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Applying collaborative transportation
management models in global
third-party logistics
J. C. TYAN, F. K. WANG and T. DU
Abstract. With the trends of e-commerce and globalization
occurring in the economy, an effective global supply chain
(GSC) management has become a business necessity for a
multinational corporation seeking to secure market share.
Although there has been much discussion on how a company
gains competitive advantages through GSC management, the
physical distribution of order fulfilment is less discussed in the
literature. Global third-party logistics (3PL) has developed
into an alternative for the needs of global distribution. In this
paper, the authors present a new application of collaboration
in GSC execution, namely collaborative transportation man-
agement (CTM), which can be used to reduce delivery time
and improve delivery reliability. A case study is illustrated: the
application of CTM by a 3PL provider in a notebook
computer GSC. The implementation results show that the
delivery cycle time and the total cost are simultaneously
reduced.
1. Introduction
Owing to escalating global competition and a
decline in profit margins, most multinational corpora-
tions pursue global sourcing through a global supply
chain (GSC) in order to secure market share and
improve profits. The practice of e-commerce and the
business trend of mass customization force both
manufacturers and retailers to shorten cycle time by
managing GSCs more effectively. Successful applica-
tions of GSCs, such as that by Dell, have been widely
discussed and publicized in the literature. However, the
physical distribution of GSC execution is recognized as
its weakest link and can result in inefficient and
unreliable product delivery. Traditional international
transportation by consolidated freight takes 8 to 14
days, excluding manufacturing lead-time. The inte-
grated global third-party logistics (3PL) provider can
act as a virtual distributor to form an alliance with GSC
participants in order to compress the delivery cycle time
to two to four days.
This paper introduces a new shipper – carrier
partnership strategy—collaborative transportation
management (CTM)—as an application of GSC
physical distribution. CTM is a new business model
that includes the carrier as a strategic partner for
information sharing and collaboration in a supply
chain. The application of CTM promises to reduce
transit times and total costs for the retailer and its
suppliers while increasing asset utilization for the
carriers. The program benefits all three parties
involved: the retailer, the supplier and the carrier.
This paper is organized as follows. In the next
section, the development of 3PL in GSC is discussed.
The development of CTM and its business model and
object model are presented in section 3. An
illustrated case study is provided in section 2. The
final section summarizes our conclusion.
2. The development of 3PL in GSC
Owing to increasing global competition and volatile
market demand, effective GSC management is indis-
pensable when it comes to securing market share and
improving profits. The key reasons for the trend of
globalization are overcapacity in highly industrialized
countries, significant disadvantages with respect to
labour costs, and the emergence of worldwide informa-
tion networks that connect the information systems of
firms (Arnold 1999). An increasing number of firms are
Authors: J. C. Tyan, Department of Industrial Engineering, Chung Yuan
Christian University, Taiwan; F. K. Wang, Department of Industrial Engineering
and Management, National Taipei University of Technology, 106, Taiwan.
E-mail: fukwun@ntut.edu.tw; T. Du, Department of Decision Sciences and
Managerial Economics, The Chinese University of Hong Kong, Hong Kong,
Republic of China.
INT. J. COMPUTER INTEGRATED MANUFACTURING, 2003, VOL. 16, NO. 4–5, 283–291
International Journal of Computer Integrated Manufacturing
ISSN 0951-192X print/ISSN 1362-3052 online #2003 Taylor & Francis Ltd
http://www.tandf.co.uk/journals
DOI: 10.1080/0951192031000089183
combining domestic and international sourcing
through GSCs as a means of achieving a sustainable
competitive advantage (Bonarth et al. 1998). A GSC is
currently viewed as a strategic weapon in the quest for
improved performance and profitability through great-
er availability, quality, delivery and price advantage
(Smith 1999, Lee 2000).
The principle and methodology of GSC manage-
ment are similar to those of traditional supply chain
management (SCM), except that multiple countries are
taken into consideration. Traditional SCM is the
integration of functions from the procurement of raw
materials to final customer delivery. The GSC model is
more complex than SCM as it includes different taxes
and duties, differential exchange rates, trade barriers,
customs clearance, and a sophisticated international
transportation network (Vidal and Goetschalckx 1997).
Most enterprises establish a virtual integrated company
with their suppliers by implementing an e-business
model in order to address the information flow and the
finance flow of a GSC. However, the integration of a
physical distribution in a GSC appears to be the weakest
link due to the high level of investment needed to
construct a global distribution network.
