Case study: The Backbone of Trade

Name: Alhamd Khalif Rama

Student ID: 1412401924

DHL Express cuts costs with its analytical pricing system

called INSIGHT.

by Jennifer Niemela

Logistics is a competitive, price-sensitive business. Successful organizations must work hard to collect and analyse data to ensure profitability and stay one step ahead of their competition. In its bid to become and remain the “logistics company to the world,” DHL Express built an analytical pricing system called INSIGHT that works in any market and provides the critical data needed to stay on top of the other players in the industry while saving the company at least ¤500,000 per year. Graeme Aitken, vice president of business controlling for DHL Express, provides details about the project.

What was the catalyst for INSIGHT?

Aitken: When I joined the company back in 1995 I was working on building up a costing system, which at the time was pretty cutting edge, but it was based in [Microsoft] Access. People didn't update it properly and it was very expensive. Over time it just became less and less fit for the purpose so there was a realization: we didn't really have good costing data, good profitability data. The first step was just to get numbers that we could trust so we built a huge new, somewhat revolutionary, costing system.

How did you get support for such a major undertaking?

Aitken: The business case was pretty much built on a cost saving

… You make the investment, you build the new system … it will simply be cheaper and it will be a lot more accurate.

Where did you start?

Aitken: We create many, many transactions on a daily basis. Every time we pick up a shipment, it gets a scan as it passes through our network. From A to B, the shipment can be scanned 30 times. We use all of that transactional data to allocate costs and then we can load it into our data warehouse. Then we can start the analytics. We had to close the first part of the loop before we could even get to the analytics. So we replaced a whole suite of legacy tools and applications with a global platform where we have one database for every shipment that passes through the DHL network. And we built up one single, global application, called INSIGHT.

What questions are you now able to answer that you couldn't answer before?

Aitken: We can actually create any metric that anyone reasonably wants to see. We know all the attributes of a shipment as it passes through the network so we can very accurately allocate costs. Do we make money from every shipment that passes through our network? If not, why not? And how can we fix it? It’s very similar to yield management of a passenger airline. We fly planes all over the world. We want to make sure they’re as full as possible and we’re making as much revenue as possible.

Has INSIGHT contributed to that effort?

Aitken: There is only one source of the truth now so we save on development. We save on maintenance. We save on hardware costs. And we conservatively put that savings at about ¤500,000 per year. We know it’s a bit more, but we did deliver the cost saving we expected. We estimate that we save about 7,000 man-days per year of building cost models because it used to be very labor intensive. Every country had a costing manager; we now have about 10 people globally who manage the whole cost and profitability system so we save money.

Where do you expect to go from here?

Aitken: The next step we’re looking at is predictive data analytics. We have almost two years’ worth of data in the system. Can we predict the next two years or the next five years? The step we’re now getting into, which is the interesting part for me, is getting back into the business to realize the full benefits. The upside is increased revenue, lower costs, higher EBIT [earnings before interest and taxes], understanding loss mix and so on. That’s where the real value is but even now we’ve only just started to scratch the potential of what we've got. T Jennifer Niemela is the executive editor of Teradata Magazine.

From the following case a few question arise regarding the need of Business Intelligence. The question is:

1. Does DHL increased their Profitability?

2. Does DHL decreased their Cost?

3. Does DHL Improve their Customer Relationship Management (CRM)?

4. Does DHL Decreased the risk of analysis?

To answer the following question, we need to understand what Business Intelligence is.

The Data warehousing institute defines business intelligence as:

“The process, technologies, and tools needed to turn data into information, information into knowledge, and knowledge into plans that drive profitable business action. Business Intelligence encompasses data warehousing, business analytic tools, and content/knowledge management.”

In addition, this definition also exposes two critical notions:

• A BI practice is more that just a collection of tools. This means that without the processes and the right people, the tools are of little value.
• The value of BI is realized in the context of profitable business action. This means that if knowledge that can be used for profitable action is ignored, the practice is of little value.

Why Business Intelligence?

Increased Profitability

Business intelligence can help business clients to evaluate customer lifetime value and short-term profitability expectations and to use this knowledge to distinguish between profitable and non profitable customers.

Decreased Cost

Decreasing of the investments required to make sales, BI can be used to help evaluate organizational costs.

Improved Customer  Relationship  Management (CRM)

This is basically a BI application that applies the analysis of aggregated customer information to provide improved customer service responsiveness.

Decreased  Risk

Applying BI methods to credit data can improve credit risk analysis, whereas analyzing both supplier and consumer activity and reliability can provide insight into how to streamline the supply chain.

From the following explanation, now we know what is Business Intelligence and why we need Business Intelligence. Let's arise all the 4 questions and see how DHL apply BI, hereby the questions:

1. Does DHL increased their Profitability?

As we read from the case, Aitken said DHL create a lot of transaction in daily basis. And the increases profit comes from the shipment and by making sure of all the planes that fly all over the world is as full as possible.

2. Does DHL decreased their Cost?

Yes, DHL does decreased their cost on development, maintenance, and hardware. INSIGHT has saved the company's saving up to $500.000,- per year and save about 7.000 man-days per year of building cost models because it use to be a very labor intensive. And now globally, DHL have 10 managers who manage the cost and profitability system.

3. Does DHL Improve their Customer Relationship Management (CRM)?

The CRM improved when the customer satisfied with the provided services. It's not stated anything about customer relation but from what Aitken said we can assume that DHL has fulfilled this role by enable the customer to see all the reasonable metrics regarding their shipments.

4. Does DHL Decreased the risk of analysis?

Since they now all attributes of the shipment as it passes through the network, they could accurately identify the shipment details. Besides by using INSIGHT, tracking the shipment will be easier as they use one database for every shipment.

Aitken said they also want to bring up the predictive analytics to improve the company's business. By the hope of this predictive analytics, DHL could predict the move for the next two or even 5 more years, increased revenue and lower cost, gaining higher EBIT (Earning Before Interest and Taxes), and understanding the loss mix.