Logistics Technology Roundtable: Explaining the hype

Four top industry analysts explain some of the hottest supply chain technology applications and tools you’ve heard about but may not entirely understand.

By Michael Levans, Group Editorial Director -- Logistics Management, 5/1/2008

Globalization and outsourcing have forced shippers to improve their shipment accountability and tame their inbound and outbound transportation costs in regions of the world they may have never even visited.

In the meantime, much is being written about evolving applications and tools geared to better harness transportation and logistics data to help shippers manage these extended, distributed supply networks. However, even some of the savviest logistics pros are still in the dark as to what those tools are and how they actually function.

To help better explain these new applications we pulled four top supply chain technology analysts together: AMR’s John Fontanella; ARC’s Adrian Gonzalez; Aberdeen Group’s Ian Hobkirk; and Manufacturing Insights’ Simon Ellis. Here’s their take on some of the technology that might escape our full understanding.

Live Webcast: 2008 Tech Roundtable Explaining the hype - May 29th @ 1:00 p.m. EDT
Can’t get enough of this year’s Tech Roundtable? Have some questions you’d like to bounce off of this year’s panel? This is your chance to interact. Join Group Editorial Director Michael Levans and this year’s panelists in this live webcast. They’ll dig even deeper into some of the hottest supply chain technology applications and tools you’ve heard about but may not entirely understand. See you there.

SaaS: Superior functionality at a fraction of the cost?

Logistics Management: As you mention in a recent issue of Supply Chain Management Review, Software as a Service (SaaS) has taken on mythical proportions in the software industry. For shippers who may just now be familiarizing themselves with the concept, can you define what SaaS is and how it works?
John Fontanella: In its purest sense, SaaS is a single software application that is used by many different companies at the same time. The application itself is usually managed and maintained by the developer of the technology, and its users access the application via the Internet. For those of us who have been around awhile, the SaaS model is somewhat akin to that of timesharing, but the technology is much more evolved in terms of functionality, security, and ease of use.

The perception is that it’s a low-cost first step for shippers looking to dive into TMS or a global trade solution. Is that true?
JF: As companies consider adopting the SaaS model, it would be a mistake to think of it only as a less expensive way to acquire software functionality. That’s not always the case. The SaaS model’s real strength is that it is, by definition, a network model. By that I mean that many members of the same trading community can share a common application, workflow, and data to perform a specific task. As a simple example, imagine being able to create an ASN and have it trigger a pickup by the carrier and a delivery appointment at the customer’s dock simultaneously.

What are the benefits to SaaS over the traditional licensed software model?
JF: Faster implementation and time to value is the first benefit that comes to mind. Cost of the service versus the more traditional license fee and ongoing maintenance charges can sometimes work in the favor of the SaaS provider. Let’s not forget, though, that no technology vendor will leave money on the table when they don’t have to. Expect the SaaS offering to be priced competitively with more traditional software delivery methods, but not at bargain basement levels.
What are the drawbacks?
JF: There are a couple of downsides to the SaaS model. Because you’re sharing an application with many others—possibly unrelated companies—there is a limit to the amount of customization that can be done for any one organization. If your differentiation depends on unique supply chain business practices, SaaS is probably not a good choice for you. Another drawback with SaaS is that in the future, you can’t bring the application in-house—it stays on the Internet forever.

Where is SasS offering the greatest benefit in terms of better managing logistics and supply chain operations?
JF: Well, I mentioned about how SaaS was a natural network model, now let’s see how we can apply it. Supply chain activity is viewed simultaneously by all of the participants: You can’t get much more integrated than that. I work with one client using SaaS who receives an acceptance or rejection of purchase orders, change orders, and forecasts from its contract manufacturers worldwide within 24 hours, as opposed to the three to seven days it would have to wait previously.
Another client told me that to connect electronically using EDI to his three hundred carriers would cost a minimum of $1,100 per company. By communicating through a data hub deployed as SaaS, though, the cost is negligible since he can reuse the integration interfaces already built for other companies.

