PAGE 1 l Teradata Magazine l Q1/2011 l ©2011 Teradata Corporation l AR-6307

A high-precision solution enables DHL Express to be strategic about costing and profitability. by Bill Tobey

HL Express is the leading international express courier with those ubiquitous

yellow vans, one of which probably just passed your office window. Established

in 1969 as a document courier with three founding employees, a briefcase

and a single route from San Francisco to Hawaii, DHL today boasts a world-

wide network. Key network components include approximately 4,500 facilities, 60,000

vehicles, 250 daily flights and three state-of-the-art quality-control centers that track

global shipments 24x7.

Like that of its rivals, DHL’s business is

a reliable barometer of the larger world

economy. In early 2009, unfortunately, that

barometer looked more like the altimeter of

an airplane in a tailspin. With the economy

in freefall, markets contracted dramatically,

creating severe pressure to hold market share

and win new business.

In an industry that is competitive in the

best of times, holding market share means

sharpening one’s pencil to set prices strategi-

cally and aggressively. To that end, DHL

Express looked to a new costing and pricing

solution to maximize margins built on its

existing data warehouse platform from

Teradata. To learn more, Teradata Magazine

spoke with Graeme Aitken, Vice President,

Business Controlling at DHL Express.

QDescribe the challenges your organization faces in terms of determin-

ing margins.We’re very much a fixed-cost business.

Ultimately, we’re an airline, and our planes

are going to fly whether there’s one ship-

ment on board or a full load. To fill the

planes we have to manage our margins.

It might make sense to sign a very large

customer at a lower margin to help cover

fixed costs. Conversely, with a smaller-volume

customer, we might expect to make a higher-

percentage margin, but we can’t make those

decisions without knowing what our margin

(i.e., cost) really is. The country managers

who set our prices are constantly trying to

determine our real margins—for customers,

for products or for trade lanes—but they’ve

been handicapped by legacy costing and

profitability tools that are no longer fit for

that purpose.

QWhat did that legacy approach involve?For more than a decade DHL

Express had used a Microsoft Access costing

tool deployed locally in 200 countries. As an

early attempt to implement activity-based

costing, the tool used employee interviews

to localize cost allocations. We basically

asked people how they spend their time:

How much time does a courier spend pick-

ing up shipments, and how much does he or

she spend making deliveries?

CASE IN POINT

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PAGE 2 l Teradata Magazine l Q1/2011 l ©2011 Teradata Corporation l AR-6307

DHL—“The logistics company for the

world”—is the global market leader in

the logistics industry. DHL commits

its expertise in international express,

air and ocean freight, road and rail

transportation, contract logistics

and international mail services to its

customers. A global network com-

posed of more than 220 countries

and territories and about 300,000

employees worldwide offers custom-

ers superior service quality and local

knowledge to satisfy their supply

chain requirements. DHL accepts its

social responsibility by supporting

climate protection, disaster manage-

ment and education. DHL is part of

Deutsche Post DHL. The group gener-

ated revenue of more than 46 billion

euros in 2009.

At A glAnce

QHow were your efforts limited by this system?It was very subjective, and the

answers tended to change every year, which

gave us a different cost model. The update

process was also very time-consuming. We

would start building new models in June and

use them the following January. So the cost-

ing information in a brand-new model was

already 6 months old.

Another shortcoming was that the tool

derived information from our billing system.

So we would work out profitability based on

what we were billing our customers—not on

what we actually did for them operationally.

That’s because when this system was built we

didn’t have detailed operational informa-

tion available that we do now. At the

same time, it didn’t provide cost measures

that reconciled to the general ledger and

financial statements.

QDHl already had a data warehouse from teradata. can you describe its

primary role?We operate a sophisticated global track-

ing system that lets customers trace their

shipments as they pass through our network.

Every parcel is scanned at pickup, on arrival

and departure from a hub or facility, when

it’s loaded on a plane, when it passes through

customs, and finally upon delivery. Each scan

record goes into the data warehouse where it’s

available for reporting and analysis in near

real time. But what we needed was a costing

solution that would make this operational

data available for costing.

QDid you have other require-ments as well?We needed a single, centralized

system that would be efficient and easier

to update. When we built our legacy

system, we sent it out to 200 countries on

CD. That’s not very efficient. We wanted

one global BI [business intelligence]

application that we could run once for

the whole world and close at one time

in the month. It had to be rule-based, to

eliminate subjectivity, and it had to have

one global database for updating, distrib-

uting and clearing information.

It was also important that the solution be

flexible. It had to integrate easily with the

applications we already had, particularly the

operational data warehouse. We wanted one

vendor for both the system and the consult-

ing services needed to deploy it, because we’d

bought off-the-shelf applications before and

found them to be anything but.

QWhat solution did DHl eventually reach? Ultimately, we chose to expand upon

the existing Teradata solution, adding Teradata

Value Analyzer as a costing and profitability

engine, and the data warehouse as a repository

and reporting platform for the output data.

The new application is called INSIGHT.

QHow does InSIgHt work?Teradata Value Analyzer runs

monthly batch processes in which

select data from DHL’s tracking, billing

and general ledger systems, together with

country-specific reference data, is processed

in a complex costing algorithm. Initial pre-

processing and validation extracts specific

event stamps from the operational data,

reducing billions of records to millions.

