Keeping Pace with Logistics IT

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Supply chain management practices are tough to integrate with ERP. Executive Editor Robert Malone assembled a panel of four logistics IT experts to benchmark the state of the supply chain ERP integration challenge.

Information technology change and developments have not let up over the past year, despite economic conditions. The reasons vary, but clearly the supply chain is one engine driving global efficiency; and logistics IT is the fuel feeding that engine. There's universal realization that companies can get more mileage out of corporate resources by tightly integrating supply chain management and ERP systems.

Realizing the value is one thing but actually achieving SCM/ERP integration is quite another. How do you do it?

To answer that question, Inbound Logistics Executive Editor Robert Malone assembled four industry spark plugs to get their insight and perspective.

Here's the firing order:

  • Thomas W. Petersen, president, ThreeCore
  • Steve Banker, director of supply chain research, ARC Advisory Group
  • Edward Feitzinger, vice president of technology and engineering, Menlo Worldwide
  • Jon Fieldman, vice president of enterprise integration, DSC Logistics.

Robert Malone: Connecting Enterprise Resource Planning (ERP) to Supply Chain Management (SCM) has been a major concern over the last few years. What's your take on this integration?

Thomas Petersen (ThreeCore): One fundamental issue related to ERP is that it has evolved as an internally focused tool to address efficiencies and data management. Supply chain management, appropriately designated, is a customer-centric process. This should not eliminate the need for ERP to support internal operations requirements.

But ERP should be relegated to a position of strategic monitor, rather than the primary driver of daily activities. An agile operation that supports changing customer needs is the key to an effective supply chain strategy.

World-class SCM implementations react to customer needs and pull demand through the entire supply chain efficiently and effectively. Traditional ERP tactics push materials and services up the supply route. These two methods do not interact effectively when an organization gives them equal value.

A robust customer-centric SCM strategy, which uses ERP as a support tool, is an optimized solution to this challenging business dilemma.

Steve Banker (ARC): When SCM implementations run long, the culprit is almost always an integration issue. Integration has gotten easier, however, because integration tools are now being included in SCM and ERP packages. This OEMing of integration tools is improving the integration process.

A recent trend among major SCM suppliers, such as i2, SAP and Manugistics, is to use an equivalent of a smart private exchange to drive supply chain collaboration. It's clear these companies now consider the private exchange approach as a basic integration platform for much of their functionality. In essence, they use private transportation exchanges with high-level business processes as a multi-enterprise operating system or ERP system.

Edward Feitzinger (Menlo): In the short term, integration is getting worse rather than better. In some cases, ERP players have relatively weak SCM modules. In other cases, a manufacturer has outsourced many of its production and distribution operations to contract manufacturers and 3PLs. The best of these outsourced providers bring part of their value through systems tuned for contract manufacturing or logistics.

Improvements in Enterprise Application Integration (EAI) and rationalizing that space have helped, but integration challenges still abound. The emergence of next generation ERP systems and 4PL systems will help address these challenges. In the 3PL space, we've built our transportation management system into Baan's ERP. We can then take advantage of standard ERP-to-ERP connectors when working with customers. We can also easily expand our services upstream in the supply chain as our customers ask us to take on more services for them.

Jon Fieldman (DSC): The starting place for DSC's—or any 3PL's—systems strategy has been and should be to provide SCM solutions including warehousing, transportation, and increased supply chain visibility.

A good third-party logistics provider should extend its SCM solution to integrate with select, but critical, ERP modules such as financials and human resources IS. Recently, DSC purchased an EAI tool to facilitate the integration effort between these applications.

Robert Malone: Collaboration and supply chain can take many forms—procurement, distribution, manufacturing. In your view, where is the greatest yield for collaborative activity?

Petersen (ThreeCore): The power of collaboration is revealed when we have the ability to efficiently relay the customer's desires back through the supply chain to enable us to design products that are manufactured at a value point exceeding the customer's expectations.

Collaboration tools enable seamless communication between customers and suppliers, and between suppliers and suppliers. This communication lets suppliers clearly understand their customers' needs. Once they define these needs, suppliers can work together to deliver cost-effective solutions.

