2014 Technology Roundtable: The great convergence

Logistics operations now have a full range of supply chain software and enabling hardware at their fingertips, yet even the most well-meaning
managers are still facing significant execution issues that technology alone simply can’t fix.

And while there’s been a lot of buzz around working toward synchronizing end-to-end supply chain data and adding new levels of visibility through a more integrated approach, our 2014 Technology Roundtable panel reminds us of the vital role of that human integration plays in this transformation process. Today, they say, as technology and labor converge across all functions, emphasis needs to be placed on improving the relationship between the workforce and the collaborative tools—software and equipment—that will make tomorrow’s productivity gains possible.

Related Webcast:       How to Prepare for the Great Technology Convergence       2014 Technology Roundtable       Thursday, May 29, 2014 | 2 pm ET

To help us shed light on this “great convergence,” we called upon Dwight Klappich, research vice president for Gartner, Inc.; Belinda Griffin, senior manager at Capgemini; Norm Saenz, managing director at supply chain consultancy St. Onge Company; and Steve Banker, director of supply chain solutions at ARC Advisory Group.

Over the next few pages, these leading analysts help us understand how the market is evolving toward platforms and tools that optimize end-to-end processes and help managers better integrate people into a more streamlined workflow across all elements of logistics and supply chain management.

Klappich: Supply chain execution convergence
Logistics Management: In a 2013 survey by Gartner, the inability to synchronize end-to-end business processes was named as the second biggest obstacle to reaching supply chain goals. With many companies adopting the full suite of supply chain execution (SCE) software, why is this such a major concern?
Dwight Klappich:  If you look at the way most supply chain organizations were traditionally organized, they were broken down into functional silos like planning, sourcing, manufacturing, warehousing, and transportation—and at best they were loosely connected.

Furthermore, a high percentage of companies sourced their applications in line with these functional silos resulting in a fragmented portfolio of standalone applications. It’s nearly impossible to systematically integrate end-to-end business processes in the fragmented supply chain execution IT environments prevalent in most organizations today.

At best, companies pass data back and forth between applications, but coordinating end-to-end processes across application silos remains elusive. Many companies thought their ERP solutions would eliminate all of these different systems and resolve the end-to-end process problem, but it hasn’t. Even in the ERP suites, supply chain management functionality was built as silos. Consequently, a disproportionately high percentage of IT resources and money is invested in maintaining a status quo position, and not in evolving the end-to-end processes to be more effective.

LM: We’ve been writing about the concept of “supply chain execution convergence,” the idea that the market is evolving toward platforms that optimize end-to-end processes at all levels across the chain. What’s the best way to define this convergence?
Klappich: Supply chain execution (SCE) convergence refers to the growing need for supply chain organizations to do a better job of orchestrating and synchronizing processes, sub-processes, and activities across warehousing, transportation, and manufacturing functional domains. Leading-edge supply chain management (SCM) organizations are beginning to break down application boundaries to drive greater levels of value.

LM: Can you give us an example of the end-to-end process in action?
Klappich: Warehousing and manufacturing were historically independent functional silos, and used specialized and narrowly focused departmental applications to solve separate problems. This worked because the enterprise defined the two as independent departments, and built separate processes, systems, and key performance indicators (KPIs) for each group. The problem today is that the end-to-end fulfillment process, for example, spans these areas. Because they are functional silos, it is impractical to coordinate activities across the domains without some form of coordination technology.

Furthermore, the process steps functionally reside in separate applications—typically, ERP or a manufacturing execution system (MES) for manufacturing management, warehousing for inventory management, and transportation for delivery management. While warehousing management systems (WMS) and transportation management systems (TMS) are obvious points of convergence, they are by no means the only ones.

Related Webcast:       How to Prepare for the Great Technology Convergence       2014 Technology Roundtable       Thursday, May 29, 2014 | 2 pm ET

LM: Ideally, when SCE convergence is achieved, what will be the ultimate benefit?
Klappich: Logistics and supply chain organizations have been able to use their current SCE portfolio approaches to achieve process improvements, normally targeting and removing things such as excess inventory or poor productivity. However, the next opportunities for process and business improvement will require organizations to coordinate and synchronize end-to-end processes such as selling, buying, or making, which will require SCE capabilities to “converge” across or between traditional SCE functional silos.

It’s not about how key processes work independently today, but how processes that span functional boundaries should work together in the future. Again, SCE convergence is largely a technology-led evolution, and will require an application foundation that allows for process orchestration and synchronization across functional and application domains. 

Griffin: Technology collaboration
Logistics Management: We’ve spent some time on the concept of supply chain execution convergence, now let’s shift our focus to the ideas behind supply chain collaboration technologies. Are they related, or is there a distinct differentiation?
Belinda Griffin: Supply chain collaboration and supply chain execution convergence are related. However, supply chain collaboration is a broader concept that includes not only supply chain execution, which focuses on making better live execution-related decisions, but also encompasses forward looking planning and forecasting activities. 

