ROI Archives

The Real Value of Logistics Solutions May Not Be in Logistics

Guest Commentary | By Chris Jones • 10/10/2017

Most logistics technology projects have their return-on-investment (ROI) center around the benefit they provide to the logistics organization (e.g. lower transportation costs or improved delivery service). For many companies, this can represent millions of dollars in savings and happier customers. This is good news, but what if that were just a piece of the bigger value story? There are many significant business-value opportunities from logistics solutions if you think outside the logistics box.

Many instances immediately come to mind that prove that logistics are an enabler of broader benefit. While many of these examples are retailers, it equally applies to distribution and high-volume manufacturers. Here are some quick examples:

A leading retailer implemented a purchase order to dock door visibility solution. It helped the supply chain organization save millions of dollars in inventory. However, the same information was used to evaluate supplier performance to contract. Supplier performance charge-backs for delivery non-compliance represented tens-of-millions of additional dollars to this retailer.
Another retailer implemented a similar solution to drive down inventory, again savings millions of dollars. The information was also shared with the merchandising/buyer organization. They are now the biggest user of the solution and are also saving millions of dollars because they no longer buy excess inventory to cover supply chain uncertainty.
Several retailers implemented an advanced pool distribution management that allowed them to lower their transportation cost by millions and more rapidly replenish their stores. Because the solution tracked the movement of every carton or item, they were able to provide instant notification of lost items, cutting theft and misplaced goods significantly. In addition, store labor costs were lowered significantly because they knew exactly what was coming and within a tight time window.
Several retailers implemented dynamic delivery appointment booking as part of their buying processes. Because the solution helped drive delivery density it reduced delivery costs by millions of dollars. However, the solution also made it easier for customers to buy products and value-added delivery services that generated tens-of-millions of dollars in incremental revenue.
A leading distributor implemented real-time GPS tracking for their outbound truck shipments to improve delivery reliability and productivity. However, they are now sharing that information with their customers to compete on customer service in a commodity oriented market.

The Big Picture is the Big Picture

Each of these companies recognized the opportunity to either share logistics information more broadly or enlist non-supply chain or logistics operations to be part of a bigger vision. As a logistics or supply chain professional, it’s too easy to stay inside of the “box” when looking for ROI. However, for those who go beyond, the value is compelling. For example the benchmark study, The Transportation Management: Strategies and Tactics of Top Performers demonstrated that companies that believe transportation provides competitive advantage or have leading financial performance, do a much better job at sharing logistics information (see Figure) beyond the supply chain organization.

Getting buy-in beyond the logistics or supply chain organizations is critical to extending the value of logistics solutions. Logistics excellence can fundamentally alter the customer experience and make it a differentiator. When the customer owners see what logistics can do to help drive top line growth and compete better, they become one of the biggest advocates of logistics programs. But none of it will happen unless someone paints a vision of what could be done for those folks. The great news is that there are many examples of how this is happening right now with products like sand that are being sold for a premium because of logistics excellence.

Getting more than just the logistics value also means challenging the norms and urban legends of logistics. It’s amazing how many logistics and supply chain professionals are operating with business process and technology assumptions that are outdated. For example, real-time location-based information for common carriers is becoming pervasive, when 5 years ago it was a black hole. What value could you add when you know where each of your shipments are right now and the inventory associated with them? What would you do if you or your customers or other trading partners had access to that information? The business value opportunities are endless.

Never before has logistics had the ability to make such a difference to a company’s performance. However, that potential can get trapped if logistics and supply chain professionals don’t think about business value beyond their organization and enlist a broader set of partners to help garner that value. What has your organization done to identify and capture business value outside of the logistics box? Let me know.

As Executive Vice President, Marketing and Services, Chris Jones <CJones@descartes.com> is primarily responsible for Descartes marketing activities and implementation of Descartes’ solutions. Chris has over 30 years of experience in the supply chain market, including the last 10 years as a part of the Descartes leadership team. Prior to Descartes, he has held a variety of senior management positions in other organizations including: Senior Vice President at The Aberdeen Group’s Value Chain Research division, Executive Vice President of Marketing and Corporate Development for SynQuest and Vice President and Research Director for Enterprise Resource Planning Solutions at The Gartner Group and Associate Director Operations & Technology for Kraft Foods.

The Perfect Answer to “What’s the ROI of Social Networking?”

Social Media | By Adrian Gonzalez • 11/13/2013

Whenever I’m asked “What’s the ROI of social networking?” I reply with a question: What’s the ROI of email?

