description
Haulier code Unique haulier code
Haulier description A description of the haulier
Haulier point type Internal ( Clover)/ external to Clover Logistics
Haulier address The address of the haulier
E-mail address or phone number
The default contact detail of the haulier
Contact person The contact person
External hauliers’ credit number
All external hauliers have to have a credit number linked to them. This credit number is obtained from BPCS
VAT This indicates whether the external haulier must pay VAT to Clover or not
Purchase order generated
Whether or nor a purchase order must be generated on BPCS for this haulier. Purchase orders are not generated for in-house vehicles.
Source: Developed by the author for the purpose of the study
• Debtor code
Table 4.6 Information required when adding debtor codes
Information Requirement Description
Debtor code Unique debtor code
Debtor name The name of the debtor
Internal/External Whether the debtor is internal ( Internal to Clover/external to Clover)
Debtor address The address of the debtor
E-mail address or phone number
The default contact details of the debtor
Contact person The contact person Source: Developed by the author for the purpose of the study
• Reason codes
Reason codes are used when something in Magic does no go according to the plan.
For example if a hauler rejects a trip, a reason is assigned as to why the haulier
rejected the trip.
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Table 4.7 Information required when adding reason codes
Information Requirement Description
Reason code Unique reason code
Reason code description
A description of the reason code
Action/indicator The symbol that represents this reason code Source: Developed by the author for the purpose of the study
• Maintain next generated number
Magic does not have the ability to generate a unique ID for the RFS, TR and Tariff
number. Therefore the user has to generate the next unique number for the RFS, TR
and Tariff. This is done by opening up the “edit numbers file”, and entering in the next
number for the RFS, TR and Tariff.
Figure 4.8 Maintaining next generated numbers
Source: Clover Logistics, 2001; 23
Having to manually generate RFS, TR and Tariff numbers is an example of the
simplicity of the Magic system. Being able to auto generate a unique ID is an obvious
standard function of any modern software package.
4.3.7 Reporting
4.3.7.i Financial and load utilisation reports
Magic has the ability to calculate costs such as load utilisation and cost allocation.
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The following reports need to be generated before Magic is able to calculate costs.
All items showed on the following reports are problems which need to be resolved
before Magic can produce accurate cost calculation reports.
• List of RFS without orders
• List of duplicate orders
• List of orders not valid. This is determined by the order number not being
validated by the warehouse
• List of routes without kilometres
Once the above reports have been produced and all the problems identified have
been solved, the following cost calculation reports can be produced by first triggering
the cost calculation process by clicking on the ‘Prepare Data for Load and Cost
Calculations’ option, followed by the ‘Calculate Load Utilisation’ option and then the
‘Calculate Cost per Item’ option.
The following cost calculation reports can be produced when the cost calculation has
been completed.
• Load utilisation per Transport Request
• Load utilisation shipped per Transport Request
• Load utilisation from / to specific locations
• Cost per client
• Cost from / to delivery points
• Cost from / to, by department
• Cost from / to the manufacturer
4.3.7.ii General reports
The following basic Magic reports can be produced and exported to Microsoft Excel
when required:
• List of requested services
• List of transport requests
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• List of haulier confirmations
• List of transport requests delivered
• List of confirmations received
• Delivery schedules
• List of loads per haulier
• List of loads per route
• List of transport requests statuses
• List of transport requests without price
• List of transport requests without a purchase order
• List load/ haulier for pick-ups per day
4.3.8 Summary of the issues identified within Clover’s Magic system
Clover decided that it was time to replace its Magic software system with a new
scheduling and management system. Clover Logistics’ management felt that the
Magic system had reached capacity, had limits to its functionality, is labour intensive
and does not address their continuously expanding operational needs.
The following issues were identified with the Magic system:
• It is only a transactional system. The Magic system is a basic
transactional system and hence does not have the ability to handle the
following:
a. Complicated calculations such as the ability to calculate and
manage the variable costs of some of Clover’s subcontracted fleets.
b. Optimisation. As a result of Magic being merely a transactional
system, it does not have the ability to plan and optimise loads.
• In order to be able to have a global view of what is happening with
Clovers Logistics’ and their hauliers’ vehicles, the planning system
requires a graphical interface (Ghant chart) to enhance the planning
function which Magic does not have.
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• Magic is a vehicle allocation system and therefore in order to allocate the
costs, many manual steps have to be performed.
• There is no on-line connection to the system, therefore all requirements
are received via e-mail, telephone or fax and then entered manually into
the system, and Magic was only minimally integrated with BR and
BPCS. The result is that the process is labour intensive and error prone.
This situation was expected to worsen with an increase in Clover
business, additional satellite DCs and an increase in utilisation by
external clients such as Escort.
• Magic does not cater for loads undertaken for external parties, the
invoicing thereof, and the allocation of costs if the vehicle is shared
between Clover and external client loads.
• Communication with subcontractors is inefficient as it relies on e-mail,
the telephone and faxes.
• Magic does not adequately cater for multi pick-up and multi drop-off
loads. This is an underlying design flaw of the Magic database structure.
• Magic does not cater for cross-docking of vehicles.
• Magic does not have a view whereby the user can have global visibility
of the status of the request.
• Magic does not interface with satellite tracking systems, and therefore
does not provide a live update on the position of the vehicles in relation
to the planned trip.
• Magic does not allow for planners, dispatchers, warehouse managers
and hauliers to interact with the same job in real-time.
In conclusion, Magic was leading to much frustration as it could not satisfy all
Clover’s business requirements, and was not tightly integrated with any of Clover’s
other systems.
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4.4 A look at Clover’s new business needs and challenges
4.4.1 Clover’s new business needs and challenges
Clover Logistics’ new business needs were formed as a result of Clover Primary
Distributions’ goal to reduce the cost of primary distribution in the Clover Group.
Clover Primary Distribution identified four strategic pillars in which they needed to
excel, in order to reduce their costs and also improve their service offering, those
being:
• The need to take a national view on primary distribution in Clover
incorporating:
a. The transportation of semi-finished goods
b. Regional primary transport
c. An own primary distribution fleet
• The need to bring in collaboration partners that will complement their
existing network and at the same time benefit from it.
• The need to integrate, align and optimise together with reverse logistics,
the network of factories, secondary distribution branches and “direct
customers”.
• The need to administer the business in a complete way, and by
implication, fully integrate with other existing systems in the Clover
framework.
(Clover Logistics, 2003a; 9)
By implication, the above strategic pillars had the following operational
consequences for Clover Logistics:
• Taking a national view on primary distribution in Clover meant that
Clover Logistics had to have the capability to see the connection
between loads in various divisions, and in various regions of South
Africa. They had to be able to schedule their own vehicles in regions and
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between regions and report on their costs, and to be able to measure
and report on all of their primary costs and efficiencies.
• Clover needed to bring in collaboration partners who complimented their
existing network, which meant that they had to have the ability to
undertake collaborative loads, administer multiple charges, take
transport orders from outside Clover, and administer multiple pick-ups
and drop-offs.
• Clover wished to integrate, align and optimise, together with reverse
logistics, the network of factories, secondary distribution branches and
”direct customers”. They needed to schedule other factories and DC
loading and off-loading bays, see the forward and back hauls, select
optimal vehicle type and size and assign priorities to loads.
There was also a need to administer this business in a complete way and hence, fully
integrate it with existing systems, administer multiple tariffs and charge types, and
have immediate route profitability, paperless and email-less confirmation, as well as
needing error-free communication to and from their creditor and debtor systems.
4.4.2 An analysis of what led to the growth of Clover Logistics’ new complexities
and challenges
Before Clover Logistics’ management began to research new systems and
processes that were needed to handle their new business needs, they decided to first
understand what had led to their business needs “outgrowing” their current business
systems and practices.