Then the analyzer calculates two sets of

costs—actual unit costs that typically reflect

significant month-to-month variability, and

standard costs based on periods of actual

costs to average those variations.

After validation to check that every ship-

ment has been costed and matched against

billing records, the computed costs flow into

two virtual data marts within the data ware-

house. One supports profitability reporting,

the other cost management. A Web-based

user interface provides global access to a

PAGE 3 l Teradata Magazine l Q1/2011 l ©2011 Teradata Corporation l AR-6307

CASE IN POINT

tHe cHAllenge: An obsolete

suite of costing and pricing tools

made it impossible for DHL manag-

ers to accurately understand costs,

calculate margins or set prices strate-

gically in highly competitive markets.

tHe SolutIon: A new global

costing and pricing solution uses

Teradata Value Analyzer as the com-

putational engine and leverages the

company’s existing data warehouse.

tHe reSultS: Accurate, up-to-date

cost and profitability information

will improve local pricing decisions

worldwide. Dramatically reduced

infrastructure costs are expected

from replacing an obsolete, labor-

intensive, globally distributed system

with a single, centralized solution.

cASe In PoInt

comprehensive library of pre-designed IBM

Cognos reports.

QWhat does the DHl user get from those reports?We’ve built standard reports

that should answer most cost and margin

questions. You define the parameters, e.g.,

product, trade lane, period, etc., then push

the button and out comes your data. You can

see the profitability of any trade lane, any

customer or any product. You have access to

all the cost and revenue detail on every ship-

ment, and it will be available to every pricing

manager in every country.

Of course, the question I get now is: “Can

I have an extract of the data for our local

application?” And the answer is: “No, you can’t,

because this is a global application.” INSIGHT

will become the sole data warehouse for all

cost and profitability questions. All the data

anyone should need will be in INSIGHT.

QHow and when is InSIgHt being rolled out?Two versions are being deployed to

the field. A plug-and-play regular version with

a base set of costing rules is being deployed

to all countries currently. Later, a customiz-

able version will be made available to larger

countries, with interfaces to local general

ledger systems for service-center-level financial

detail and with more detailed costing rules.

Following user training, INSIGHT went into

production in February 2011.

QHow do you expect this solution to impact the company?

INSIGHT is going to be a game-changer

for DHL because it will end our internal

debates about margins. Whenever someone

cites a margin today, we have a long debate

about why that number is wrong—“It

doesn’t take into account the delivery den-

sity,” “It doesn’t include the clearance price

for this customer,” “We haven’t factored

in an on-site courier,” or “The costs are 2

years old.” Everything becomes an (often

valid) argument about the accuracy of the

numbers we’re using.

With INSIGHT, the data is going to be

vastly more accurate and there’s going to be

much more of it. We’ll have route density

information and fee compliance information,

and all of us will be looking at the same data.

The debate is going to shift from whether our

data is accurate to what actions we can take.

It won’t be about whether specific customers

are profitable, but how we can ensure that

they are.

QWhat will InSIgHt’s impact be on DHl’s bottom line?The only ROI we included in our

business case was for operational cost reduc-

tions from the legacy systems we’ll switch off

versus running INSIGHT. However, pricing

and commercial uses such as revenue and

EBIT [earnings before interest and taxes]

improvements gained through more strategic

pricing will be our biggest returns on this

investment. It’s important to add, though,

that INSIGHT supports pricing—we are not

a cost-plus pricing organization.

So we switch off all the old cost models,

all the profitability tools, all the pricing tools

as well as stop all the development for those

old systems. INSIGHT is really a first step in

cleaning up our BI landscape so that we have

one view of costs and one view of profitabil-

ity. The next step is one view of revenue.

Then we’ll really have—how do you put

it?—one version of the truth. t

Bill Tobey, a senior technology writer based in Salt

Lake City, covers the business applications of IT.

PAGE 4 l Teradata Magazine l Q1/2011 l ©2011 Teradata Corporation l AR-6307

BeHInD tHe SolutIon:DHL Express

DATAbASE: Teradata 12

PLATfOrm: Production systems:28-node Teradata Active Enterprise Data Warehouse (mixed generations),Teradata Data Mart

USErS: 1,000 (200 concurrent)

DATA mODEL: Logical—CustomPhysical—3rd Normal Form

OPErATINg SySTEm: SUSE Linux

STOrAgE: 70TB total for produc-tion systems

TErADATA UTILITIES: Teradata Tools and Utilities 8.1— FastExport, FastLoad, MultiLoad, Teradata Dynamic Query Manager, Teradata Manager, Teradata TPump; Utility Pack—ODBC Driver, JDBC Driver, SQL Assistant, OLE DB, Multitool, Administrator, BTEQ, CLI, Priority Scheduler; Analyst Pack—Visual Explain, Emulation Tool, Index Wizard, Statistics Wizard

TOOLS/APPLICATIONS:

Teradata Value Analyzer and products from IBM Cognos and Microsoft

“INSIGHT is going to be a game-changer for

DHL because it will end our internal debates about

margins. … It won’t be about whether specific

customers are profitable, but how we can ensure

that they are.”

—Graeme Aitkin, DHL

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