Digital Reality Check

Just how close are we to the ideal digital supply network? Not as close as we might like to think. Our panel offers a “reality check” on the current state of our understanding, adoption and utilization of technology in our logistics and supply chain operations.

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For retailers, manufacturers, suppliers and distributors, the ability to deliver anything, anytime from anywhere—and change the course of a shipment en route if necessary—now must be “business as usual.” To ensure this new reality, logistics and supply chain managers are racing to transform their supply chains into “digital supply networks.”

Ideally, fundamental software needs to be adopted and optimized; technology needs to be mobile; transportation and distribution center (DC) communication has to be seamless; supply chain operations and IT departments need work collaboratively; and data needs to offer true decision-making capabilities that help logistics managers streamline operations and differentiate their organizations when split seconds count.

Yet, the question remains: Just how close are we to this ideal scenario? According to the four panelists who take part in Logistics Management’s “2016 Technology Roundtable,” not as close as we’d like to think. In fact, this year’s panel offers a bit of a “reality check” when it comes to the current state of our understanding, adoption and utilization of available technology and the people who make it all work.

Comprising the panel this year are Steve Banker, vice president, supply chain management for ARC Advisory Group, an analyst and consulting firm; Dwight Klappich, research vice president for Gartner; Britt Dayton, a director at Deloitte; and Norm Saenz, managing director at the supply chain consultancy St. Onge.

Social media’s role in logistics
LM: Social media is often quickly dismissed as something we use to keep up with family and friends. But, is there business value in applying social media to logistics and supply chain management?
Steve Banker: I would have dismissed it a few years ago, but I’ve seen some interesting examples of how it can be leveraged since then. For example, a company called Elementum offers a solution where they monitor all sorts of data sources, including social media, for the purpose of supply chain risk management.

Elementum’s CEO recently told me that their solution picked up the news of the fire that closed down a Chinese port from social media feeds before anything was reported in the media. Big enterprise vendors are also building social media type communication structures into their software. Planning is great, but sometimes things go wrong, and in such cases pulling together a private social media group to handle the problem makes a lot of sense.

LM: How do you define social media in context of logistics and supply chain management?
Banker: I would define social media as being a mechanism for discovering and effectively communicating with people you would like to interact with—and texting and other forms of messaging are part of that. However, the ability to give someone permission to communicate with you is critical. So, in a supply chain context, let’s imagine that you’re the warehouse manager and you discover it doesn’t look like you’re going to be able to fulfill an order to the company’s most important customer on time.

The appropriate private social media group to help resolve this might be the vice president of supply chain at your company, the account manager who owns that customer account, the customer’s purchasing manager, and the customer’s logistics director. So, pulling all these people into a social media platform to discuss this, resolve it and track who has committed to what begins to have real value.

LM: You work very closely with practitioners and vendors in identifying new, viable technology solutions. Are you seeing any “tools” that are able to harness the power of social media to help improve logistics operations?
Banker: Infor was the first company I’m aware of that built in the private social network capabilities that I just mentioned, and other enterprise companies have followed or are developing those capabilities now. Elementum is the only technology provider I know that is utilizing social media for risk management purposes, although I would not be surprised if a company called RiskMethods follows before too long.

Some leading consumer goods and food and beverage companies are monitoring social media for marketing purposes, and from what I’m hearing, what they discover can often affect demand forecasts. And, of course, LinkedIn is great for helping to find and hire good supply chain practitioners.

Bridging the supply chain/IT gap
LM: One area we rarely cover—if at all—is the importance of the supply chain/IT relationship and the ability of these two critical parties to work collaboratively. From your unique perspective, how would you define the typical relationship between these two parties?
Dwight Klappich: A recent Gartner research project has identified four different types of relationships that a supply chain management (SCM) organization and IT can have. First is ‘strategic,’ which entails a proactive and collaborative relationship where IT strategically partners with and supports business users with current and future technology decisions. The second is ‘tactical, more of a cooperative relationship where IT and business users work together to plan and execute on current key initiatives.

I call the third ‘project focused.’  This is where SCM business users have a customer-supplier relationship with IT, primarily interact on a project-by-project basis, and are treated as one of many IT customers competing for resources, attention, money and projects. However, the fourth type of relationship is ‘contentious,’ where a strained, confrontational working relationship exists between SCM business users and IT. Regrettably, our research found that 48% of SCM business users have unproductive relationships—12% contentious and 36% project-focused. However, we remain optimistic because we did find that 52% of responding companies indicate that they have a strong relationship between SCM and IT, with 32% having tactical relationships and the leading 20% having strategic relationships.

