September 1, 2006
technology review | Logistics Management Systems

Now you see it

now you see it

New hypernetworked software tools may finally deliver something that has long eluded the industry: end-to-end supply chain visibility.

By Peter Bradley

Sam Berman is a believer.

He argues that in a global economy, how well companies manage their logistics can be a crucial factor in their success, even their survival. "We are the lifeblood of companies," he says. "Companies that don't get that are going to suffer. If they see shipping as the guy on the dock, they will fail. The world is more flat every day. The make or break point is going to be [logistics]. The companies that win the game of logistics, those businesses will win the war."

Berman is senior manager of global logistics for Maxim Integrated Products, a manufacturer and distributor of integrated circuits used in microprocessor-based electronic equipment. Its circuits can be found in products ranging from personal computers and peripherals to instrumentation and testing equipment to handheld devices and video displays. The $2 billion company, whose catalog includes 78,000 SKUs, has some 35,000 customers worldwide.

Berman oversees thousands of shipments to customers around the globe from locations in North America, Europe and Asia. "We have a massive distribution system," he reports. "Most of our operations and test and assembly facilities are offshore." Maxim ships products directly to customers from those facilities, or from cross-dock operations on the U.S. West Coast and in the United Kingdom.

Moving those goods around the globe demands both speed and accuracy. "We measure things in hours in this business," Berman says, referring to the fast-moving electronics industry.

Managing such a complex and widespread distribution system requires a robust system linking all the parts. Systems developers have invested millions of dollars to offer managers like Berman the tools he needs. The companies that offer the systems promise to bring all of the disparate parts together where they can do the most good. And they're making those tools available in a choice of formats—customers can buy and install the software, or they can opt for the "on-demand" model, where they essentially rent the software, which is hosted and updated by the provider, on a pay-as-you-go basis.

For all the complexity of the systems, what they have to do can be expressed simply. "There are two things every logistics guy is looking for," Berman says. "Visibility and control." Then he adds a third: cost savings.

The demand for accurate and on-time fulfillment at a competitive cost is probably most pronounced in the retail sector. David Ginsberg is vice president of operations at Navarre, a Minnesota-based distributor of software, DVDs, music CDs and videogames to most of the nation's retailers. Navarre's shipments are split between less-than-truckload (LTL) and small parcel shipments, with volume varying from 8,000 to as many as 40,000 a day from its campus in New Hope, Minn. A small segment of its shipments are truckload.

Ginsberg sought new transportation software at about the same time the company redesigned its pick and pack operations two years ago. He selected Kewill Flagship as the shipping system. "We were looking for someone able to take orders and decide how and when to ship, produce shipping labels, and manage the whole communication piece with the small package carriers." With retailers likely to penalize early deliveries as well as late, calculating the correct ship date was crucial. In addition, the DVD and CD business requires that all retailers have product on hand for specific release dates—usually a Tuesday. For that reason, Ginsberg needed a tool that would calculate the ship dates to as many as 10,000 locations around the country to assure delivery on—not before—the specified date. "It is critical that they all arrive on the very same day," he says.

What Berman and Ginsberg have in common, despite being in very different industries, is the need to manage thousands of shipments across a wide geographic region and to do it with few, if any, errors, while saving money at the same time. They are on the front lines of the rise of logistics as a competitive weapon. And they have turned to technology for help.

Transportation as the glue
The notion that logistics is becoming more important as businesses become more dispersed is being voiced by others as well. Adrian Gonzalez is director of the Logistics Advisory Council for ARC Advisory Group, a research consultancy based in Massachusetts. "The premise is that if you look at supply chains and what's happening with globalization, transportation is the glue that brings it all together," he says. In a research report he wrote last year, Gonzalez stressed the importance of the software tools that allow logistics to shoulder that burden. Commenting specifically on transportation management systems (TMS), he wrote, "[I]t's not surprising that TMS solutions are expanding beyond transportation and providing capabilities and value to users in other functional groups, such as inventory management, purchasing,merchandising, customer service, and C-level executives."

He believes that demand for greater cross-functional collaboration is one reason for much of the consolidation within the logistics software industry, such as Manhattan Associates' purchase of Logistics.com, SSA Global's acquisition of Arzoon, and Oracle's acquisition of G-Log. A more recent example: In July, JDA Software Group completed its acquisition of Manugistics.