The ability to share data up and down the supply chain reduces product development cycle time, and allows for rapid design changes to support customer dynamics.

Banker (ARC): Collaboration has the greatest yield when it ceases to be a planning exercise and becomes an execution tool, whether it's in the area of procurement, distribution, or manufacturing.

For example, if a manufacturer and a retailer do some collaborative forecasting around an upcoming sales promotions, they achieve a certain amount of value. But, if if this high-level collaboration includes specific plans about what will be delivered where, and if these detailed plans are monitored and changed on an ongoing basis according to pre-set business rules, the manufacturer and retailer achieve far more value

Feitzinger (Menlo): An information technology solution should follow the design of the supply chain to support the value chain. Research shows that far more savings are available through physical collaboration—distribution and manufacturing—than through applying technology to cover a flaw in the supply chain.

For example, by creating collaborative operations, Menlo found opportunities to save three or four members of a value chain more than 25 percent in aggregate supply chain costs. This is the next logical step in supply chain design.

In the 1980s, companies were concerned about productivity and quality in their factories. In the 1990s, companies discovered their total supply chains. In this decade, leading companies will extend the boundaries of supply chain design to include competitors, suppliers, and downstream partners. Very few supply chains have been designed with overall value chain efficiency in mind.

Fieldman (DSC): Recent new Supply Chain Visibility (SCV) tools are probably the greatest enabler of systems-based collaboration between customers and their 3PLs. We work very closely with our customers on integration, including EDI.

SCV affords an even greater opportunity for 3PLs and customers to work together, based on sharing crucial business information near real-time.

Robert Malone: Logistics information technology barriers have fallen dramatically. Yet there is still, according to some industry observers, an "adoption gap." Do you believe the rate of adoption could be faster? If so, what accounts for the delay and how can companies adopting logistics IT solutions move more rapidly?

Petersen (ThreeCore): The logistics function in most companies has changed significantly since the mid 1990s. The accessibility to data that supports the logistics function is a driver in this evolution.

Paradoxically, the availability of additional data has created a shift in practice. This shift has manifested itself in the third-party logistics industry. Conformance issues, harmonized codes, and automated routing guides have changed the logistics marketplace, creating an expert network of 3PLs. These providers use scale to their advantage in both product and data management.

This trend will continue, as the 3PL industry matures and uses IT as its strength in meeting supply chain challenges.

Banker (ARC): We don't see an adoption gap for logistics IT solutions. We do see the normal adoption curves surrounding new IT solutions.

Here's a typical adoption curve. Large Tier 1 companies and North American companies are early adopters. Then, over time, an increasing number of Tier 2 and European companies will adopt those solutions. Finally, the solutions will be adopted among Tier 3 companies and in Asia.

For example, Warehouse Management Systems are mature, so currently Tier 2 and 3 companies are buying more of them. Tier 2 companies, Europe, and increasingly Asia represent growth areas for all mature logistics IT solutions. For new initiatives, such as Supply Chain Process Management and Collaborative Transportation, we expect early adopters to be Tier 1 and North American companies.

Feitzinger (Menlo): Technology—logistics or not—is often ahead of an organization's ability to absorb it. Logistics is often the backwater of IT within larger companies. As such, companies display a lack of interest in logistics IT projects, despite the promised return.

The market is also confusing to many prospective buyers—what visibility solution to buy? How does a company choose among the 10-plus WMS contenders? What about buying a TMS, which can come in many shapes—Internet-based, a package linked to a manufacturing planning provider, a stand-alone system, or an ERP-based package. Which one should the logistics team choose?

Most organizations don't have the bandwidth to stay abreast of this dynamic market. Those that choose packages also discover they need to customize it to conform the process to the package, or the package to the process. The rate of adoption could improve if some changes took place.

First, IT vendors need to better understand the operational complexity. Many TMS vendors, for example, sell solutions based on savings numbers that are difficult—if not impossible—to achieve in actual distribution environments.

Second, CIOs need to recognize logistics IT as an opportunity for tangible savings.

Third, integration needs to improve. Some logistics solutions on the market today tack on horrendous integration and maintenance costs. A TMS, WMS, and supply chain event management toolset can easily result in three applications, multiple interfaces, and different databases.

