Archive for January 2009

It’s been almost a year since I wrote “A Beginner’s Guide to Software-as-a Service (SaaS)” in response to the many questions I was getting on the topic.  Back then I was surprised that so many people were still unfamiliar with SaaS (aka “on demand”) despite all the coverage this topic was getting by the press and analysts (search for SaaS on Google and you’ll get 232 million hits).  A year later, I’m still getting a lot of questions, including the basic ones I answered in last year’s posting.  I won’t rehash those questions again today.  Instead, I want to underscore what I believe is the “hidden value” of software-as-a-service, particularly Transportation Management Systems, where the SaaS model continues to gain traction.

First, a quick disclaimer: I am a big and long-time supporter of the SaaS model, and several ARC vendor clients offer SaaS solutions, so you can say I’m a bit biased.  But here are a couple of reasons why I think the model makes a lot of sense for transportation management, as well as global trade management.

Companies should not view SaaS only as a software deployment and pricing option; they should also view it as a platform for benchmarking and continuous improvement.  By default, a software-as-a-service TMS creates a “connectivity network” of shippers, carriers, suppliers, consignees, and other trading partners, executing millions of transactions through a single system.  All of this data enables network-level benchmarking, so companies can compare, for example, their rates and performance against an external benchmark and quickly pinpoint problem areas.  The ability to identify and bring on new carriers, either as part of a strategic procurement engagement or a spot buy, is greatly facilitated by being part of a network.  And if “collaborative transportation processes” are ever to take hold in the industry (see “Innovating the Way Shippers and Carriers Work Together“), I believe SaaS TMS networks will play an important role.

But here is the most important reason why I support the SaaS model: it’s a step towards addressing the data quality problems that continue to plague supply chain and logistics processes.  I’ve been on this soap box for several years, but the problem only seems to be getting worse.  Simply put, I believe companies should get out of the connectivity business-i.e., stop building and maintaining their own one-to-one links with their countless and ever-changing trading partners.  The ugly truth is that many companies still struggle with data quality issues (i.e., late, inaccurate, and/or incomplete data), even though they invest a lot of time, money, and resources to scale their electronic communication capabilities (see “Economic Impact of Inadequate Infrastructure for Supply Chain Integration” published by NIST in 2004). 

In short, I believe “supply chain connectivity” should be a utility service, like telephone service or electricity, offered by third parties who’s core business models are focused on ensuring high data quality.  In my opinion, when it comes to transportation, SaaS TMS providers are a step in this direction.

And the same is true for global trade management, where many SaaS solutions also exist.  As I wrote about in November (“10+2: A Beacon of Hope for Software Vendors and Freight Forwarders”), if there is ever a business process that lends itself perfectly to a network-based solution, it has to be “10+2” compliance.  This is really a data collection and connectivity challenge, and freight forwarders and network-based solution providers are in the best position to address it.  What you do with the data is less important (and easier) than getting the data (timely, accurate, and complete) in the first place.

Well, I’m guessing this piece will probably raise more questions than answer them.  But that’s the whole point of these postings, isn’t it?

Enjoy the weekend.

It’s hard to think about “talent management” when every day there’s a new announcement about layoffs and unemployment (e.g., Kodak announced this morning that it’s cutting up to 4,500 jobs, or about 18 percent of its workforce). But from a long-term perspective, I believe that talent management, particularly in supply chain and logistics, will separate tomorrow’s industry leaders from the laggards.

That’s why Marshall Goldsmith’s article this week in BusinessWeek (“Talent on Demand“) caught my attention. It’s a Q&A piece with Peter Cappelli, a Wharton professor and author of “Talent on Demand: Managing Talent in an Age of Uncertainty.” I haven’t read the book, so I can’t comment on it, but one of Mr. Cappelli’s answers in the article intrigued me. Here’s what he said in response to how companies should do talent management today:

“The problem for talent management is to deal with and manage that uncertainty.  We do this by adapting techniques that are already well known from supply-chain management [emphasis mine]. To begin, we ask, what happens when our forecasts for demand turn out to be wrong, as they almost always will? What does it cost us? We can be wrong in two ways: Actual demand is greater than our forecast, and we have a shortage of talent; or actual demand is less than we thought, and we have a surplus of talent.  What will it cost us in each case?”