It was found that the existing Magic system was not able to cope with:
• An increase in order volume. Clover order volumes soared to more than
3000 truck bookings and 7000 transport orders per month. Each truck
often transported goods for more than one principal with multiple pick-
ups and drop-offs. This number is double what Clover Logistics had to
cope with in the previous years.
• A growing fleet to deal with this increased order volume (Clover’s own
vehicles as well as external contractors).
116
• Shrinking time periods for scheduling and planning.
• The logistical and financial aspects of handling third party hauliers.
• The need for planners, dispatchers, warehouse managers and hauliers
to interact with the same job in real-time.
• The provision of accurate and realistic delivery schedules.
• New ways of logistical thinking, collaboration and flexibility.
(Clover Logistics, 2007a; 16)
In general, there was frustration with the Magic system as it could not satisfy all
business requirements, particularly the required tight integration with Clover’s
financial systems. The systems could also not handle multiple pick-ups and drop-offs
efficiently. (Clover Logistics, 2007a; 16)
4.4.3 Benefits which Clover Logistics management had hoped a new system would
achieve
In order for Clover Logistics to know what kind of system to look for and to
implement, Clover Logistics’ management came up with a list of benefits they would
like to achieve with a new system:
• Improved Clover vehicle utilisation
• Improved haulier fleet utilisation
• Improved haulier performance
• Increased revenue
• Reduced costs per kilometre
• Reduced cost per pallet
• Reduced travel time
• Increased planning and control of the Clover fleet
• Effective management (planning, organising, directing and control) of the
various hauliers and contracts
117
• Greater optimisation and scheduling of the vehicles
• Improved load planning
• Improved reporting and Key Performance Indicators (KPI’s) for Clover
and vendors
• Cost allocation of the products transported
• Increased tracking and visibility of the requirement
• Increased reporting functionality
• Audit trail on aspects requiring security
• Reduced error rate, resulting in improved service
• Reduction in communication costs
• Improved utilisation of operational and administrative staff (greater
automation)
• Improved proof of delivery (POD) administration process and invoice
process
(Clover Logistics, 2003a; 17)
In summary, Clover Logistics’ business needed a dedicated, customer-orientated,
haulier-orientated, one-stop operational command centre which is technologically
abled.
4.5 Summary and conclusion
Chapter four provided an overview of the logistics function of the Clover organisation.
The Clover Group is currently the largest dairy group in South Africa and collects and
processes some 30% of South Africa's milk.
As a result of Clover realising the critical importance of logistics in their organisation,
Clover decided to form Clover Logistics to handle all their logistics needs. This is a
division that specialises in the distribution of products for Clover, Clover Beverages,
Danone, as well as a large number of third party organisations. Clover Logistics is
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the largest 3PL that focuses on the chilled and frozen distribution channel in South
Africa (Clover, 2007a; 5).
As a result of Clover Primary Distributions’ goal to drive down the primary distribution
cost in the Clover Group, Clover Logistics decided it was time to source and
implement a state of the art scheduling, haulier communication and finance system.
Chapter four takes an in-depth look into, including a step-by-step process of Clover
Logistics’ previous Magic system, as well as the reports that could be produced by
the system and data required to drive the system.
The chapter then continues by discussing Clover’s new business needs and
challenges, as well as the complexity of these needs. The chapter concludes by
looking at the benefits Clover Logistics’ management expected from a new, dynamic
system.
In conclusion, after looking at the complexities of Clover’s logistical needs, and after
analysing their old Magic system, it is evident that the Magic system could not
efficiently and effectively handle Clover’s growing business requirements. By utilising
the Magic system, millions of rands were being lost due to inefficient routes, incorrect
billing and payments, as well as inefficient use of manpower.
Chapter five focuses on the scoping, sourcing and implementation of a new software
system in order to allow Clover to better manage their business needs. The chapter
also discusses Clover’s new processes and will detail a step-by-step analysis of the
processes created by the new software.
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4.6 Appendix
4.6.1 Capture an RFS
Annexure 4.1 Process flow of capturing a RFS
Source: Clover Logistics, 1998; 1
120
4.6.2 Allocate an RFS to a haulier
Annexure 4.2 Process flow of allocating a haulier to an RFS
ALLOCATE RFS TO VENDOR
Select Applicable RFS
1
Enter Route Code
2
Valid Route Code?
3
Enter Vendor No
4
Valid Haulier?
5 Valid Tariff?(Use Route and
Haulier to determine)
6
Update RFS status = 'A', tariff code =
chosen tariff
7RFS allocated to
haulier
8
Yes
YesNo
No
Yes
Re-enter Route and
Vendor
NoRe-enterRe-enter
ALLOCATE RFS TO VENDOR
Select Applicable RFS
1
Enter Route Code
2
Valid Route Code?
3
Enter Vendor No
4
Valid Haulier?
5 Valid Tariff?(Use Route and
Haulier to determine)
6
Update RFS status = 'A', tariff code =
chosen tariff
7RFS allocated to
haulier
8
Yes
YesNo
No
Yes
Re-enter Route and
Vendor
NoRe-enterRe-enter
Source: Clover Logistics, 1998; 2
4.6.3 Link orders to RFS
Annexure 4.3 Process flow of linking an order to an RFS
Select RFS with Requested PU date >= Today
1Zoom on applicable RFS to enter order
number
2Enter Order No and
Warehouse No where order
originated
3
RFS Linked to Orders
5Valid Order
Number Entered?
4
Re-enter
No Yes
Select RFS with Requested PU date >= Today
1Zoom on applicable RFS to enter order
number
2Enter Order No and
Warehouse No where order
originated
3
RFS Linked to Orders
5Valid Order
Number Entered?
4
Re-enter
No Yes
Source: Clover Logistics, 1998; 3
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4.6.4 Generate transport request
Annexure 4.4 Process flow of generating a transport request
Enter Date From which to search for
RFS records
1Enter Date To
which to search for RFS records
2Enter vendor (Tariff code) or leave blank
for All vendors
3
Vendor > '' and Vendor valid?
4
Specify Print TR
5
Specify EMail TR
6
Choose to Start Process
7
NoRe-enter
Yes
Range on RFS with status = 'A', TR No = '', PU date = Date From
and DO date = Date To
8
Check for Multiple RFS with same
PU details
9
Multiple RFS exist?
10
Display RFS with same Tariff code, PU date >=
Date From and <= Date To and TR No = ''
11
User Must select which RFS's to group by
marking them
12
Check for Multiple RFS with same DO details
15
Display RFS with same Tariff code, DO date = First RFS DO date and DO time = first RFS
DO time and TR No = ''
17
User Input = 'Yes'?
13
Update chosen RFS with TR No = TR No from first RFS, Total No of Pallets =
+ Pallets on RFS
14
User Must select which RFS's to group by
marking them
18
User Input = 'Yes'?
19
Multiple RFS exist?
16
No
Yes
No
Yes
Yes
Yes
TR generated
20
No
No
Enter Date From which to search for
RFS records
1Enter Date To
which to search for RFS records
2Enter vendor (Tariff code) or leave blank
for All vendors
3
Vendor > '' and Vendor valid?
4
Specify Print TR
5
Specify EMail TR
6
Choose to Start Process
7
NoRe-enter
Yes
Range on RFS with status = 'A', TR No = '', PU date = Date From
and DO date = Date To
8
Check for Multiple RFS with same
PU details
9
Multiple RFS exist?
10
Display RFS with same Tariff code, PU date >=
Date From and <= Date To and TR No = ''
11
User Must select which RFS's to group by
marking them
12
Check for Multiple RFS with same DO details
15
Display RFS with same Tariff code, DO date = First RFS DO date and DO time = first RFS
DO time and TR No = ''
17
User Input = 'Yes'?
13
Update chosen RFS with TR No = TR No from first RFS, Total No of Pallets =
+ Pallets on RFS
14
User Must select which RFS's to group by
marking them
18
User Input = 'Yes'?
19
Multiple RFS exist?
