Supply Chain Gain: Better Data, Better Results
New technology solutions help improve inventory visibility, increase routing agility, manage labor more effectively, and capture valuable information from the field.
How can you use information technology (IT) to improve a supply chain? The real question is, how can you not?
From vendor management to demand forecasting, from logistics network design to transportation planning and execution, from warehouse and yard management to global trade— there’s not just an app for that, but a vast marketplace of competing solutions.
The cutting-edge logistics technologies of 20 years ago— satellite tracking, route optimization, handheld radio data collection— have grown into standard tools of the trade. But just as technology continually evolves, supply chain professionals continually discover new ways to put the latest solutions to work.
Here’s a look at how some companies are using IT today to gain greater supply chain value.
I Can See Clearly Now
As the global recession forces companies to work harder to stay profitable, one strategy popular with retailers is to develop private-label brands.
“This approach provides greater supply chain control,” says David Landau, vice president of industry marketing at logistics IT vendor Manhattan Associates, Atlanta. “Companies gain much better margins with their own products than they do when they buy from a supplier.”
But when a U.S. retailer becomes a brand owner, it must manage a longer and more complex supply chain than when it orders products from suppliers with U.S. distribution centers (DCs). While the cycle time on orders placed to a domestic supplier might be two to four days, it can take weeks for retailers’ own products to ship from overseas factories and be delivered to stores.
“Without good visibility, inventory costs can spiral out of control because retailers need higher safety stock,” Landau says.
Data, Data, and More Data
To gain that visibility, a company might collect data from dozens or hundreds of trading partners, including contract manufacturers, carriers, and third-party logistics providers. Some partners deliver data via electronic data interchange. In other cases, the shipper might establish a Web portal where partners can enter product and shipment status information.
To ease the way for its customers, Manhattan Associates offers a product called Extended Enterprise Management. It includes a Web portal for collecting data from partners, and a visibility tool that uses the data to create a picture of supply chain activity.
Good visibility tools can also help shippers make better connections between one end of the supply chain— where manufacturers order materials— and the other— where cashiers ring up sales. Jonathan Byrnes, a senior lecturer at MIT and president of consulting firm Jonathan Byrnes & Co., cites the example of Li & Fung, a Hong Kong-based supply chain specialist that contracts for materials and manufacturing on behalf of numerous retailers.
“Li & Fung is tied into retailers’ point-of-sale systems worldwide,” Byrnes says. In October 2008, at the start of the global financial crisis, consolidated data from those systems alerted Li & Fung to the precipitous drop in consumer demand even before retailers had noticed the change.
“The company was able to read the demand throughout the world, then adjust the whole manufacturing system way before anybody could tell them to do it,” he says. That move helped to ensure that no one got stuck with more materials or capacity than they needed.
Visibility tools also help companies respond faster and more flexibly to changes that occur while product is in transit. “When a shipment arrives at the port, logistics managers can assign, reallocate, or postpone the inventory as supply and demand fluctuations dictate,” says Bob Heaney, senior research analyst, supply chain management at Aberdeen Group in Boston.
Plan, and Plan Again
Of course, visibility provides only half the solution for rerouting inbound shipments on the fly. “You need an optimization engine that can run through all the different alternatives,” says Heaney.
Many vendors offer solutions that can plan and re-plan a load’s handling from the time a shipper places an order until the time it receives the goods. These systems consider loads down to the pallet, carton, or case level, determining how to load them for ocean transit and as they move into the intermodal network.
“Optimization and containerization routines allow companies to analyze alternatives and shift modes to save on freight costs, or to reallocate the inventory,” Heaney says.
In IT for the Long Haul
In addition to optimizing transportation in near-real time, IT can help companies improve longer-term transportation arrangements. Many companies put their transportation lanes out to bid only once every two to four years. But that’s not the most effective way to manage procurement in a carrier market that’s in turmoil and short on capacity, Landau says. Companies should go out for bid every year, and they should manage procurement with something more sophisticated than a spreadsheet.
Advanced tools can not only figure out the best combination of carriers, rates, and routes, they can also perform incremental bid optimization, which involves monitoring lane performance throughout the year.
“By looking at the entire network only once every few years, you can miss some low-hanging fruit,” Landau says. By continually monitoring rates, volumes, and carrier performance on individual lanes, companies can adjust lanes that aren’t performing well. They might replace carriers that are missing on-time performance targets. Or, if they discover the volume in certain lanes is greater than anticipated, they might be able to renegotiate rates on those lanes.
“Companies can achieve five- to eight-percent rate reduction on lanes by monitoring their data,” Landau says.
Just as shippers can optimize transport asset use, they can also use IT to optimize human resources. Warehouse operators have long used labor management systems to determine the best way to perform a task and how long it should take, and to measure employee performance against that benchmark. In the next wave of improvements, companies are using historical data to predict labor requirements and assign the right employees to tasks.
Manhattan Associates’ solution evaluates a warehouse’s historical demand and available labor, including individual workers’ skill sets and past performance, then formulates worker assignments and scheduling recommendations. The system also monitors performance in real time and, if the work falls behind, recommends adjustments to get the warehouse back on track.
breaking down the walls
IT also offers opportunities to improve revenues, breaking down the walls that separate different sales channels. Multichannel retailers are trying to use all the inventory at their disposal, wherever it’s located, to satisfy all kinds of customers, Landau says. That includes customers who order online but want the product delivered to a store, those who can’t find an item in a store and want it shipped from a DC or another store to their home, and every other possible combination.
“Retailers should use all their inventory to make sure a sales opportunity does not slip by,” Landau says. A distributed order management system meets this challenge by allowing retailers to tap into all their inventory— in stores, in DCs, in transit, and at suppliers’ DCs— to fulfill demand from all channels.
