Men in the Middle
How Supply Chain Visibility has Changed the Logistics Game
Alchemy Magazine, November 2001 - By Marty Weil

Reports on the effects of technologies providing enhanced supply chain visibility have been written largely from the perspective of companies residing on one far end or the other of the chain—the manufacturer, the distributor, the retailer, or the end consumer. Surprisingly little has been said from the viewpoint of those in the middle, specifically those involved in the shipment of goods. How has the push for visibility affected the way they do business?

First, shippers get the same key benefit as any other link in the supply chain--increased efficiency.

"Visibility systems are a great example of how technology can help the middleman's processes become more efficient internally," says Sandy Jap, an associate professor at Emory University's Goizueta Business School. "It enables them to dramatically reduce the time and money spent on customer support, and it empowers their customers by making them better informed and more confident in their ability to see and understand the progress of their work within the workings of the supply chain."

By aggressively incorporating visibility technologies into their operations, shippers such as United Parcel Service (UPS) and Federal Express (FedEx) are also transforming themselves into entities with much more expansive roles in the global supply chain.

"We used to be strictly a shipping company, but now we handle every aspect of the supply chain, from information to shipping to financing," says Joan Schnorbus, technology spokesperson for UPS. The power of visibility tools to allow UPS customers to track their use of UPS services throughout the business process has helped facilitate this change.

Not Enough

But, according to Jap, visibility in and of itself doesn't provide a strategic advantage. Rather, it raises the bar for competition. If one shipper doesn't offer the service, another will. "The key to any strategic advantage is to provide visibility and other value services as well," she says.

Jap points to FedEx's provision of bundled services to the manufacturing sector as an example of a shipper employing this approach as a systematic strategy. Such strategy is likely to become increasingly commonplace in the logistics space.

"Visibility of information has value per se, but not as much as when you can take action upon it," notes Chris Newton, senior analyst at AMR Research. "Ultimately, that leads to automated supply chain operations like alerts to exceptions in real time and immediate corrective actions based on enterprise-specific business rules."

This is the transformation point: where visibility leads to action. And this is the point where the responsive speed and working efficiency of the supply chain may increase dramatically.

Stepping Out In Front

Take, for example, Nike's arrangement with UPS. If you've ordered your sneakers from Nike.com, a UPS Logistics Group company has had its hands all over your order. UPS stores, packs, and ships all goods ordered through the Nike Web site.

"If you have an idea about setting up a business, we can take up all the fundamentals of making that happen," Schnorbus says. "We can order inventory, maintain it, ship it, and lend you the funds necessary to do all that."

But getting to that point has been a 20-year journey for UPS, one that has vastly expanded the idea of what a shipping company ought to be doing for its customers. The company implemented its package-tracking system in the early 1980s, originally just for airborne packages. By the mid-1980s, UPS decided to track every package it delivered and to get that information up front to customers.

"We were the first to give out free software to provide tracking functionality," Schnorbus adds. The company also was the first to provide comprehensive shipping systems (including a computer, scales, label printers, report printers, et cetera) to manufacturers.

Since then, UPS has introduced five different shipping solutions designed to provide users maximum flexibility to incorporate tracking and visibility technology into their logistics operations. The most popular of these systems with large and mid-sized manufacturers is called Host Access, one of the earliest applications to extend supply chain visibility by providing tracking data directly into user enterprise systems.

As visibility tools rapidly migrated onto the Web, UPS established contracts with Yahoo, Lycos, and Infoseek to allow tracking of UPS packages through the home pages of these search engines. Soon after these 1996 deals, the company introduced online tools that made it easy for companies—retailers in particular—to build in UPS tracking capabilities into their own sites.

"As we've developed these packages, we've tried to consider development from a customer perspective," Schnorbus says. "Marketing is a relatively new thing for UPS; when we were simply shippers, we didn't have to think like marketers. But now we approach these things pragmatically from a multidisciplinary point of view."

UPS has established what it calls "the Enoplex," a center in Atlanta where business and technology contingents are housed jointly to work with customers in developing custom solutions expeditiously.

Such facilities embody the new information technology (IT)-based focus in UPS operations, driven in good part by the use of tracking and visibility tools. Today, UPS processes more than 4 million tracking requests daily—a volume that's been doubling every four to six months. Under the weight of such volume, IT issues such as bandwidth have to be addressed on a constant basis, further driving the emergence of IT within UPS as what Schnorbus calls "a cottage industry within the company."

Food for Thought

While major shippers like FedEx and UPS are incorporating supply chain visibility into basic marketing and operational strategies for their broad, diverse customer bases, increasingly complex logistical schemes are driving development of specialized supply chain solutions to provide highly customized visibility for vertical industries. A case in point is Elizabeth, N.J.-based Atalanta Corp.