16
No
Yes
No
Yes
Yes
Yes
TR generated
20
No
No
Source: Clover Logistics, 1998; 4
122
4.6.5 Receive confirmation from haulier
Annexure 4.5 Process flow of receiving a confirmation from a haulier
Enter TR number
1
TR Exist?
2 TR Status = 'Printed' or 'Allocated'?
3
Send Advanced Notification
5
Update TR status, write Transaction
log
4
Yes
NoNo
Extract Haulierdetail
6Extract Pick Up and Drop Off
detail
7
Mail already sent?
8
Send EMail
9
E-Mail Sent to Haulier
10
Yes
No
Do Not Send MailLeave Procedure
RECEIVE CONFIRMATION FROM VENDOR
Yes
Enter TR number
1
TR Exist?
2 TR Status = 'Printed' or 'Allocated'?
3
Send Advanced Notification
5
Update TR status, write Transaction
log
4
Yes
NoNo
Extract Haulierdetail
6Extract Pick Up and Drop Off
detail
7
Mail already sent?
8
Send EMail
9
E-Mail Sent to Haulier
10
Yes
No
Do Not Send MailLeave Procedure
RECEIVE CONFIRMATION FROM VENDOR
Yes
Source: Clover Logistics, 1998; 6
123
4.6.6 Confirm haulier transport request
Annexure 4.6 Process flow of confirming a haulier to a transport request
Enter TR Number
1
TR exist?
2TR Status = 'Delivered'
3Extract TR Information
4
Select Confirmed or Rejected
5
Confirmed / Rejected?
6Update TR Status
= 'Rejected'
7
Extract Tariff information
8
Get Pallet Conversions
9
Calculate standard tariff
10
Display standard tariff
11
Quote price = standard
tariff?
13
Display warning to user
14
Enter reason for price difference
15
Enter quoted transport price
12
Enter remarks to be printed
16
Update TR Status = 'Confirmed'
17
Yes
No No
Yes
Rejected
Confirmed
No
Yes
Enter TR Number
1
TR exist?
2TR Status = 'Delivered'
3Extract TR Information
4
Select Confirmed or Rejected
5
Confirmed / Rejected?
6Update TR Status
= 'Rejected'
7
Extract Tariff information
8
Get Pallet Conversions
9
Calculate standard tariff
10
Display standard tariff
11
Quote price = standard
tariff?
13
Display warning to user
14
Enter reason for price difference
15
Enter quoted transport price
12
Enter remarks to be printed
16
Update TR Status = 'Confirmed'
17
Yes
No No
Yes
Rejected
Confirmed
No
Yes
Source: Clover Logistics, 1998; 7
124
4.6.7 Confirm delivery of transport request
Annexure 4.7 Process flow of confirming a delivery of a transport request
Enter date to which TR's can be
delivered
1
Enter TR Number
2
TR Exist?
3TR Status = 'Recieved'?
4
Find all RFS for TR Number
6
Enter Date and Time delivered
7Update RFS status = 'D', date and time
= entered values
8
All RFS for TR delivered?
9Update TR status =
'Delivered', date = Last RFS deliver date
10
Yes
No
Yes
No
YesNo
Re-enterRe-enter
Next RFS
Is there an order linked for any RFS
on TR?
5
No
Re-enter
Yes
Enter date to which TR's can be
delivered
1
Enter TR Number
2
TR Exist?
3TR Status = 'Recieved'?
4
Find all RFS for TR Number
6
Enter Date and Time delivered
7Update RFS status = 'D', date and time
= entered values
8
All RFS for TR delivered?
9Update TR status =
'Delivered', date = Last RFS deliver date
10
Yes
No
Yes
No
YesNo
Re-enterRe-enter
Next RFS
Is there an order linked for any RFS
on TR?
5
No
Re-enter
Yes
Source: Clover Logistics, 1998; 8
125
4.6.8 Generate purchase orders
Annexure 4.8 Process flow of generating a purchase order
GENERATE PURCHASE ORDERS
Enter range of request numbers
1Select all TR's in
range with status = 'Confirmed'
2
Order Number exist?
3
Extract Vendor detail
4
Get tariff code
5
Generate PO for Vendor = Yes?
6
Check if PO exist
7
Does PO exist already?
8Yes
Get last delivery date of Request
9
Check tariff / quoted price
10
Authorise Quoted price
12
Calculate Tariff price (Vat?)
15
Update TR status = 'Posted'
16
Tariff / Quote price not equal?
11
No
Quoted price authorised?
13Write
exception entry
14
Yes
No
No
Yes
Get last delivery date
17
Calculate price for vat if vat payable
18
Yes
No
GENERATE PURCHASE ORDERS
Enter range of request numbers
1Select all TR's in
range with status = 'Confirmed'
2
Order Number exist?
3
Extract Vendor detail
4
Get tariff code
5
Generate PO for Vendor = Yes?
6
Check if PO exist
7
Does PO exist already?
8Yes
Get last delivery date of Request
9
Check tariff / quoted price
10
Authorise Quoted price
12
Calculate Tariff price (Vat?)
15
Update TR status = 'Posted'
16
Update TR status = 'Posted'
16
Tariff / Quote price not equal?
11
No
Quoted price authorised?
13Write
exception entry
14
Yes
No
No
Yes
Get last delivery date
17
Calculate price for vat if vat payable
18
Yes
No
Source: Clover Logistics, 1998; 9
126
Chapter 5
5 CLOVER LOGISTICS’ NEW SYSTEMS AND PROCESSES
5.1 The vision
5.1.1 Introduction
Clover Logistics expressed the need to review their routing, scheduling and financial
management transport system as a result of their rapidly growing business and their
need to improve the efficiency and manageability of their organisation. This led to the
introduction of new software systems and procedures to cope with the needs of a this
growing business.
This chapter begins by explaining what the management of Clover Logistics
envisioned in a new system. The chapter then explains the process Clover Logistics
went through in sourcing a new system and then details the new routing, scheduling,
and transport management system.
5.1.2 The Vision- What Clover Logistics needed
Prior to the implementation of the new fleet management system (Optima), Clover
Logistics operated in a linear style. Each department within Clover Logistics operated
within a silo, operating their own systems in which they had to manually feed in
information passed to them from other internal departments. Although Clover
Logistics had its own fleet, it also made use of a large subcontracted fleet which was
handled separately from the in-house fleet. Management and communication with the
external fleet was not handled directly through their internal systems, with all
management and communication taking place via e-mail, phone or fax.
After much investigation, Clover Logistics’ management came to the conclusion that
the key to improving their supply chain was through collaboration, within the Clover
Group itself, (including other departments such as finance and warehousing), as well
as collaboration with their external hauliers and clients. Clover Logistics’
127
management saw the collaborative process as a three-tiered process as can be seen
in figure 5.1.
Figure 5.1 Clover Logistics’ three steps to an evolving primary distribution
Linear• Own network• Own vehicles• Contractor
Collaboration
Collaboration through
aCoordination
Centre
Evolution
Linear• Own network• Own vehicles• Contractor
Collaboration
Collaboration through
aCoordination
Centre
Evolution
Source: Clover Logistics, 2007a; 17
In figure 5.1 three basic steps of the evolutionary process are shown. The first step
shows Clover Logistics’ historic situation, where they operated in a simple linear
framework. The second step shows the next stage of the evolutionary process, the
stage where they begin to collaborate with their hauliers, clients and other
departments within the Clover Group. Clover Logistics realised that only through true
collaboration and the building of long-term relationships with their partners, would
they be able to achieve the efficiencies and cost savings they were striving for. The
third step shows the end of the evolutionary process where they have a coordination
centre to manage their new collaborative business model.
To achieve meaningful collaboration across the supply chain is a constant challenge
which requires continuous attention. This would be achievable through an efficient
coordination centre that would be able to respond to and address these challenges.
Clover Logistics’ management established the following objectives for the co-
ordination centre. It should:
• Be able to “facilitate the exploitation of economies of scale, opposite
imbalances and other synergies in order to eliminate inefficiencies”.