Along with solutions created for supply chain applications, some recent trends in the broader IT market also offer ways to realize supply chain improvements. One such trend is the use of Software as a Service (SaaS), or on-demand technology. Instead of licensing software packages, companies contract with service providers that host the software, store the data, and provide access through a Web browser. Clients pay for the service based on usage.
Shippers are using SaaS to manage transportation, gain visibility, and collaborate with service providers and trading partners. Because these systems are more secure than they used to be, companies are more apt to trust them with confidential data.
Another IT trend that offers benefits to shippers is the explosion of mobile applications. “All the major technology vendors are investing in mobility and extending their applications through mobile devices such as smartphones,” says Adrian Gonzalez, director, logistics viewpoints at ARC Advisory Group in Boston. “These tools allow employees to be productive on the front lines, and not have to be tethered to their desktops or laptops.”
Of course, mobile technology has played a role in logistics for a few decades, since carriers started installing satellite tracking systems in trucks and manufacturers began adding radios to handheld bar-code scanners. But the latest wave of small, inexpensive, and versatile mobile devices lowers the barrier for a range of logistics applications.
“GPS-enabled phones let carriers and shippers more easily track drivers and trucks,” Gonzalez says. “They can communicate in the field with them, and have the driver execute transactions much more seamlessly and productively than in the past,” Gonzalez says.
Although the applications aren’t yet well-developed, social media may also hold promise for supply chain improvements. “Many companies are beginning to experiment with social media technologies as a platform to collaborate with external trading partners, suppliers, carriers, and customers,” Gonzalez says.
This new trend in collaborative communication will take hold in earnest as the next generation of employees enters the workforce. “They’re accustomed to using tools such as Facebook and Twitter rather than sending e-mail,” he notes.
Dip in a Toe
As shippers consider new technologies to help gain supply chain improvements, keep in mind that you don’t need to plunge into a large, new, and possibly costly system implementation headfirst. You can start by getting your feet wet. There’s a trend toward self-funded IT projects— initiatives of limited scope that bring quick returns, which a company then uses to fund an extended solution.
“You can implement a transportation procurement system and quickly net a six- to eight-percent reduction in transportation spend, which may, in turn, fund a full transportation management system rollout,” Landau says.
That’s yet another way in which shippers can tap the latest in technology to achieve a broad spectrum of supply chain gains.
Case Study | WMS: Forzani’s Winning Play
Shipper: Forzani Group
Technology: Manhattan Associates’ Warehouse Management solutio
Goal: Gain visibility into inbound orders to support crossdocking and other modern logistics strategies.
Outcome: Ratio of units moved to labor dollars spent increased 19 percent. Per-unit operational costs decreased 31 percent.
Since its start in 1974 as a single-site athletic footwear store, Forzani Group has been expanding without catching its breath. Opening new locations and aggressively acquiring other businesses, it has grown into Canada’s largest sporting goods retailer, with more than 334 corporate-owned stores and more than 229 franchise locations. The stores operate under a variety of names, including Sport Chek, Atmosphere, Hockey Experts, and Fitness Source.
In 2002, officials at Forzani Group realized that the company’s growth had outstripped the abilities of its warehouse management system (WMS). “Logistics practices over the years have changed,” says Keith Lambert, senior vice president, supply chain management at Forzani Group. “But our WMS hadn’t changed in accordance with current practices.”
One practice that Forzani Group wanted to introduce involved crossdocking. Before shipping product to a distribution center (DC), company officials wanted vendors to label each case to indicate which store was its ultimate destination. “We would simply scan that label on receipt and upload all the received items into the database,” Lambert says. “Then the products would move to the outbound side and get loaded on a truck immediately for transportation to the store.” This tactic would reduce the time required to get a case in and out of the DC.
Forzani Group also wanted to acquire better data on inbound orders, and on inventory’s status as it was received, stored, picked, and packed. And it wanted a WMS that offered better putaway and picking logic. “Some of the logic in our older system was not conducive to current warehouse efficiency trends,” Lambert says.
In late 2003, Forzani Group chose Manhattan Associates’ Warehouse Management solution to replace its old WMS. It got the system up and running in 2004.
One improvement the new WMS provided was a better view of orders. “Visibility into the receipt and the advance ship notice has improved dramatically,” Lambert says. Also, the ability to receive orders in case quantities, marked for their destinations, and crossdock them for immediate shipment has made the DCs much more productive. “We were previously doing bulk receipts and packing them on our own,” he says. “We are now involving our vendors in the process, having them label shipments, and simply crossdocking goods that come into our facility.”
Thanks to those changes, Forzani’s ratio of units moved to labor dollars spent has improved by 19 percent. And, by gradually refining its warehouse practices over the years since implementation, Forzani has cut per-unit operational costs by 31 percent.
The new WMS also has created improvements on a broader scale. Until recently, Forzani served its stores across Canada from two DCs, one in Calgary and one in Toronto. But improved operations have made the Calgary DC redundant.
“As the warehouse becomes more efficient, and we’re able to move more units per labor dollar, we’re able to reallocate more units into that warehouse to be processed,” Lambert says. The more product one warehouse can handle, the less need there is for a second one, so Forzani is closing the Calgary DC. As of January 2011, the company will serve its entire national network from Toronto.
And there are still more opportunities to use the WMS to improve productivity. For example, the solution includes a slotting optimization module that Forzani has not yet put to work. The company has created a five-year road map for implementing that, and other capabilities.
“Using the tools more effectively will allow us to continually improve our operation,” Lambert says.