Managing Inside and Outside the Box
Increasingly, businesses rely on technology to improve efficiency, accelerate flows, reduce costs, and create more effective communication among all channel partners involved in distribution. From integrated WMS and TMS solutions to web-based systems, technology has helped turned the four walls inside-out.
For managers seeking to optimize activities within the four walls of an enterprise, warehouse and transportation management software today offers broader functionality and greater reach than ever before.
"It's an interesting time in the supply chain management (SCM) software business," says Dale Rogers, professor of supply chain management, University of Nevada-Reno. "The software base is consolidating, which means companies will have fewer vendor and application choices. The good news, though, is that the supply chain is likely to become somewhat standardized as a result of more companies using the same tools.
"As part of this consolidation, additional functions have been added to Enterprise Resource Planning (ERP) solutions," Rogers says. "SAP and Oracle now have supply chain management capabilities. Even Microsoft has gotten into the SCM market, with a software suite appealing to mid-range companies."
Rather than spending $100 million on an ERP system from one of the major ERP vendors, smaller companies can spend a lot less on smaller ERP solutions and get limited supply chain functionality, explains Rogers.
"SAP by itself spends $1 billion a year on software development," notes Kevin Bott, vice president, supply chain solutions/technology services at Ryder System Inc., a Miami-based third-party logistics provider. "That's more money than everyone else combined spends."
SAP's warehouse management system (WMS) came from its purchase of a small Israeli start-up that developed WMS technology. Today, SAP has above-average WMS capabilities. "Once it starts focusing part of that $1 billion on supply chain management, SAP will be able to clean up," Bott says.
But not everyone agrees. "SAP spent six years building a transportation management system (TMS) and it still hasn't come very far," says John Murphy, director, product marketing for TMS vendor G-Log Inc.
"How much attention is Oracle going to pay to transportation when its real revenue comes from its database product?" asks Murphy. "Oracle can sell a logistics solution for $2.8 million or an ERP system for $178 million. Which system do you think the company is likely to focus on?"
While consolidation continues and the argument over big versus small software vendor remains unresolved, one fact is certain: SCM software has come a long way. This is particularly true for programs that manage internal functional areas such as warehousing and transportation.
Traditionally, WMS and TMS solutions focused on optimizing their activities within the four walls of a location. Times have changed, however. Companies can no longer afford to think only of optimizing processes inside a single facility.
"Supply chain superiority means the ability to launch products faster, improve customer service, and simultaneously reduce inventory," says Chris Smith, CEO of RiverOne, a supply chain software and services company based in Irvine, Calif. "As the internal footprint of the enterprise shrinks, the importance of connection and coordination among supply chain partners—the 'inter-enterprise'—grows.
"The corporate software industry was developed to serve traditional business models," Smith continues. "Now it must respond to the specific and quite different challenges of the inter-enterprise. While previously the focus was to create a centrally controlled and homogeneous environment, the inter-enterprise is a world of inherent diversity, in which flexibility and adaptability are paramount."
"The overwhelming majority of tier 1 and tier 2 companies use a WMS to manage distribution functions within their supply chain networks," says Ben Fuqua, vice president, Automation Associates Inc., headquartered in San Diego.
The idea of tier 1 and 2 distribution organizations running a distribution system without a WMS is similar to "driving a car at night without headlights," Fuqua says. Because of cost reductions in the WMS software market, the same functionality is extending down to the tier 3 and 4 markets as well.
WMS solutions manage all aspects of warehouse operations—labor, picking and putaway, inventory, crossdocking, and yard management, among others. RedPrairie's WMS solution, for example, handles the following:
- Distributed order management with intelligent order release and control.
- Work order management and postponement processing.
- RFID and customer compliance.
- Configurable value-added services, including kitting and de-kitting.
- Inventory control, including lot control, multi-level holds, catch weights, aging, and expiration dates.
- Integrated yard management with appointment scheduling.
- Parcel manifesting.
- Event management and intelligent response.
- Real-time traceability and support for quality assurance testing.
- Automated product recall.
- Labor productivity management.
- Dynamic, integrated slotting.
- Merge-in-transit and crossdocking.
- Output management: personalization of documents and labels.
- Third-party logistics: multi-site, multi-owner, multi-client.
- Voice operations.
- Billing and costing of logistics operations.
As another example, Oracle's WMS solution determines the inventory to allocate to a specific pick task automatically based upon user-defined business rules. It sequences associated pick tasks and groups them according to factors including pick methodology, work load, pick routing, and warehouse topology.
Tasks are then dispatched to the optimal user's mobile device based upon user-defined rules matching the skills, equipment, and proximity of the user to the tasks. This process optimizes inventory utilization as well as warehouse labor productivity, according to Oracle.
