Defining Technology Trends
A look at five emerging technologies powering today's supply chains.
Supply chains are morphing into global, complex, interdependent entities, forcing companies to extend planning beyond the four walls of the enterprise. Technology has become the essential tool for global supply chain planning—and nearly every other current logistics challenge.
North American companies will spend $23.8 billion in 2007 on business intelligence (BI) and performance management (PM) technology and services—nearly a 9-percent increase from 2006, according to Boston consulting firm AMR Research.
BI/PM technology consists of sets of tools, applications, and processes that help companies control and manage business and operational performance. These tools combine strategic goal setting and alignment with planning, forecasting, modeling capabilities, analytics, and tactical reporting.
In the supply chain technology arena specifically, AMR analysts predict a 5-percent spending increase for 2007. Factors such as globalization, lean supply networks, increased customer expectations, mass customization, and increased demand variability are driving this spending.
"New business focuses and pressures drive pockets of vendor innovation and renewed corporate spending on supply chain initiatives," says Mark Hillman, senior research analyst at AMR Research.
While common technologies such as enterprise resource planning systems and warehouse and transportation management software remain popular, leading companies are embracing new technology tools and systems to upgrade supply chain performance.
Inbound Logistics has identified five technologies that are gaining favor with logistics professionals and helping to reshape the modern supply chain: RFID applications; multi-enterprise visibility systems; people-enabling software; execution-driven planning solutions; and human supply chain management tools.
Here is a closer look at each of these five technology trends—what they are, what they do, and what they mean for logisticians.
1. RFID: Putting IT to Work
Defined: The use of RF identification technology such as tags and tag readers to identify and track objects including equipment, pallets of stock, or individual units.
With a product line as valuable and perishable as semiconductors, global manufacturer Intel Corp. is highly motivated to know where its product is at all times. The company needs this knowledge to keep product moving throughout its global supply chain.
The semiconductor giant is testing a number of leading-edge technologies, including RFID, to help it accomplish these goals. Deb Merizon, RFID program office manager, and Craig Dighero, supply chain lead, head up these activities for Intel.
One program, a joint effort with DHL, utilizes sensors to monitor the condition of containers as they move around the world. "We wanted to see if DHL could provide a signal telling us where our material is in transit at any given time," reports Merizon.
"If we are able to track our goods in transit, we can leave containers on a ship from China for 20 or 30 days, and use the boat as a warehouse. Then, when containers arrive at the port, we can immediately route them to their final destinations, bypassing the warehouse," Merizon explains.
Intel has deployed another project, in Costa Rica, using RFID technology to minimize handheld scanning of inbound and outbound shipments. "We use RFID to optimize the data collection that occurs during picking, processing, and shipping," Dighero says.
"We achieved labor savings of between 18 percent and 22 percent thanks to faster processing. We have also eliminated steps in these processes."
Merizon and Dighero are also responsible for measuring the business value of RFID and the data it generates.
"Making sure we derive value from the data we collect from our RFID initiatives is crucial," Merizon explains. "We know we can collect data using RFID, but we need to modify our existing enterprise systems and processes to take advantage of the data. That is the bigger challenge."
"Today," Dighero explains, "our distributors provide us weekly inventory level and consumption signals. Using RFID, we receive information about inventory movement at our distributors in near real time. With this immediate information, we can better plan our build and inventory replenishment."
Merizon and Dighero are pleased with the outcome of Intel's RFID pilots so far.
"When Intel first began these programs, we estimated RFID could benefit 20 different business processes—everything from audits and replenishment to warehouse processing," Dighero notes. "Because our business processes are so complex, we focus on using RFID to get our inventory consumption signals right. That is critically important."
"Our product has a long lead time—about eight weeks," Merizon adds. "We use forecasts to make operating decisions about our plant and business units. But we're working to become demand-driven—to utilize demand consumption and replenishment information to drive our tactical, near-term planning. RFID may help us get there."
"We are just starting to realize the value RFID can provide," says Dighero. "RFID is like the Internet—it will balloon in value the more we develop it."
(See sidebar below to learn how one technology vendor is helping companies harness the power of RFID.)
