11/1/2001 | 9 MINUTE READ

Looking at Logistics

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Today's logistics involves sophisticated supply chain management applications infused with collaborative capabilities, all running on top of an Internet-based e-commerce infrastructure—and fully integrated with back-office information systems to create a seamless system from product development to delivery.


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After the terrorist attacks on September 11, automotive manufacturing came to a temporary halt at the General Motors Corp. and Ford Motor Co. pickup truck factories in Ontario, Canada. Why? Just-in-time (JIT) deliveries were delayed at the Canadian border. Delays at the Mexican border caused Ford to also shorten production for about two days at two of its Mexican assembly plants.

While the Wall Street Journal and Reuters packaged this news in articles about the need to rethink JIT manufacturing, there's another slant to consider: Logistics matters. According to AMR Research (Boston, MA), organizations spend 11% of their revenues on logistics, yet it is one of the last core business processes to be automated. More often than not, logistics is an in-house, manual process involving phone, paper, email, fax, and home-grown inventory, warehouse, and transportation management systems.

Don't make the mistake of thinking logistics is only about accurately storing and moving inventory. It's also knowing where your stuff is throughout the supply chain, and finding alternative shipping modes and routes to quickly get around delayed and irregular shipments. And as with so much else in factory automation, good logistics is a competitive advantage.

What's logistics?
The definition of “logistics” is complex or simple. According to the Council of Logistics Management (CLM, Oak Brook, IL), logistics is “that part of the supply chain process that plans, implements, and controls the efficient, effective flow and storage of goods, services, and related information from the point of origin to the point of consumption in order to meet customers' requirements.” AMR Research says logistics is simply “the management of inventory in motion or at rest.”

Numerous industry initiatives fall into this field, including quick response, continuous replenishment, efficient consumer response, and, mostly in manufacturing industries, JIT and vendor-managed inventory. The common theme in all of these is to create some sort of smooth and fast pipeline from material source (supplier) to material consumption (customer), while responding to the real-time dynamics that occur from changing customer requirements, routings, transportation modes, and international trade requirements, to name a few constraints.

Beyond conveyors and tractor trailers
Two characteristics separate logistics software from many other types of software, particularly enterprise resource planning (ERP). Logistics applications are execution systems, not planning systems. Second, they are real-time systems capable of making sub-second decisions based on a colossal amount of data at a far more granular level than ERP.

Modern major logistics execution systems include a broad array of applications and modules. The major ones are as follows:

Inventory management systems ( IMS ) ensure the availability of products by linking customer demands, product reservation, and allocation processes.

Order management systems ( OMS ) provide real-time visibility into the entire order lifecycle, ensuring against lost, delayed, or corrupted orders. For example, the OMS from Provia Software Inc. (Grand Rapids, MD) manages products, orders, shipments, and delivery information by customer. It also produces the appropriate billing materials, as well as communicates directly with customers and suppliers through electronic data interchange (EDI), Internet/intranet, and other communications modes. It controls billing for all product-handling costs (such as receiving, storage, and labeling), and applies it to the specific customer based on prenegotiated agreements. Plus, it can process complex orders that require future shipment or staggered delivery dates, multiple consignee delivery, or back-ordered product.

Warehouse management systems ( WMS ) tell you in real time what you have and where your inventory is within whatever it is you're calling a warehouse. At the very least, the software system manages receiving, storing, picking, and shipping product. It is usually integrated into a plethora of automation, including bar code and radio frequency (RF) technology, pick-to-lite systems, ERP, and EDI. Typical WMS verify barcoded or radio-tagged incoming inventory against purchase orders downloaded from ERP, EDI, or OMS. The system will also tell people what warehouse location to store that material, often through printed storage/put-away lists or through RF terminals on forklifts. Likewise, it will prioritize picking operations and direct operators when and where to pick. In both the putaway and pick, the WMS will update its inventory database as required. Additionally, leading WMS might perform other functions, including order management, work-load management and labor planning, cross docking, replenish primary pick locations, cycle counting, supplier return/stock rotation, performance reporting, proof of delivery, compliance labeling, and manage productivity-based employee payments.

Transportation management systems ( TMS ) focus on freight movements and physical distribution. The Web- and workflow-based transportation application from Arzoon, Inc. (San Carlos, CA), for example, helps companies determine the best routing and transportation mode for their products, helps select carriers based on service levels and rates, creates a delivery schedule, determines rates, and optimizes the total shipping costs against service and delivery constraints, and international trade requirements. A separate Arzoon application for global trade contains a centralized rules database with trade regulations, tariffs, and duties for nearly two dozen countries. The application automates the proper handling of the proper trade documents by emailing them to the proper officials.