Labor is Hot
Labor productivity in the warehouse is a particularly hot issue. "As supply chains grow more complex, distribution and logistics bear the brunt of work that typically happened upstream in production operations," says Greg Aimi of AMR Research, Boston.
"Improvements in distribution labor productivity yield a more efficient, flexible, and cost-effective supply chain," he says.
Increasingly, companies are expecting supply chain departments to perform late-stage production operations, provide more and faster inventory turns, and do it all without sacrificing the ability to deliver the perfect order. Labor productivity technologies help companies accomplish these postponed tasks cost- effectively.
"Labor productivity technology allows distribution management to evaluate work performed by the distribution staff against engineered labor standards or generally configured metrics," explains Aimi.
These solutions capture detailed audit trail information about employees, machines, work zones, and processes. Through simulation, the systems help distribution managers plan variable workforces that accommodate surges in order volume.
Typical gains from these systems can include a 15-percent to 20-percent rise in productivity for distribution operations, Aimi reports. One consumer goods company with seven warehouses and a $20 million to $25 million distribution payroll, for example, achieved increased productivity benefits totalling $13 million over three years.
Like their warehousing counterparts, TMS solutions have come a long way since their early days in the 1980s. The first optimization tools generally focused on outbound distribution problems, such as constructing the best set of multi-stop truckloads for delivering less-than-truckload (LTL) orders.
Once generated, these optimized transportation plans were usually distributed manually for execution. Plans were fixed and not easily changed—the planning system could not track or account for any exceptions or changes that occurred during plan execution.
Recognizing this limitation, companies turned their attention to integrating planning with other internal systems to support execution processes. They expanded the focus from transportation planning as a stand-alone function to one of integration between internal transportation processes and systems.
True transportation management systems were developed and integrated with ERP and financial systems. Through this integration, transportation planning data was also passed to the execution or warehouse management systems.
The next challenge was determining how to share this transportation information across the enterprise. The concept of the load control center emerged; managing transportation for all facilities centrally became the new strategy.
"At this point, transportation planning still focused on activities within the enterprise," according to From Origin to Destination: The Evolution and Future of Transportation Management Systems, a Manhattan Associates whitepaper.
"Over time, however, transportation planners began to see the enormous impact external factors had on transportation. They started to examine extending the access to transportation processes beyond the four walls.
"The Internet created an ideal mechanism for working together to expand the reach of internal processes across multiple enterprises," the paper continues. "And, by eliminating the necessity for an expensive and complex infrastructure, the Internet enabled businesses of all sizes to access these extended systems and share information."
Real-time access to trading partner information over the Internet gives companies the dynamic functionality they need to account for external transportation changes. It also opens the door to other transportation optimization opportunities, including inbound freight planning.
Today, software developers are working toward providing solutions that deliver a holistic view of all execution processes—warehousing, transportation, trading partner management, and overall supply chain visibility.
"The impact of this approach will be tremendous," says the Manhattan Associates whitepaper. "The integration of warehouse and transportation systems will end the operation of each working as independent silos. Instead, warehousing and transportation departments will combine, pursuing the common goal of maximizing efficiencies. The two will be systematically integrated as well, with a single interface to ERP and host systems, providing a common place to store and maintain data."
The concept of integrated logistics management also encompasses other areas of transportation, including yard management and appointment scheduling activities. Visibility into these activities gives warehouse personnel comprehensive information on arriving goods, and enables transportation personnel to plan and execute accordingly.
"When inbound information is automatically integrated with warehouse processes, for instance, yard managers can schedule appointments and unload inbound shipments in the most efficient manner," the whitepaper explains. "Allowing carriers to request yard appointments based on availability information provided through a web interface makes the process that much more efficient."
Visibility into inbound freight flows enables companies to schedule warehouse labor and resources more effectively. "This is especially important where the product profile involves a diverse range of activity other than the standard receiving operation—value-added services such as price ticketing for a certain product or inbound quality control activity for certain suppliers or products," says Matt Wilkerson of Atlanta-based Tompkins Associates.
"In addition, the capacity of the distribution facility can be evaluated well in advance for required re-slotting activity and for off-site storage arrangements."
Ryder System is one company that uses integrated WMS and TMS solutions extensively throughout its operations. The 3PL manages its transportation activities centrally at two load control centers—an inbound control facility in Farmington Hills, Mich., and an outbound transportation management center in Ft. Worth, Texas. Its WMS solutions are integrated with its transportation planning and execution system.
"We are integrated with our customers' ERP systems, and collect orders from them several times a day," says Bott.
Ryder puts these orders through its optimization and load planning tools before conducting a rigorous load tendering process with carriers. "Our optimization tool recommends carriers, automatically tenders loads to those carriers over the web, and monitors their response," he says.
"If we're running a warehouse for the customer," Bott continues, "our TMS will send orders to the warehouse for processing." Ryder then tracks the load with its web visibility tool, providing the customer with an electronic file showing shipped product at the end of the day. "It's a totally paperless, fairly real- time process," he says.