2. Multi-Enterprise Visibility Systems: Learning to Share
Defined: Systems that provide a comprehensive and timely view of processes, solutions, and metrics across the entire value chain.
Business today is all about visibility and shared risk, says Richard Becks, senior vice president, product management at E2open, a Redwood City, Calif.-based supply chain technology provider.
These two issues are at the heart of vendor-managed inventory (VMI) networks, and related supply chain efficiency initiatives such as lean and outsourcing. These multi-enterprise supply chain strategies have been broadly adopted in industries such as high-tech and automotive.
"There are limits to how much inventory liability you can force onto your partners," Becks says. "At some point, they become unprofitable and fail. When companies adopt an inefficient VMI strategy, all they do is push liability and risk down the supply chain to suppliers."
Many companies view multi-enterprise strategies such as VMI as a way to move to a demand-driven supply chain, but they do not always implement the infrastructure or processes necessary to manage inventory in a multi-tiered, multi-company system, Becks explains.
"Instead, they continue to use an old inventory management system that only provides visibility to internal inventory levels," he says.
What is the result of these one-sided VMI efforts? "Companies get a one-time inventory write-off, but after that, inventory savings and efficiencies plateau," Becks explains. "Suppliers, if they are smart, begin to rewire their business not around their customers' forecasts, but around their actual demand. Forecasts continue to be wrong."
Enter multi-enterprise global supply chain execution systems—solutions that take sharing to a new level, providing a 360-degree view of supply chain events.
"These systems provide data not about promises and forecasts, but about what is actually occurring in the supply chain," says Becks.
Becks is quick to separate supply chain execution systems from planning systems such as ERP, which he says are not well-suited to managing global, multi-enterprise supply chain execution because their algorithms are planning-based.
"In the world of execution, every event happens with zero lead time. When a shopper walks into a store, for example, and the item she wants is not there, she goes elsewhere to buy it," Becks explains. "In this world of instant commerce, we have to get past the notion of lead time—it is an outdated metric. People are no longer willing to wait for what they want."
The message for retailers is that they need to have product in the store when shoppers want to buy it, Becks stresses. "Companies must become skilled at compressing lead times. They have to learn to stage material in anticipation of actual demand," he says. "Once a product is in demand—customers are actually buying it—companies do not need to forecast any more.
"Businesses can't plan their way out of a problem, they have to execute out of it," Becks concludes. "And to execute, they need technology tools that deliver real-time, many-to-many visibility and control, and are easy to configure."
3. People-Enabling Software: Tapping into People Power
Defined: Technology that empowers people to analyze, find, use, collaborate, and share data to maximize efficiency and workflow.
"Twenty-first century supply chain management is all about people-enabling technology," says Richard Sherman, director global supply chain strategy, Microsoft. "Empowering people with the right solutions and tools—based on the ERP-ready process software that many companies implemented at the end of the 20th century—is key."
Though ERP and other enterprise software solutions help enable and automate business processes, these systems only alert users when problems occur—they don't help solve problems, Sherman says.
"Companies need technology that helps individuals quickly put out fires," he explains. "They must be able to locate information about problems outside the corporate enterprise system and outside of internal business processes."
In addition, companies must be able to use and analyze that information to bring the business system back in line. "That means accessing technologies such as shared portals, enterprise search capabilities, and live communication," Sherman notes.
These technologies help companies identify—in real time—the people who need to collaborate to resolve business issues. This is a key ingredient in today's global economy, where collaboration occurs among people who are not in the same room, building, or even the same country.
Given these trends and demands, technology companies are developing productivity tools that enable people by merging unstructured information and business processes with the structured business processes that ERP applications provide, Sherman says.
He offers the following scenario as proof of the productivity advantages people-enabling technology can provide: Sherman was having lunch with "Bill," a supply chain vice president, a few years back. The Bill's cell phone starts vibrating, and as his face pales, he tells Sherman he has just received 10 alerts. Sherman asks what that means, and the vice president replies, "It means it is going to be a bad day."
