Technology: The Leading Edge
A new wave of strategic software acts as a force multiplier, giving you greater supply chain power.
From inbound to outbound, from planning to execution, technology solutions give companies of all sizes the chance to play harder and smarter. Here’s a look at some recent logistics IT innovations.
Collaboration Replaces Competition
Imagine two teams working for a food service distributor, each doing its best to increase supply chain efficiency and manage costs. The replenishment team works hard to ensure customers always get the product they need—ground beef, for example—but that there’s never any excess inventory. The logistics team works just as hard to fill trucks completely, to keep down per-unit transportation costs.
“The logistics team might ask the replenishment team to buy 40,000 pounds of meat instead of 36,000 pounds, increasing the total dollar amount on the truck by 11 percent,” says Steven LaVoie, CEO at Arrowstream, a Chicago-based technology vendor.
The replenishment team objects that a bigger order will boost inventory, increasing carrying costs. “Now you have two teams with competing problems,” he says.
To solve this dilemma, Arrowstream launched Crossbow, a technology solution that helps replenishment and logistics staff collaborate to push overall costs as low as possible.
Arrowstream develops solutions for restaurant chains, distributors, and food manufacturers. As these companies see margins shrink, efficiency becomes increasingly vital to their survival.
Crossbow closes the gap between the concerns of replenishment and logistics personnel by looking not just at individual orders sent to vendors, but at the entire inbound product flow. Although they need to meet certain inventory and service requirements, companies usually have flexibility to adjust the way they place orders.
“To create a full truckload, instead of ordering 42,000 pounds, the replenishment team can order 36,000 pounds, then add a 6,000-pound order of a different product,” LaVoie explains. “Moving orders, taking them one day earlier or later, or scaling them up or down, creates immense flexibility downstream to ensure those orders are filling all the trucks.”
To spot opportunities, Crossbow pulls item-level data from a company’s replenishment system, then develops optimized routes for the inbound product. It can work in tandem with a transportation management system (TMS), or Arrowstream can provide its own TMS module.
Once the transportation team develops an optimal plan for inbound shipments, it shows the replenishment team how much money the new strategy will save and how much it will reduce the volume of stored product.
“Overall, this approach reduces total inventory by two to five percent,” says LaVoie. Most companies use Crossbow to generate a new plan about once a week, as customers change their ordering patterns.
One Arrowstream customer, a large food service distributor, used to rely on eight people to coordinate replenishment and transportation. They generated about $250,000 in savings each month, but with Crossbow, they did even better. “Those savings quadrupled within a few years,” LaVoie notes.
Putting Things in Proportion
Just as Arrowstream is closing the gap between replenishment and transportation, software developer Logility recently introduced a tool to bridge the needs of planners concerned with demand, sourcing, and production.
Logility’s Proportional Profile Planning function—a new feature of its Voyager supply chain solution—is designed to give planners a fine-grained view of product demand.
For example, a planner working with a line of athletic shoes might concentrate on predicting demand for the men’s and women’s versions of a particular style, says Karin Bursa, marketing director at Logility in Atlanta. But it would be useful to understand in greater detail what consumers will buy, and where.
“Planners want to be confident that at the level of gender, style, color, size, and market, they have a good forecast,” she says.
For instance, how will a particular gray shoe in a woman’s size eight perform in the northeastern United States?
Using historical data and tracking sales as they occur, Proportional Profile Planning builds a picture of a product, forecasting demand for each stockkeeping unit (SKU) in individual markets. “Planners can hand that information off to the manufacturing and sourcing teams, telling them precisely what items they believe the market will buy,” Bursa says.
In the past, many companies used spreadsheet software to help them take this kind of deep dive. “They might use their supply chain software to produce a forecast at a certain level of detail, then go outside the system to gather more data,” Bursa says. Logility’s software users can conduct the whole process within Voyager.
Tracking Prediction Performance
Once the system produces a forecast, it also monitors how well that prediction performs. “Users can determine whether actual sales were different than the profile predicted they would be,” Bursa says. “The system offers the ability to measure and improve the profiles over time.”
