Benefit

Benefit-to-cost ratios for Electronic Freight Management (EFM) applications ranged from 1:1 to 7:1. Higher ratios were projected for companies with larger supply chains.

EFM case studies across the United States


June 2012
Kansas City,Missouri,United States; Statewide,Illinois,United States; Des Moines,Iowa,United States; Los Angeles,California,United States


Summary Information

This document examined the ability of Electronic Freight Management (EFM) to improve information transfer between EFM partners and systems. As a follow up to the Columbus EFM evaluation in 2007, several additional pilot studies were conducted across the United States to assess the cost-effectiveness of EFM in terms of business process cost savings. Each EFM system was implemented in such a way to facilitate continued use of the technology once the pilot concluded. The overall goal was to demonstrate a positive return on investment (ROI) for the supply chain "anchor" companies responsible for implementing EFM within their supply chain infrastructure. Federal contractors and integrators provided a common framework to assist supply chain partners to facilitate development of custom EFM packages. Case studies were conducted to evaluate the impacts of EFM on a variety of supply chain partners. The online EFM system www.efm-saic.com allows all partners throughout the supply chain to access real-time information throughout the freight transportation cycle. Example findings are detailed below.

FINDINGS

The USDOT's Freight Technology Assessment Tool (FTAT) was used to calculate the net present value, benefit-cost ratio, and total process improvement for each case study.

Case Study
Useful
Life
Net Present
Value
Benefit-to-Cost
Ratio
Annual Total
Process Improvement
ACME (alias name for large US business)5 Years
$8,814,749
127.15
$2,619,293
Worldwide Integrated Supply Chain Solutions5 Years
$58,648
7.33
$17,916
Interdom Partners - Pride5 Years
$77,194
6.62
$23,990
Kansas City SmartPort - DEMDACO5 Years
$25,470
2.49
$11,216
Carter Transportation5 Years
$57,761
1.36
$24,710
  • Net Present Value included all cash flows including initial investment discounted using a minimum attractive rate of return of 10 percent.
  • The Benefit-to-Cost ratios represented the value of benefits in monetary terms relative to costs expressed as discounted present values.
  • Annual Total Process Improvement was defined as the annual savings to supply chain partners.
ACME (alias business name for confidentiality)
ACME supports hundreds of vendors worldwide. This case study examined the potential benefits of using EFM to enhance supply chain visibility, streamline the freight forwarder assignment process, and improve vendor compliance to reduce transportation expense.

Findings from the case study indicated that ACME experienced a significant reduction in misroutes (unapproved diversions from ocean to air) with the EFM solution. After EFM was implemented the misroute rate decreased from 16.8 percent to 0.0 percent for shipments monitored during the pilot. With a relatively high number of shipments (an average of 7,813 shipments per month) ACME was projected to save more than $4.6 million per year using a phased implementation of EFM across their entire supply chain. The overall benefit-to cost ratio of EFM in this case study was estimated at 127.15:1

WorldWide ISCS (WorldWide)
WorldWide is a Des Moines-based logistics provider that designs freight transport systems and manages truck and multimodal traffic for manufacturers and distributors through use of integrated supply chain solutions.

The deployment of the EFM package has allowed easier access to status information, reducing the number of customer service inquiries that WorldWide needs to respond to. At an average of 20 minutes per request, this equated to a saving $83 per week for a total savings of $1,000 for the 12 week (3 months) pilot period. This equated to an estimated annual savings of $4,316. In addition, The WorldWide's supply chain partner making the requests received information which was estimated to save them $2,950 over the 12 week (3 months) pilot period for an estimated annual savings of $13,583. The overall benefit-to cost ratio of EFM in this case study was estimated at 7.33:1.

Interdom Partners and Pride Logistics
Interdom Partners, an Illinois-based company was not a shipper of goods, but implemented an EFM package to fully automate the flow and processing of information to manage reservations for rail and dray service for both international and domestic shippers. Interdom and Pride worked together to demonstrate how an EFM package can automate communications, eliminate reliance on manual communications, and improve the speed and accuracy of communications between them.

For the impact assessment, evaluators compared the cost of executing the business process before and after implementation of the EFM package. Since the EFM package improved automation, many of the savings accrued as a result of a process that did not take as long. The overall benefit-to cost ratio of EFM in this case was estimated at 6.62:1.

Kansas City SmartPort - DEMDACO
DEMDACO is a Kansas City based importer of gift and decorative items. In 2008, a two month case study was conducted to evaluate the impacts of an electronic freight management (EFM) system on the efficiency of an ocean-rail oriented supply chain from China to Kansas City. The supply chain included a freight forwarder, customs broker, and several ocean and land-based carriers. A second case study was also conducted to demonstrate visibility of electronic data interchange (EDI) messages via the Kansas City Trade Data Exchange.

In this case study, the biggest benefits of EFM were associated with reducing unnecessary partial shipments by providing automatic updates to estimated time of arrival dates for purchase orders. At a cost of $2 per shipment, DEMDACO estimated that they could save $6,000 annually by reducing these extra, often unnecessary shipments. Additional benefits were observed for warehouse management and customer service processes. Results from field testing indicated that EFM reduced the average response time for a logistics supervisor to research and report the status of a shipment by approximately 89 percent. The frequency of these types of inquiries, however, was limited (two per week) thus the total annual savings was fairly small at $208 assuming a $15/hour labor rate. The overall benefit-to cost ratio of EFM in this case study was estimated at 2.49:1.

Carter Transportation
Carter is a small start-up transportation brokerage operation in the greater Los Angeles area. Carter implemented EFM tools to automate the booking of transactions between shippers, carriers, and themselves. The pilot system was found to reduced booking transaction time and cost. The overall benefit-to cost ratio of EFM in this case study was estimated at 1.36:1.


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Source

Electronic Freight Management Case Studies: A Summary of Results

Author: Newton, Diane (SAIC); Jim Cassady (SAIC); Al Hovde (SAIC); Ron Schaefer (SAIC); Al Veile (SAIC); and Bob Fredman (Battelle)

Published By: U.S. DOT Federal Highway Administration

Source Date: June 2012

Other Reference Number: FHWA-JPO-12-069

URL: https://rosap.ntl.bts.gov/view/dot/4036

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Benefit ID: 2012-00805