Bill left their lunch early to handle the 10 issues he was alerted to. In today's world, however, if Bill receives those 10 alerts during lunch, he would be empowered to put the fires out then and there, says Sherman.
"Say that one alert indicates an unusual spike in demand, meaning Bill needs to drop-ship an order for 100 truckloads of product," says Sherman. "Using his mobile PDA, Bill connects to his e-mail, looks at the alert, and sees the demand spike. He can then call up his dashboard and see a red light indicating low inventory. Drilling down on the red light, to the warehouse level, he sees the order for 100 truckloads.
"Next, he logs on to his contract manufacturer's Internet portal and sees that the supplier is planning to restock that product in two weeks," Sherman continues. "Bill also notices the supplier's customer service rep (CSR) is currently online. So he sends an instant message to the CSR asking the supplier to ship product tomorrow instead of in two weeks.
"Next, Bill asks the supplier to send him an updated purchase order, which the supplier does by signing on to the Purchase Order portal and filling in the necessary information," adds Sherman. "Bill then enters a quick live meeting with his buyer and warehouse manager to alert them to the 100-truckload shipment."
With these capabilities, Bill is conceivably able to deal with this supply chain disruption and restore workflow, all in time for dessert.
"This scenario illustrates the fact that we are entering a world where global, real-time collaboration is part of a normal day's work," says Sherman. "We no longer work in the days of collaborative planning, forecasting, and replenishment, where we have to ask how to collaborate. Collaboration is the norm for doing business in the 21st century."
This focus on people-enabling technology means that infrastructure software will be more important than ever before, Sherman says.
"Ten years ago, infrastructure software such as databases, analytics, reporting services, search engines, and portals all operated in the background," he explains. "Now, they are the foreground.
"Platform software today is no longer the background platform software of old—it is people-enabling software," he notes. Real-time information and real-time analytics, combined with people-ready systems, are changing the game, Sherman concludes.
4. Execution-Driven Planning Solutions: Where Planning and Execution Meet
Defined: Tools that utilize data from current executed processes to drive future planning and forecasting.
Somewhere between making a plan and executing that plan is usually where supply chains go awry.
"An historic disconnect exists between planning and execution. The dynamics of an actual business environment are often not well-matched to plans or forecasts," says Stephen Smith, research professor in robotics, and director of the Intelligent Coordination and Logistics Lab at Carnegie Mellon University.
Smith and his colleagues hope to impact this disparity. "We are working on technologies for execution-driven planning and scheduling," he explains.
Starting with an accurate picture of the current state of a business—provided by various sensing technologies—execution-driven planning methodologies and technologies help drive planning decisions for the next horizon, says Smith.
They do this by using information about certain aspects of a company's operations—what kind of material is on the shop floor, for example, or current and short-term projected inventories.
"Thanks to the maturing of various sensing technologies and the explosion of the Internet, we now have an unprecedented ability to determine, in real time, where goods are located throughout the supply chain," Smith notes. "This data presents a great opportunity. But without the ability to consolidate and aggregate data in meaningful ways, we end up with information overload."
Smith's lab is researching ways to mine this mass of data to identify network behaviors over time. "We're applying machine learning techniques to data-mining algorithms to detect data trends and provide the raw materials for turning data into action," he explains.
The ability to find circumstances where a particular supplier is having difficulty keeping pace with the rest of the network is one area Smith is researching.
"The sooner companies detect this trend, the sooner they can take action to determine issues and make adjustments," he notes.
What does this mean for supply chain operations? "More opportunity to know the real-time status of the network," Smith explains. "Businesses have the potential to respond to problems and take advantage of opportunities faster. Ultimately, they will have tighter control over material flow."
5. Human Supply Chain Technology: The Human Touch
Defined: Solutions that apply supply chain technology to the process of managing human resources.
Managing and maximizing the value of assets in the supply chain is the primary focus of most logistics technology discussions. But another supply chain—the labor supply chain—deserves equal attention, says Tony Pittman, global category manager, labor, for Plano, Texas-based EDS, a technology and business solutions provider.
"Labor, or professional services, is a huge component of EDS' business. Managing the EDS human supply chain is my biggest challenge," says Pittman. "There have been many technology improvements for managing the materials side of the supply chain, but the marketplace has largely ignored the people supply chain.