The trends of e-commerce and mass customization
via the Internet have challenged enterprises to deliver
their finished goods within one week, as with Dell
Computer’s five-business-days online model. The tradi-
tional international shipping practice with extensive
consolidation operations (Crainic 2000) takes 8 to 14
business days exclusive of manufacturing cycle time, as
shown in figure 1. The new economy calls for alliances
to be made with 3PL providers in order to manage GSCs
effectively by focusing on each player’s core competency
(Lieb and Randall 1999, Aichlymayr 2000b). Most high-
tech companies select global door-to-door 3PL providers
such as FedEx, UPS and DHL to streamline distributions
and to reduce delivery cycle times.
The typical benefits of a global door-to-door service
are shorter delivery cycle times, more reliable transit
times, less complex customs clearance procedures, and
real-time global tracking and tracing systems (Christo-
pher 1998). While the unit transportation cost is higher
than that of a traditional consolidated airfreight service,
the total logistics cost is lower as a result of inventory
and cycle time reduction throughout the GSC. The
success of such integrated 3PL is determined by its
global transportation network, warehousing network,
and information network. Figure 1 shows traditional
international shipping with multiple carriers, brokers,
and airlines. A GSC linked by a 3PL provider (see figure
2) can reduce the distribution cycle from 8 to 14 days to
2 to 4 days.
3. Collaborative transportation management
The level of collaboration among all players in the
chain determines the success of a GSC. Classic SC
collaboration is found in retailer and supplier partner-
ship programs (Lummus and Vokurka 1999), such as
quick response (QR), continuous replenishment policy
(CRP), and vendor managed inventory (VMI), which
aim to reduce inventory and provide quick responses to
consumer demand. The most recent developments in
collaborative planning, forecasting, and replenishment
(CPFR) aim to improve further the retailer – supplier
relationship. However, the carrier relationship with SC
players was not considered until the introduction of
CTM.
3.1. Historical perspective of CPFR and CTM
The historical perspective of CPFR and CTM can be
traced back to the early development of VMI for the
Airport Airport
Figure 1. The traditional international consolidated airfreight model.
284 J. C. Tyan et al.
retailer and supplier partnership. VMI—sometimes
called rapid replenishment—is a ‘pull’ replenishing
practice designed to enable a vendor to quickly respond
to actual demand. The motivation behind VMI strategy
is that both parties work together to maximize the
competitiveness of the supply chain. Under the VMI
system, the supplier decides on the appropriate
inventory levels of each of the products (within
previously agreed upon bounds), and the appropriate
inventory policies to maintain these levels (Simchi-Levi
et al. 2000). The most obvious benefits of the VMI
arrangement are inventory cost reduction for the
retailer and total cost reduction for the supplier.
Improvements in productivity and service levels lead
to larger profit margins and an increase in sales.
In spite of the numerous benefits of VMI, some
concerns have to be taken into account. Aichlymayr
(2000a) investigated the VMI implementation and
reported that out of ten VMI implementations, only
three or four achieved great success. Another three or
four showed some benefits but not as many as antici-
pated, and two or three did not show any benefits at all.
To the best of our knowledge, there are two major
deficiencies with the VMI system that prevent it from
enabling an efficient and agile SC. The first deficiency is
that the VMI system places too much responsibility on the
manufacturer. Typically, the retailer dictates the rule so
that the manufacturer does not have much choice.
Furthermore, the manufacturer is responsible for any
inventory discrepancy. The second deficiency is that the
VMI system does not consider the collaboration with
distribution carriers. The capacity constraints of carriers
may distort the SC efficiency by delaying the distribution
transit time. VMI causes more delay effects in the GSC
distribution of multi-airline and multi-carrier interna-
tional transportation systems, as depicted in figure 1.
CPFR was developed by the Voluntary Interindustry
Commerce Standards Association (VICS) in order to
address the first deficiency of VMI. CPFR is a nine-step
business process model for value chain partners to
coordinate sales forecasting and replenishment in
order to reduce variance between supply and demand
(Aichlymayr 2000a). Under CPFR, both parties mu-
tually look at information and compare calculations.
Manufacturers and retailers share forecasts, including
POS (point of sale), on-hand and delivery data. They
review the data together and collaborate in working
with forecasting discrepancies (Schachtman 2000). A
sub-committee under the VICS recently initiated a new
shipper – carrier partnership strategy known as CTM in
order to reduce transit times and inventory-carrying
costs for the retailer and its suppliers while increasing
asset utilization for motor carriers (Cooke 2000). CTM
aims to resolve the second deficiency of the VMI system.
