Global Enabled Supply Chain Series: Logistics

In today's real-time business environment, half-empty cargo trucks and missing shipments are serious detriments to a company's logistics department. Get up to speed on what the industry has to offer so that traditional supply chains can become competitive supply chains.

[From iSource Business, January 2002] Fewer shipments, increased logistics complexities and fluctuating fuel costs continue to cut into logistics and transportation companies' revenues. In fact, any company with large inbound and outbound transportation requirements is facing an increasing logistics management cost, resulting in top priorities that include making supply chains more efficient and driving down inventory and shipment costs.

Despite advances, industry analysts tell of a struggle to achieve a total logistics utopia. Many believe that the lack of a common logistics command and control environment keeps this space from moving forward faster. Such an environment would bring together several logistics information data sources related to transportation, inventory, fulfillment and global trade, and these sources would apply tactical logistics planning and execution, as well as strategic decision-making.

Yes, in an ideal world it would be wonderful to have a sophisticated logistics portal where all your logistics needs are handled in an all-in-one package, and, in fact, some ERP [enterprise resource planning] companies are trying to position themselves as that one-stop portal, says Adrian Gonzalez, senior analyst of supply chain and logistics for ARC Advisory Group in Dedham, Mass. But what's important is having a centralized approach to logistics and being able to provide transportation-service requirements based on a command-and-control environment.

Gonzalez adds that even without the perfect portal, the right logistics partners can create enough seamlessness for an organization to feel as though it is getting the all-in-one package. The key is to hook your company up to the right partners that support its strategic business objectives. You can make an argument that supply chain process management creates your visibility; then you'd layer this application on top of your other software applications, he concludes.

In the meantime, what has been achieved thus far is worthy of notice. The importance of logistics has been increasingly elevated in these unusual times, especially the newly-recognized safety and security concerns that only the right technology can ensure.

Keep Your Eyes on the Road

Organizations with huge transportation costs contend that if they could see into their distribution network better they would be able to improve their logistics requirements, reduce costs, and select alternative routes and modes of transportation during a supply crisis. According to the analysts, supply chain process management, also known as supply chain event management (SCEM), provides this needed visibility.

With the right visibility into inventory, movement and storage, an organization can really see what's going on, explains Gonzalez. This technology builds triggers into the system so that when certain planned events occur - or don't occur - the appropriate parties are alerted and workflow activity occurs to resolve those events.

A clear example of this involves a planned shipment of 500 parts. If only 400 parts are actually shipped, SCEM ensures that the appropriate parties are automatically alerted so actions can be taken to obtain the additional 100 parts. Providers such as Categoric Software, Descartes, Savi, SeeBeyond and Vigilance provide this type of active visibility into the supply chain.

General Motors Corp., concerned with the mounting transportation costs from its inbound and outbound supply chain, needed this level of visibility, so it turned to two of its logistics providers, CNF Inc. and Schneider Logistics Inc., for help. The coordinated efforts of these companies eventually helped General Motors better manage inbound inventory from thousands of overseas providers and created greater visibility to all participants in its supply chain process, from the time an order is sent to a supplier until it arrives at its destination.

Stacie Kilgore, a senior analyst specializing in supply chain and logistics for Forrester Research in Cambridge, Mass., points out that visibility will only increase in importance as companies improve the logistics area of their supply chains. The ability to see your product - or the product you need from others - when not within your four walls automatically gives you cost-saving and competitive advantages. Understanding where your product is and then being able to take action when distribution exceptions occur will close the logistics loop. Advances in this technology will give more capabilities to companies.

Coordinated Collaboration

In general, the logistics and transportation industry contributes more than 10 percent to a country's gross domestic product (GDP), and for the United States, the transportation and logistics industry produces more than $1 trillion annually for the GDP. The industry also amounts to more than $4 trillion of all countries' GDP combined. For manufacturers, logistics expenses add a 10 to 20 percent burden to final product cost and, since this expense does not add further value to the products in transit, it becomes critical that key trading partners collaborate on the movement of goods to reduce this financial burden. As a result, real-time collaboration has become another hot topic in the logistic and transportation arena.

Says Forrester's Kilgore: The whole collaboration issue is interesting. For one thing, business has collaborated for a very long time, just in different forms. The whole notion of collaborating to leverage and share assets, and to do it with greater efficiency through technology, is what's new.

Indeed, technology-driven collaborative logistics comes in more than one flavor, suggests ARC Advisory Group's Gonzalez. If you look at logistics as an ecosystem containing a large number of internal and external players with a wide range of roles in servicing the movement of goods, and if you look at the traditional ways in which these trading partners have communicated in the past, you realize the need for improved communication and collaboration.

Some collaborative networks have already created sophisticated connections to carriers and other trading partners. For example, Celarix and Descartes provide a one-to-many connection environment. With these systems, traditional organizations connect once and are automatically plugged into an expansive distribution network that collaborates in real-time for its logistics and transportation needs.

The other collaborative flavor of which Gonzalez speaks involves combining distribution networks to take advantage of filling trucks that would otherwise come back empty, which are known in the industry as backhauls. General Mills, The Pillsbury Co., Land O'Lakes, Graphic Packaging Corp. and Ford James Corp. - all of which support large inbound and outbound logistics expenses - have been collaborating on backhaul opportunities for more than two years now. By using enabler Nistevo, these alliance partners, through private and semiprivate exchanges that give real-time trading and tracking information, not only move products, but also fill backhauls, manage contracts and monitor shipments electronically. The fundamental principle of such an arrangement is to allow companies to configure themselves and their partners to share the excess capacity and logistics that is created by virtue of their existing contracts.