In supply chain, we talk about having “the right product, in the right quantities, at the right place and time.” The idea of applying this principle to talent management is very interesting. And I was reminded of another BusinessWeek article from a couple of years ago that highlighted how IBM developed an algorithm and software tool that lets it identify which employees from across the world have the best qualifications and skills to work on specific consulting project. “Our customers need us to put the right skills in the right place at the right time,” is the way Robert Moffat Jr., Senior VP at IBM, described the reason they developed this system.

So, which type of supply chain and logistics professionals will be in high demand, but short supply, in the future? Those with the right mix of analytics, business, and relationship skills. As I highlighted in “Making Smarter Decisions Faster,” a growing number of companies are leveraging business intelligence and analytics solutions to create a competitive advantage. But you need to hire and train the right people to realize the value of business intelligence-i.e., people who are not only good at manipulating and analyzing data, but also have a deep understanding of supply chain and logistics processes and have good business acumen.

These types of employees will be in high demand across all industries, including logistics service providers (3PLs), where talent management will be critical for success. As I highlighted in a posting last year (“Lessons from the Road“), high employee turnover, which often impacts service levels and work quality, is one of key reasons some companies are bringing their outsourced operations back in-house. Turnover at the management level is another issue, along with poor succession planning.

The bottom line: a lot of companies are reducing their workforce in response to the weak economy, but are they looking beyond “dollars and cents” and taking future demand and supply for talent into consideration? Unfortunately, I think most companies are not.

“Upping truck weights and mandating speed limiters in the name of sustainability is irresponsible and ridiculous.  Those things have nothing to do with making trucking more ‘green’ and everything to do with adding more ‘green’ to the pockets of large corporations.”

And so commented Todd Spencer, Executive Vice President, Owner-Operator Independent Driver Association (OOIDA), in a press release OOIDA issued yesterday.  This was OIDA’s response to the testimony the American Trucking Association (ATA) gave to Congress yesterday where they called for (among other things) implementing speed governors and “the use of more productive truck combinations” (read the ATA’s press release for details).  It appears that the trucking industry is “a house divided” when it comes to addressing its impact on the environment.

The back story, of course, is the American Recovery and Reinvestment Plan currently being considered by Congress, along with proposed regulatory changes that could affect the transportation industry (e.g., California and Clear Air Act).  Lobbying efforts are in full swing, and we’ll just have to wait and see what ultimately gets passed and funded.

But back to the OOIDA press release, there was another comment in it that resonated with me.  Here it is:

“[OOIDA] contends effective environmental solutions begin with addressing inefficiencies in the supply chain such as time and fuel wasted by truckers waiting to be loaded or unloaded and the amount of empty miles truckers must drive.  Those two inefficiencies alone cost trucking and consumers a combined $5.7 billion dollars annually. Addressing those problems would go a long way toward reducing fuel burned as well as emissions.”

Amen, I say.  Although I generally agree with many of the ATA’s proposals, I also believe that we have to address the ever-present “empty miles” problem and other supply chain process inefficiencies that continue to plague the industry.  Last year, I wrote a paper arguing that the way shippers and carriers currently work together is unsustainable.  Here’s an excerpt:

“Shippers and carriers operate in a business environment that has changed dramatically over the past thirty years, and it will continue to change moving forward.  Yet, the way shippers and carriers work together has remained virtually the same since 1980, when the trucking industry was deregulated.  The time has come for shippers and carriers, as well as Logistics Service Providers and other industry participants, to address this problem by matching the innovation that has occurred in technology over the years with innovation in business processes and services.”