"It is surprising to me that the supply chain marketplace has not already jumped on this issue and applied the same principles to managing people that they apply to managing supply chains."
Today, EDS is pursuing technology solutions to help manage its people supply chain.
"In the past, we used a lot of green-screen technology for requesting labor," Pittman says. "It was difficult to standardize the way we described employee skills and assets. If we wanted to request a database administrator or systems analyst, for instance, we had to read nearly 50 different position descriptions to find what we wanted."
Now, new technology platforms allow EDS to standardize job descriptions, capture spend and labor rates, and improve the way it manages buying practices.
"New solutions will enable EDS to integrate 'people capacity planning' into its services supply chain, much as we do for inventory and plant capacity planning," Pittman reports.
"We are working on a process that will provide full visibility to our people needs, and also allow us to forecast demand and apply fundamental supply chain principles to managing human resources," he adds.
"For businesses such as EDS, managing people in the same manner that we manage inventory is a major supply chain imperative," Pittman concludes.
As supply chain technology matures and offers greater visibility into and control of global supply chains, companies stand to reap significant benefits. A wide variety of gains—including millions of dollars in inventory reduction; enhanced employee productivity; compressed supply chain cycle time; and more accurate response to market demand signals—are available for companies that stay abreast of emerging supply chain technologies.
Tracking Assets Worldwide
Asset-tracking technology has become a valuable tool for supply chain efficiency, and a variety of technology vendors—including Mountain View, Calif.-based Savi Technology—have entered the RFID marketplace.
"Technology exists today that can track, locate, and monitor the condition and/or security of supply chain assets—primarily cargo containers, but also any conveyance that moves goods from a case, a tote, or a container to a vehicle," explains Mark Nelson, Savi's director of corporate communications. "We can track the full lifecycle of an asset from the time it is procured until the time it is discarded."
RFID vendors are making great advances at the device level. Savi, for instance, is building additional sensors into its active RFID tags and e-seals, including an RFID device that clamps onto the left door of a cargo container. I
In addition to possessing memory, processing capability, and two-way communication, the RFID device contains sensors that can record door intrusion, tampering, light, shock, humidity, sound, and movement.
"These sensors enable users to monitor conditions inside the container," Nelson explains. "Say a container is carrying appliances that are vulnerable to shock. If the container is dropped, the sensors record that event with a time, date, and location stamp. This means shippers can assign liability for damage."
If the sensor records a temperature out of the tolerance range for temperature-sensitive goods, for example, the device sends an automated alert to any specified e-mail address, PDA, or cell phone. "With this information, companies can take immediate action to correct the situation," notes Nelson.
Savi is also working on a joint venture with port operator Hutchison Port Holdings to build a global RFID-based network to track cargo containers around the world.
One part of this is SaviTrak, a managed, web-based information service that provides cargo container tracking on a pay-as-you-go basis. The service is targeted to international shippers of valuable, sensitive products such as hazardous materials.
Companies using SaviTrak do not pay for infrastructure or installation, but rather based on the level of detail they want—whether they only want to receive automated alerts, or obtain detailed information on cargo security or condition issues, for instance.
"Instead of paying for a solution, users pay only for information," Nelson says. "Users can tap sophisticated analytical and reporting information, which can tell them when exceptions occur, and identify patterns of problems to help them better manage and optimize assets and inventory."
In addition to new devices and solutions, RFID technology vendors are focused on advancing global RFID standards to help enable network interoperability.
"The North Atlantic Treaty Organization (NATO), for example, has its own RFID-based network backbone that covers several countries in Europe," says Nelson.
"In addition, several NATO members including Spain, Sweden, Denmark, and the UK have built their own national RFID networks. When these countries undertake multinational operations—shipping goods into Afghanistan or Iraq, for instance—they can leverage each other's networks so that supplies originating in Denmark, for example, can move through Spain and be tracked continuously.
"Eventually," Nelson continues, "we will see a convergence of these networks worldwide, not only among defense forces but also among commercial entities."