Today organisations exist in an environment of constant, unpredictable change. In order
to react to such change, manufacturers must regularly examine and re-assess the various processes which occur before the final product or service is delivered to the consumer. This requires an effective production and operations management system, using state-of-the-art
technology.
A key feature of change in the global marketplace is international electronic trade. The European
Commission views electronic commerce as the glue holding the single market together and has set up awareness centres throughout Europe. This case study shows how DHL Worldwide Express used electronic communications to drive its industry further forward.
The express distribution industry
The international express market is expanding rapidly. According to a recent report by Boeing, it occupied a global market share of 5% of the total International air cargo market in 1994.
This rapid growth rate is set to continue and to attain 31% of the total international air cargo market by the year 2014.
The largest share of this growing market is handled by international express carrier, DHL. DHL Worldwide Express has created one of the greatest success stories in terms of world-wide
renown, company growth and enterprise in the last quarter of the twentieth century. Its foundation, 28 years ago (in 1969), started an entire industry – air express distribution – of which it has remained the world leader. Today, following tremendous growth and expansion, DHL continues to drive the industry it created through a relentless pursuit of excellence in all aspects of product and service, in every operation throughout the world. Understanding the needs and concerns of customers, both globally and locally, is central to DHL’s business philosophy and lies at the heart of the leadership position maintained throughout the 227 countries it serves.
The consolidation of the market
By the 1980s, it had become the norm for companies in some industries to use air-express services, investing heavily in their logistics strategies. In 1982, the worldwide international air express market was worth only $0.5 billion, by the end of the decade it had risen in size to $4.5 billion.
Increased demand together with the need to improve service levels, encouraged air express companies to supplement the use of existing commercial flights with their own fleet of aircraft and to set up their own sorting hubs in order to be in a position to offer greater flexibility to their
customers. In the UK, for example, DHL International (UK) Ltd took the lead in 1980 by creating a hub at Heathrow Airport, followed by a second hub at East Midlands Airport in 1989. Today this has become the third largest air cargo airport after Heathrow and Stanstead.
New technology also became an important force driving change by creating greater speed and efficiency. In 1981, DHL became fully computerised with considerable investment taking place in automated equipment and processes throughout the organisation. This in turn heralded the advent of total logistics solutions, with customers looking to express distribution companies
as partners to assist them in reducing costs and overheads by reducing stock holding and warehousing.
A period of change
The last ten years have seen the most dramatic changes in the express distribution industry. A number of factors have driven these changes:
Changing expectations
The globalisation of trade and new approaches to the manufacturing process have increased the demand for a high standard of reliable service. In Europe, the relaxation of trade barriers and emergence of developing markets and economies such as Eastern Europe, have shortened consumer lead time expectations.
A fresh perspective on distribution
Distribution is now seen as a most powerful business tool with direct impact on the bottom line. As a result, efficiency in this area plays a vital role in maintaining competitive edge. By being able to offer far more than just an express delivery service, companies such as DHL, are becoming an integral part of their client’s distribution strategy, servicing the needs of the world’s largest multinationals through inventory management and direct distribution services.
Technological advancement
Technology began to have a major impact on added reliability in the 1980s, causing large scale investment on the part of leading distribution companies. Computerisation allowed organisations such as DHL to offer completely integrated solutions, so that multinational organisations could rely on just one air express carrier to fulfil all of their requirements. Technology simplified administration, reduced the margin for error and made it easier to cut down on costs.
Changing shipping trends
In the UK Air express is growing in popularity largely at the expense of air freight. As a result, the number of heavier shipments is increasing very rapidly.
Moving express delivery further forward
A successful organisation like DHL, however, cannot afford to remain static. It is important to plan for the future. A mission statement provides a general statement of intent and refers to how an organisation intends to achieve its overall purpose and satisfy customer needs.
Engineering a solution
In order to achieve this mission statement and ensure the long-term success of the business, DHL requires an electronic as well as physical infrastructure for express logistics. Electronic commerce has been recognised as one way of doing this. This is an enabling technology which allows organisations to link computer systems – making considerable savings in terms of time, paperwork and the rekeying of data. Electronic Data Interchange (EDI) is an integral part of electric commerce.
EDI allows data, messages and documents to be transferred from one organisation’s computer system to another. For DHL, EDI has become a key to business process re-engineering, allowing DHL to integrate its operations with those of its clients. EDI has become the foundation of a strategic partnership. This has enabled DHL to develop a competitive edge over its more traditional competitors.