You never hear supply chain executives ask that question, yet they use the ROI question as a way to delay or block the deployment of social networking technologies at their companies.

Email, as you probably know from your own experience, is arguably the number one productivity killer in the workplace (I actually have my email app closed as I write this so I won’t get distracted). If you do an online search for “email productivity killer,” you get 4,160,000 hits — about half a million more hits than “social media productivity killer.” And according to a survey of over 600 small business owners, freelancers and professionals conducted by OfficeTime.net, email was ranked as the #1 time killer at work; social networking was ranked #8, behind bigger time killers like Internet surfing, meetings, and non-business related conversations (see infographic here).

Simply put, nobody ever asks what is the ROI of email, the telephone, and meetings — the three most common ways we currently communicate and collaborate with each other at work — so why the double standard with social networking? If we’re willing to accept the limits and drawbacks of our current communication tools and processes, why not give social networking a try, especially because it addresses many of those limits and drawbacks?

Over the past few years, I’ve written extensively about the potential role and benefits of social networking in supply chain management (see here and here, for example). But don’t just take my word for it. Last month, I interviewed Angel Mendez, SVP at Cisco and I asked him about his perspective and experience using social networking solutions at Cisco. Watch this short clip for his great insights on how social networking helps with demand management, enables faster problem resolution, and allows companies to do more with less.

The bottom line: Stop wasting time trying to figure out the ROI of social networking. You’re wasting enough time already with email, meetings, and watercooler conversations. If you really want to know the ROI of social networking, you won’t find it in a spreadsheet or blog posting. You just need to start using it. It’s what Cisco and other companies are doing. So, stop asking the ROI question and start taking action.

Guest Commentary: Making the Case for Routing and Scheduling Software

Guest Commentary | By James Stevenson • 03/19/2013

For shippers and distributors that operate private fleets, routing and scheduling technology can significantly improve operational cost control and asset productivity.

Routing and scheduling solutions offer the promise of route ‘optimization’ — an automated way to build that ideal mix of orders, stop sequencing and scheduling together with the shortest, most cost-efficient driving route to execute it, that will both maximize productivity for your fleet assets and maintain or improve service performance for your customers.

ROI from these technologies can come in many forms: reducing total miles traveled and wasted empty miles; reducing fuel consumption; improving service performance; right-sizing fleets through improved productivity; and dramatically reducing labor times for route planning. In our experience, automated route plans average 10-25% fewer trucks, drivers and hours. Companies typically realize 8-15% reductions in total distribution costs or 8-20% reductions in miles and hours for service fleets.

Over the years, we’ve found that the reasons organizations delay a decision about implementing route optimization fall into a few basic categories:

The manual process still works.
Most traffic departments can continue to open the door each morning and go right on doing things the old way. It may be wasteful, but they know how to get the job done, most of the time.

There are “special requirements” for what they do.
Many otherwise well-managed companies are convinced that their transportation process is entirely unique and impossible to change. This attitude can undermine priority-setting. Don’t become trapped in indecision looking for software that will “automatically find a nearby truck stop at scheduled lunch breaks” instead of recognizing that you can cut 2,000 wasted miles each day from fleet operations. Many of these special cases can be handled; don’t let them derail the entire process.

They want the ultimate ‘black-box’ routing solution.
The ‘black box’ that replaces a human completely and requires absolutely no oversight for daily load planning is an elusive goal. Companies can spend hundreds of thousands of dollars on technology and still not escape the need for an expert human to keep an eye on the process. While the black box solution is available, there are really very few businesses where it will be a good fit. So many constraints affect daily transportation execution that any fully automated system is subject to breaking if the right opportunity presents itself.

Even incremental improvement to current processes can drive significant ROI. If software to automate a 3-4 hour manual routing process will reduce the time required down to a 10-minute review of final results to scan for address entry errors, you can still save almost 20 hours in a week, or 80 man-hours a month.

What to Look for in a Solution?
What are your business needs and goals? Are you trying to reduce costs, cut the time it takes to create routes, or give better service to your customers? Are you growing and need help to handle the increased volume? Before you begin to look for a solution, make sure you have your business goals defined and agreed to by your project stakeholders.

Be practical.
Look for the practical application of advanced science with a potential vendor. If the routing tool can’t manage real-world constraints like avoiding certain driver and customer combinations or addressing lift gate requirements at selected locations, then you will struggle to use it on a daily basis to improve your transportation operations.

Plan on building business improvement, not just building routes.
Good routing software gives you tools to analyze and improve the way you do business. Exploring alternatives, like giving customers shorter delivery windows, or using contractors or changing the kinds of vehicles in the fleet, are all scenarios a good routing solution can support.