3.2. CTM business model
The make-to-order market driven by mass customi-
zation and e-commerce is forcing retailers and manu-
facturers to shorten planning cycles, compress
manufacturing lead time, and expedite distribution.
Figure 2. The GSC linked by an integrated 3PL provider.
285Collaborative transport management
With shorter planning windows and the overall objec-
tive of minimizing inventory in the value chain,
transportation has become a critical area in the process.
Today, transportation is reactionary. Retailers, manu-
facturers, and carriers constantly find themselves in
conflict with each other in order to resolve shipment-
level issues. This produces excess inventory and under-
utilized carrier equipment. CTM is an independent yet
concurrent process with CPFR, building on the same
relationships between retailers and manufacturers, but
incorporating new information and steps within the
carriers. It extends CPFR’s end-at-order confirmation,
continues through to shipment delivery, and includes
payment to the carrier. It then creates the carrier as
part of the SC player to reduce costs, increase asset
utilization, improve service, increase revenue, and
improve end-customer satisfaction.
CTM is a new process for carriers, involving them in
five key business activities: the creation of a joint
business plan, order forecasting, order generation,
freight order confirmation, and carrier payment
processes (Browning and White 2000). The CTM
business model was proposed by VICS and consists of
14 steps. The CTM process can be further divided into
three distinct phases: planning, forecasting, and execu-
tion, as shown in figure 3.
The planning phase makes up steps 1 and 2. In step
1, the trading partners establish a collaborative agree-
ment to define the relationship in terms of freight
shipment, exception handling, and key performance
indicator (KPI). Step 2 involves aggregative planning to
determine resource and equipment requirements by
matching with the planned shipment. The forecasting
phase includes steps 3 to 5. By sharing order and
shipment forecast in step 3, the carrier gains insight
into the changes of planned volume and adjusts the
equipment requirement accordingly. Exceptions due to
the manufacturer, the distributor, or the carrier are
generated in step 4 and resolved collaboratively in step
5. Unlike with the traditional one to two days’ advanced
notice of potential shipments; the carrier has ample
time (one to four weeks depending on the forecasting
horizon) to handle the resolved volume.
The execution phase consists of four stages: ship-
ment tenders, distribution, payment, and a review in
order to manage the whole distribution cycle. The
shipment tenders stage starts from steps 6 to 8 of CTM.
Step 6 is the creation of order/shipment tenders based
on the resolved order forecast. Any exceptions based on
latest equipment availability, pickup and delivery
requirements are identified in step 7 and resolved
collaboratively in step 8. The distribution stage—steps 9
through 11—involves the physical distribution and the
visibility of the shipment status. Step 9 is the creation of
the final shipment contracts, outlined as the results of
collaborative tender acceptance and shipment terms.
Shipment status is continually updated throughout the
distribution cycle and any exception is identified during
step 10. Step 11 is the resolution of delivery exceptions.
The payment stage involves steps 12 and 13. Invoicing
discrepancies are greatly reduced with the communica-
tion of shipment attributes, such as weight, freight class,
and destination between carriers and shippers, in step
10. Any payment exceptions identified in step 12 are
collaboratively resolved in step 13. Finally, the review
phase involves measuring the distribution performance
against the KPI in step 14 and seeking opportunities for
continuous improvement.
3.3. Implementation issues of CTM
CTM is a new business model for integrating
transportation management with SCM. The proposed
CTM model is generic and can be modified to fit a
specific SC application. We are interested in the
application of CTM in GSC from the perspective of
3PL providers. The primary implementation issues are
therefore discussed below.
The benefits of CTM are the first issue to be
addressed. The application of CTM provides individual
benefits as well as SC benefits. The most obvious benefit
to 3PL providers is the ability to develop business plans
with their key customers to fulfil distribution require-
ments better. This is achieved through proactive
participation in the planning, forecasting, and execu-
tion phases of CTM. The manufacturers and distribu-
tors, in turn, benefit from better transportation transit
times, visibility to shipment status, and the payment
process. The collaboration in execution between
trading partners creates SC competitiveness and value.
Other benefits include reduced costs, increased reven-
ue, an improved service level, improved end-customer
satisfaction, and increased asset utilization (Browning
and White 2000).
Technology requirements for CTM are the next
issue to be discussed. In order to foster collaboration,
new information and technology (IT) is needed to link
between the carrier and the manufacturer/distributor.
