Global Logistics Power Plants

Why you should rent technology instead of buying it

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.

The on-demand innovation for logistics lies in building an underlying platform — the data hub. The idea is that all customers of a software package share the same infrastructure, the same integrations and the same, ever-widening network of partners. Often the whole stack is presented as a portal or platform. The costs to build, maintain and expand the system are amortized across all users, giving users capabilities that would be impossible to build on their own — and at a fraction of the cost.

But that’s not the end of the story. There’s a huge issue with data normalization. Integrations alone are not enough. Take a single port: Hamburg, for example. If you look at just five ocean carriers and how they write down the port of Hamburg in their outbound customer shipment status data feeds, you will find nine different versions (e.g., HAM, HB1, DEHAM, DEHBI, etc.) Now, expand this to all origins and destinations across all carriers in a large supply chain and you begin to see the complexity that must be dealt with. On a shared platform, a single intelligence engine factoring in all known data approaches, common typographical errors and reference IDs is used by all customers of that system. As new data formats are encountered, they are added to the engine to the benefit of all. This system has evolved based on the processing of millions of messages, across thousands of customers over many years. This intelligence is made available “out of the box” when a new customer joins an on demand platform.

And finally there’s the software itself. With on-demand, all customers share the same, most up-to-date instance of the software. The only tool required to secure access from anywhere on the globe is simply a Web browser. Unlike traditional license-and-install software, where a customer needs to buy and install upgraded versions, all users of on-demand get regular updates as part of the ongoing service. Most upgrades are customer-driven enhancements or extensions. This “tuning” of the solution never ends.

Combine the expanding functionality of on-demand software with a shared, pre-wired data platform and you begin to see the potential of on-demand technology and global logistics management.

Many companies will look to extend their existing enterprise resource planning (ERP) or domestic transportation management systems to handle their global needs. Some will attempt to build a solution themselves. And others will look to their third-party logistics (3PL) providers for pieces of technology. These are all viable options, but they are also all problematic in terms of cost, risk and control.

For leaders who want to control their own destiny, without taking on the up-front risk of traditional software, on-demand platforms designed for global logistics management are in place today and being used by leading importers, exporters and service providers around the world.

Remember that electricity analogy at the beginning of this story? For global logistics technology, the power plant that can electrify your business already exists.