LM: What are the typical hang-ups that you see holding those relationships back?
Klappich: The key issues remain cultural, and that dates back to the emergence of IT departments 50 years ago. In the old days of mainframe computing, IT owned the data center and they controlled it with an iron fist. Users were less technologically sophisticated, and they depended on IT for all things technology related. Then, beginning in the 1980s with the emergence of mini-computers, we saw the first inklings of “shadow IT,” where the end users went off on their own and bought their own hardware and software because they felt the corporate IT group was not responsive to their needs.

Where some organizations responded positively to this trend and worked to resolve the differences between IT and the users, others doubled down on rigid central control, and this is the root of the contentious relationships we often find today. Furthermore these organizations treat initiatives as one-off projects, as if you were constructing a building not fostering a collaborative relationship.

LM: How do you see the lines between SCM and IT blurring, and what would you suggest as a way to bring the lines back into focus?
Klappich: SCM performance is highly correlated to the type of relationship SCM and IT foster. Underperforming companies tend to have parochial or contentious relationships between SCM and IT—being transactional and self-serving—as opposed to leaders that have strategic and highly collaborative relationships—being a trusted ally in support of operational improvement as well as strategic transformation.

Innovative firms now include IT roles as part of the supply chain talent mix. In these companies, the business users and IT organization develop symbiotic relationships that span multiple roles, time frames and initiatives.

LM: Are you seeing a blending of the two roles internally?
Klappich: In companies with strong relationships, Gartner finds increasing fluidity between the IT and SCM roles, as well as between IT and SCM organizations where people move back and forth sharing knowledge and expertise while also developing improved and transferable skills.

LM: For a logistics and supply chain professional who would like to improve the SCM/IT relationship, what would you recommend as a first step?
Klappich: Develop a strong, collaborative and proactive relationship between the SCM and IT organizations, partnering to develop multi-year strategic technology plans. IT and SCM must become trusted allies, and you need to develop ways of bridging language gaps between IT and business users because the two often speak a different language. And finally, evolve IT’s viewpoint beyond a “project” mindset, becoming instead an enabler to secure the trust and confidence of the supply chain user community. Its ultimate goal must be to enhance the return on emerging technology strategies and solutions.

Optimizing inventory across the “ecosystem”
LM: What do you see as the biggest technology challenge as supply chains attempt to rise up to match e-commerce’s omni-channel fulfillment challenge?
Britt Dayton: Optimizing products and services across the ecosystem are at the heart of a successful multi-channel and omni-channel supply chain that delivers what customers want, where they want it and when they want it.

This means that the supply chain organization needs the ability to optimize inventory across internal and external locations; personalize fulfillment using all inventory locations as fulfillment nodes; use delivery as a competitive advantage by partnering with carriers to meet customer needs; and use analytics across supply chain functions to develop a learning supply chain. Today, many retail supply chain organizations are not set up to take advantage of their ecosystem. While it’s certainly possible to support omni-channel fulfillment by managing products and services within the enterprise, maximizing profitability means matching the most optimal product or service within the ecosystem to the customer.

LM: While most of us see this as a challenge for retailers, how do manufacturers respond?
Dayton: The lines between traditional retail and manufacturing are starting to blur. Retailers are looking to acquire product development capabilities so that they can attract customers with personalized product offerings. At the same time, manufacturers are finding alternate channels in addition to their traditional wholesale channel in order to increase sales. Also, most manufacturers are facing pressure from their retail customers to help optimize inventory.
So, the challenge of omni-channel fulfillment is not unique to retail, and in many ways manufacturers face the same challenge as retailers. Manufacturers, like retailers, need to optimize inventory across their ecosystem to meet the demands of their customers. This implies better planning and collaboration with suppliers, vendors and transportation providers to optimize the raw material and finished goods inventory that manufacturers carry.

LM: What tips can you for offer mangers to better assess their situation before they employ software?
Dayton: We’re often asked by our clients to assess and help remediate their transformation efforts that haven’t been successful. Most of these troubled transformations have common characteristics, and typically involve the assumption that some technology or software will provide the magic bullet. That’s rarely the case.

This may sound very simplistic, but businesses need to align on their desired end state in terms of the business processes, organizational setup, skills of their employees, and their systems. They should then assess their current state to get a sense of what changes they need to make to achieve the desired end state.