Are you now building routes in stages throughout the day because you need time to assemble orders, or just because it takes so long to manually build your routes? Do your drivers sequence their own routes only because your dispatcher is overworked? Do you keep the same driver on a route to build strong customer relations, or because it is the easiest way to assign jobs? As you grow or your business changes, a strong routing technology platform can help manage that change.

Routing optimization should be an ongoing ‘process’, not an event. Don’t expect to simply automate your current manual methods. As you implement a solution, you will become aware of new details about your operation and its dynamics that may become the source for your greatest performance improvements. Plan to go through several stages of improvement and change as new insight to current processes helps refine your future strategies.

Avoid IT roadblocks.
Routing software works with your customer and order data, two critical resources for your company. Don’t let that idea scare your IT department. A good routing solution is not a data repository, but rather a data appending process. Route and sequence data points are added to your order data, with a delivery time and other route-based information.

Security and data integrity issues are generally not applicable for a routing solution. Your routing optimization technology should not be storing customer and order data, only the business rules information needed to generate routes.

Summary
Effective routing solutions from experienced technology providers really work. They lower costs and improve the service levels you offer customers. They can generate practical routes that satisfy customer expectations and driver capabilities. The key to success in implementing a routing solution is to approach it as a business improvement benefit and not just a way to replace or reduce staff. This technology can improve transportation performance and private fleet resilience in today’s leaner operations.

James Stevenson is Vice President of Sales and Operations for the Appian software business unit of TMW Systems, a leading provider of logistics software solutions for the transportation industry. He has over 23 years of experience in the transportation industry and the application of logistics planning, routing and scheduling technologies. A native of Oklahoma City, James attended the University of Oklahoma, where he received a BS in Industrial Engineering with a concentration in Operations Research.

Guest Commentary: SmartWay Certified Carrier – So What?

Guest Commentary | By Ben Cubitt • 12/20/2012

Launched in 2004, SmartWay® is an EPA program that reduces transportation-related emissions by creating incentives to improve supply chain fuel efficiency. For years shippers have worked to recognize and reward “SmartWay Carriers” with more business and bid awards. Some shippers have mandated that any carrier participating in their bid be SmartWay certified or become certified within a specified time period after the bid is completed.

But many shippers are also uncertain exactly what it means to be SmartWay certified and wonder “Is this just marketing?” or do SmartWay carriers have to really work to become certified?

Results of a recent survey initiated by PepsiCo and Transplace confirmed that SmartWay certification is much more than marketing, and carriers are working hard to evaluate, implement and optimize the technology changes that will significantly improve fleet fuel mileage performance.

We worked with many of our core carrier partners and the EPA SmartWay team to design the survey, which was sent to 65 carriers – representing a range of small, mid-sized and large carriers. The survey results showed which initiatives are being widely implemented with good results, and they also revealed some surprising insights.

SmartWay Technology Implementation
The survey and discussions with participating carriers confirmed that some initiatives have a clear payback and are widely implemented while others have a mixed track record on both ROI and levels of implementation. Widely implemented initiatives include:

Drive Training and Awareness
Reducing Highway Speed
Progressive Shifting
Verified Low Rolling Resistance Tires
Record Engine / Performance Data (for driver feedback and training)

Each carrier is evaluating these initiatives on a wide range of criteria, such as fit with their fleet (avg. length of haul, trailer-to-tractor ratio, customer base, etc), cost to implement and capital plans. This was reflected in the survey results, and some of following initiatives showed a mixed level of adoption or implementation across fleets:

Tire Pressure Monitoring System
Trailer Gap Reducers
Trailer Side Skirts
Nitrogen Filled Tires

Survey Surprises
The survey uncovered a number of findings that stood out as surprises or gave a deeper understanding of why there is such a variance in how widely or consistently initiatives are implemented. Some of these include:

Every technology does not fit every fleet. Side skirts, for example, have a higher payback for fleets with a longer average length of haul and/or a lower trailer-to-tractor ratio.
It is difficult for carriers to get all of their existing trailers into the shop to retrofit them with fuel mileage technology. Some initiatives therefore, are either implemented only on new equipment purchases or as existing trailers come in for other repairs or work.
While some initiatives may not have a clear ROI they may still be implemented on dedicated fleets where fleet customers want to maximize sustainability initiatives.
Driver support may be difficult at first, but over time, as they see the benefits, they become enthusiastic supporters. Drivers reported liking that “side skirts” make pulling the trailers much easier while also helping improve fleet miles per gallon.