• Interact between the respective supply chain departments.
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• Interact between clients, hauliers, dispatchers and receivers.
• Deal with hauliers based on their geographical strengths.
• Completely remove duplication throughout Clover’s entire supply chain.
• Allow for more scope to react to the individual clients needs.
• Find partners to reduce imbalances such as found in return loads.
• Arrange transport for inbound raw materials.
• Save on charge-out rates because of network optimisation as a result of
a more global view and better management.
(Clover Logistics, 2007a; 18)
Figure 5.2 The extent of Clover’s required collaboration
Primary Coordination
Centre
Supply Chain Planning
ProductionTransport Contractors
Secondary Distribution
& DC’s
• Regional contracts• Focus on their strengths• Input in business case ( load and off load times)
• Batch sizes• Loading and off loading times• Loading per sku requirements• Send crates to factory in need
direct from secondary DC
• Equalization of trucks throughout the week• Collaborative loads• Truck utilization
• Loading times to suite contractor and for off
loading times• Quicker turn around
times
Principals
• Collaborative loads• Higher frequencies
• Integrate their complete network into ours
• Exploit synergies and opposite imbalances
Primary Coordination
Centre
Supply Chain Planning
ProductionTransport Contractors
Secondary Distribution
& DC’s
• Regional contracts• Focus on their strengths• Input in business case ( load and off load times)
• Batch sizes• Loading and off loading times• Loading per sku requirements• Send crates to factory in need
direct from secondary DC
• Equalization of trucks throughout the week• Collaborative loads• Truck utilization
• Loading times to suite contractor and for off
loading times• Quicker turn around
times
Principals
• Collaborative loads• Higher frequencies
• Integrate their complete network into ours
• Exploit synergies and opposite imbalances
Source: Clover Logistics, 2007a; 22
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The objective of the control centre (see figure 5.2) is to interact and constantly
manage the relationship with the supply chain planning, production, hauliers, clients,
as well as with Clover’s secondary distribution, and Clover’s distribution centres.
5.1.3 The search for a solution
Following intense debate, Clover Logistics’ management concluded that the only way
they would be able to achieve the desired results of increased collaboration across
all aspects of their supply chain, would be through the use of new technology. New
technology would offer them a fully-integrated solution, incorporating planning and
optimisation, execution of loads, full integration with other systems and real-time load
visibility.
In order to solicit information about potential new technology, Clover Logistics
compiled and sent out a 46-page request for proposals to 13 suppliers whom they felt
would be able to present them with possible solutions. Clover’s in-house IT
department was also asked to put together a proposal on the possibilities and cost of
upgrading the in-house Magic system. Of the 14 suppliers that received the request
for proposal, nine responded with possible solutions. The first step was to narrow
down the list of the respondents. Three of the respondents were immediately
eliminated due to cost, and the remaining five respondents were given the
opportunity to provide Clover with a demonstration of the product they were offering.
The following respondents were eliminated after their demonstrations:
• Company A was eliminated as their transactional system was written in
MS Access which the Clover IT department felt would not be able to
handle the volume of data that would be required. The system was also
not able to integrate with Clover’s other management systems and the
planning system was inadequate.
• Company B was eliminated as they did not offer a planning system and if
FLO (Opsi’s planning and routing system) were added, it would become
too costly.
• Company C was eliminated as they proposed to use Collaborative
Exchange to facilitate their communication, which cannot be purchased.
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Collaborative Exchange is similar to MQ adaptor, which is Clover’s
standard middle-ware system.
• The Clover in-house Magic system in its present form did not include a
planning system. It was considered too difficult to develop a
sophisticated planning system in-house, especially as there were
appropriate commercially available planning systems. The option of
redeveloping the Clover system and integrating it with FLO was
investigated. After discussions it became apparent that this would not
give the optimal solution, and that a greater degree of integration would
be achieved with the total solution being offered by Opsi Systems.
Further, it is Clover’s policy to purchase software packages rather than
develop solutions in-house, and therefore it was decided not to pursue
this option.
(Clover, 2003b; 8)
After eliminating all but two options, discussions began with Opsi systems and
Company D. After much discussion a list of the advantages and disadvantages was
drawn up on each organisation’s software system.
5.1.3.i Opsi Systems
The proposal from Opsi systems included their optimisation and scheduling tool Flo
II, which formed the core of their proposal and a transactional system called Optima
which still had to be developed.
(a) Advantages of Opsi systems as seen by Clover:
I. Product advantages:
• Flo had developed over eight years to be a market leader and an
outstanding planning and scheduling programme.
• Optima, which still had to be developed, would be developed and
customised in accordance with Clover’s requirements, therefore a 100%
fit to Clover’s business process would be achievable.
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• Opsi systems proposed seamless integration between Flo, Optima and
Clover’s other systems.
• Opsi systems intended to develop and market Optima with or without
Clover’s participation, as they had three other potential clients.
• Opsi systems would develop any future upgrades to Clover’s
requirements.
• Optima would be fully aligned with Clover’s IT infrastructure.
II. Company advantages as seen by Clover:
• Opsi systems was a professional organisation with high caliber staff.
• Opsi systems was on the leading edge of IT as they had other major
clients with complex logistics systems.
• Opsi systems was a South African concern.
(b) Disadvantages of Opsi systems as seen by Clover:
I. Product disadvantages
• There is always risk associated with developing a new product,
especially as Optima still had to be developed.
• In the development stage there would be a excessive demands on
Clover and CIS (Clover Information Systems) personnel.
• Optima would draw from Clover’s and Opsi experience, but would not
necessarily include the experience gained over time or internationally.
II. Company disadvantages as seen by Clover:
• Opsi systems was still a small company, which comes with the
associated risk of dealing with a small new company.
(Clover, 2003b; 9)
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5.1.3.ii Company D
Company D’s proposal included their optimisation, scheduling and transactional tool,
as well as their integration tool. The complete solution would be rented on an annual
basis from Company D and hosted at their premises in Sandton.
(a) Advantages of Company D as seen by Clover:
I. Product advantages
• Company D’s scheduling tool was an internationally used programme.
• Utilising Company D’s hosted option, would save on Clover
infrastructure and staff.
• No development was needed to implement, only configuration was
required.
• Visibility and communication to personnel outside Clover already
existed.
• Shorter implementation time due to the fact that no development was
needed.
• Lower risk as a result of the product already being tested in live
environments.
II. Company advantages as seen by Clover:
• Company D was a large company, which comes with the associated
advantage of stability.
(b) Disadvantages of Company D
I. Product disadvantages as seen by Clover:
• Clover’s business processes needed to be changed to fit the software
product.
• The software was inflexible outside programme parameters.
• There was a limited graphical interaction between programme and user.
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• There were many functionalities that were included in the price that
would not be used.
• The system would never be owned by Clover Logistics.
• There were network, data security and data accessibility issues with the
product being hosted outside Clover’s network and premises.
• The cost of the product would escalate with the expansion of Clover’s
distribution.
II. Company disadvantages
• High costs of renting the software.
After weighing up the advantages and disadvantages of both organisations, Clover
Logistics made the decision to select Opsi systems as the technology provider.
5.1.4 The proposed solution
Optima was designed by Opsi systems to be the intelligent control centre that:
• Collates orders from numerous different integrated forecasting and
replenishment systems.
• Incorporates Opsi's Plato (Opsi’s new routing and scheduling
optimisation tool, which has been developed for primary distribution, as
apposed to FLO which is used for secondary distribution) scheduler to
assemble optimal loads using Plato sophisticated algorithms.
• Integrates with a variety of third party tracking providers allowing for real
time visibility.
• Allocates transportation costs and revenue information to shipments,
through its management of “debtor and creditor contracts and tariff
structures”.
• Easily manages large volumes of data through a user-friendly interface.