Remember all that talk about “shipper collaboration” a few years ago?  Well, it proved to be easier on paper than in practice.  Does this mean, however, that creating continuous moves between different shippers is a quixotic goal?  The answer depends on the approach.  Clearly, relationships where shippers have to manage the process themselves have not been successful.  This suggests that a third party needs to be involved, not only to engineer the solution, but also to manage the day-to-day operations.  Another issue that has plagued past attempts is a lack of shipment density and redundancy.  For example, if one leg of a continuous move is not ready for pick-up as planned, the whole route breaks down and the expected savings are nullified.  This implies that a collaborative routing solution must not only include highly-reliable and repeatable freight, but also have enough redundancy to heal routes when exceptions occur.  Finally, having a network is not enough; you also need technology to design, optimize, and automate the collaborative process.

Last winter, as fuel prices were on the rise, I spoke with a lot of shippers who were interested in exploring “collaboration” again.  All ideas that could negate the increase in fuel surcharges were on the table.  Similarly, I spoke with logistics service providers and “on demand” transportation management systems vendors, including LeanLogistics, Sterling Commerce, and Transplace, who were also revisiting “collaboration” and working on new solutions and services .  Of course, some of that momentum has dissipated in recent months, as fuel prices have dropped below $50 a barrel and truck shipments have plummeted.  Then again, maybe this economic slowdown gives shippers and carriers, along with their partners, the breathing room they need develop and implement innovative processes and solution.

What do you think?  Has the time come for shippers and carriers to innovate the way they work together?

I recently completed a study of the Supply Chain Planning (SCP)software market.  In doing this study, I came across solutions that could not be cleanly classified as either Supply Chain Planning or Supply Chain Execution. 

First, a quick background on supply chain planning and execution solutions.  SCP solutions are typically based on optimization algorithms.  I will spare you a detailed definition of optimization (it might make your eyes glaze over), but in the simplest terms, think of optimization as being very advanced math.  By definition, Supply Chain Planning solutions focus on a “planning horizon”-i.e., on putting together optimal and feasible plans to be executed in the coming weeks and months.  The primary way companies save money using SCP solutions is through reduced inventory (e.g., reductions in raw materials, work-in-process, or finished goods inventories).   

Two types of Supply Chain Execution (SCE) solutions are Warehouse Management Systems (WMS)  and Manufacturing Execution Systems (MES).  Both are, in some ways, the opposite of SCP solutions.  While some WMS solutions have math associated with them (e.g., labor management and slotting), they are not true optimization solutions.  WMS and MES operate in an “execution” time frame, focusing on what needs to get done today, in the next few hours, or even in the next few minutes, to operate the warehouse or factory efficiently.  The primary payback of high-end WMS and MES comes in the form of improved labor efficiencies.  

“Demand sensing” solutions are an emerging hybrid solution that are part SCP, part SCE.  One such solution is offered by Terra Technology.  Terra is a private company with several consumer goods and food and beverage manufacturing clients.  Like SCP, their solution is based on advanced optimization.  Terra’s demand sensing solution is designed to take daily orders and shipment data, combine it with the weekly shipment forecast, and then create daily SKU forecasts at the DC level.  The daily forecasts extend out over 40 days and are refreshed daily.  These short-term forecasts are considerably more accurate than what is generated by demand planning solutions.  Further, like SCP solutions, the payback is based on reducing inventory.  Procter & Gamble (P&G), for example, publicly stated that its short-term forecasts were improved by over 30 percent, allowing it to reduce DC safety stock by more than 10 percent. 

This solution, however, is used in an execution time frame.  The primary users of this solution are replenishment planners that plan shipments from the factory to the DC.  The planners are not part of the demand planning staff.  This solution is generally not used to change the demand forecast, but to improve replenishment processes that occur several times a week, an execution time horizon.

Procter & Gamble also uses a company called Transportation Warehouse Optimization (TWO) that offers another hybrid optimization/execution style solution.  TWO’s solutions take the retail DC orders and delivery schedule and create a lean/pull type environment that is used to facilitate both full truckload shipments and efficient labor utilization in the warehouse.

First, advanced math (but not true optimization) is used to build mixed-SKU pallets and to efficiently build truck loads that respect weigh out, cube out, and stop sequencing constraints.  In building the mixed SKU pallets, logic is utilized to insure that case picking proceeds efficiently.  In other words, you don’t want your pickers moving from one side of the DC to the other to build a particular pallet.  The pallet-building logic needs to respect weight/size/crush constraints, while not resulting in excessive travel time for pickers.  Finally, the solution has Distributed Order Management style functionality that looks at orders daily, or in near real time, to determine which DC makes the most sense to ship from.