The SmartWay Technology Program has helped encourage industry adoption of fuel efficient technologies. As a result, carriers are doing their part to implement the initiatives that they believe fit their fleet, have a positive ROI, and help increase fleet fuel efficiency.

Original equipment manufacturers and after-market suppliers continue to improve the technology, and carriers are working with these partners to evaluate and improve these technology innovations. There is tremendous work being done in this area and its impact on fleet miles per gallon has been significant.

We continue to work with the EPA SmartWay Team, PepsiCo and carriers to expand the survey, while sharing the results with carriers and shippers to ultimately improve our collective understanding of how SmartWay technology is being implemented and the overall benefits for the whole industry.

Ben Cubitt is Senior Vice President of Transplace, leading the company’s Engineering, Consulting and Strategic Carrier Management team. Ben has been active in Supply Chain and Transportation optimization for over twenty years, with most of his time spent on the shipper side of the table with companies including Federal-Mogul, MeadWestaco and RockTenn Corp. He also has more than five years of experience in consulting.

GE Implements a Social Network Platform: 4 Lessons to Consider

Social Media | By Adrian Gonzalez • 11/14/2012

Since most companies are still in the “early observer” stage when it comes to using social networking tools for business processes other than marketing and customer service, it’s great when an early adopter shares its experience publicly. Last week, MIT Sloan Management Review published an informative interview with Ron Utterbeck, the CIO for GE Corporate and the Advanced Manufacturing Software Technology Center in Michigan, about GE’s implementation of GE Colab, a social networking platform the company launched in January 2012 that is currently used by 115,000 employees worldwide.

I encourage you to read the article for all the details, but here are some of my key takeaways and lessons to consider:

Focus on power users, not business function. Investments in technology are often driven by the needs of a specific business function. A big obstacle many companies face with social networking tools, however, is that they don’t know where to begin, where within the company to conduct the first pilot test. GE took a different perspective. Instead of looking for WHERE to begin, the company looked for WHO to begin with. “We rolled it out to our power users,” Utterbeck explained. “We didn’t focus on a function – the functionality [in the platform] is needed by every function. We really sought out the most experimental people in the different functions, and seeded [the network] with them and then got their feedback.”

Don’t wait for the “perfect” solution to get started. First, the perfect solution doesn’t exist, and won’t ever exist, so stop waiting for it. And second, you don’t know what you don’t know — in other words, since social networking for business is a new frontier, the only way to truly know what you need and want is to start the journey and see where it takes you. In GE’s case, the company started with a base product and “extended the heck out of it” based on feedback from power users. According to Utterbeck, “We launched [the platform] knowing that it was good enough to get people to start moving on it, and then we started to get feedback…and we incorporated that feedback into quick releases.”

In short, implementing a social network solution is not enough; you also need to have an easy process for users to provide feedback and ideas for new capabilities, and a process and resources to turn that feedback into new functionality quickly and frequently.

Strive to create an integrated and seamless user experience. GE employees were “inundated with collaboration tools [email, telephone, video, chat] that were seemingly not connected to each other,” so a key goal was to bring those tools together into the platform. The company is using APIs to integrate desired functionality from other apps, including Facebook, LinkedIn, and Salesforce Chatter. What I found most interesting, however, is the potential for GE Colab to become the default user interface to execute business processes. Utterbeck gave the following example:

One area that hasn’t caught on right now but is going to go like wildfire over the next year is an app we’ve instituted that brings purchase orders to the right staff person to approve with a click, and avoids having to go through the separate purchasing system.

This is similar to the FedEx® Ship to Friends app that FedEx introduced last week “that allows people who use Facebook to prepare and pay for a U.S. domestic shipment without ever leaving Facebook.” Simply put, if an enterprise social network platform becomes the preferred workspace for employees, then the more information and apps users can access from it, and the more processes they can execute using it, then the more value it will deliver.

Don’t waste time coming up with an ROI. As I’ve written before, one of the main reasons why companies aren’t using social media in supply chain management is the difficulty in quantifying its business value. However, that didn’t stop GE from getting started. “We haven’t tried to come up with an ROI,” said Utterbeck. “Haven’t wasted a moment’s notice even thinking about it.” The company tracks usage, adoption, how people are using the system, and what their connections are. Utterbeck goes on to say:

The biggest thing about usage is that no one in this corporation has to use this platform to get their job done. It’s not a system that people have to go to, but people still come back every single day. They come back because it makes their job easier, because they’re getting value out of it. Going and spending money on ROI would be, honesty, in my opinion, just a waste of money because your true value of this is people are coming back.

