IT Perspectives 2008
Global supply chains are only as flexible as the technology that exists to support them—and thanks to an emerging class of logistics IT providers, and a new breed of sophisticated solutions, there are plenty of options to help enterprises respond more quickly and efficiently to shifting market dynamics.
The vagaries of global trade are no less apparent in the trends shaping the logistics technology sector. These dynamics prompt businesses to explore applications that breathe potential into strategic supply chain designs, while giving them greater pause in discriminating solutions that best meet current and future interests.
While strategy and process deliver product to market, businesses increasingly rely on information technology to link demand with supply.
As an information resource, Inbound Logistics' annual Logistics IT issue serves a similar purpose. Responding to reader demand, this IT Perspectives section provides a comprehensive summary of how technology suppliers perceive end-user challenges, and what they are doing to adapt and expand their offerings to meet these needs.
We approach this objective in two ways.
First, the Logistics IT Market Insight Survey paints a broad picture of the technology sector, illustrating trends and developments that are pressing businesses to consider technology investments and implementations in a new light.
Soliciting input from a diverse pool of more than 300 technology providers, we present an inclusive overview of the IT market that juxtaposes emerging trends, statistical data, and anecdotal evidence.
Second, IL's annual Top 100 Logistics IT Providers list presents an in-depth resource of best-in-class technology services providers—all in an effort to provide business logistics managers with a better road map for finding partners that meet their specific needs.
MACRO PERSPECTIVE: Logistics IT Trends
By any measure, logistics information technology has radically altered the supply chain landscape.
In the 1990s, the Internet and emerging communication tools empowered transportation and procurement managers to explore new offshore locations for sourcing product. Technology provided the operational bandwidth to engage supply chain partners across functional, cultural, and geographic divides.
Today, globalization is largely a given, and technology applications are evolving along a different track. Businesses continue to survey the globe for less expensive labor, contingency sourcing options, and consumer markets to sell into.
But as supply lines become stretched and lead times lengthen, supply chain managers are manipulating logistics and supply chain solutions to shrink gaps, not just increase global exposure.
"The issue of globalization is not going away," observes Gordon Benzie, director, public and analyst relations at Apriso, Long Beach, Calif. "Managing distributed operations across multiple time zones and functional areas continues to be a challenge."
There is growing recognition, he explains, that a patchwork of "silo" applications across multiple locations fundamentally impedes competitive differentiation.
Dennis Schoemehl, president and CEO of St. Louis-based Logistics Management Solutions, shares a similar opinion.
"Shippers do not operate in silos, so their technology needs to function accordingly. Integration is key and shippers want adaptable systems that enable data to flow through every link of their supply chain," he says.
Without properly tying together these functional silos, businesses have less leverage in driving visibility across the supply chain, and consequently less influence in optimizing transportation and logistics costs.
Accordingly, when asked what technology challenges are most critical to their customers, IT providers responding to IL's Logistics IT Market Insight Survey identify "cost" (51 percent) and "visibility" (49 percent) as most important, with "customer service" (23 percent), "transport optimization" (16 percent), and "scalability" (14 percent) rounding out the list.
As economic uncertainty compounds already high fuel prices, reducing cost remains a top priority. Importantly, visibility ranks nearly as high, suggesting shippers are aware that creating greater transparency among partners and processes can go a long way toward optimizing spend throughout the entire supply chain.
Better visibility at point-of-sale and point-of-origin affords logistics and supply chain managers greater flexibility and control in how they manage and scale product availability and control transportation and warehousing costs—whether this entails consolidating like shipments into TL moves closer to demand or staging more inventory farther back in the pipeline.
Businesses often have IT functionalities in place that work well in specific areas of the supply chain, but lose valuable information due to poor connectivity among these different operational spheres.
"Most companies have invested heavily in point solutions in the areas of transportation, warehousing, and order management. The problem is, these point solutions are not tightly integrated with one another," observes Steve Hensley, president, Blue Sky Logistics, Cedar Hill, Texas.
"This is where supply chain visibility solutions come in. More customers are asking us to tie these systems together and provide a comprehensive visibility solution that lets them manage their supply chain processes from end to end."
The Power of Data
From tactical approaches to streamlining transportation costs to more strategic supply chain optimization efforts, how businesses digest and disseminate information directly impacts their ability to flexibly and reliably react to consumer demand.
"Without good information, technology is useless. How often do you hear that inventory is moving faster than information?" asks Greg Kefer, director corporate marketing, GT Nexus, Alameda, Calif.
