August 2006 | Commentary | Supply Chain Technology

We've Got a Long Way to Go, Baby

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The globalization of commerce has made sophisticated logistics technology not just a luxurious expense for the Fortune 50, but a necessity for companies of all sizes and in all industries.

A typical apparel company, for example, might source fabric from China, manufacture garments in Malaysia, send them to Italy for custom design work, then ship final products to a 3PL warehouse in the United States for delivery to major department stores around the country.

And it must do all this in time to get a hot fashion item on store shelves before A-listers move on to the next trend. Good luck coordinating this multi-party process with phone, fax, e-mail, and spreadsheets.

This need for advanced solutions may seem obvious, but a surprising number of companies still have a long way to go when it comes to global supply chain technology sophistication.

On average, large companies report their global supply chains are only 50 percent as automated as their domestic supply chains, finds a new study from Boston-based Aberdeen Group.

The bad news continues—only six percent of respondents qualify their global supply chains as highly automated (see chart), and 90 percent of all enterprises report their global supply chain technology is inadequate to provide timely information required for budget and cash-flow planning, finds the Global Supply Chain Benchmark Report.

How did companies fall so behind? Who fell asleep at the wheel—supply chain managers? IT directors? Technology vendors?

"The global supply chain has been relatively ignored because it was traditionally a small part of companies' businesses. They focused their technology efforts on domestic applications instead," says Beth Enslow, Aberdeen's supply chain practice leader, and author of the study. "Then the world changed—business became globalized, and companies realized their IT systems are not set up to support that."

With international shipment volumes growing at a rapid clip, many companies have been caught off guard, and are now scrambling to plug the technology gap. Without automated systems, and, in most cases without additional staff, global supply chain managers face an uphill battle.

"Global supply chains are more complex than domestic supply chains," says Enslow. "More parties are involved—contract manufacturers, 3PLs, a company's own factories, customs agencies, brokers, and multiple carriers. That complexity is a major difference."

There is a bright spot in this picture, however. Because the global supply chain technology void affects logistics managers' ability to deliver crucial financial data—particularly for Sarbanes-Oxley compliance—CFOs have taken notice and joined the technology crusade. Tying technology investments to a business case outside the supply chain often helps logisticians get the global commerce tools they need.

"Once a CFO realizes a problem impacts financial performance and risk levels, it's easier to push technology requests through," says Enslow.

After companies decide to invest in technology, the next question is whether to develop solutions in-house or partner with a technology provider or 3PL. Increasingly, organizations choose to forego proprietary solutions and seek outside help, finds the report.

Although 57 percent of Aberdeen's respondents currently use in-house applications to manage their global supply chains, those seeking to implement new technology say they least favor in-house solutions (see chart).

The bulk of respondents report plans to use either a best-of-breed on-demand or licensed software vendor; an ERP vendor; or a 3PL's technology solution to manage their global supply chain.

"I was surprised by the magnitude of that shift," says Enslow. "Most supply chain organizations haven't had budgets to buy external technology. Now, companies realize multi-party collaborative practices are not a core competency for their internal IT organizations.

"Companies can spend two or three years building an in-house solution, or use an on-demand option and be up and running in two to three months," she continues. "Before on-demand, the choice was between building an internal solution or taking eight months to implement an installed system.

"In that case, companies were often willing to wait the extra months to build in-house, but the two-year gap between an in-house and on-demand solution makes them rethink their strategy."

Companies that continue using in-house technology solutions also face the challenge of keeping up with the speed of developments—in both supply chain technology and global business practices. Keeping data from an increasing roster of partners connected and synchronized is a labor-intensive challenge—and, sometimes, a guessing game.

"We are in the early days of reinventing our business processes for globalization. Companies can't build a technology solution today and be confident it will support their needs five years from now," Enslow says.

What can companies do to combat technology inefficiencies? Pinpointing the area of their global supply chain that can benefit most from a quick technology hit is a good place to start.

"It is unrealistic to try to solve every problem at once," Enslow says. "For some companies, advanced supply chain visibility is the biggest need; for others, it is trade compliance enhancements, or collaboration-based systems."

It is an oversimplification to say technology is the magic fix for global logistics problems and will make a supply chain organization the corporate star, but that does happen in some companies.

"Liz Claiborne started out with global visibility technology, and was able to quicken cycle times and reduce inventory investment," reports Enslow. "The CFO is so happy with the progress, he is now knocking on the global logistics director's door, saying, 'Why aren't you moving faster to implement that compliance technology?'"

While many companies are struggling to find solutions for their global supply chain woes, research such as this shows that technology can play a valuable role in jump-starting global logistics competency.

So don't be surprised if your CFO soon knocks on your door with a technology request.

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