2009 Logistics Technology Roundtable: Navigating the Storm
Feeling challenged by the course ahead? Our panel of four leading analysts suggests that some strategic technology investment—coupled with the optimization of what you already have—should help shippers steer into less daunting waters.
By Michael Levans, Group Editorial Director -- Logistics Management, 5/1/2009
Click here to download a PDF version of this article.
Register for the 2009 Technology Roundtable Webcast
Now available on demand!
The supply chain management software and technology investment research that’s been trickling in during the past few months (logisticsmgmt.com/software) has revealed that while times have certainly been tough, a percentage of savvy shippers continue to strategically invest in new implementations and upgrades.
That really shouldn’t surprise anyone considering the challenging transportation market over the past year; and the fact that increased trade regulations are putting even more pressure on global shippers for data at a time when nearly every logistics staff is doing more with less. For the vast majority of shippers who told us that their hands have been tied by upper management in terms of technology spending, the following panel discussion may offer you a clearer path through the current nasty weather.
Logistics Management has gathered four leading supply chain management technology analysts to share their insight to help shippers better harness existing systems or make a stronger case to the C-suite for loosening the purse strings.
Over the next few pages we’ll be joined by Adrian Gonzalez, director of ARC Advisory Group’s Logistics Executive Council, who will discuss rising interest in Transportation Management Systems (TMS) and Global Trade Management (GTM); Belinda Griffin, global supply chain executive program manager for Capgemini, who will discuss the growth of network optimization software; Greg Aimi, research director for AMR, who will share tips on optimizing your current Warehouse Management System (WMS); and Brad Wyland, senior research analyst for the Aberdeen Group, who will wrap things up by helping shippers overcome technology adaptation issues.
TMS & GTM: Essential gear
Logistics Management: Our recent research revealed that while technology spending was being scrutinized, interest in TMS continues to be strong. What’s driving this?
Adrian Gonzalez: During the first half of 2008, record fuel prices were certainly the main driving force, as shippers looked to mitigate high fuel surcharges. Although demand has slowed down a bit in 2009 due to the economy, many companies continue to invest in TMS as a way to reduce costs (a top priority for every company these days) and improve productivity. Transportation procurement, in particular, is very popular as the market has shifted in the favor of shippers.
LM: Meanwhile, global trade has slowed significantly, yet global shippers are being put to the test with the introduction of 10+2. What’s your advice to shippers who have yet to get customs compliance in order?
AG: First, the need to comply with trade regulations has not gone away—and will not go away. Seek help from your freight forwarders and brokers. In many ways, the requirements of 10+2 are an extension of what freight forwarders/NVOCCs are already doing to comply with US Customs’ Container Security Initiative (CSI), namely submitting manifest information, including shipper details, electronically to U.S. Customs’ Automated Manifest System (AMS). In fact, 10+2 information will also be submitted to Customs via AMS.
LM: What type of vendors are poised to help at this stage?
AG: Traditional software vendors are not in the best position to cash in on this opportunity. If there’s ever a business process that lends itself perfectly to a network-based solution, it has to be 10+2 compliance. This is really a data collection and connectivity challenge, and freight forwarders and network-based solution providers are in the best position to address it.
LM: It makes sense that the network-based providers would be well suited; however, recent research shows that many shippers are still reluctant to make the move. Surprised?
AG: I should say I am. Global trade management is arguably one of the most complex processes companies must manage due to all of the regulations and cost factors involved. If you’re managing global trade with spreadsheets and faxes, you’re almost certainly leaving money on the table. Also, most customs agencies around the world are modernizing their filing systems and requiring electronic filing of data and documents. Simply put, if you don’t modernize and automate your global trade processes, you won’t be able to import or export products.
LM: You project that TMS will continue its steady growth through at least 2012. How do you see TMS evolving to meet changing shipper needs?
AG: Transportation management systems have traditionally been developed and deployed in silo fashion. For example, parcel shipping, fleet management, and global trade capabilities have historically been offered as stand alone applications, developed on different technology platforms, with little or no integration between them or with other transportation and supply chain solutions.
Fortunately, the status quo is beginning to change. Progressive companies are taking a more holistic perspective of their transportation and logistics operations in order to increase productivity, reduce costs, and improve service levels. As a result, software vendors are transforming TMS from a fragmented collection of applications to a unified platform where users across the enterprise and value chain can execute role-specific processes via configurable user interfaces, workflows, and Web services.
LM: What would you tell a logistics manager who has yet to make a move to TMS, especially in today’s climate?
AG: Walk down to your transportation department today and if you see employees “dialing for diesels” or feeding forms into a fax machine, then you know it’s time to invest in a TMS. Trust me, there’s no better time than now to streamline and automate your transportation processes, to optimize your loads and routes, and to capture the cost savings and productivity improvements that you’ve been leaving on the table.