Companies that try to do this on their own often find that integration and maintenance costs are prohibitive. 3PLs are in a good position to help accelerate the change. For example, Menlo has co-developed much of its own software with commercial vendors. As a result, it can modify code to deliver custom solutions. At the same time,we can apply the same instance, in the case of our logistics management system, across our entire customer base.

This combination of leverage and customization allows us to squeeze the most out of our IT dollar and provide systems solutions more cost-effectively than our customers could do on their own.

We'll continue to scan the horizon for the next best technology. And when it's mature enough to save real money for users, we'll implement it across our customer base.

Fieldman (DSC): There are at least three main reasons companies can be slow to adopt technology solutions.

First, IT solutions are expensive, no matter what the company size. Defining the return on the investment often involves assumptions that are hard to quantify. The risk of failure also is high, and the kind of employees necessary to help big IT projects succeed are often in high demand elsewhere in the business.

Second, executives feel helpless when it comes to IT, given the dynamic nature of the industry. The need for costly hardware and software upgrades appears to be endless. A better mousetrap is always just around the corner. You can double your speed or bandwidth if you just wait a short while. In this environment, waiting often seems prudent.

Finally, major IT projects almost necessarily lead to substantial change in the business. A new application means changes to organizations, jobs, and processes.

In the face of these challenges, DSC has nevertheless moved forward with installing its new supply chain visibility application. Based on experience, the company decided it could determine and manage the SCV project's cost, risk, and return. We also researched the industry and waited until the selected vendor had a proven, installed solution.

As for change, DSC has built a culture prepared to respond to changing needs of customers and the marketplace.

Robert Malone: Integration of the Internet and the supply chain has been heralded as the wave of the future. If this is true, what stage are we in—first, middle, or end?

Petersen (ThreeCore): We are at a very early stage in integrating the Internet and the supply chain. Conducting online searches seems to be the most common use of the Internet in manufacturing organizations.

It takes companies a while to figure out how to use new tools and integrate them into their business practices. One area that we expect to mature over the next few years is the use of the Internet to gather real-time demand information through the entire supply chain. Companies could use this data to develop dynamic lot-sizing production methods that will enable them to flex with demand more rapidly than today, saving billions of dollars through lower inventories.

Banker (ARC): We are somewhere between the first and the middle stages. The Internet has become a ubiquitous tool in business.

However, many applications are still web-enabled rather than web-based, a common set of agreed-upon XML standards has not emerged, and it is still not clear whether a private trading marketplace infrastructure is the way to go.

In short, the key technology is in place but we do not yet have the tools and processes in place to fully utilize this technology.

Feitzinger (Menlo): We are in the confusing muddle of the middle. When defined as batch EDI, electronic commerce has been prevalent in the industry for years. The move to XML and other real-time capabilities catalyzed by the Internet is going slowly.

Carriers, for one, appear to be waiting for an XML standard to emerge before unplugging their billions in EDI investments. The manufacturing community has fragmented along industry verticals, leaving a confusing morass of nascent standards bodies for the logistics service providers to work through.

Menlo is participating in XML standards bodies such as RosettaNet for the technology sector. Unfortunately, we tend to be the lone voice of the logistics industry in many of these bodies. RosettaNet is widely acknowledged as a leader in the definition of XML process standards, yet only two of the 20 logistics transactions sets—or PIPs as they are known in RosettaNet—have been defined.

On the other hand, Menlo's customers and transportation suppliers have enthusiastically received the Internet as a means to augment or replace traditional information sharing. We're moving to the web for all our tendering processes, replacing phone and fax. We're also giving carriers the opportunity to access freight payment information on our web site or to provide manual status updates for the few small carriers that aren't EDI compliant.

Finally, we're using the web to share more performance and event management information with customers. We provide customers with their own "portals" into Menlo, where they can see everything from the status of an order to how well we did filling orders in the warehouse yesterday.

Fieldman (DSC): For any 3PL, the Internet is increasingly becoming a tool for integration. For instance, we are currently rolling out our supply chain visibility tool. SCV enables our customers to get onto any browser anywhere, log onto our SCV site with a secure password, and see the status of all their orders and inventory quantities across the network. This is a simple but powerful way to leverage the Internet to create value for customers by giving near real-time visibility into their supply chain.