For example, supply chain execution convergence brings shippers, logistics service providers (LSPs), and other supply chain partners together at the time of shipment in a way that promotes shipping efficiencies. Supply chain collaboration is about going beyond this and allowing LSPs to see what capacity is going to be demanded of them during a key future shipping window, such as a seasonal peak period, so they can go ahead and develop mitigation strategies if it looks like they will have inadequate capacity.

Because supply chain collaboration includes a more forward looking perspective, it allows for shippers and their service providers to take more proactive strategies, which in this example might include things like identifying items that can be shipped early or adding capacity and shifting modes for certain items.

LM: What are the ultimate benefits of supply chain collaboration technologies once up and running?
Griffin: Some of the key benefits will include lower inventories, fewer stock outs, an associated improvement in customer service, and reduced expedited charges that manifest themselves not only in terms of actual freight savings, but also in terms of freeing up resources to focus on strategic questions rather than having to devote so much time to fire-fighting in order to avoid late shipments.

In turn, supply chain collaboration technologies extend into other functions such as finance and sales and marketing. For example, finance may use the functionality to forecast and manage cash flow management related activities and sales and marketing may employ the functionality to better manage what delivery dates they can “promise” to a customer.  

LM: How does a supply chain respond when collaboration technologies are put to use?
The key feature you’ll see is that all partners in the supply chain are able to look at and provide input to the same data at any given point in time.

Consequently, imbalances are resolved much more quickly than what you would find in a less collaborative model where everyone has to e-mail or call back and forth multiple times and with many partners any time a change is required. What you also see in the long term as a result of this technology-enabled collaboration is that shippers and service providers are much more likely to view each other as true partners who all play a role in ensuring successful supply chain execution.

LM: Where does a logistics and supply chain operation start in preparing the adoption of collaboration technology?
Griffin: There are three key steps to successfully preparing to adopt supply chain collaboration technology. First, you need to clean up any relevant data and make sure that it’s structured around a logical hierarchy. It’s beneficial to look at aggregate data, and if there’s a poorly structured hierarchy or, for example, multiple product codes for the same item, the aggregate data will be less accurate and reliable.

Second, determine which product lines, business units, or key service providers to initially pilot the technology on. Because there can be some complexity in setting up a supply chain collaboration technology, it usually works best to pilot it in some sub-set of the business.

Third, socialize the concept with key service suppliers. An organization needs to be able to clearly articulate to suppliers the value of the technology to them so that suppliers don’t just see it as something that’s going to require more work at their end with little benefit.  

Banker: Technology, labor meeting omni-channel
Logistics Management: It’s all about omni-channel fulfillment in the DC, with e-commerce driving software and automation vendors to evolve in unprecedented ways. What are the hottest applications these days?
Steve Banker: There’s no doubt we see omni-channel as the hottest IT spend area in supply chain management. In a recent survey, we found the top four applications mentioned were distributed order management, total landed cost analytics, inventory
optimization, and cost of quality analytics when managers were asked which technologies or applications do you believe you need, but don’t have, in order to drive a more successful omni-channel initiative.

LM: With these new fulfillment pressures, warehouse control systems (WCS) have assumed some of the order fulfillment functions that were previously the domain of a warehouse management system (WMS). Due to this transformation, you recently called for a new software architecture that takes distributed intelligence into account. Can you explain how this would work?
Banker: First, consider how the term “Internet of Things” is being increasingly bandied about these days. In one definition, almost all objects have sensors, connectivity to a broader environment, and intelligence. Sometimes the object just has a sliver of intelligence, but it can be much more substantial. Objects can be products, equipment, containers, or forms of material handling equipment including lift trucks.

How we think about WCS has to evolve to fit the Internet of Things era. What does this mean in concrete terms? An increasing number of materials handling systems, and even components of the larger systems, are gaining both sensors and intelligence. However, existing WCS have not been engineered for this new age.

LM: Can you give us an example of how this will work?
Banker: Consider the fact that intelligent forklifts can promote new process flows in the warehouse. When integrated to a WMS, the lift truck’s fork can be raised or lowered faster. The WMS directs a forklift to a pick location, and once at that location the forklift knows whether the pallet to be picked is being stored at a height of three feet, six feet, etc. The operator pushes a button on the console and the forks move at the maximum safe speed—a speed considerably faster than the operator would be apt to move them. The most intelligent forklifts today are built with real-time location systems that allow drivers to proceed to a specified location and pick up or put down a load without the need for the driver to scan the location to prove that they have picked up or delivered the right load.