As businesses become more sensitive to cost containment, benchmarking and analyzing shipment information empowers them to evaluate performance, track shifting trends, and address problems before they swell beyond control.
"Companies want the ability to dig deep into their database of shipment history for better decision-making, analysis, and continuous improvement," observes David Abdo, CEO of Bitam, Roswell, Ga.
By example, historical data mining can reinforce real-time decision support. Richard Murphy, vice president of Indianapolis-based TCLogic, reports that customers are looking for solutions that provide better intelligence about inventory performance so they can make smarter decisions about where to invest capital.
"The growth in overseas sourcing is expanding the volume of inventory companies are holding due to lengthening lead times and increased variability. This adds to an already chaotic environment from which to plan inventory," he says.
This chaotic environment only appears to be growing in complexity as anticipated security requirements threaten to place "time constraints" on already tenuous lead times. Customs and Border Protection's (CBP) proposed Importer Security Filing (10+2) mandate will force U.S. shippers and consignees to rethink how they gather, then share sensitive shipment and supplier information with CBP.
Because many businesses do not currently have the capabilities to capture this information in compliance with CBP's 24-hour advance manifest requirements, they will be forced to either partner with third-party intermediaries or consider trade compliance solutions that assimilate these new stipulations.
As security regulations evolve and the sphere of accountability expands for importers of record, seamlessly collecting and communicating information among partners will become even more critical for businesses looking to synchronize security standards with their own supply chain requirements, suggests Lauren Meling, marketing coordinator, Management Dynamics, East Rutherford, N.J.
"Innovative organizations are now looking to integrate these processes and supporting technologies to more effectively exploit globalization," she says.
With transportation-related costs arguably beyond control, U.S. businesses otherwise want greater command of their supply chains.
Among respondents to the Logistics IT Market Insight Survey, 57 percent of IT providers indicate customers have expressed interest in inbound logistics solutions, with 45 percent and 30 percent citing vendor management and security/risk assessment technologies respectively, as other hot button needs.
"Demand variability and the need to adopt pull-based strategies are top of mind this year," indicates Jim LeTart, director of marketing for Waukesha, Wisc.-based RedPrairie.
"With SKU proliferation, higher raw material and fuel costs, greater competition from private label brands, and economic pressures, it is more critical than ever that inventory size, mix, and velocity are optimized throughout extended supply networks."
Taking control of inbound transportation and distribution processes enables stateside consignees to proactively monitor and evaluate demand signals; work with vendors, carriers, and service providers more collaboratively; benchmark their performances; and better manage exceptions, service, and costs.
Piggybacking on the need for more visibility into demand, Karin Bursa, vice president of marketing, Logility, Atlanta, Ga., notes that customers are looking to manage new product introductions more efficiently.
"This includes having the ability to manage consumer expectations for new products and sophisticated tools such as attribute-based forecasting technologies that create sell-in profiles and quickly sense demand changes at the consumer level," she says.
More accurate demand forecasts can have an osmotic impact throughout a company and its extended enterprise, particularly in sales and operations planning, Bursa adds.
Using this information to align strategic goals among sales, finance, and operations departments can help further integrate functional decision-making into a tightly woven, sense-and-respond supply chain.
With granular visibility at point of consumption and better demand projections, shippers can similarly work with supply chain partners to create better visibility upstream, push more product back to vendors, share risk, and reduce stock without jeopardizing availability.
For retailers especially, vendor management strategies enable them to scale inventory more easily and economically while keeping supply more closely aligned with consumer buying habits.
Another area of interest among customers courting new technologies is green compliance, with 27 percent of IT providers reporting interest in sustainability solutions.
"Companies are looking to improve manufacturing efficiency while also reducing carbon emissions, water usage, and waste," acknowledges Bursa.
"On the logistics side, they want to reduce their impact on the environment by optimizing transportation, maximizing load capacity, optimizing pooling and back hauls, and monitoring savings and adherence to corporate green initiatives."
MICRO PERSPECTIVE: Tracking Technology
From on-demand applications to end-to-end systems, vertical-specific WMS modules to standalone fleet telemetry tools, supply chain and logistics technologies run the gamut between tactical stopgaps and strategic sparkplugs.
Given the broad range of challenges that U.S. businesses encounter, logistics IT providers continue to diversify their solutions portfolios with these demands and interests in mind.
Reflecting this multiplicity, Logistics IT Market Insight Survey respondents were mixed in how they are growing their offerings and targeting new business.
Some are scaling solutions, application platforms, and pricing structures to attract small and mid-size businesses (SMBs); others are committed to serving the needs of larger customers; and an emerging class of IT providers is developing vertical-specific solutions.