(Clover, 2007a; 32)
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5.2 An in-depth look at Clover’s new technology information system
At present, Clover Logistics has nine Optima planners; each planner is responsible
for planning an order from the time it enters Optima until the time it is delivered.
Clover Logistics currently plans for ten different areas, with each planner being
assigned specific areas. The lead times from when an order enters the system until it
has to be dispatched from the pick-up point, vary between 12 hours and 7 days. As a
result of the varying lead time, it was decided to only plan loads a maximum of 72
hours in advance, and loads that came into the system later, would be planned when
they arrived in the system. This decision meant that only a small number of loads
could be planned on every schedule, which limits the optimisation that can be
performed by Optima. The original idea was to take a few hundred loads and
schedule them together in order to allow for optimisation, however, as a result of the
varying lead time, this was not possible.
There are five main stages an order goes through from the time it is entered into the
system, until the time that it is delivered, these being:
• Service Request Inception
• Planning
• Transportation Procurement
• Track-and-Trace
• Financial Administration
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Figure 5.3 The Optima process flow
Step 7The Optima user generates accounts receivable and accounts payable vouchers in Optima and sends it electronically to
Clover’s accounting system.
Step 6The haulier delivers the load and
the delivery site marks the load as delivered via the Optima web
page
Step 5The haulier then picks up the load
and the pick-up site dispatches the vehicles via the Optima web
page
Step 4The hauliers confirms, rejects or queries the transport request via
his online web page
Step 3The Optima user then publishes
the transport request to the relevant haulier’s online web
page.
Step 2The Optima user schedules the
transport orders through the use of Optima scheduling and optimisation tool, Plato
Step 1a- BR predicts necessary stock and
generates orders for each DC.- Orders are sent through electronically to Optima
Step 1b- Outside clients such as Escort
e-mail their transport request though to the Clover planning
department for planning. - Order are captured into Optima
Step 7The Optima user generates accounts receivable and accounts payable vouchers in Optima and sends it electronically to
Clover’s accounting system.
Step 6The haulier delivers the load and
the delivery site marks the load as delivered via the Optima web
page
Step 5The haulier then picks up the load
and the pick-up site dispatches the vehicles via the Optima web
page
Step 4The hauliers confirms, rejects or queries the transport request via
his online web page
Step 3The Optima user then publishes
the transport request to the relevant haulier’s online web
page.
Step 2The Optima user schedules the
transport orders through the use of Optima scheduling and optimisation tool, Plato
Step 1a- BR predicts necessary stock and
generates orders for each DC.- Orders are sent through electronically to Optima
Step 1b- Outside clients such as Escort
e-mail their transport request though to the Clover planning
department for planning. - Order are captured into Optima
Source: Developed by the author for the purpose of the study
A detailed diagram depicting the process flow of Optima can be seen in annexure
5.1. The high-level processes in figure 5.3 are described in detail in the following
sections:
5.2.1 Service Request (SR) Inception
The service request screen allows the user to:
• Automatically import orders (service requests) from Clover’s Branch
Replenishment System. Optima polls the middleware constantly for new
SRs. Once a new message has been received from the middleware,
Optima automatically captures the SR information. Only requests
containing factory to DC, and full loads from factory to customers, are
sent automatically from the BR. This automatic importing of orders is one
of Optima’s major advantages. Importing the majority of orders instead
of manually entering them, saves on time and minimises for the
occurrence of error.
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• Manually create a new service request using the Optima service request
wizard. All third party orders, the transportation of raw materials, as well
as the transportation of crates are entered manually.
• Edit imported or manually created service requests
When a new service request is entered, the following information needs to be
captured:
• client
• order number
• loading window
• delivering window
• pick-up point
• delivery point
• quantity of pallets to be transported
The service request screen provides the user with a high-level overview of the status
of all service requests in Optima. From the service request screen, the user has
access to interfaces that allow viewing, addition and removal of service requests from
the system. At all times, the user has the ability to view the complete set of service
request details via a user-friendly grid screen. This global view of all the orders in the
system is an advantage of Optima over Clover’s previous system.
Once a service request has been completed, Optima automatically calculates the
amount that needs to be charged to the client, based on who the client is, the pick-up
and drop-off points, as well as a range of other factors that are described in
paragraph 5.2.5 detailing the different charge types.
A completed service request is then sent to the scheduler to be optimised with a
group of other service requests and placed onto a vehicle.
A complete list of all the service requests can be seen on this screen. Service
requests can also be filtered by many different categories, including: incomplete
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service requests, pending service requests, scheduled service requests, allocated
service requests, confirmed service requests, dispatched service requests and
delivered service requests. The service request screen can also be filtered for a
specific date range.
5.2.2 Planning
A core aspect of Optima is its scheduling and optimising functionality powered by the
Plato engine. Plato is based on Opsi System’s Flo, a multi pick-up and drop-off,
multi-depot and multi-day scheduling and tracking system, designed to improve fleet
utilisation and reduce operating costs.
The Plato scheduler interacts seamlessly with Optima, and the user does not know
that there is a separate piece of scheduling software running in the background. The
user has the ability, if necessary, to interact directly with the Scheduler in order to
manually adjust schedules where necessary.
Figure 5.4 The Plato Scheduler
Source; Opsi Systems, 2008b; 19
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Optimisation in Plato is performed through sophisticated algorithms that analyse data
relating to vehicles, products, drivers, customers and road networks, as well as data
from appointment, tariff and fleet availability tables.
The Plato algorithm is what is known as a ‘hill climber’ which tries to find the minimal
cost solution to the routing problem. This means that it starts with an initial
reasonable solution and then tries to improve on this by improving one small step at
time, where each small step improves on the current solution by decreasing the total
cost. The initial solution is found by clustering the orders geographically into
approximately the right number of routes. This clustering has a random component to
it, so it is necessary to run several iterations with different starting solutions. The
different initial solutions can lead to quite different optimised solutions. In order to
include delivery windows and other constraints into this paradigm, a penalised cost is
used. If any constraint is broken, a high cost is added to the current solution. For
example, if a delivery window is broken, a cost equivalent to twice the cost of that trip
could be added. This means that the cost Plato minimises is the sum of the actual
costs, plus the penalties for broken constraints. This is called the penalised cost.
When Plato creates a schedule, the available resources (trailers, truck tractors, rigids
and loading bays) are always respected. A schedule will never be created with more
than the allocated resources. If fewer resources are needed than are allocated, the
lowest cost solution will also minimise the number of resources used, so that the
Plato solution will often use fewer vehicles than the number that was allocated. (Opsi
systems,2006b; 27)
Plato schedules the vehicle while taking into account the factors in table 5.1.
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Table 5.1 The optimising engines’ parameters
Time constraints The optimiser considers appointments, business hours, customised delivery windows, average road travel times and location load/offload times.
Vehicle capacity Plato is responsible for ensuring that vehicles are not overloaded, but is not responsible for issues regarding warehouse capacity or stock. Plato is thus not responsible for ensuring that the despatch warehouse has the correct stock, or that the receiving warehouses have capacity to receive the stock. Warehouse vehicle constraints are supported in Plato.
Vehicle class Plato’s vehicle classes support multiple product class, i.e. explicit multiple-temperature class products are able to be transported on the same vehicle with Plato multi-compartment functionality.
Vehicle availability
Plato keeps track of the haulier’s fleet, and optimises while ensuring that vehicles that are not available are not double booked.
Distance Distances are based on the Plato road network. Plato is responsible for choosing the most optimal route between locations.
Cross-Dock points
The optimiser imports a list of cross-dock points before the optimisation is run. Cross-dock points are product-class specific.
Loading Bays Bays are classed as loading bays, delivery bays or loading and delivery bays. The optimiser assumes that all bays at a location are dedicated to primary logistics within the specified delivery window.
Source: Developed by the author for the purpose of the study
An often overlooked aspect of optimised schedules is the handling of loading bays.