And, like most companies, we are leveraging the Internet internally to communicate more effectively and thereby serves customers better. For example, we have installed a virtual private network enabling selected employees to log onto our network over the Internet as if they were in the office.

We have also conducted extensive planning and investigation into the possibility of implementing an Advanced Order Management system that would enable order management to be conducted over the Internet.

Editor's Note: SCM/ERP or SCM/Internet integration will continue to be a long and difficult undertaking. Given the rewards, however, there is an unstoppable inertia driving these integration attempts forward.

Depending upon who you ask, there is either a troubling adoption gap or a normal adoption curve. One SCM/ERP and SCM/Internet integration problem could be that the processes face in different directions. SCM is focused outward toward the vendors, and ERP is focused inward toward company process.

Some say that is one reason for slow integration. Not if you consider that businesses deal with processes that face in both directions all the time.

SCM proponents say the fault lies with ERP, and ERP proponents point to the avalanche of variables that supply chain integration brings to the process. Whichever way the fingerpointing goes, there is certainly one place that it stops—the corner office.

The critical point made in this article is that most companies are not ready for new logistics IT solutions when introduced. In our discipline, many corporate executives have failed to energize their enterprises to make sure that SCM/ERP and/or SCM/Internet integration are top priorities.

Are these corner-office types detached? Preoccupied? Blaming the bad economy? Who can say? But one thing is clear. Without the cheerleading and butt-kicking that only a CEO can do, there's little hope of fast-tracking integration any time soon.

What's your take on this? I'd like your input and reaction. Email me at: letters@inboundlogistics.comRobert Malone

Our Panel of Experts

Thomas W. Petersen is CEO and president of ThreeCore, a supply chain execution services firm located in Danvers, Mass. Petersen has been responsible for bringing many new products to market in the medical, printing, laser machining, and semi-conductor industries.

Most recently he was the general manager of Instrument Industries, a leading supplier of precision motion control tables serving the semiconductor capital equipment market. During his tenure at the company, sales grew 44 percent as a result of new projects with such companies as Applied Materials, KLA-Tencor, Kulicke & Soffa, SVG and Philips Electronics.

Prior to Instrument Industries, Petersen spent nine years at General Scanning and helped the company grow from $25 million in sales to $175 million.

Edward G. Feitzinger is vice president of technology and engineering for Menlo Worldwide, a logistics firm managing a full range of logistics activities worldwide. He joined the company in 2000 in his current capacity and is responsible for the strategy, development, and operations of Menlo's IT infrastructure.

Feitzinger also assists Menlo customers with logistics engineering and consulting services, and is responsible for Menlo's e-commerce strategy and execution.

He previously served as global supply chain manager for Hewlett-Packard, where he managed the strategic supply chain initiatives for HP's commercial server, laptop and personal computer organizations.

Feitzinger serves on the board of Vector SCM, a joint venture between CNF and General Motors that serves as GM's lead logistics service provider worldwide. He holds a bachelor's degree in industrial engineering from Lehigh University and a master's degree in industrial engineering from Stanford University.

Steve Banker is the director of supply chain research at the ARC Advisory Group, a well-known analyst and consulting firm. He is responsible for directing research at ARC into supply chain solutions on a worldwide basis.

Banker speaks frequently at logistics conferences and trade shows and has authored a substantial body of work in the area of logistics information technology solutions. He is a former professor at Pennsylvania State University and Stonehill College and has a Ph.D. from Indiana University and an M.B.A. from Babson College.

Jon Fieldman is the vice president of enterprise integration for DSC Logistics, a national supply chain company helping companies in a wide range of fields achieve their business goals by managing change and information in the supply chain.

Fieldman is a member of the DSC executive team and leads the IT department. He is responsible for the effective utilization and strategic deployment of DSC's IT resources, software, hardware, data, network capabilities, and people.

Fieldman was previously the CIO of the Resolution Group, a reinsurance company then owned by the Xerox Corp. Prior to this, he practiced law and is a graduate of the University of Chicago Law School.

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