"Increased local and global competition, product proliferation with more rapid obsolescence, and the resulting need for companies to be more agile and demand-driven has caused customers to be far less willing to adapt generalized systems to their needs," explains RedPrairie's LeTart.
"Instead, they are demanding solutions with strong functionality to support their industry and business model, as well as the flexibility to quickly and easily adapt to changing business and marketplace needs."
While solutions offerings and go-to-market strategies vary, global capabilities are overwhelmingly the expectation. Eighty-nine percent of IT providers responding to the Logistics IT Market Insight Survey have some global logistics capabilities, compared with 85 percent in 2007.
At the same time, IT companies are also expanding their resources to target a more diversified customer base.
Among respondents, 83 percent count manufacturing companies as target customers, compared with 77 percent in 2007; 73 percent are selling to retail/e-business, compared to 62 percent in 2007; and 85 percent of logistics IT companies provide solutions for the transportation industry, equal to 2007 data.
Manufacturers remain committed to global offshoring and outsourcing initiatives to further drive cost reductions. With institutional transportation costs a given, quality control concerns recurring, and new security and regulatory mandates emerging, there is strong interest in transportation, global trade management, inventory control, and supplier relationship management solutions.
The continued growth of global e-commerce is changing the way consumers shop, and thus the means through which retailers and e-tailers pull product to market.
Many now leverage demand management, e-fulfillment, inventory control, and warehouse management technologies to more accurately forecast demand, aggregate and integrate in-store and online distribution channels, and economically manage last-mile deliveries—either direct to store or direct to home.
IT companies also remain focused on the transportation and third-party logistics sectors—especially as intermediaries manipulate investments in technology to further expand their value-added offerings.
Aside from tapping a captive market, IT providers have the added incentive of branching out and delivering these solutions to shippers as well.
Sizing Up Technology Solutions
The growth of the logistics IT sector has created a plethora of options for businesses of all sizes and stripes. It's no longer a "one-size fits all" market paradigm.
Given the historically high cost of technology, lengthy implementations, and obsolescence concerns, businesses have been inclined to buy technology only as a means of addressing existing problems, rather than as a preemptive, strategic decision.
This need, amplified by the emerging competitiveness of SMBs, has compelled IT companies to adapt the way they sell and structure solutions.
The growing allure of Software-as-a-Service (SaaS) and on-demand solution applications, which allow users to pay for technology per usage instead of investing to own, remain a top priority for solution developers and a must-have for many shippers.
Among survey respondents, 80 percent offer some form of Web-hosted solution and 50 percent provide transaction-based pricing packages.
With a true "plug and play" approach to technology speculation, businesses can avoid the integration burden and capital risk of acquiring a complete system. Ongoing migration toward SaaS solutions will fundamentally change how businesses embrace technology, and how IT providers develop their services.
"As customers adopt SaaS solutions for advanced exception management, their way of managing shipments will change," says Joe O'Brien, director of business development, CargoSmart, San Jose, Calif.
"Customers will seek solutions providers that enable them to automate specific business processes, allow them to adopt new solutions incrementally, and provide customer support services to implement these applications."
As SaaS applications redefine expectations and requirements, the shift to Web-native logistics solutions similarly brings to bear the challenges businesses encounter when acquiring other enterprises, then integrating technology across the supply chain.
On-demand solutions allow for greater flexibility in exploring applications that best fit an enterprise's changing needs, while more effectively reconciling IT expenditures with actual use.
The growth of on-demand solutions, the market potential of SMBs, and continuing saturation in the logistics IT marketplace have created a more cost-competitive environment for businesses courting new technology.
The percentage of providers offering solutions priced between $50,000 and $250,000 and $250,000 to $500,000 dropped from 62 percent and 21 percent respectively in 2007 to 50 percent and 19 percent in 2008. In turn, the percentage of providers offering solutions less than $50,000 jumped from 31 percent to 36 percent.
Across the board, fewer providers are selling technology in higher-end price brackets, while more offer less-expensive options. This trend has opened up the market to newer entrants and given end users greater selectivity.
With an uncertain economy, and businesses already more judicious in calculating IT budgets and embracing on-demand solutions, this pricing dichotomy will likely become more visible in 2008 and beyond.
The idea that technology is morphing into a "service" means that as businesses look to build greater scalability in their supply chains, rationalize costs, and better match demand to supply, they can evaluate and benchmark IT solutions accordingly.
This shift in approach will place more responsibility on IT developers to offer customer support and consultation to meet end-user needs.