TMS has a long-proven history of helping companies save 5 percent to 25 percent (or more) depending on how “broken” and manual your current processes are. The days of high fuel prices and tight capacity (the “good old days”) will return, and companies that transform their transportation management processes today will be in the best position to succeed down the road when the economy recovers.
Network optimization: Mapping success
LM: Logistics managers have been fed varying definitions of what network optimization means. How would you best define it?
Belinda Griffin: In the past, network optimization was viewed as a tool that primarily helped make decisions about DC placement/utilization and transportation mode selection. Now people are using it to make decisions about the optimal regions to source materials, to develop a right-shoring strategy, or to figure out how to reduce the carbon footprint of their end-to-end network.
LM: Can you give us an example of how it has evolved?
BG: Today it’s helping to set inventory policy in determining whether to use centralized or distributed stocking for a given product or group of products. The other major evolution is what I would call the “operationalization” of network optimization.
By that I mean that, historically, the technology available to do network optimization was often quite cumbersome and it was viewed as something that you could maybe afford to do once every few years. However, today’s technology is so much easier to implement and companies are finding that they can easily build an in-house capability that allows them to run their network optimization on a regular basis.
LM: It’s been a hot topic of late, but can you help shippers understand what strategic advantage it can give them in these tough times?
BG: In this economic climate, networks need to respond quickly to changing business conditions such as key trading partners closing facilities or network disruptions due to mergers and acquisitions. And, most companies are looking to quickly identify and implement major cost reductions that require minimal up-front investment.
When you combine these two trends, the business case for implementing a network optimization technology has never been more compelling.
For example, I know of several medium to large shippers that have recently been able to find multi-million dollar cost savings by optimizing their network with a few hundred-thousand dollar investment in network optimization technology. When you balance the magnitude of bottom-line cost savings that it can produce relative to the low investment required, the ROI demonstrates why network optimization is one of the hot technologies that companies are turning to in the current economic environment.
LM: What types of solutions are available and what are their capabilities?
BG: There are essentially three types. The first type is custom built and offers the benefit of being highly accurate, but can be complex and costly to build and especially to maintain. The second type is a specialized network optimization module that is offered as part of larger enterprise solution. The third type is stand alone. The stand alone solution has the benefit of a low cost to implement and maintain, but effective usage will probably require some degree of data aggregation which means a slight loss in the accuracy of results.
LM: Is it being done in-house or being outsourced?
BG: Like many other supply chain technologies, there’s a split between in-house and outsourcing. The good news is that a lot of the logistics providers and advisory services are taking advantage of the technology that exists and have been able to enhance their ability to perform network analysis for the shippers they serve.
So, for companies who might just want that one-off analysis when something changes in their business, this is a nice option to have. On the other hand, there are an increasing number of companies that recognize that the results of network optimization can guide strategic decisions in their business and consequently they don’t feel comfortable outsourcing.
WMS: Getting more from what you’ve got
LM: What is your advice to that group of shippers who tell us that they need to make further investment but feel that their hands are tied by upper management?
Greg Aimi: One strategy might be to focus on the applications that yield the fastest return on investment. For example, labor management systems (LMS) and TMS have proven to cut labor and freight spend respectively by anywhere from 7 percent to 30 percent. These savings are usually incurred within 6 to 12 months of implementation; and for companies with large logistics budgets, these savings percentages can more than offset the cost of the software.
Another strategy is to seek out software-as-a-service (SaaS) offerings for the application areas you need to automate. These systems allow you to pay for the use of the software as an expense and therefore don’t require a large capital expenditure yet you can still get the value quickly.
LM: Let’s turn our focus to WMS. We consistently find users who have a WMS but are not taking full advantage of its functionality. What recommendations do you have for this group?
GA: Think about this win-win scenario: The vendors are hurting just like everyone else as software sales are also down, however, WMS vendors have tremendous professional services resources available to do an “application and operations assessment” to see if your processes and use of the application adheres to the best practices that they’ve seen across their vast customer base.
Negotiate with the vendor to offer attractive consulting rates, maybe even a fixed bid, and you get the most knowledgeable product resources for your WMS. The deliverable would be a report on what changes your operation could make that would take advantage of capabilities already in the software that weren’t already being used along with a projection of what the productivity or customer service gains would be if implemented.
LM: Let’s get a little more specific on some of the “less used” functionalities of a WMS. Aside from controlling the movement and storage of materials, what are the key functionalities that users tend not to tap?