LM: What business and process challenges should retailers and manufacturers address before they start their omni-channel journey?
Dayton: We advise our clients to start with executive alignment on what omni-channel means to them. This alignment at the highest levels helps set the vision that can be used to align incentives across the organization and prioritize the functional and technical capabilities that need to be built.
And our research shows that the journey is worth it. Deloitte’s recent “Omni-channel Survey” shows that driving additional traffic to stores through omni-channel transactions can lead to incremental sales of up to 20%, and omni-channel customers convert at a 40% higher rate.

LM: What software are you seeing that’s helping both manufactures and retailers better manage the pressures of omni-channel fulfillment?
Dayton: Distributed order management (DOM), or enterprise order management, supply chain planning, and inventory management technologies have made significant strides in the past five years. Each of these technologies can help businesses better manage the pressures of omni-channel fulfillment through better planning, procurement, management, and distribution of inventory.

LM: Can you run us through a quick example of DOM in action?
Dayton: For the consumer, the experience looks like an expanded selection of available product to purchase, with multiple fulfillment options with varying service levels for delivering the product. For example, a consumer may be shopping in a retail store and not find the size or color of garment they want. The retailer uses DOM and an enterprise view of inventory to find that specific item somewhere else in its ecosystem, and then offers multiple ways to get it to that consumer.

“Reality check” inside the four walls
LM: You spend quite a bit of time inside U.S. warehouses and distribution centers. In terms of some the latest buzz (Internet of Things, drones, Google glass, etc.), what are you actually seeing out there? Are these concepts and technologies in action?
Norm Saenz: The reality is that many facilities are operating in manual environments and are working to reach the foundation of advanced warehouse management system (WMS) capabilities, batch processing, inventory and location bar coding as well as scanning technologies. For those using these and other foundational technologies—like voice, pick/put to light, and conveyors—seeking higher levels of efficiency using the latest buzz technology is always a goal. The trick is finding the proven and practical trends and determining if it can improve your operation.

We like to stay in front of the latest technologies and ensure that we know how to evaluate and consider them when appropriate. But, it can take years before the newest trend is adopted and successfully improving an operation. Keep in mind that many don’t want to be the first one to the table, which is why when you first hear the buzz you won’t see it in many or any operations for some time. 

LM: Which one of the buzz trends do you wish was gaining more traction?
Saenz: Actually, I still feel that many of the older buzz technologies haven’t been fully incorporated into many operations that could benefit from them. There are many operations that should be using voice technology, but are using hand-held RF terminals. Many are processing one-line orders within their normal fulfillment process, versus batch-picking and increasing throughput with fewer operators.

LM: How savvy are we in terms of WMS usage, and where do you see room for improvement?
Saenz: We see many operations with legacy WMS packages, and even some with no WMS to speak of. Easily, half of my clients this past year were operating with a legacy WMS, while the other half was using a best-of-breed, Tier-1 level functionality system.  Keep in mind that there’s a wide-range of usage in the marketplace, and even larger companies may be using legacy systems.
Then, of course, we see companies with Tier-1 functionality, however they haven’t started using all of its functionality available. The biggest reason for a lack of adaptation is often missing SKU-level information (size and weight) that’s typically required for functionality—such as directed put-away, restocking using min/max and cartonization logic. 

LM: Any tips for logistics professions in terms of how to sift through the noise of the latest “buzz”?
Saenz: I believe that you need to get the fundamentals right before jumping on any buzz-driven technology bandwagon. Review and establish best practices, design an efficient layout/material flow, capture SKU level information, organize products in the warehouse with slotting software, and consider proven technologies—voice, pick to light, put to light, conveyor systems, and higher levels of automation. After you have tested and vetted these proven technologies, then you can consider the unproven, latest buzz.

For more information view: Logistics Management’s 2016 Technology Roundtable

About the Author

Michael Levans, Group Editorial Director
Michael Levans is Group Editorial Director of Peerless Media’s Supply Chain Group of publications and websites including Logistics Management, Supply Chain Management Review, Modern Materials Handling, and Material Handling Product News. He’s a 23-year publishing veteran who started out at the Pittsburgh Press as a business reporter and has spent the last 17 years in the business-to-business press. He’s been covering the logistics and supply chain markets for the past seven years. You can reach him at [email protected]

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May 2016 · All Topics
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