Gonzalez says that enterprise resource planning (ERP) systems have not done a good job of bringing together information from across supply chains. "The TMS and supply chain execution folks have stepped into what I call the order collaboration role," he says. TMS providers have looked at that in part because every order eventually affects transportation. "A more nuanced view is that transportation folks have good experience with connectivity with carriers,"Gonzalez says."That enables the ability to connect to hundreds, if not thousands, of suppliers."

Vendors that provide on-demand solutions, in particular, have built a "critical mass" of carrier connections, he says. As a result, they're seeing customers ask for tools to extend visibility back to inbound suppliers.

Further, while TMS and the like were developed to be outward looking, they can provide valuable internal links among functions, he says. That kind of connectivity helps ensure, for example, that transportation management is made aware of promotions far enough in advance to secure adequate motor carrier capacity.

That speaks to the ability to not only see, but also control operations. "Traditional systems will do the transaction but will not tell you if it was good or bad," says Kate Vitasek, managing partner of consultant Supply Chain Visions. Even the ability to see exceptions doesn't help much unless you can do something about it, she notes. "The next layer will be a kind of proactive planning, a predictive inventory management," she says. "It will not only tell you if your shipment missed the boat, but it will also tell you if you are going to be out of stock and you should FedEx it."

Making connections
Software suppliers confirm they are seeing more demand for greater connectivity among functional areas and providers. Ken Ramoutar, director of product marketing for Sterling Commerce, says, "Visibility across the supply chain network is probably the number one need. It is often expressed in different ways, in terms of symptoms. Sometimes you talk to customers who are doing a lot of expediting, or customer service is bad, or they have a lot of chargebacks. They don't have global visibility to what's going on. It is a major issue for businesses with multiple facilities trying to manage a network of fulfillment operations." (Like others in the industry, Sterling Commerce, an AT&T subsidiary that specializes in visibility tools, extended its reach into the ondemand transportation management business this year when it acquired Nistevo, a specialist in that field.)

Hal Feuchtwanger, director of industry marketing for software supplier i2, sees a trend toward development of tighter linkage between transportation and other logistics systems, including warehousing, with groups in businesses responsible for ordering and inventory. Those linkages, he says, provide tools for managers to analyze multiple product flow options. Closer to a tactical level, he says, the tools allow analysis of such things as tradeoffs between inventory costs and transportation costs.

He cites his own experience as former transportation manager for Michael's Stores. "If we were in danger of an out-of-stock at certain locations, it was easy with inventory planning to make a transfer order." But what was needed were tools to analyze how the cost of picking, labeling and transportation balanced against the cost of ordering more inventory. "We had to have the tools to analyze and understand those decisions,"he says."More importantly, we would work with our inventory partners to see what demand patterns were and to forecast for upcoming inventory."

The ability to link the parts, he says, is leading to what i2 calls a transportation-constrained inventory plan. Orders become visible as a demand for transportation, and the inventory organization can set priorities on what inventory moves are most critical. "It gives you the ability to look ahead and see what specific level of constraints you face regarding transportation capacity and project that into the inventory plan. If I have 12 SKUs and 12 truckloads, and 90 percent can wait a week but two need to move today, transportation needs to understand that."

In the same vein, Feuchtwanger says, the demand for dynamic hub selection is increasing. That is, if a shipper has multiple facilities, dynamic hub selection allows analysis of inbound shipments and outbound demand to determine the best facility for those shipments. He says those decisions can vary from day to day based on volume and orders.

Feuchtwanger says improved visibility into international shipments allows companies like Best Buy to postpone allocation decisions on inbound ocean shipments until one or two days before the goods arrive at the port. In addition, companies are beginning to focus more on understanding total landed cost for international shipments, which has fueled demand for systems that gather all the component costs for transportation, inventory, handling and more into one place.

He says that adoption rates of such visibility tools are likely to vary by industry, based on such factors as the value of inventory, its shelf life and its importance to operations.

A relative newcomer to the logistics software field, Blue Sky Logistics, has taken aim directly at the demand for greater visibility with its Insight product. But company president Steve Hensley says his customers want more than just visibility into the supply chain; they want analytical tools as well. In particular, those customers want to be able to identify trends in their early stages, he explains. "We're seeing a lot of those types of requests across supply chain execution and visibility systems."

Further, Hensley says, customers are looking for ways to apply standardized metrics across multiple distribution centers on inventory turns, cash-to-cash cycle times, order fulfillment cycle times and more. "They have to have a way to compare an eastern facility to a western facility and one transportation lane to another," he says. "We've also heard companies say it would be great if we could tie together inbound transportation to warehousing to outbound—to give them a bigger picture of the whole."