GA: We recently published an “insider’s guide to cutting costs” on tactics you can do now to shave costs out of the logistics and distribution system. For example, make use of the labor management system to measure workforce performance against standard benchmarks. You could also improve pick productivity by re-slotting warehouse inventory locations based on product turn rates. Some companies are working with customers to arrange for more full container-load orders, or enable delivery flexibility so that you can maximize cube utilization by combining orders.
You might conduct root-cause analysis of OS&Ds (over, short, and damaged) returns, and chargebacks for potential changes in manufacturing or fulfillment processes to avoid these costs. Still, other companies are electronically connecting with suppliers for shipment notifications, in-transit tracking, and appointment scheduling to better plan resources on delivery and receipt.
LM: What would it “feel like” when a warehouse/DC operation has put the full functionality of its WMS to work?
GA: First and foremost, all tasks in the warehouse would be driven by a state-of-the-art WMS system and all workers would be interconnected to the system via mobile device where they would receive their work instructions—all work would be “directed work.”
All incoming receipts would be “expected,” that is broadcasted electronically in advance. Unloading and putaway tasks would be scheduled for optimal use of staff. Some companies have made progress on inventory turns and cycle time by planning for cross-docking at the time of receipt. Inventory would be slotted for optimal travel time based on the product turns.
Various automated picking methods (possibly automated materials handling) would be used based on the particular product and order flow process. Optimal shipments would have been planned and sent to the floor so that what gets picked is already optimized for transportation savings. A labor management system would be in place to evaluate staff performance against standards as well as to ensure adherence to “preferred methods” for optimal productivity. Inventory accuracy and fill rates should be in the high 90 percentile because of the WMS as well.
LM: What would be the overarching benefit of that ideal scenario?
GA: The two key things that a WMS provides is inventory accuracy and perfect order performance. The WMS is intended to ensure that these two things are accomplished but with the greatest amount of productivity possible and at the least cost. Just about everything in a WMS serves these two major operations.
The inventory accuracy percentage and inventory visibility can also be an enabler for more far-reaching supply chain improvement strategies where companies are continuously looking for opportunities to lower total network inventories without sacrificing the servicing of demand.
Easing adoption: It’s not as tough as it seems
LM:What is your advice to shippers who may be intimidated by the perceived high cost of adopting transportation-related technology?
Brad Wyland: I think the first bit of advice I tend to offer is to ask the question: Do you know how much your transportation is really costing your company? If that can be answered down to the finest detail, including fuel and other accessorial charges across various contract measures, the next question has to be: Can we do better?
That’s where the rubber hits the road and companies have to look inside. If you feel confident that you have the visibility necessary to your carrier potential, can easily identify and take advantage of savings opportunities when they arise, and are managing your carriers in compliance with the strategic needs of your business, then “costs” are under control. But the big question is this: Can you afford not to take advantage of the tools available?
LM: Sounds like you’re prescribing a one-step-at-a-time approach. Can you run us through an ideal scenario where a shipper first puts his toe in the water and then builds from there?
BW: With the flexibility of today’s technology platforms, companies have a virtual smorgasbord in front of them when it comes to solutions to help automate and improve processes. The most important step is analyzing your entire process of managing transportation today, and where it needs to be tomorrow. From there, identifying areas that are easy ROI targets is the most logical step.
It may be outsourcing audit and payment to free up resources for more strategic needs and getting better visibility to “true spend.” It may be leveraging a solution to manage small parcel outbound shipping to bring those costs under control and improve operations. It may be leveraging a solution from a TMS provider to start managing on particular product area or business unit and building internal processes and expanding from that point.
LM: What your suggesting is that shippers should know their needs first, correct?
BW: I’m saying that the important thing to keep in mind is this isn’t “your father’s supply chain,” and by that I mean there is flexibility and options available to add technology where it helps and provides ROI, without taking that huge step/investment and feeling like you’ve gained nothing. The technology is easier to deploy, easier to license, and easier to add-on and grow.
LM:While fuel costs have dropped considerably over the past few months, there are many indications that we’ll see fuel rise again as the global economy begins to pick back up. What single bit of advice would like to have resonate with shippers that remain on the fence concerning technology adoption/spending?
BW: My one bit of advice is that we’ve all been given a “get-out-of-jail-free” card with respect to transportation costs. If people think that freight rates can’t spike again without warning they weren’t paying attention last year. Now is the opportunity to regain our footing, evaluate our business strategies, layout a roadmap for tomorrow, and identify the areas that need to be improved.
While these things can’t be prevented by one company, each company can create more flexibility and agility to be able to respond quickly and have the visibility necessary to manage around these situations. Improving transportation visibility, real-time collaboration with carriers and partners, rapidly being able to model and choose new courses of action, and being strategic and including transportation as a critical differentiator in the total supply chain is the next level of excellence.
View All On-Demand Webcasts