Should a specific warehouse be equipped with multiple loading bays, Plato has the
ability to balance the collection of loads across these multiple loading bays. Plato
also has the ability to mark certain loading bays as loading, or unloading only, as well
as the option to designate certain loading bays for certain products only, such as
chilled products. When scheduling the vehicles, Plato takes account of loading bay
availability, as well as the constraints and schedules of vehicles to suit loading bay
constraints. Advanced scheduling techniques are supported, including cross-docking,
back hauls and shuttle services, as well as must-go/can-go orders. To avoid vehicles
arriving too late or too early at a site, Plato requires information regarding the
business hours of the pick-up and delivery points. Plato also takes into account
opening and closing times of sties. Plato allows Clover to adjust these opening and
closing times according to changing business requirements. This, coupled with the
loading bay optimisation, allows for more flexible scheduling at the pick-up and
delivery sites.
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When performing multi-day scheduling, information regarding the availability and
location of an organisation’s fleet is essential. Plato books vehicles that are currently
on a schedule as unavailable, and does not allow the new schedule to utilise their
vehicles for the booked time period. When performing optimisation, Plato takes into
account vehicle limitation criteria such as mass and volume, however Plato is not
responsible for packing the vehicles in an optimal manner.
When a new customer is added, it is necessary to physically place the customer in
the correct location on the map in order to allow Plato to know where to schedule the
vehicle to. The scheduler offers an attractive map interface, allowing on-screen Geo-
Coding, and interactive route viewing and editing.
Figure 5.5 The Plato Geo Coding interface
Source: Opsi Systems, 2008b; 22
Clover originally felt that it would be possible to schedule a week’s quantity of loads
at once. This would allow Optima to take a few hundred orders and place them on
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the vehicles in the most optimal way in order to minimise costs and vehicle utilisation.
As a result of extremely short lead times, as well as orders with longer lead times
having to be edited, Clover Logistics was not able to schedule a few hundred orders
at once. Clover now schedules a few loads at once, which reduces Optima’s ability to
optimise the loads. Clover does however, benefit enormously from Optima’s ability to
schedule loading bays, manage Clover’s and their sub-contactors fleets, calculate
travel distances and time, calculate offloading and loading times, as well as the ability
to plan and modify schedules through the Optima graphical interface which can be
seen in figure 5.7.
5.2.3 Transportation Procurement
I. Choosing a haulier
Once a schedule has been finalised by the user, a transport request is automatically
generated and all further handling of the transport request is done in the transport
request screen. In the transport request screen, the transport requests ready for
allocation are displayed. The user can view, edit or remove transport requests, as
well as decide whether to manually allocate a Clover vehicle, or send the transport
request to the haulier. If a Clover vehicle is to be allocated, Optima optimally selects
an available vehicle.
All transport requests that are ready to be allocated to hauliers are listed in the
transport request screen. Clover Logistics’ have dedicated hauliers for specific lanes
and hence depending on the lane, a haulier is allocated.
II. Confirming an offer to the allocated haulier
Once a haulier has been allocated to the transport request, the user then publishes
the request to the haulier’s web page. The transport request will then appear on the
hauler’s web page which can be accessed over the internet through a standard
browser. No special software is needed at the haulier’s site to access the haulier’s
web page.
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Figure 5.6 Haulier-web interface for tendered transport requests
Source: Opsi Systems, 2008b; 25
The haulier has the ability to see on the web page what loads are being offered to
him, including the following information:
• TR number
• Route
• Tariff-amount being offered to do the load
• Loading date and time
• Delivery date and time
• Number of drops
• Pallet quantity
• Vehicle type (ambient / chilled / frozen)
• Recommended vehicle capacity
• Product type
• Value of the goods to be transported (for insurance purposes)
• Related order numbers
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The haulier then has the choice to accept, reject or query the load. The system
allows the haulier to include reasons for rejection, as well as changes to the
proposed tariff.
If accepted by the haulier, the transport request status is changed to ‘allocated’, and
the transport request appears on the relevant warehouse and haulier web-based
interfaces.
Figure 5.7 Haulier-web interface showing allocated transport requests
Source: Opsi Systems, 2008b; 26
If the haulier queries the offer and the proposed changes seem acceptable to the
user, an updated transport request will appear on the hauler’s online system, again to
be either accepted or rejected by the haulier. Should the hauler’s changes be
deemed unacceptable, the user can propose another haulier to offer the service.
Clover’s planners are allowed to accept any proposed tariff within R500 of the
originally proposed tariff. An amount larger than R500 has to be authorised by the
planning manager.
In order to ensure that there is no confusion, the haulier has to be confirmed by the
user. Once the user confirms the haulier, the transport request appears as confirmed
on the haulier web page and the hauliers must now allocate the appropriate
resources to pick-up the load.
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Sometimes hauliers are not able to make use of the web page as either they are out
of the office and cannot access the web, or at other times exterior factors such as
power failures prevent them from accessing the web page. In these situations a
phone call is used to convey the applicable data and to confirm a load.
The haulier web page is another benefit of Optima. This web page minimises errors
that are made when capturing data from a phone conversation or fax as was
previously done with the Magic system. It also reduces the Optima planners’ time as
they are saved from having to capture the data manually.
III. Confirming the dispatch and delivery of a transport request
Confirmation of the dispatch and delivery of goods is entered into the web-based
track-and-trace interface. Once the transport request has left the warehouse, the
relevant authorised warehouse personnel or haulier representatives, log into the site
dispatch web page, update the status of the transport request to “dispatched” or
“delivered”, as well as update other relevant details such as departure date and time.
Figure 5.8 Web-based track–and-trace interface
Source: Opsi Systems, 2008b; 27
For third party clients who do not have access to the web page, the Optima user
phones the dispatch and delivery point to confirm dispatch and delivery, and
manually updates the relevant information in Optima.
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According to Clover’s planning manager, the site web page is extremely useful for
the DC and CDC as they can log on at any time of the day or night, and have full
visibility as to what loads are going to be dispatched or received from their site. This
allows them to plan appropriately (Hoeksma, 2008).
Once the delivery has been confirmed, the status of the transport request and
corresponding service request/s are changed to “delivered”, and the relevant parties
are notified via their online systems. Once delivery of the goods has been confirmed,
the financial process is initiated.
5.2.4 Track-and-Trace
Optima allows the user to monitor TRs while they are in-transit. The provided
information includes:
• Current location
• Expected time of arrival (ETA) at next stop
• Current temperature
• Delay reason code (if applicable)
• Comments
The tracking of an in-transit vehicle is accomplished through Optima integrating with
the haulier’s GPS tracking system, and will update the current location and ETAs
automatically.
Although the GPS integration could save the Optima user much time as it would save
them from calling the drivers to follow up on their current status, it has not been
implemented at Clover Logistics as yet as the management of Clover Logistics views
other Optima modules as priority.
5.2.5 Financial Administration
Once the haulier has picked up a load and the load has been marked as dispatched,
the Optima user can then generate accounts payable (AP) vouchers. Once all the
service requests relating to a transport request have been delivered, the Optima user
can then generate accounts receivable (AR) vouchers.
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The AP and AR vouchers are calculated based on 4000 different charge types.
Optima references the charge type that is applicable to the specific client or haulier,
and then calculates the correct charge based on the relevant variables in the charge
type. The ability to calculate vouchers based on a large variety of charge types for
the haulier, as well as the client, is a competitive advantage that Optima has over
Clover’s old Magic system. Clover is in the process of going live with the AR process.
The AR and AP vouchers are then exported to BPCS and MRP2 (Clover Logistics’
financial system) for use by Clover’s financial department. Optima initiates the
creation of a purchase order in BPCS and receives a confirmation order number back
from BPCS. Optima initiates the creation of a client invoice in MRP2 and receives a
confirmation invoice number back from MRP2.
It is important to note that Optima is not responsible for the actual creation of the
invoice and debit note, but merely transfers the applicable information required by the
financial system to generate these documents.