The IT requirements of CTM proposed by the VICS are
vendor and platform independent, such that any
trading partner entering into a collaborative relation-
ship will not be hindered by technical limitations
(Browning and White 2000). The IT integration of
CTM across the entire SC can be achieved by the
development of IT standards, IT infrastructure, e-
commerce, and a supply chain system (Simchi-Levi et
al. 2000). In practice, a committee comprising technical
286 J. C. Tyan et al.
professionals from all trading parties handles IT
requirement and the integration of CTM.
Organizational infrastructure is another factor of
CTM implementation. It is identified as the most
important enabler of successful SCM implementation
(Marien 2000). It sets commitments and regulates all
parties so that they accept their responsibilities and
share both the gains and the risks, as outlined in step 1
of CTM. GSC is a highly dynamic system and any
changes to it may impact the distribution activities. The
core concept of CTM is to resolve these transportation
exceptions collaboratively. In order to achieve the
benefits of CTM, empowered designated personnel
from each party are essential.
3.4. Object model of CTM
In order to provide CTM in global third-party
logistics, figure 4 presents an integrated and evolutional
Figure 3. Generic CTM business model.
287Collaborative transport management
CTM framework based on object-oriented technology.
In the framework, the data of distributors and carriers
are managed by the object-oriented database. This
provides the capabilities of schema evolution, long
transaction, and object reuse (Du and Wu 2001).
Therefore, data for both regular order/shipment and
exceptional order/shipment can evolve from the
forecasting stage to the confirmed stage, and then to
the resolved stage. In addition, the applications are
maintained by object paradigm. That is, functions such
as collaborative strategies, performance management,
contract management, and invoice management are
written in object-oriented programs. In this case, the
properties of reusability, encapsulation, and inheri-
tance can be used to support a dynamic and highly
interactive environment. This is particularly important
for the collaboration among distributors, manufac-
turers, and 3PL provider. This is because the mission-
critical information can be used to eliminate days of
inventory from the entire supply chain and avoid
meaningless exception processing.
4. Case study
Owing to tight competition in the PC market, most
US PC manufacturers manage agile GSCs to secure
market share and to improve profits. Manufacturing
capability as well as cost and quality advantages enable
Taiwan to be one of the most competitive strategic
notebook (NB) computer suppliers for many of the
major PC manufacturers, such as Apple, Compaq, Dell,
HP, IBM and Toshiba. About 50% of the world’s
notebook computers are manufactured in Taiwan. In
order to reduce cycle times and total costs simulta-
neously for the build to order (BTO) and configuration
to order (CTO) markets, Taiwan NB manufacturers
switched the international transportation of NB fin-
ished goods from a consolidated airfreight mode to a
door-to-door service. This practice is also called Taiwan
direct shipment (TDS). FedEx is the market leader in
providing a 3PL door-to-door service for NB global
distribution in Taiwan.
In order to illustrate the application of the CTM
business model in GSC, a case study is developed by
modifying an actual carrier – shipper partnership,
which consists of a global 3PL provider and multiple
NB manufacturers in Taiwan. The representative GSC
shown in figure 2 is similar. The 3PL provider provides
both a door-to-door and a consolidated freight service
with different price and delivery cycle times. The NBs
are delivered to customers throughout Northern
America by a door-to-door guaranteed service with a
cycle time of three to five business days. The partner-
ship was started in late 1999. In the beginning, the 3PL
provider experienced a significant challenge to manage
the service level and aircraft capacity due to volume
fluctuations of the BTO market. NB demand was highly
volatile, as shown in figure 5, which depicts daily
shipments during a typical month. The aggregated daily
shipment to the 3PL provider varied from 600 to 6799,
with a mean of 3368 and a standard deviation of 1535.
The daily available aircraft capacity, on the other hand,
could only accommodate about 4000 shipments in that
particular month.
In order to resolve the capacity issue and improve
the service level, the 3PL provider initiated a project
that involved adopting the CTM partnership with key
NB shippers in early 2000. The objective of the project
was to achieve a 95% service level by the end of 2000 for
all NB shipments. The project team consisted of
personnel from sales, technology, engineering, custo-
mer service, and operation fields aligned with the NB
shipper for CTM implementation. In the planning
phase of CTM, the shipping agreements were outlined
to include the rate, the expected delivery cycle time, the
pickup cut-off time, and the maximum daily guaranteed
volume. If the shipments were over the daily guaran-
teed volume, an additional transit day was added to the
delivery cycle time. The 3PL provider performed
capacity requirement planning based on the planned
demand from shippers. In the forecasting phase,
shippers provided monthly and weekly shipment fore-
cast updates to the 3PL provider for aircraft capacity
planning. The 3PL provider gained sufficient time to
acquire additional capacity for planned month-end and
quarter-end peak shipment demands.
