There's an old saying: You can work harder or you can work smarter. Dennis Bollinger, distribution manager for Transcom, a distributor of industrial seals and bearings in Burnsville, Minn., chose smarter.

"We run a priority inventory program for our distributors that guarantees in-stock availability and same-day shipments of 100 percent of our orders," says Bollinger. To manage his high-velocity logistics operation, Bollinger relies on a "dashboard" application from HighJump Software. The system, which runs on top of his warehouse management system, monitors activity on the warehouse floor and at the receiving and shipping docks, where as much inventory as possible is cross-docked to fill orders.

"I call it 'Big Brother,'" says Bollinger. "It tells me how long it's taking to fill an order, what's going out the door, and what my line item costs are running in real time. It lets me know when my operations are falling behind, so I can ask our operators where the bottlenecks are."

It used to be that software did what it was told to do and left much of the thinking up to a manager like Bollinger. The software systems running today's warehouses, transportation departments and logistics networks, however, are getting smarter.

Talk to almost any supply chain software vendor today, and he or she is likely to tout the smarts being built into the company's latest release. "Intelligence is becoming an embedded technology in all business enterprise applications," says Gerald McNerney, a senior analyst with AMR Research of Boston, Mass. "It's a way to automate your system to identify exceptions and [patterns] that are [developing] and better manage them going forward."

The idea of software intelligence is an extension of concepts that analysts and logisticians have been talking about for the past several years, like exceptions management, supply chain visibility and event management. "Lines are blurring in the marketplace," says Dan Rudolph, director of solutions marketing for Manugistics of Rockville, Md. "There's visibility. There's event management. And there's traditional business intelligence reporting. When we talk about software intelligence, we're talking about software that brings together all those components."

What's driving the development of these new tools? First, they address a shortfall in visibility solutions now being implemented. Although these systems notify someone when an exception—like a late shipment—occurs, it still requires old-fashioned legwork to resolve the problem. "Software vendors have gotten quite good at providing supply chain visibility," says McNerney. "What they're not good at yet is the resolution side. That's coming next."

Then there's the rising demand for more information in a whole new time frame. Traditional business intelligence is historical in nature, analyzing events after the fact. "What's gaining ground is the idea of using these tools to enable the real-time enterprise," says Jeff Woods, a senior analyst at the Gartner Group of Stamford, Conn. That means re-optimizing orders in a warehouse or re-planning and re-routing shipments on the fly as events dictate. "What we're talking about," he says, "is a real-time view into business processes as they occur."

Although many of these solutions are still in the beta phase with few actual users, vendors are touting them to differentiate themselves from the pack. According to Woods, 50 percent of vendor development dollars today are going into the development of high-IQ software tools.

For many enterprises, supply chain visibility and event management solutions are the ticket to entry into the real-time software intelligence arena. These are solutions that provide an eye on the status of inventory, orders and deliveries—the visibility—and then alert a decision maker when an important exception to a plan occurs so he or she can take action to resolve the problem—the event management.

The next generation of supply chain solutions incorporates another advance—the ability to act on the information being flagged by the system. "Think of a guy walking on the sidewalk where a piano is about to hit," says Derek Gittoes, vice president of product solutions for G-Log of Shelton, Conn. "A visibility solution tells him that the piano is falling. An intelligent solution tells him to get out of the way."

Gittoes breaks the process down into four steps: First, the system anticipates what should happen based on business rules and plans. Next, it analyzes data coming in from the warehouse-, order- and transportation-management systems by comparing events as they unfold to the plan to determine what needs to be acted upon. Then it provides a way to resolve the problem and mitigate the damage or maximize the potential of a new opportunity. Finally, it provides a way to collaborate with other trading partners on those changes in today's increasingly complex supply chains.

Lucent Technologies has implemented a system from Optum, a White Plains, N.Y.-based software vendor, to synchronize the activities of contract manufacturers, distributors, third-party logistics providers and carriers with respect to installation dates. Orders are scheduled so that all of the equipment needed for a job shows up when the installer arrives to begin a job. But if the installer or customer changes a delivery date, the system automatically communicates the new schedule across the supply chain. "Just by rescheduling a delivery date, we're able to send messages to all the affected suppliers for that particular job to tell them to delay an order for several weeks," says John Davies, vice president of product marketing at Optum. "The same technology could be applied to different areas in the supply chain."

Visibility and event management solutions are strategic. Dashboards, or performance management tools, on the other hand, provide a window into how a department like warehousing or transportation—or even an entire supply chain—is performing.

"These are scorecards that analyze performance data over a period of time," says Dan Gilmore, marketing and strategy results leader at RedPrairie Software of Waukesha, Wis. "They let you understand how you're performing against your key indicators and why you're falling short."

What's more, these systems integrate data from more than one system to provide a complete picture of the operation. That allows different users to drill down into the information for different levels of detail. A traffic clerk might be interested in how much was spent with a specific LTL carrier, for example, while a CFO might be interested in the total landed cost.

The ability to analyze why performance is falling off is the important distinction between traditional tools and new software solutions. "The analogy we use is the "check engine" light on your dashboard," says Lori Bush, senior director of marketing communications for SeeCommerce of Palo Alto, Calif. "A supply chain visibility solution tells you something is wrong, which is important, but it doesn't tell you what's wrong."

Applied to logistics, the analogy might work something like this: A visibility and event management solution may tell you that the box of T-shirts that you need for your retail customer is going to be late. It may perform what-if scenarios to figure out the lowest-cost method to fill the order.

A performance management solution also looks at the problem from a strategic level and tells you the reason the T-shirts are late is that the third-party logistics company you're working with is consistently missing the performance thresholds for delivery negotiated in your contract. With that kind of information, a company can address broader issues involving the entire supply chain.

Automatically identifying problems is an important step forward. But resolution of those problems is still a manual process.

Automating that process so the system can automatically respond to exceptions based upon predetermined business rules configured into the system is the step beyond, what many software vendors refer to as the holy grail of software intelligence.

Matt Rife, a product manager for Manhattan Associates, an Atlanta, Ga.-based vendor of supply chain execution systems, calls it a self-healing supply chain: Something happens and the systems fixes the problem without human intervention. "As a practical matter, those systems aren't there yet," says Rife, "but there are pieces of low-hanging fruit that the industry is working on now."

One example might be a critical order that has to be shipped by UPS at 5 p.m. If the order hasn't been picked by 4 p.m., a work-flow management engine would automatically move that order to the top of the queue to make the 5 p.m. ship deadline.

Several transportation planning and management providers are working with early adopters of these solutions in closed-loop systems. Manugistics, for instance, is developing systems that dynamically re-plan and reroute trucks in the field. "We're working with a logistics provider in the U.K. that has outfitted its trucks with PDA (personal digital assistant) devices and GPS (global positioning systems)," says Dan Rudolph. "The system constantly polls the fleet vehicles' locations and redeploys trucks in real time when there are exceptions or when there's an opportunity to pick up an extra order." Similarly, Logistics.com of Burlington, Mass., automatically re-optimizes loads, schedules new carriers and sends out recall notices to carriers when transportation plans change.

These solutions work best when they're employed in a closed loop. The next frontier is making them work in a complex supply chain.

The solutions may be ready before the market is ready to use them. That's because the biggest challenge isn't technological but rather, convincing users to trust the systems to get it right without human involvement. "For many companies," says John Davies of Optum, "it's still going to be easier to pick up the phone and solve the problem, especially when you're talking about rolling these things out across a supply chain."

Nonetheless, as margins continue to shrink and competition grows, more users will likely want to work smarter rather than work harder. Intelligent software will be there to solve problems.