Keep this analogy in mind as you read this story: You build a new house and need electricity. One option would be to buy a generator and hire a contractor to set it up. You will also need to keep the fuel tank full and arrange to keep your generator maintained to ensure the lights stay on. The other option is to hook up your new house to the local power utility, pay a few cents for every kilowatt-hour you use and let the power company worry about everything else. The utility choice, made thousands of times a day, is a no-brainer.
And yet, in the world of technology and software, the “do-it-yourself” generator approach is the way it has been done for years. Why? Mostly because there were no utilities, no power plants, no options. The result has been countless failures, massive cost overruns and huge IT write-offs by the buyers of the technology. It was always the customers who took on the upfront risk, not the vendors.
Now switch gears to global logistics. Each day, companies look to overseas suppliers to reduce costs. And each day these same companies discover the painful side effect of “going global.” A lot can go wrong as inventory makes its 60-day journey halfway around the world. A congestion delay in Yantian, a cyclone in the South China Sea, a customs problem in Long Beach or a mistake by one of many partners along the chain can all add up to disaster.
Those disasters include running out of stock during a key promotion or having to shut down an assembly line due to parts shortages. Many companies struggle against these possibilities and end up viewing global logistics as an operational cost center, staffed with frenzied employees working phones, faxes and Excel spreadsheets to prevent disasters — at any cost.
Global logistics excellence requires a proactive, nimble approach. It requires technology.
But technology comes with its own set of problems. Assume for a minute you buy the greatest logistics software package ever made, featuring holographic modeling, real-time GPS tracking and a five-stage wireless alerting module. Where’s the data that will fuel this new system going to come from? In global logistics there are partners all over the world, some with advanced systems, others with just a PC, and you need data from all of them. Piecing together a global logistics partner network and standardizing the data into a format that software can consume and process is an enormous, expensive and time-consuming undertaking. Software that’s installed behind a corporate firewall is not designed to scale globally across partners and companies.
But take heart. With the emergence of the Internet as the global network standard, a new class of technology is changing the way technology gets delivered and used. It’s called on-demand, or Software-as-a-Service (SaaS), and is the new model taking shape to deliver software functionality through Web browsers.
There’s also a different economic model with on-demand. Customers select the capabilities they need and pay only for what they use, as they go. Now, instead of customers taking on all of the up-front risk of buying software (and the responsibility to make it work) the risk shifts to the vendor. If the software doesn’t deliver as advertised, customers stop paying their monthly subscriptions and the vendor either fixes it or goes out of business.
Early successes in on-demand computing have been in the area of customer relationship management (CRM) software. But CRM and logistics are very different industries and require a different approach when it comes to technology. In CRM, most of the data gets into the system through manual data entry by internal sales and marketing teams. In logistics, the bulk of the data comes from integrated feeds from external global partners.