5.2.6 Master data management
Managing and maintaining master data is a critical element in ensuring that Optima
runs optimally and produces the correct results. Master data does not need to be
handled on a daily basis, and only needs to be managed when something changes
or new data needs to be added. All master data management at Clover is handled by
the planning manager, as normal users do not have access to modify master data.
In order to fully understand the importance of master data, a brief explanation of how
Optima works is set out in the following paragraphs.
The blue circles in figure 5.9 represent an example of pick-up and delivery points
(called sites). These sites are physically placed in the correct location on the map
through a process called Geo-Coding described previously. Sites are then grouped
into areas (called area groups), as can be seen by the red circles circling the sites.
The red circles are then linked to one another by the purple line called a lane. Each
lane has a tariff associated with it as can be seen by the box. A tariff is a collection of
charges. Each haulier and each client have thier own tariffs for the lanes. Each tariff
has a collection of charges associated with it.
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Figure 5.9 How AP and AR vouchers are calculated in Optima
Source: Developed by the author for the purpose of the study
When Optima produces accounts payable and accounts relievable vouchers, it looks
at which area groups the pick-up and drop-off site are located in, then it looks at
which lanes link the pick-up and drop-off area group, and what tariff and charges are
associated with that lanes for that specific client or haulier. Based on this specific
information, a voucher is then created.
A detailed description of the master data is presented below.
• Haulier Information
Hauliers need to be added to Optima’s database whenever a new haulier is used to
render transport services. BPCS is responsible for the initial capture of haulier
information, after which an electronic update automatically creates the haulier within
Optima.
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Table 5.2 Information required when adding new hauliers
Information Requirement Description
Haulier ID Unique Identifier for haulier
Description Haulier description
Physical address Physical address for haulier
Postal address Postal address for haulier
Telephone number Telephone number
Contact person Contact person at the hauliers
Insurance cover The financial amount of the goods transported
Internal / external Haulier
Flag indicating whether the haulier is an internal service provider or an external service provider
ERP supplier code Code used for haulier in the ERP system
Billing type Determines whether a purchase order will be generated over multiple transactions or per transaction or not at all
Active/inactive Flag to indicate whether haulier is still being used or not
Source: Opsi systems, 2004; 39
Optima does not own haulier data and relies on regular synchronisations with the
ERP system to maintain its database. If a haulier is made inactive, no new TRs can
be allocated to that specific haulier. A haulier can not be deleted while there are still
open transactions pending against the haulier.
• Client Information
Clients need to be added to Optima’s database whenever a client is acquired for
whom a transport service is performed. BPCS is responsible for the initial capturing
of a certain client’s information, after which an electronic update automatically
creates the client within Optima. Other clients information, such as third party clients
are captured directly into Optima.
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Table 5.3 Information required when adding new clients
Information Requirement Description
Client code Unique client code
Client name Full client name
Physical address Physical address of client
Billing address Billing address of client
Tel number Contact numbers for the client
Contact person Contact person at the client
Active/inactive Flag signifying whether the client is still active or not
Source: Opsi systems, 2004; 39
Optima does not own all its client data and relies on regular synchronisations with the
ERP system to maintain its database. If a client is made inactive, no new SRs can be
accepted from that client.
• Sites
Site-related information is stored in Optima. The location can be accurately Geo-
Coded (placed in the correct location on the map) using the Plato Geo-Coding
interface as can be seen in figure 5.5.
Table 5.4 Information required when adding new sites
Information Requirement Description
Location type Depot or delivery point
Address Physical address of site
Contact details Contact details of site
Loading and offloading times
Loading and offloading time of the site
Operating hours Operating hours of the site
Vehicle exclusions Vehicles that are not able to enter the site due to size constraints
Source: Opsi systems, 2004; 45
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• Areas Groups
An area is defined by a collection of geographical areas. Optima provides the ability
to define areas. Optima owns area group data and hence the Optima users are free
to add, remove and modify areas and locations via the map interfaces.
Table 5.5 Information required when adding an area group
Information Requirement Description
Area group ID Unique identifier for area group
Area group name Unique name for area group
List of area in area group List of geographical areas in Area group
Source: Opsi systems, 2004; 45
• Lanes
A lane is defined by an origin area group and destination area group. The lane
essentially links two area groups with an associated tariff. All lane data is stored in
Optima, and therefore the Optima user is able to add, remove and modify lanes.
Table 5.6 Information required when adding a new lane
Information Requirement Description
Lane ID Unique identifier for lane
Lane name Unique name for lane
Route description Long description for lane
Origin area Geographical area where the lane originates
Destination area Geographical area where the lane terminates
ERP route code The lane code used in the ERP system
ERP route reference An additional lane reference
Active/inactive Flag for activating or de-activating Routes
Haulier performance The performance of the haulier on this route
Source: Opsi systems, 2004; 43
Lanes are not bidirectional, and hence a different rate has to be entered for the
reverse haul of a specific route.
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• Tariffs
A tariff is defined as “a collection of charges per route, per haulier/client, per vehicle
type” (Opsi Systems, 2003a; 7). Optima owns the tariff data, and therefore allows the
Optima user to add, remove and modify tariffs.
Table 5.7 Information required when adding a new tariff
Information Requirement Description
Unique ID System generated ID
Name Unique name for tariff
Description Description of tariff
Haulier ID or client ID The haulier to whom the tariff applies
Effective date Date the tariff becomes effective and available for use
Expiry date Date the tariff expires and is not available for use
Route ID The route associated with the tariff
Charge information The list of charges associated with the tariff
TL / LTL Truck load or less than truck load
Vehicle class ID The vehicle class associated with this tariff
Source: Opsi systems, 2004; 40
Tariffs may be marked to take priority over older tariffs. When priority tariffs are
created, the effective date remains unchanged and the current tariff’s expiry date is
changed accordingly. For non-priority tariffs, the current tariff’s expiry date remains
unchanged, and the new tariff’s effective date is changed accordingly. The effective
period for a tariff cannot overlap for a specific haulier. Only one tariff may be valid for
a specific haulier at a specific time.
Tariff changes range from global changes such as percentage increases in the fuel
charge, to structural changes such as a rate per pallet charge being replaced with a
fixed charge. Optima allows the user to capture the new charges or apply changes to
existing ones. Optima also allows for the global updating of tariffs. When selecting
the tariffs to update, the system allows the user to filter on haulier, route or charge
type. In addition, the Optima user is able to specify a value change or a percentage
change.
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Optima also supports the global updating of fuel costs. Explicit fuel charges are
simply separate charges linked to a tariff and are modified as discussed here. Implicit
fuel charges are not separate charges. Often, hauliers agree that a percentage of
their fixed charge will be for fuel. Recognising this difference, Optima performs global
updates accordingly.
• Charges
Charges are the price components of a tariff. Multiple charges can be linked to a
tariff. Charges include: (1) fixed charges, for example a toll fee or admin fee, or/and
(2) variable charges, for example a cost per pallet or cost per kilometre (3) discounts
(a negative charge).
Table 5.8 Information required when adding a new charge
Information Requirement Description
Charge ID User defined charge ID
Charge description Description of charge
Charge type Fixed, per pallet, per kilometre, per stop, etc.
Charge validity period The specific time period when the charge is valid from and until
Source: Opsi systems, 2004; 41
Optima has a large number of different charge types. A number of different charges
can be used concurrently for one tariff for one lane. For example, a flat rate of
R 3 000, as well as a per unit of measure (UOM) of R 100 per ton could be used for a
particular tariff. Optima will then add the flat rate and the per UOM rate to provide the
total chargeable amount.