Developing a highly detailed demand profile helps companies reduce their chances of getting stuck with an inventory of obsolete product. And by creating profiles that change over a product’s lifecycle, the system allows companies to fine-tune their replenishment orders, based on the best-selling SKUs. “Instead of producing a size six woman’s shoe in the replenishment process, a manufacturer might create sizes ranging from seven to nine,” Bursa explains.
Another technology innovation Logility customers are using to refine their replenishment strategies is multi-echelon inventory optimization (MEIO). Logility’s MEIO solution analyzes data on finished goods held in all of a company’s locations, plus raw materials and work in process. It also considers information on lead times, supplier reliability, and demand variability, crunching the numbers to determine how much inventory a company should hold in order to meet its service commitments.
“It’s powerful for companies that have postponement strategies to delay the final manufacture of the finished goods until needed,” Bursa says.
Where Is It?
Many technology solutions help shippers keep track of product that is hundreds or thousands of miles away. Zebra Technologies uses radio frequency identification (RFID) technology to locate items inside a factory or distribution center (DC)—including two of its own warehouses.
Zebra offers two RFID-based location platforms. Both employ tags that users attach to movable assets, plus sensors that users install at various points within a facility. Each time a sensor transmits a wireless signal, it receives a response from any tags within communication range. Using triangulation, much as global positioning systems do, the Zebra system calculates the current location of each tag.
“That data forms the basis for the business problems Zebra tries to solve,” says Mike Mulligan, director of industrial manufacturing solutions at Zebra Technologies in Lincolnshire, Ill.
One of Zebra’s location platforms, called WhereNet, tracks items that move as often as every three to five minutes, and finds them within 4.5 feet. The other, called DART, can locate items that move as often as once per second, and can find them to within about one foot.
Auto manufacturers use Zebra’s RFID systems in several ways—for instance, to keep track of large racks that hold components, or to track finished vehicles moving through the quality control process.
Earning Their Stripes
In addition to applying the location technology to customers’ challenges, Zebra started using it in 2012 to improve its own supply chain operations.
Zebra implemented the Oracle enterprise resource planning system, which made it possible for several employees in a DC to pick items for a single order. Workers assemble those orders in a flexible staging area, with different sections devoted to small, medium, and large orders.
The first person to pick an item for an order—let’s call it Order 15—retrieves a “locator.” This device—which looks like the “table tents” used to display the daily specials in restaurants—comes with a DART asset tag attached. The picker sets the first item in the staging area, then places the locator on top, marking that as the location for Order 15.
“The order itself may move from one staging area to another as the order gets bigger over time,” Mulligan says. But thanks to the location technology, any picker working on that order will be able to find it.
As the DART system tracks the locators, the screen on each picker’s bar-code scanner displays those devices on a map, with associated order numbers. Each time pickers need to add an item to Order 15, they can find it, even if it has moved.
“This system allowed us to increase throughput in the warehouse while maintaining the same number of materials handlers and pickers,” Mulligan says. It has also improved Zebra’s ability to meet delivery commitments.
Facebook, Twitter, and other social platforms have become so ingrained in our personal and business lives, it’s no surprise that some companies want to harness social media to better manage supply chains.
E2open is a case in point. A provider of cloud-based solutions for collaboration across trading networks, the Foster City, Calif., company is exploring several options for integrating social technologies into its E2open Business Network.
Customers identified three ways in which they would like to employ social networking technologies, says Lorenzo Martinelli, E2open’s senior vice president, corporate strategy.
- Let trading partners collaborate on supply chain issues within a proprietary social environment. “Today, we notify trading partners when a problem occurs,” says Martinelli. “They go offline to communicate, then come back to our system to execute the solution they agreed on.” But users want a more integrated approach to the entire set of conversations and transactions.
In E2open’s vision, when a problem occurs in the supply chain, that information will appear within its social platform, much as a status message appears on Facebook.
For instance, the Business Network might receive news that a shipment is running late. Among the items in that container are several crucial parts that a factory needs to meet its commitments. “The customer, supplier, and logistics provider can work together toward a solution—arranging expedited transport, or sourcing parts from another warehouse,” Martinelli says.