When logistics and supply chain teams are considering moving to SaaS, what do they need to take into consideration?
JF: Like any implementation of software, management has to consider the impact to the current business process. Most SaaS services are flexible in how workflow is configured, but there is a limit. Since customization is out of the question, customers have to conform to how the software operates. Honestly, this is the best approach to take in any software implementation unless your company has loads of time and money, but it will cause disruption to the business unless the changes to process are thought out in advance.

BI 101: Too much information?

LM: The volume of data that shippers create and collect every day is staggering. And there finally appears to be a movement toward helping to put all of that business intelligence (BI) to work. So, how can shippers stand to benefit by harnessing all that data?
Adrian Gonzalez: There’s actually a lot of upfront work that needs to take place before you can even think about implementing and using a BI application. First, becoming an “analytics-driven” company requires top-level commitment and a change in corporate culture. If an organization and people are not encouraged, trained, and incentivized to use analytics in their job functions, then there’s no point in implementing a BI solution.
Second, companies need to define upfront the Key Performance Indicators (KPIs) that align with their strategic objectives. These KPIs are usually a combination of high-level, cross-functional measures and metrics linked to specific operations. In other words, knowing what to measure—and what’s not worth measuring—is very important. Only when these things are in place does it make sense to tackle the technology piece.

What technologies are available to put that data to work?

AG: Well, if you’re still using a phone and fax to manage your transportation operations, you need to implement a TMS immediately. The same is true for your warehouse operations and any other business process. If your business processes aren’t automated, you probably don’t have any data to analyze or your data is not easily accessible.
Assuming your processes are automated, then it makes sense to implement a BI solution. Until recently, there were several standalone BI vendors, like Business Objects, Cognos, and Hyperion. But all three of these vendors were acquired last year by SAP, IBM, and Oracle, respectively.
These solution providers have incorporated BI within their broader technology stack, including Master Data Management, and they’re building a strong practice and roadmap in this area. The best-of-breeds, including Manhattan Associates and RedPrairie, are also investing in BI, and in some cases, they are leveraging Business Objects and/or Cognos in the back-end.

Can you give an example of a logistics operation that is successfully using data?
AG: Proctor & Gamble is probably one of the best. The company created a centrally-managed Business Intelligence and Analytics group a few years ago. They have over 100 analysts in this group who represent various business functions, including supply chain, manufacturing, consumer research, and marketing.
By taking a holistic perspective of their business instead of a silo approach, the company can identify trends, inter-relationships, and improvement opportunities that otherwise would be difficult or impossible to find.
In general, we find that many large companies are migrating towards creating a centralized BI function, in the same way that they’ve created a centralized load control center.
Taking it down to the frontlines, many companies are using a variety of dashboards to gain better visibility and control of their operations. Carrier compliance dashboards, used to track metrics such as tender accept rate and on-time pick up and delivery, are popular examples.

To realize benefits, what’s the first step shippers need to take?
AG: This goes back to what I mentioned earlier: Focus on the data, processes, and trading partners that affect the KPIs most critical to the company. The first step is not to view BI and analytics as only a technology solution. It also needs to be part of your company’s business philosophy, its overall approach to decision-making.

Visibility: It’s like happiness

LM: Much has been written and discussed about improving supply chain visibility through software. What exactly are those tools and what are their core functions?
Ian Hobkirk: I often say that supply chain visibility is like happiness—everybody wants it, but nobody agrees on what it means or how to get it. There are about a dozen types of visibility platforms to choose from. The best tool for you will be determined by a few factors: Do you need visibility of goods that are controlled by just one carrier or multiple trading partners? Do you want visibility of goods in-transit or do you need to see inventory in warehouses? Do you need visibility of consumer demand? How much can you spend?
An inexpensive solution is to use a visibility tool provided by a carrier or 3PL, but these tools are of limited value because they only track goods that the carrier or 3PL manages. Cargo portals can be free, and provide limited visibility into multiple carriers. Using a TMS system is probably the best way of gaining granular visibility of goods-in-transit across multiple trading partners.