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Table 5.9 List of various different charges
NAME DESCRIPTION
Trip flat rate Single amount for the trip (haulier)
Labour Single amount for labour
Fuel flat rate Single amount for fuel
Shipment flat rate Single amount for the shipment (client)
Per UOM (actual) Amount per unit (pallet), based on the actual quantity
Per trip kilometre Amount per kilometre travelled in total by the vehicle
Per trip hour Amount per hour travelled in total by the vehicle
Per kilogram (actual) Amount per kilogram, based on the actual quantity
Per UOM (planned) Amount per unit (pallet), based on the planned quantity
Per kilogram (planned) Amount per kilogram, based on the planned quantity
Flat rate for UOM Single amount based on the unit type
Per UOM (actual) by majority
Amount per unit (pallet), based on the actual quantity of unit that is in the majority on the trip
Per UOM (planned) by majority
Amount per unit (pallet), based on the planned quantity of unit that is in the majority on the trip
Flat rate for UOM by majority
Single amount, based on the actual quantity of unit that is in the majority on the trip
Spot flat rate Variable amount, entered before despatch
Per pick-up
Amount per pick-up (can be specified to activate after a number of pick-ups, e.g. charge R100 00 per pick-up only after the first 2 pick-ups)
Per drop Amount per drop (can be specified as above)
Per stop Amount per stop, i.e. pick-up or drop-off (can be specified as above)
For any pick-ups
Single amount, based on the number of pick-ups after a specified amount (e.g. charge a flat rate R1000.00 if there are more than 3 pick-ups)
For any drops Single amount, based on the number of drops (specified as above)
For any stops Single amount, based on the number of pick-ups and drops
Source: Developed by the author for the purpose of the study
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• User Types , permissions and log
Optima provides the ability to create user-defined user types and their associated
permissions. Permissions are customised per user type, per screen and per function.
For financial, operational and legal reasons, the use and functioning of Optima is
transparent, with each transaction and event logged by the system. The Optima log
itself consists of a set of tables in Optima’s database, containing the following
information for each event:
I. Timestamp
II. User
III. Event type
IV. Field changed
V. Field value before change
VI. Field value after change
VII. TR/SR reference
VIII. Reason code
• Vehicle Details
Optima owns the vehicle class and vehicle data since it maintains the information
regarding each haulier’s fleet for purposes of accurate optimisation and vehicle
tracking.
Table 5.10 Information required when adding a new vehicle
Information Requirement Description
Name Description of vehicle class
Dimensions Length, width, height
Capacities Unit, volume and mass
Operating hours Operating hours of the vehicle class
Product class exclusions Which product/s may not be transported on the particular vehicle
Source: Opsi systems, 2004; 46
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• Reason Codes
The use of reason codes is strictly limited to events that require specific authorisation
for example, accepting a load on behalf of a haulier.
Table 5.11 Information required when adding a new reason codes
Information Requirement Description
Code Reason code
Category To what Optima module does this reason code refer
Description Comments
Source: Opsi systems, 2004; 47
• Products
In Clover’s case, Optima has three products, chilled pallets, ambient pallets and a
normal pallets. Optima is not concerned with what SKU is on each pallet. All SKU
information is stored in BPCS and is linked to the pallets in Optima through an order
number.
• Loading bays
Optima requires the user to enter in the number of loading bays at each site, as well
as other loading bay specific information that can be seen in table 5.12.
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Table 5.12 Information required when adding new loading bays
Information Requirement Description
Name Loading bay name
Number of loading bays The amount of loading bays at the site
Product exclusions Eg: a product that needs to be refrigerated is excluded from a non-refrigerated loading bay
Vehicle exclusions Eg: a refrigerated vehicle is excluded from a non-refrigerated loading bay
Loading/offloading Does the loading bay facilitate loading or offloading , or loading and offloading
Loading and offloading times
The amount of time it takes to offload an item/volume at that loading bay
Loading bay open time What days of the week and what times are the loading bay open to receive and dispatch loads?
Source: Developed by the author for the purpose of the study
5.2.7 Reporting
Optima’s reporting capability provides intuitive access to information contained within
the system. Through the use of Microsoft SQL server reporting services, Optima
reports are accessible from either a screen display, a printout, a PDF file or from a
Microsoft Excel file.
The following Optima reports are available:
• PLANNING
o Transport requests per planner
o Daily haulier schedule
• TRACK AND TRACE
o Early /late transport requests
o Track-and-trace information for a specific transport requests
• ADMIN/FINANCE
o Tariffs per haulier
o Transport requests costs per haulier
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o Payment status of haulier invoices
o Costs per service request type
o Total cost for routes
o Cost comparisons (per pallet/per route/per kilometre/per client/per
haulier)
o Invoiced income per client
o Unit costs (rand per pallet per route per client per km, etc.)
o Unit cost per haulier
o Profit per haulier per route
• ANALYSIS
o Service request / transport request history
o Haulier per route and vehicle type
o Trips per route
o Service requests / transport requests per status
o Status for service requests / transport requests
o Transport requests per client per route
o Transport requests with/without referenced POs
o Reason codes for cancelled transport requests
o Vehicle utilisation
o Haulier performance
o Hours per trip per route
• DATA MANAGEMENT
o Client details
o Haulier details
o Master route details
o Routes with/without segment codes
5.2.8 General benefits achieved through using Optima
In general, Optima is a fully-integrated software system that caters better for Clover
Logistics’ business needs.
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The following benefits are achieved through the use of Optima:
• Optima is an integrated solution that integrates with all Clover existing
systems allowing for error-free communication between the relevant
systems.
• Much time is saved as a result of the majority of manual data capturing
having been eliminated through the use of Optima.
• Optima has the ability to perform complicated calculations, and calculate
the relevant amount needed for each AP and AR voucher by referencing
over 4000 charge types.
• Optima allows for a global view of the current status of all relevant
transport orders.
• Through Optima’s integration with Plato, Optima is able to manage
Clover’s internal and external fleets, while at the same time optimising
vehicle usage and scheduling vehicles around loading bay availability.
• Optima is able to comfortably handle Clover’s growing order volume.
• In contrast to Magic, Optima is able to produce accounts receivable
vouchers allowing for accurate invoicing of Clover Logistics’ clients.
• Communication with subcontractors is efficient as it relies on a web
page, ensuring no errors are made while capturing data from a phone
call and faxes.
• Optima is able to optimise and schedule multi pick-up and multi drop-off
loads.
• Optima caters for the cross-docking of vehicles.
• Although not yet activated, Optima interfaces with satellite tracking
systems and provides a live update on the position of the vehicles in
relation to the planned trip.
• Optima allows for planners, dispatchers, warehouse managers and
hauliers to interact with the same job in real-time.
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• Improved reporting enables Clover Logistics’ management to make
better business decisions.
In conclusion, Optima allows Clover Logistics to better manage their organisation and
hence improve on their profits. A detailed analysis of the benefits both financial and
other will be presented in the following chapter.
5.2.9 General concerns resulting from the implementation of Optima
As a result of Optima being custom developed to suite Clover Logistics business
needs there were no direct drawbacks of Optima that were not already present in
Clover’s previous Magic system. A few concerns around the implementation of
Optima are listed below:
• The financial administration of the Optima system is very complicated.
This complex structure is however necessary in order to allow for proper
financial visibility.
• When Clover Logistics began implementing Optima’s tracking module, it
became evident that hauliers were not happy to share their GPS
information with Clover. This challenge resulted in Clover Logistics
postponing the implementation of the tracking module indefinitely.
• At the beginning of the Optima implementation, one additional Opsi
employee was dedicated to the Clover implementation. However, after a
year Clover realised that having a dedicated person managing Optima
was a critical aspect of its success. This resulted in an additional annual
expense that was not budgeted for at the outset of the project.
• Presently a large percentage of the information in Optima has to be
extracted by Clover’s in-house IT department, as Optima does not have
the necessary reports to produce the needed information. As a result of
Clover Logistics initially relying on their in-house IT department to extract
the data required from Optima, reports in Optima have not yet been
developed as necessary (Fourie, 31 July 2008).
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5.3 The implementation of Optima
5.3.1 Managing the implementation
In order to ensure optimal project management, Opsi systems decided to bring in a