LM: The idea of distributed order management (DOM), software designed to help multi-channel retailers and manufacturers manage and optimize cross-channel order management, is gaining steam. How is it being applied and how is it working?
Steve Banker:  DOM software provides a common, system-wide view to inventory, along with order fulfillment event management capabilities. A DOM solution is particularly helpful in executing many of the different omni-channel flow paths, such as order at store; fulfill from warehouse; order online and pick-up in store; and order at store and fulfill from another store. To support these kinds of flow paths, the entire inventory across the network needs to be visible in one system and order fulfillment must be logical.

Just because one store is out of inventory and another store close by has that inventory in stock doesn’t mean that you should necessarily use the latter. Issues of profitability of that order and customer satisfaction must feed into the decision rules as well. Some large retailers believe that these solutions have only matured in recent years, which may help explain why these projects have become much more popular in recent years.

Saenz: More from the same
Logistics Management: According to our 2014 findings of our Warehouse & DC Equipment Study, activity levels inside the nation’s DC facilities are at their highest since 2007. What technology advice do you have for managers looking to make the biggest impact in this continued movement of “doing more with the same” inside the DC?

Norm Saenz: If your budget isn’t large enough for a shiny new Tier 1 WMS, then the next best strategy is enhancing your legacy WMS, expanding your WCS usage, developing your slotting capabilities, or bolting-on a labor management system (LMS). Legacy WMS packages get a bad rap, but if properly enhanced these systems can provide focused productivity gains for your warehouse operations. Your operations personnel can outline functionality enhancements that could make the warehouse more productive, and the IT team likely has the capability to implement such changes.

Inventory “slotting” is an area that could be enhanced within more legacy systems. Operations can identify the framework for the slotting algorithm, taking into account the product size and activity to optimize the location of products within the warehouse. IT can then write a slotting algorithm and programs to capture order history, determine product velocities and cube movement and apply that algorithm for enhanced product location assignments. If the modifications are too complex, then investigating low cost stand-alone
packages is another option.  

The other booming software to take into consideration is labor management systems (LMS). While most LMS are more expensive than slotting solutions, they’re still a fraction of the cost of a new WMS solution and can be integrated within a legacy environment. The gains from the LMS implementation approach itself, involving the development of efficient processes and labor standards, quickly results in increased throughput.

Once the LMS is up and running, the improvements continue with the tracking of productivity, feedback to operators and efficient staffing of jobs throughout the warehouse.

LM: How do you see technology and labor converging inside the distribution center?
Saenz: I agree with the strategy of focusing on the process and people and then layering in the right mix of technology. Taking it a step further, there should be more integration between processes and the workforce before technology is even considered. When looking for initial DC improvements, technology should be towards the bottom of the list.

A manager should consider process and method improvements, operator training, and workflow/layout improvements, and then study the application of advanced technologies. As for the advancements in technology, suppliers are continuously humanizing the interface between people and technology and have made great strides, but we have a long-way to go before we reach the levels animated in sci-fi motion pictures.

LM: The lift truck is the workhorse of the DC yet it often gets overlooked in technology discussions. How much of an impact is lift truck fleet management software making on cost and productivity inside today’s leaner, faster facilities?
Saenz: In most manual warehouses, labor is the biggest operational cost, but lift truck related maintenance cost comes in a close second or third. Battery management is a large portion of the maintenance costs related to forklifts, given that the cost of new batteries can range from $3,000 to $7,000.

Managers often steer clear of savings related to lift trucks because they’re a necessary means to moving product and because the collection of historical information can be time consuming to gather and manage. Driving this point home, how do you keep up with your personal car maintenance? It’s not always on the top of your mind to get the quarterly oil change and regular tune-ups. And, the paperwork finds itself in the glove box and file cabinets in your home. Now, imagine a fleet of 20 or more lift trucks driving all over a warehouse with multiple drivers. 

LM: Our 2014 Warehouse & DC Equipment Study tells us that investment in warehouse/DC equipment has cooled a bit after a period of heavy spending. Any final takeaways for those managers who are looking to fine tune their software/technology investments inside the four walls?

Saenz: Investing wisely is a common practice, but the emphasis on intelligent investment is stronger in a recovering economy. The industry is aware of tightening wallets, and has responded by marketing and developing lower-cost technologies that can provide big savings. There are a growing number of smaller, niche providers of LMS and slotting solutions that have a focus on providing efficient systems, and an affordable price tag. 

Voice technology has advanced to providing voice-enabling solutions that require less investment with the same benefits that voice provides. Voice-enabling utilizes an existing RF network and hand-held terminal system and applies a voice application to enable the use of voice commands and instructions. The trend will continue into “happier” economic times, with many gaining the benefits of technology now and readying themselves for more in the future.

Related Webcast:       How to Prepare for the Great Technology Convergence       2014 Technology Roundtable       Thursday, May 29, 2014 | 2 pm ET