Can you give us an example of how a savvy logistics operations might function with the proper tools/applications and connectivity/collaboration in place?
IH: Sure: A company receives an order containing 12 line items. Their distributed order management system shows them that six of the items are in stock in Warehouse A, four are in Warehouse B, and two are in an ocean container that is in-transit.
Their ocean carrier has provided them with regular electronic status updates through their TMS which show that the boat will arrive in port a day late. Their supply chain visibility software allows them to drill into the shipment and see which specific container holds the items they need. Their TMS determines that the other containers on the boat will be offloaded onto rail cars as planned. The container with the critical items will be unloaded at a transload facility near the port and the items will be sent via LTL carrier directly to the customer.
Meanwhile, Warehouse B loads their items onto an inter-facility shuttle that runs weekly to Warehouse A, and Warehouse A cross-docks the goods and marries them with its own outbound order and makes a full truckload shipment to the customer. The customer receives the order complete and on time, and the company has incurred the lowest freight cost, all facilitated by visibility tools.

How important is the relationship between transportation management and warehouse efficiency?
IH: It’s a real key, both at the strategic and the tactical level. Improved transportation management, especially of inbound goods, can lead to improved visibility and better lead time reliability. Once there’s more inbound certainty, companies can start pulling safety inventory out of the supply chain, which in-turn relieves storage pressure on warehouses. For example, I talked to a company recently that scrapped their plans to build a new distribution center after their inbound transportation initiative allowed them to significantly reduce levels of safety stock.

What is the greatest benefit to this best-in-class shipper once a higher level of visibility is place?
IH: In a word: Responsiveness. It’s important to remember that visibility is just a means to an end, and I think that the end is increasingly becoming the enablement of the agile, responsive supply chain. Uncertainty has become a hallmark of today’s supply chain management because there are more opportunities for shipment disruptions as supply chains get extended, consumer demand is increasingly volatile, and product lifecycles are shorter and shorter.

I’ve seen the future, and it’s…disruption

LM: You have 20 years of supply chain management experience at Unilever, and your most recent title was Supply Chain Strategy Director/Futurist. What did you observe from that position about how supply chain operations and technology are evolving?
Simon Ellis: There are a number of trends that are dramatically changing the way supply chains operate. First, there is globalization—not just of supply, but demand as well. Second there is the constant pressure to outsource. When you take globalization and outsourcing together, you see the potential for vast, distributed supply networks that will require quite different capabilities to operate efficiently and effectively. These supply chains demand a level of visibility and responsiveness that we don’t currently see in all but the best-in-class operations.
There is also the continuing uncertainty around demand and demand predictability. Supply chain organizations have spent considerable time and money upgrading their forecasting and planning capabilities, but have forgotten in large part about the executional component.
Lastly, I would say data, as Adrian mentions above. Specifically, the vast amounts of data that supply chains must contend with and the challenge of deciding what data to look at and what to do with it.

You recently produced your Top 10 supply chain predictions for 2008. What predictions are you making in terms of technology?
SE: While most apply to supply chain operations in general, here are a few of our predictions and observations that we see having a direct impact on technology implementation: Your supplier’s problems have become your own, especially when they are related to sustainability; new supply chain investments have to be simpler and faster to integrate, and must deliver value sooner; business value comes first, RFID technology second; risk management is the key to becoming global; and lastly, start your RFID projects at home.

What is the single most important unfolding trend?
SE: The move to extended, distributed supply networks where visibility, responsiveness, and effective decision-making will differentiate performance.

Based on your predictions, what advice do you have for shippers on their tech investment?
SE: A continuing and consistent theme throughout our predictions is that constant change and supply chain disruptions will continue to occur in 2008. With that said, IT resources should be positioned to support constant or unanticipated change throughout the year. We talk a great deal about agility in supply chains, and as companies continue to evolve from multiregional to truly global supply networks, this capability becomes increasingly important.