Atalanta is the largest privately held food importer/distributor in the United States. With more than 2,500 SKUs from 35 countries and six different divisions responsible for products ranging from frozen fish to canned goods to gourmet cheese, Atalanta was faced with global logistics requiring more sophisticated visibility than could be attained through typical off-the-shelf logistics solutions. Its import of more than 5,000 containers annually presents the company with a plethora of issues ranging from international freight, import fees, and duties to inland distribution centers across North America. In spite of this complexity, it wanted the same kinds benefits from supply chain visibility that UPS achieved -- efficiency, cost savings, and the ability to better service its customers.

"We reviewed a lot of products promising visibility, but the fact is that there aren't a lot of supply chain solutions that neatly fit the importing business," says Joe DeNicholas, director of logistics at Atalanta. "This business is simply more complex, because more happens between the time you buy and sell—and you have to track everything that happens."

After an extensive review of software, Atalanta selected 3rdwave from Blinco Systems because it was tailored to international wholesale distribution. "When Blinco came in, they took the position that each of our divisions had specific needs and didn't try to jam a 'one size fits all' solution into our situation," DeNicholas continues. "What they accomplished was quite a feat—one system, handling the discrete idiosyncrasies of all our groups, yet funneling all the information into one traffic department."

According to DeNicholas, the result is streamlined workflow across the enterprise, where everyone has access to the system to see exactly what is happening at any time.

Since implementation, 3rdwave has provided Atalanta extremely high levels of visibility, upward of 95 percent, into its logistics cost management. According to AMR, these levels are much higher than current industry averages.

One of Atalanta's major objectives was to eliminate redundant entry of data into the system. The company's legacy systems had required a lot of double entry that didn't always match up correctly when merged. The result was slower throughput and diminished accuracy. With the Blinco application, once original data is entered into a purchase order, it follows throughout the system without the need for any additional keystroking.

"Another area that's saved us money is costing of inventory," DeNicholas says. Prior to implementing 3rdwave, Atalanta had to cost all inventory upon receipt. When goods arrived, they were opened up, and a cost was ascribed to them at that point. In a second step, accounting would open up a separate set of records for financial costing.

"With 3rdwave, the pricing information that is entered by purchasing goes into the (purchase order), so that when we physically receive the goods, that information is there. There's no need for costing as goods arrive," DeNicholas says. Expenses that get added in transit get added to the price automatically, so inventory assessment is faster and more accurate, allowing for more profitable sales.

A Win-Win-Win Scenario

Both Schnorbus and DeNicholas see visibility tools and technologies working for companies that implement them, their end users, and their end users' users.

"We see these tools as a means of helping our customers help their customers," Schnorbus says. As they do this while concurrently tightening up internal processes at UPS, visibility tools empower the company to deliver greater value—and deliver value more efficiently than otherwise possible.

The same scenario applies at Atalanta. Increased visibility has enabled the company to cut inefficiencies out of the supply chain, allowing it better margins at the same time that it passes along lower costs to the customer. "The degree to which you can effect changes in other systems beyond visibility (e.g., workflow, execution) is the real measure of how these systems perform," Newton says.

AMR sees this evolving into a new product category—which it calls distributed order fulfillment—in which the system will take internal information, make it available externally, and use it to manage processes throughout the supply chain. This will allow techniques like splitting orders at the line item level, then merging those orders before they reach the final customer.

"What we're moving toward is a command and control application layer that adds business logic and workflow to visibility, helping companies control the external processes within the supply chain," Newton concludes.

Peeking Deep into the Software

All supply chain solution vendors say they provide visibility. "At its most basic, visibility is getting inventory and order status from multiple supply chain participants into a central repository for action and analysis," Newton says.

But then what?

"They can use the information provided through these systems to improve decision support in automated or nonautomated ways," Newton says. The results of this can be dynamic. They include:

1. Improved customer service
2. Lower inventory levels
3. Increased flexibility - enhanced ability to outsource non-core activities
4. Faster order-to-cash cycles
5. Higher profitability

Because of its role in enabling such positive change, Newton contends that supply chain visibility will be required functionality in any supply chain application. "Companies won't just buy visibility, but applications that provide it as well as transaction and execution ability," he says.

Jap concurs. "Your value as a shipper is embedded in the functions you perform or can offer the manufacturer," she says. "To the extent that a shipper can provide a one-stop shop, it gives the manufacturer less reason to fragment the way it ships. Adding value-added services around visibility is an important product offering that the shipper can provide the manufacturer."

For related information, please go to:
3rdwave Food
3rdwave CGD (for Consumer Goods Distributors)