"A lot of activity is managed over the web—most of these software solutions are web-centric," Bott reports. "Most SCM software vendors, in fact, spent the last few years migrating their solutions to the web."
Never Go Away
As supply chains continue to evolve, they will continue to rely on state-of-the-art software applications to improve efficiency, accelerate flows, reduce costs, and create better connections among all channel participants.
"Every supply chain and every logistics network comprises different nodes or facilities, different locations, different four walls," says G-Log's John Murphy. "People are trying to look at that entire process holistically with all the processes and players connected. The biggest opportunities come from looking at that entire system together.
"The four walls will never go away," Murphy says. "We will never eliminate that aspect of supply chain management, but technology has created the opportunity for organizations to manage their business holistically. Now we can get nearly real-time information about our extended supply chains."
"Through our systems," says Bott, "companies get good visibility into their supply chain operations." At the end of the day, this helps them make more effective decisions about managing their business.
Newell Rubbermaid: The Five-Percent Gain
With a $1 billion logistics spend across nearly 30 different divisions, Atlanta-based Newell Rubbermaid has a lot at stake when it comes to managing its global supply chain.
In 2002, the company—which produces such well-known brands as Calphalon cookware, Levolor window treatments, Paper Mate writing instruments, and of course Rubbermaid cleaning and storage products—sought a solution to transform its transportation and logistics operations.
Various divisions of the $7-billion company previously tried to manage transportation as an offshoot of order management or warehouse management systems, resulting in heavy manual processes and limited functionality. Only one division had an actual transportation management system, but couldn't handle the complex planning needed to drive the productivity the company desired.
"We set an aggressive goal of achieving 5-percent year-over-year cost reduction and productivity improvement," says Brian Mayer, vice president of global transportation at Newell Rubbermaid. "But that was impossible with our legacy systems and old logistics practices."
Newell Rubbermaid's wish list for its new transportation and logistics system included:
- Elimination of legacy systems and manual-driven tasks.
- Reduced IT costs as a result of fewer systems to administer, integrate, and maintain.
- A flexible, scalable, web-native architecture enabling instant access to centralized information by anyone, anywhere, at any time.
- Increased collaboration among all partners—suppliers, service providers, and customers—driving new business processes.
- Better decision support by eliminating critical logistics information gaps between multiple, disparate systems.
- Proactive monitoring and alert notifications about product movements from supplier to end customer and all points in between.
- Real-time planning, execution, and event management to react quickly and divert and expedite shipments in the most optimal fashion.
After a thorough search, Newell Rubbermaid selected G-Log's Global Command and Control Center (GC3) software to manage and optimize shipments across all global business units, regardless of transportation mode or geography.
The web-native GC3 solution enabled Newell Rubbermaid's multiple business units to autonomously manage all aspects of the logistics lifecycle—from shipment order to freight settlement. It helped reduce transportation costs, increase operational efficiency, and enable new collaborative business processes among suppliers and customers.
"As our business expanded from both a sourcing and finished-goods shipment perspective, implementing a flexible, scalable, global application that supported our burgeoning worldwide business was critical," says Mark Michener, global manager, transportation systems for Newell Rubbermaid. "A web-native architecture was imperative. The new logistics system had to be as simple as surfing the web, so our users could derive the system's greatest benefits."
Newell Rubbermaid started its GC3 implementation managing outbound freight from its largest North American manufacturing and distribution facility. The Rubbermaid Commercial Products facility in Winchester, Va., went live with the GC3 system in January 2003.
The company then rolled the implementation out to seven additional U.S. sites. Today, the system processes more than 5,000 need-to-verify orders per day, encompassing parcel, truckload, LTL, and intermodal shipments.
With the GC3 system, Newell Rubbermaid realized a 5-percent reduction in transportation costs through order consolidation and better mode service-provider selection.
The system consolidates orders and optimizes freight based on the most cost-effective and efficient moves given the unique characteristics of each shipment—load size, destination, and target arrival date, among others. It automates the execution process with almost no manual intervention.
One of the biggest benefits of the new TMS solution for Newell Rubbermaid is its ability to track core carrier service compliance. With all transportation data captured in G-Log's single global data model, the consumer goods company has a constantly updated single source of truth for every freight move.
The company reviews carrier compliance every three months, monitoring on-time performance, improvement initiatives, and cost reductions. With a more disciplined approach to carrier compliance, Newell Rubbermaid realized additional savings and improved on-time deliveries, while almost eliminating expensive expediting scenarios.
The company plans to expand the use of the GC3 system to manage outbound shipments in other countries. Newell Rubbermaid also expects to use the technology to manage domestic and international inbound shipments for all business units and to execute freight payment and settlement worldwide.