Utterbeck mentions that GE is solving problems faster, which is a benefit that TEVA Pharmaceuticals, another early adopter company, has also experienced (see “Want a Fast-Response Supply Chain? Facilitate People-to-People Communication”). No doubt, the ability to solve problems faster is enabled by the ability for employees to communicate and collaborate more effectively across business functions, geographies, and business units. Utterback mentions the following statistics: “One in three of the connections that we have on the site are across functions. One in four is across geographies, whether between North America and Asia, Europe, South America. And one in five is across our business units.”

Obviously, GE’s decisions and actions might not be the right ones for every company. But I hope that by sharing its story and experience, GE will inspire other early adopters to share their stories too, and in the process we can begin to assemble a set of leading practices in this emerging field of enterprise social networking.

SAP Performance Benchmarking in Supply Chain Management

Consulting Services | By Steve Banker • 08/22/2011

SAP briefed ARC a while ago on its benchmarking services, the company’s version of the benchmarking metrics offered by the Supply Chain Council (SCC) and the Warehouse Education Resource Council. In fact, SAP tells us that it is “compliant” with the SCC’s Supply Chain Operations Reference (SCOR) model. This basically means that many, but not all, of SAP’s metrics come from the Supply Chain Council, the gold standard for supply chain management metrics.

As with SCOR, SAP uses predefined metrics, and users enter their data into the survey tool and then they can see how they compare on a given metric to others who have used the tool, including others from their industry.

SAP’s benchmarking tool is user friendly. For example, if you put your cursor over a metric, its definition appears. SAP also claims that every survey is validated to ensure accuracy.

SAP offers benchmarking in many functional areas, not just in supply chain management. In the supply chain arena, it offers benchmarking around transportation and warehouse management, supply chain planning, lean, manufacturing, and procurement.

SAP told us that it has three hundred “value engineers” and that it has helped to develop about 1,500 business cases since the end of 2004 when this program started. A value engineer is someone who gets existing or potential customers to use the benchmarking tool and then uses the results to help the customer develop a business case and roadmap for their business transformation. The benchmarking is free, but SAP hopes that in cases where companies are performing below average — are “laggards” in benchmarking jargon — the prospect will understand that investing in supply chain software can be part of the solution to achieve better performance.

For example, let’s say you are a prospective customer and “Inventory Days of Supply” is an important metric for you, a metric where you are a laggard and if you can improve your performance on it you could save a lot of money. SAP’s value engineers have templates that contain best practices or strategies to improve on that metric. In this case, one of the four high-level strategies to improve Inventory Days of Supply is to implement a collaborative demand planning process. There are four things SAP associates with collaborative demand planning, including gaining visibility into customers’ demand and actual sales. And a best practice around understanding a big customer’s demand is forecasting at the SKU/location level.

While there are many KPI’s where a company might be a laggard, the value mapping exercise helps a company understand where improvement will have the highest value in terms of ROI or in fitting with its core strategies. That in turn can help companies engage in more intelligent implementations. If the timeline starts to slip, the company understands the functionality that is most important in driving strategic alignment and ROI and so it doesn’t skimp in those areas.

Much of the value of benchmarking depends on the number of participants. The more companies that have entered data, particularly in your industry, the better the benchmarking data is. SAP told us that there have been 10,000 submissions of benchmarking data. This sounds like a lot, but when you divide that number by the 31 operational areas that SAP benchmarks, and then by 8 main industry groupings, the sample size is actually not that large. Indeed, SAP showed us the KPIs for transportation in the CPG industry. Certain metrics, like “transportation spend as a percentage of company revenues,” varied substantially from what I believe is the true average for that industry. The SCOR metrics, based on sheer numbers of supply chain participants, are probably still more accurate for many industries. However, because of SAP’s massive installed base, and because this service is free, these numbers will continue to scale.

What I like most about the SAP benchmarking/value management service is that it provides a good tool for measuring the success of an IT project. In my role as an industry analyst, I’ve had many conversations with logisticians about what kind of payback period they have experienced implementing a WMS, TMS, or other supply chain application. Almost always the logistician I’m talking to says they didn’t measure the ROI after the fact but that they think, based on how smoothly the implementation went and other factors, it was “probably about X”.

SAP says that 37 percent of the companies that go through its value management program are now measuring the business value from their IT-enabled projects after the fact. That is fabulous! It is what everyone should do.

(Note: SAP is an ARC client)

A complete analysis of logistics trends, technologies, and services

The Big Picture is the Big Picture

Archives

Login