Thus, like supply chain planning, this type of solution contains very advanced math that could be loosely labeled “optimization.”  But it can also be labeled an execution solution because it operates in an execution time frame and one of its main payback buckets is efficient labor utilization in the DC.

Transportation Management Systems (TMS) have long been labeled a supply chain execution solution, but they’re really hybrid applications that contain elements of optimization occurring in “execution” timeframes.  Now, new SCE solutions that that involve distribution operations have emerged with the same characteristics.

We traditionally believed that you could not optimize across both warehousing and transportation operations simultaneously (at least not in practice).  Most companies typically optimize their transportation operations first, and then “sub-optimize” their warehousing operations, instead of conducting a “holistic” optimization that jointly considers both transportation and warehousing constraints to arrive at an optimal plan.  In other words, we argued that WMS integrated to TMS did not mean you were achieving true logistics optimization.  That argument is starting to breaking down.

Back in November, I commented on how I was feeling a bit “greened out,” how there were fewer and fewer new developments to discuss or analyze, and how all the case studies presented at conferences were sounding the same to me (“All Greened Out (Until the Asteroid Comes)“).  I was ready for the next phase of innovation, and I highlighted a couple of hypothetical case studies that I was still waiting to hear, including: “A company that redesigned and optimized its supply chain network using carbon minimization as a constraint or a key objective.”  As I said in the posting, most companies are just measuring (estimating) their carbon footprint and comparing the footprint of one scenario versus another.  But I haven’t come across a company yet that has decided to incur higher supply chain network costs (however small) in exchange for a lower carbon footprint.

Maybe the folks at IBM have-or will at some point in the future.  The company announced this past Friday a new consulting offering that can help companies “reduce carbon dioxide emissions, fuel usage and costs by providing a detailed analysis of their supply chain logistics and suggesting improvements.”  The service leverages a tool called Supply Chain Network Optimization Workbench (SNOW) developed by IBM’s China Research Laboratory.  The tool looks at CO2 emissions across five major logistics areas: product, sourcing, production, warehousing, and transportation.  I haven’t seen a demo of SNOW (other than what’s on IBM’s website), so I can’t comment at this time about its features and functions.  But at a high level, the capabilities sound similar to what other software vendors, such as Llamasoft and Infor, provide.

The press release highlights how COSCO (the Chinese shipping company), by using IBM’s SNOW consulting offering, “reduced the number of distribution centers it uses from 100 to 40, lowering logistics costs by 23 percent and reducing CO2 emissions by 15 percent.”  This certainly sounds like a great “supply chain network redesign” case study, but what makes it fundamentally different from other network redesign projects conducted five or ten years ago (aside from the more advanced technology available today)? 

I haven’t talked to IBM about this case study, but I spoke to some of their consultants at a Boston event late last year, and they confirmed my observation at the time-i.e., that companies are creating a baseline supply chain carbon footprint and comparing it against several network design alternatives, but they’re not using carbon minimization as a constraint or the objective in the optimization runs.  In short, network optimizations almost always result in lower carbon emissions; what’s different today is that companies are starting to measure and report these CO2 reductions.

Nonetheless, as the saying goes, you have to learn how to crawl before you can walk and run.  When it comes to designing “green” supply chains, I think we’re still in the crawling phase, but we’re making good progress.  Software vendors continue to add more “green” capabilities to their solutions, and consulting firms like IBM continue to expand their knowledge and services in this area.  The demand for these solutions and services will likely grow in the months and years ahead, especially if new government regulations are passed.

I’m not feeling “greened out” anymore, partly because I believe there are many important developments on the horizon related to “green” technologies, services, regulations, and standards.  You’ll read about them here as they occur.  In the meantime, let me know if you come across a company that accepted higher supply chain network costs (however small) in exchange for a lower carbon footprint.