3rdwave by Blinco Systems Inc.

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Integrated Costing Software Keeps Accountants Off the Backs of Logistics Managers:
3rdwave Completely Links Global Logistics, Finance
American Shipper, November 1998 - By Robert Mottley

Logistics software rarely can link a company's financial strategists with its supply chain managers. The two groups tend to be suspicious of each other's roles, and rarely share their means of verifying data.

Blinco Systems Inc., based in Toronto, has developed a software called 3rdwave that ties logistics to costing. " l think it really is unique out there," said Don Schmitt, comptroller of Venezuela Supply Division, a New York-based purchasing arm of Emprases Polar.

"Blinco's software gives us real-time costing control," Schmitt said. "That's an edge over other systems that do well enough with warehousing or distribution but can't handle costing."

"Blinco's 3rdwave has drawn together financial and logistics processes that formerly required individual keying of data," said Blair Fujji, of Honda Trading America in Marysville, Ohio. "It makes our complex operations much easier to track and control."

Accurate Costing

David Blinick, Blinco's president and chief executive officer, said the biggest financial challenge that importers and exporters face, "is to determine with a significant degree of accuracy what their actual cost status is at any time with respect to sales they are making. That implies being able to cost inventory accurately," he said.

"Problems arise when you have a high volume business with numerous cost components. If you're dealing with a commodity where the price is changing, you need to know the accurate cost of that fluctuation," Blinick said. “Most logistics software packages are not able to relate the actual cost to the inventory that's being sold.”

They fail because their links between accounts payable and inventory, "are weak to nonexistent," said Edward "Ned" Blinick, the CEO's brother and Blinco's vice president.

Those weak links mean a company's accounting department operates in isolation from the inventory control or logistics department.

"The real pain is that the two systems have to be reconciled. For basic logistics software systems, that reconciliation can take as long as much time as entering data, hit by hit," said David Blinick.

Two Camps

Blinick said logistics managers, "are receiving their data, trying to track quantity. They are not particularly interested in cost. The accountants are doing the opposite, tracking costs but not much concerned with quantity. Because their departments work as two separate entities, profit figures for inventory are highly suspect, being subject to wide variations," he said.

"Most companies don't know how to cost unless they receive actual invoices," Blinick said. Yet products in today's world are moving through supply chains very quickly in advance of the actual receipt of invoices.

"As everybody has speeded up volumes, the actual relating of a specific invoice to a specific inventory transaction becomes much more difficult," according to Blinick. "In days gone by, we had inventory sitting around longer, so you could match your documents at a more leisurely pace. Now, inventory is going through much more quickly, so there's fleeting time for costing."

For example, Honda Trading America in its steel department, has sales in excess of $300 million per year in 1998. The steel comes in huge rolls. As sheets of steel are unrolled and cut in a number of different ways, depending on the use for the steel, different costs occur. There's the cost of the original steel coil 1, plus the cost at the processor where the splitting is done.

"The 3rdwave software records all of Honda Trading' America’s real-time costs - by vendor, in whatever currencies apply. That means that it only takes two days (or 48 hours) for Honda to close its books, balanced to the penny," David Blinick said.

Previously, Honda Trading could close its books only after 15 days, with an unbalanced tally. (Note that in 2003, Honda Trading still averages closing its books in 48 hours, including year ends, on yearly revenues of $2.4 billion.)

Real-Time Tab

Blinick said most companies, "leave it to the logistics guys to track such costs on a spreadsheet, which is highly labor intensive. Reconciliations are especially difficult to do."

"The financial people don't see that spreadsheet," he said. "They have no clue as to what's going on until the end of a reckoning period, when they've got to go to the operations people for a tally. As the logistics managers try to close out their spreadsheets, the financial guys are often not happy with the methods the operations people use to arrive at their costs.

Another client, before using Blinco’s 3rdwave software, had a month's-end swing of a half million dollars in inventory evaluation. "That was very scary," Blinick said.

All of Blinco's 3rdwave solutions employ a complex costing methodology, permitting the registering of a budgeted cost on every item purchased in multiple currencies.

"If Honda buys product in yen from a Japanese factory, they have to move that product from the plant to port, which costs more yen. As soon as it hits the port of exit in Japan, the costs now start accruing in U.S. dollars. Our software shows each of those figures,” Blinick said.

Blair Fujji (senior IT person and responsible for the 3rdwave implemenetation at Honda Trading America) confirmed that process, calling it, "a welcome departure from what we had before."

How It Works

David Blinick explained how the software allows logistics and financial staff to share data.
"We have a way of keeping track of the estimated cost, in the currency being incurred, for all the elements of getting a product to inventory," he said. "Once there, that product is assigned a reference number, which is then used throughout a company, coded into documentation provided by supplier. So when the accountants get their documentation, they can cross-check electronically product-by-product."

The 3rdwave software, "spurs a number of accounting reports that track cost estimates against actual costs. So that costs coming in are within the tolerance of the budget established for a particular item. All of that happens in real-time, as the record keeping goes along with product movement."

In terms of building the link between accounts payable and inventory functions, "it took us two years to get a good series of transactions through the software. That was back in 1986." he said.

"It was a question of cross-referencing details, so that every penny balanced out from every perspective of viewing inventory data," David Blinick explained. "Maybe we were just slow (or highly methodical)."

Blinco has also been cautious in bringing its software to market, taking on 14 clients over a dozen years.

"It would have been enough of a win just to get logistics managers and financial people out of each other's hair," said Edward Blinick. "We wanted to do better than that, and make sure that the bridge between them that we were offering would endure," he said. "The bottom line is that not only do we have to show how shipments move, but accounts have to balance to the last cent. That has meant considerable customization with our clients."

What It Costs

Blinco is pitching 3rdwave more to U.S. companies than to Canadian ones. "Our software is not inexpensive," David Blinick said. "We've had a hard time finding Canadian companies that meet our criteria for commitment.

The costs of Blinco's integrated costing software (which is completely integrated to all other 3rdwave modules), depending on implementation, can range in price. An average of two months is required for acclimation.

"SAP requires one year of acclimation time per module," Edward Blinick said. Customers pay Blinco an initial fee for its software, and a 15-percent service and maintenance fee annually (much lower than the industry average). There are no further user charges. "Until a code is delivered in and stable, and the client signs off on it, there's no service and maintenance," Edward Blinick said. "That doesn't start until the acclimation phase is over, which can vary by weeks or months, depending on the client."