The global importance of EDI should not be under-estimated. Information technology now plays a more important role than ever before – cementing the partnership between forwarders and their customers. This means that DHL is not just a transportation business, it is also an information business. If DHL wants to be known as the Express Service Company of the future, then it must embrace technology.
Benefits of EDI
EDI is DHL’s most advanced service for customer communication. The exchange of electronic data between business partners ensures that data which is sent and received can be used immediately. It will be used by companies with large quantities of express goods which therefore require large information flows. EDI gives DHL more control, improves speed and accuracy and reduces costs:
1. Speed
1. It is possible to respond rapidly to customers and markets.
2. Data is available within seconds of completion and transmission.
3. Manual data entry is eliminated.
4. Shipment information is provided earlier.
2. Accuracy
1. Standard format is used.
2. Data is received exactly as it was sent.
3. Data is available for immediate use.
4. Quality of shipment data is improved.
5. Less manpower is needed to process data.
6. There is no need for batch corrections.
3. Control
1. A formal and binding agreement exists.
2. Messages have a set format.
EDI has enabled DHL to:
1. Attract new business
2. Increase sales by attracting otherwise unfeasible business
3. Improve the quality and level of service
4. Reduce the operation cycle time
5. Establish stronger customer ties
6. Integrate its computer systems with those of its customers.
Improving the goods flow
Each transportation consists of two flows:
1. The goods flow
2. The information flow.
Currently, the shipment includes all paperwork and accompanying information.
new ways to re-engineer and improve the goods flow.
EDI messaging
EDI simply allows messages to be sent from one application to another without manual intervention. Electronic Data Interchange for Administration Commerce and Transport (EDI ACT) is the most popular message standard in Europe. EDI ACT has become the standard interface between DHL and its customers. A Value Added Network (VAN) provides electronic links between customers all over the world to store and forward the information transferred. The EDI Engine attaches an address to data and transmits it to an address directly or via a VAN network. The VAN stores information in an electronic mailbox where it can be retrieved by the recipient.
Vision for EDI
EDI is a major feature of DHL’s plans for the future. By using electronic commerce, DHL is adding a new dimension to the express logistics infrastructure it provides for its clients. Electronic commerce provides a bridge between elements of data which are currently available and the development of new processing tracking and inventory control, as well as export and import control.
In the long term, EDI provides new service opportunities and minimises customer support and development costs. In time, EDI will be fully integrated with all aspects of the process chain – from the orders being placed at the customer level and picked up at a central warehouse, through DHL internal processing and finally to post- sales billing and other customer service improvements.
DHL in the Netherlands
In the Netherlands, DHL and a major European airline use EDI to ensure the provision of up-to-date delivery information for spare aircraft parts from its suppliers across Europe. The airline’s maintenance division needed a reliable transport partner to ensure that spare parts for aircraft maintenance were delivered as quickly as possible. Aircraft parts are of high value and any delays in delivery are very costly for the airline. It was decided to use EDI to obtain shipment status information and for track and trace purposes.
EDI was used because the previous track and trace system did not provide customers with up-to-date delivery required whenever it was needed. Consequently, DHL formed a strong partnership with a client by providing a service which was not currently available from its competitors.
DHL in Germany
DHL in rankfurt used EDI to create a joint distribution process with a contact lens manufacturer for deliveries to its clients in Europe. It had recently been recommended to this manufacturer that the warehousing and distribution of its products should be centralised. The location of this central facility was near rankfurt. The manufacturer wanted customers to be able to receive products by the next day and also wanted to offer customers a late deadline for the receipt of orders.
DHL successfully negotiated with the manufacturer to become the carrier for contact lenses throughout Europe, totalling 5,000 shipments every day. EDI clearly had the capability to handle the high volumes of packages shipped. Traditional systems could not handle either these volumes or the late cut-off times. The order details are keyed in only once. They are then electronically supplied to the distribution warehouse and to DHL for shipping. Customer order information is then combined with DHL’s manifest details.
The main benefit to the client has been the reduction in warehousing and distribution costs. or DHL, using EDI has brought about new business with the opportunity to secure a new long- term partnership with a client for efficiently managed, high-volume business.
Conclusion
The developing trend towards global markets, with organisations competing in a particular market segment on a worldwide basis, has been driven forward by advances in information technology. EDI is just one of many different technological innovations designed to make international trade relatively quick and easy. It has enabled DHL to extend its infrastructure for express logistics solutions, providing new and innovative groundbreaking services for clients.