The partners use the social platform to discuss their options, then, once they make a decision, E2open’s system will transmit the data needed to execute their plan.
- Monitor conversations on many social networking sites to glean information companies can use to refine their demand plans. For instance, the forecast for a line of lipstick might dictate that the manufacturer produce equal quantities of pink and red. But on social networks, 80 percent of the positive buzz about this product mentions only the pink. “That may be an indicator that demand will not be 50-50,” Martinelli notes. Some marketing departments already use this strategy, but it holds potential for supply chain management as well.
- Monitor social media to learn about political demonstrations, port shutdowns, container shortages, rising rivers, or other conditions that could threaten a supply chain. “Learning about possible disruptions earlier gives shippers more time to find compensating actions,” Martinelli says.
Because E2open has learned that some of its customers want solutions based on social media, it is working to introduce the notion to a broader audience. The company plans to develop prototypes of these solutions, so people can get a feel for whether they provide real value. E2open has also created a LinkedIn group, the E2open Social Supply Chain, where anyone who is interested can discuss the possibilities.
Innovative logistics technologies are helping companies improve visibility into their supply chains and gain better control over inventory, service, and cost. Implementing the right tool can be just the boost businesses need to gain a competitive edge.
Case Study: Direct-Ship Solution on Tap
Craft Brew Alliance (CBA) is a small firm with a big, important friend. Formed from the merger of three craft brewers—Widmer Brothers Brewing, Redhook Ale Brewery, and Kona Brewing Company—CBA generated revenues of $149 million in 2011. But CBA had relied on its relationship with beer giant Anheuser-Busch for its distribution since the 1990s. Today, Anheuser-Busch owns 32 percent of the craft brewing company.
CBA shipped beer from its three breweries—in Portland, Ore.; Woodenville, Wash.; and Portsmouth, N.H.—to 12 Anheuser-Busch distribution centers around the United States. The DCs then delivered orders to the wholesalers that make up CBA’s customer base.
But a few years ago, Anheuser-Busch started closing those DCs. Too small to run facilities of its own, CBA started a transition to a direct-ship distribution strategy.
“At the same time, we were looking at an enterprise-wide supply chain solution,” says Kyle Jennings, senior director, supply chain at CBA in Portland. The solution that CBA chose—the Voyager suite from Atlanta-based technology provider Logility—included a transportation module that would support the new distribution pattern.
In the past, CBA breweries shipped full truckloads to the DCs. “Workers picked and packed orders to build loads for wholesalers,” Jennings says. With the transition to direct shipping, CBA would have to build and route those deliveries.
“We have to look at what makes sense from the transportation side,” says Jennings. “What are our minimum stop quantities? How often can we deliver to locations and still be cost effective? We built those functions into the Logility tool.”
CBA executives feared that without Anheuser-Busch’s DCs, the cost of shipping beer to customers would rise by as much as 40 percent. “Actually, our freight budget only increased by eight to 10 percent,” Jennings notes. That’s due in part to the fact that CBA now enforces minimum order quantities, but Logility’s Transportation Performance Management (TPM) software helps as well. “Now our trucks make multiple stops, optimizing that routing for us,” he says.
Not only didn’t the switch to direct shipping add major costs, but the TPM software helps CBA maintain high service levels. “For the past three months, we’ve been at approximately 99.5 percent in-stock,” Jennings says.
Along with TPM, CBA implementedVoyager planning modules for demand, inventory, manufacturing, and replenishment planning, automating functions that it used to perform on spreadsheets—if it performed them at all. Gaining a better picture of current inventory and future demand allows the breweries to design their production schedules more efficiently. “We’ve also provided visibility out for a few months, so they can better plan their labor,” Jennings says.
The company has also seen a 60-percent drop in the volume of “aged beer”—product it has to write off because it has been sitting in inventory so long wholesalers will no longer accept it.
With greater visibility and better planning, CBA can compete in the beverage market as though it were a larger company. “Many of our competitors don’t have the software intelligence we do,” Jennings says.