What's right for you
When he went to select software to help manage his global shipping operations, Berman sought a solution that would apply to both heavy freight (which he defines as shipments weighing over 150 pounds) and parcel shipments. About 85 percent of Maxim's 600,000 annual shipments are parcels, shipped with major parcel carriers DHL, FedEx and UPS. But the bulk of his annual spend is on the heavy freight shipments.

"For some companies, that's not a lot, but for companies like us, that's a lot to handle," Berman says. He has a staff of about 40 people worldwide, including shipping and compliance personnel. "We're talking about a global program that we are trying to control for a centralized perspective."

He selected an on-demand system from Agistix, a California based provider of software for automating shipping processes. He opted for the software-as-a-service model, he explains, because of the ease of implementation and the flexibility to add new users with limited up-front investment. "Because this is a kind of evolutionary technology, changes are rather swift compared to a plugged-in software model," he says.

Berman also uses Agistix's invoice consolidation service, which provides him with a single invoice each week for the thousands of shipments transported by multiple carriers. Berman estimates that in addition to time savings, the service has saved Maxim about $6,500 a week in management and processing costs.

Berman stresses that far-reaching visibility and the concomitant control over shipping is critical to efficient management of his shipping. "If you run this as a democracy, it will not run well," he says. "You have to keep decision making in a central location." By doing so, "[y]ou can make everyone work together, you control the routing guide, and you save a ton of money," he adds. "With this system, we can tell each carrier's costs and can make educated decisions."

Berman says he has been able to reduce his heavy freight spend by 28 percent simply by enforcing Maxim's routing guide.

That's essential as logistics costs become more important to senior management, he says. "It's interesting to me, because companies can tell to the penny what they pay for their phone bill, but if you ask a CFO what he spends on freight or logistics, he might give an answer, or he might stare at you blankly because he doesn't know the answer. This is the last frontier."

Gonzalez agrees. "What still amazes me is the large number of companies that do not have a good handle on what their actual costs are," he says. "I think a lot of end users are looking to get a better handle on transportation costs and get more granularity on where those costs are coming from."

Know thyself
What likely helped Berman was clarity at the outset on what he wanted to accomplish. Not all companies go into the software selection process so well prepared, Vitasek says. "One of the problems is that a lot of people don't know what they want. They hear a pitch and say, 'Anything is better than what I have.'"

Gonzalez suggests businesses in the market for connectivity software look first at their own business processes. "You have to understand what your own processes are and how they relate to other functions," he says. "You need to know where you are and where you want to be."

Vitasek emphasizes that internal business processes can make or break an effort to get broader visibility. She cites rampant problems with advance ship notices (ASNs) as an example. "One of the fundamentals is to tighten up the ASN process," she says. "I would argue that the lion's share of companies out there have not taken advantage of ASNs. It does not take millions of dollars and it is the first step to better visibility."

Receiving is another area that needs better focus, she says. "When I do supply chain assessments, in almost any company, I find that receiving is not as good as it should be. Every company has a name for this 'dark pile' of goods. I challenge managers to see how much freight comes in that they cannot process because it has no purchase order or no bar codes or no ASN. When you [see it all together], it is a scary number."

Then it's time to turn to system providers. The first task here, Gonzalez says, is to examine functional requirements. "There's a lot of buzz about service-oriented architecture," he says. That's driven by demands to be able to change business processes rapidly. "You want to be sure that the architecture of a solution aligns with your internal strategy."

He says that another consideration that has become more important to end users is the "human intellectual property" that software providers offer. "When you pick a vendor, look at the people not so much from the implementation team perspective, but from an ongoing perspective. Ask if they are bringing managed services and not just technology."

Vitasek urges prospective software purchasers to take a close look at the software's capabilities to assist in decision making. "What sets the good solutions apart is visibility regardless of the player," she says. "It does not help if you have one system doing transportation, someone else doing contract manufacturing, someone else doing inbound, and someone else doing warehousing. What I like to see are companies that tap into all the players. Most disconnects happen at the handoffs."

That kind of connectivity hasn't always been easy to achieve, but Vitasek is optimistic about the future. In her view, the recent mergers and acquisitions in the industry open the door to advanced solutions that could be "extremely powerful."

About the Author

Peter Bradley
Editor Emeritus
Peter Bradley is an award-winning career journalist with more than three decades of experience in both newspapers and national business magazines. His credentials include seven years as the transportation and supply chain editor at Purchasing Magazine and six years as the chief editor of Logistics Management.

More articles by Peter Bradley

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