Take General Mills, for example. The company spends more than $300 million a year on truckload transportation, and it gains a minimum saving of at least 5 percent, as a result of effectively collaborating with business partners. Collaborative logistics is a reality, says Gonzalez. The next phase in collaboration is to get more companies with major logistics needs to participate and for the enablers to continue adding capabilities and functionality into their applications.

Adds Kilgore: The data gathered through effective, real-time collaboration now becomes intelligence for greater logistics and supply chain management. It's not just about a good connection anymore.

The Global View

As corporations continue to outsource more of their non-core functions and further expand into different geographic regions, various technology enablers are helping with the complexities of their customs and trade requirements. This is especially important with regulated trading requirements, adds Gonzalez. We'll see this take on even greater meaning since the terrorists attacks, which have caused the need for tighter regulations on imports.

Providers with strong databases can track, for instance, suspected terrorists under their real names or alias' when investigating international shipments. Gonzalez relates a story of one supplier that ran the names of some of the suspected terrorists through its application a few days after the September 11 attack, and a few of the names were immediately red-flagged. Such e-logistics providers keep real-time data on restricted companies, countries and names.

Global enablers, such as ClearCross, G-Log, NextLinx, OpenHarbor, Qiva and Vastera, specialize in the import and export aspects of logistics and transportation. As services in this area advance, the expectation of supply chain professionals will also advance, and companies need to be assured that all customs and trade requirements are met and that they can confidently rely on the enablers serving this space - which is exactly what Ford Motor Co. did. The automaker replaced its internal legacy customs and trade applications with hosted ones from Dulles, Va.-based Vastera Inc. to handle global trade operations among its internal parts suppliers and customers in the U.S., Mexico and Canada. Now, instead of cumbersome and often outdated processes, Ford has Vastera handle import and export processes, customs clearance, trade regulation compliance and shipping cost calculations.

As a result of the September 11 attack, Vastera's Operations team assisted Ford in expedited customs clearance to support production requirements. With a 24/7 customer support hotline to assist with clearance concerns, Ford was updated throughout the days following September 11 with specific time delays at each border crossing point. The enabler also gave suggestions on diverting traffic through less congested ports.

After September 11, providers must be more vigilant than ever when managing the infinite number of specific rules and regulations that are country-, product- and destination-specific. The rules and regulations are constantly changing and require frequent software updates to ensure compliance.

The Look and Feel

So what will the technology capabilities be like down the road, and what advances can we expect from enablers? Kilgore suggests that technology is advancing in three phases. The first phase is what she calls supply chain monitoring,' and in it technology helps companies monitor orders, inventory and shipments with all parties. Most logistics technology is already capable of doing this.

The second phase, according to Kilgore, focuses on management capabilities' in which the technology must provide the data and intelligence gathering tools necessary to manage the flow of goods and establish business rules to manage exceptions. She adds that some companies have already found enablers that can offer this capability.

In the final phase, logistics technology will need to be at the level of what Kilgore calls optimization.' Here, companies will have systems that can monitor and manage the entire logistics flow and also direct it. The technology will be able to set up preferences that can act on what's needed based on the pre-designated preferences. For instance, if a snowstorm prevents a main route's shipment from reaching its destination, because of the preprogrammed preferences the system will automatically reroute the shipment, while considering different modes of transportation, if necessary.

But it's not just in technology advances that enablers can prove the worth of their technology and services. Says Gonzalez: The most important thing enablers can do is to ensure customers are using their software to its maximum potential. He adds that several of the logistic providers have initiatives to visit clients on a regular basis to make sure users take full advantage of the technology. Technology itself will not get you there, explains Gonzalez. Improved processes, great people and good technology in concert get you there.

To Market, To Market

Comapnies are looking for cost savings in the form of quick solutions to supply chain inefficiencies, especially since the country is experiencing an economic downturn. And, somewhat surprisingly, information technology departments are willing to spend the money to gain improvements.

As some of the major third-party logistics providers (3PLs) build logistics services into their offerings and enterprise software providers build the technology, the next 18 to 24 months will evidence further consolidation in this space. Recognizing the opportunities, two years ago everyone wanted to get in the game, says Forrester's Kilgore. Since not much funding is occurring in this space right now, you'll see more consolidation occurring. Those with solid business models, robust technology and strong partnerships will emerge as the best-of-breed. Gonzalez adds that, You're now beginning to see who is emerging from all the noise. By the end of last year, a lot had changed with providers going out of business, merging or changing their business model.

Still, the logistics providers are entrenching. Though fewer players exist this year, their efforts to transform the way in which logistics is managed will change how supply chains flow. You have some fierce competitors that are fairly large and can deliver some really robust technology, says Gonzalez.

Moreover, logistics providers face the enormous challenge of keeping up with application development. For instance, UPS Logistics Group reportedly spent more than $50 million in 2000 on information technology, with its net 3PL revenues totaling $815 billion. Other logistics providers, while declining to reveal the amount of their technology investments, also say they have earmarked money for further research and development.

AMR Research reminds companies investigating logistics partners, that, If the value proposition is not immediately clear, move on to another provider. Your partners must have robust logistics technology and deep logistics understanding and experience. The company adds that, Despite the fancy technology many offer, you only want to do business with providers that truly understand the nuances of logistics.