Figure 4. The object model of applying CTM on 3PL
provider.
288 J. C. Tyan et al.
In the execution phase of CTM, IT integration was
first identified to facilitate the collaboration. A new
CTM integrator was developed by the 3PL provider to
link with the manufacturer’s ERP system in order to
retrieve shipping information during the shipment
tender stage. Outbound and inbound customs clear-
ances are an important process for international
shipping. The shipment manifest and commercial
invoice were tendered to the 3PL provider through
the CTM integrator before the actual shipment pickup
in order to process pre-clearance (i.e. to prepare and
submit customs clearance before the actual shipment
arrived at customs) so as to eliminate customs delay.
Once the shipments were picked up, a pickup
confirmation notice was sent back to the manufacturer
through the CTM integrator. A Web-API provided by
the 3PL provider enabled the manufacturer to access
the real-time tracking status via the Internet. The
shipper was to be notified of any delivery exceptions
through e-mail and phone. The end customer could
then check the delivery status via the Internet or
through customer service. The IT integration of the
CTM model in the GSC is shown in figure 6.
The 3PL provider assigned a dedicated team to
coordinate the CTM execution phases and initiate
collaboration in order to resolve any exceptions during
shipment tender and delivery. In addition, to review
shipment forecasts and resolve any exception items the
3PL provider conducted a daily cross-functional con-
ference call. With the support of an integrated system,
the 3PL provider could draw up an invoice with
detailed proof of delivery in order to facilitate invoice
exception identification and resolution. The 3PL
provider consolidated daily and monthly delivery
performance reports to the manufacturer by e-mail in
order to manage delivery performance.
The CTM project was implemented progressively
and three key shippers had entered into collaboration
with the 3PL provider by June 2000. Through an
aggregate planning process, the 3PL provider acquired
additional aircraft capacity in October to accommodate
volume growth. Two KPIs identified by the 3PL
provider were the delivery service level measured by
percentage on-time deliveries and delivery cycle time
measured by days. The delivery and cycle time
performances of the 3PL provider in 2000 are shown
in figures 7 and 8, respectively. The service level
achieved a progressive improvement, except in October
2000. The actual average delivery cycle time was
consistently smaller than the expected delivery cycle
time, with a larger gap after the implementation of
CTM in June.
This project reports that there are many improve-
ments, such as aircraft capacity utilization, reduction of
operating cost due to information sharing, staff
scheduling accuracy, and billing accuracy. In return,
the manufacturer benefited from reduced inventory
costs, improved delivery reliability, and increased
revenue, as shown by volume trend. Besides the
immediate, tangible benefits, the CTM project also
showed that collaboration between a carrier and a
shipper increases the competitiveness of a GSC. The
three major successful factors of this project were
identified as IT integration, effective communication
and coordination, and continuous organizational com-
mitment.
Figure 5. Daily shipment trend of 3PL for the BTO market.
289Collaborative transport management
5. Conclusions
The trends of globalization and mass customization
challenge the traditional single enterprise to respond
and meet market demand. The new economy calls for
the alliances to be made with 3PL providers in order to
form a GSC that focuses on each player’s core
competency. Companies that have implemented a
GSC, such as Dell and Compaq, have gained higher
market share, improved profit margins and services, and
increased response times to BTO and CTO demands.
GSC management has become a strategic tool to reduce
costs as well as to enhance a company’s value.
With the introduction of the CTM model, the
carrier is able to establish collaboration with the
manufacturer and the retailer during the planning,
forecasting, and execution phases of the GSC execution
process. CTM brings to the carrier the benefits of better
Figure 6. Architecture of integration IT and CTM in a NB GSC.
Figure 7. The shipment volume and delivery performance of
CTM application in 2000. Figure 8. The delivery cycle time trend of CTM application
in 2000.
290 J. C. Tyan et al.
strategic capacity planning, increased asset utilization,
and an improved delivery service level. In return, the
manufacturer enjoys reduced costs, improved delivery
reliability, increased visibility, and increased revenue.
The illustrated case study shows that CTM is an effective
approach for 3PL providers to deliver benefits to all
parties in a GSC.
CTM emerges as a new strategy to enhance the
physical distribution of a GSC. It is believed that the
integration of CTM into a GSC will become standard
practice for any e-business application to improve its
advantage in the world market during this century.
Acknowledgements
The authors wish to acknowledge the referees of
this paper, who helped to clarify and improve the
presentation.
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