TMS will automatically send shipping notices, manifests, carrier information, and other updates to all interested parties in the supply chain as required, as well as receive requests for updates about the status of shipments. TMS also often monitor and initiate freight payments, as well as monitor reverse logistics, and domestic and international shipping.

Yard management systems ( YMS ), such as from Provia, extend the warehouse beyond the physical four walls of the plant by controlling the activities of trailers on the dock and in the yard to the point of scheduling both inbound and outbound trucks, In so doing, it effectively expands the amount of storage locations and lets you cross dock using partial or entire trucks.

Third-party logistics ( 3PL ) providers are not a technology, per se, but they are a major element in logistics. According to a recent 3PL survey by Cap Gemini Ernst & Young (Detroit, MI), the primary services contracted from 3PL providers include inbound and outbound transportation, cross-docking, warehousing, freight bill auditing/ payment, and freight consolidation and distribution. But this set of services is changing. “3PL providers should now focus on capable information technology, effective management and relationship processes, global responsiveness, and deliver-ing comprehensive, integrated solutions that create real supply chain savings,” writes John Langley, Jr., survey author and The Logistics Institute professor at the Georgia Institute of Technology.

Saving through logistics
Implementing logistics applications are quick—less than six months is typical. Also quick is their return on investment (ROI), which is often well within 18 months. ROI is based on several measures. According to SupplySolutions, Inc. (Southfield, MI), a supply chain management systems provider, these measures include 30%-70% inventory reductions (work-in-progress and in-transit), slashed administrative costs, improved manufacturing efficiency, the elimination of premium shipping and part shortages, predictable production requirements, precise production scheduling, accurate production orders, significantly reduced “just-in-case” and excess inventory, improved use of limited resources, lower labor requirements, reduced overtime costs, reduced premium freight charges, and peace of mind. Add to that such items as faster order velocity and order fulfillment response times, more inventory turns, and less expediting in manufacturing, warehousing, and shipping, to name a few areas.

According to Deby Veneziale, Chief Product Officer for Arzoon, the company's logistics resource management software can deliver “hard-dollar savings of 5% to 15% of logistics costs by minimizing maverick transportation spending by suppliers and employees, optimizing carriers and transportation modes, reducing exposure to customs compliance liability, and eliminating many manual processes.”

Visibility into movement
The goal, of course, is visibility in all areas of logistics. “Customers are demanding visibility into the status of their orders—when it's going to ship and when it leaves the door—they want a copy of the bill of lading and the packing list, and they want to go onto the Internet and click on a parcel number to know immediately what the status of the shipment is. This is all standard in a visibility solution,” says Ken Lewis, President and CEO of Provia. The warehouse manager wants to know if a problem is beginning to brew before being blind sided. (Thus the importance of workflow-based alerts that can cross the Internet. Imagine the WMS telling your supplier, “Houston, we've got a problem.”)

Interestingly, logistics is probably one problem where throwing technology at it is good. “Just outsourcing the physical processes of logistics is not going to give you the huge hits in logistics savings,” says Veneziale. “To move shipments and do it right, you've got to share [huge amounts of] logistics information with the right players at the right time, let certain players execute on that information, allow other players just to view that information, and let other players set up the business rules.

“Till now, what was always lacking was the technology and automated workflows to bring that information to the players so they could all do the right thing—and the same thing. Companies did it with people in the past because they didn't have the technology to do it. Today the technology exists.”

e Logistics Categories


e Logistics CategoryDefinitionLogistics Role
THIRD-PARTY LOGISTICS (3PL) PROVIDERAn organization that manages and executes a particular logistics function, using its own assets and resources, on behalf of another company.Provides physical assets and technology to execute the logistics for companies without that capability or that have decided logistics is not a core competency. These activities include warehousing, transportation, and freight-forwarding.

FULFILLMENT SERVICE PROVIDER (FSP)An organization that manages and executes part or all of a company's fulfillment process, using its own assets and resources.Manages fulfillment processes on an outsourced basis. Services include order management, call center operation, sales and marketing support, warehousing, inventory management, transportation, and financial settlement.

LEAD LOGISTICS PROVIDER (LLP)An organization that manages a full scope of logistics services for a company by aggregating and coordinating the services of multiple logistics service providers.Serves as the single point of contact between its client and the array of logistics and information service providers executing the client's supply chain. The LLP has full responsibility for the performance of service providers under contract.

LOGISTICS SOFTWARE VENDORA company that develops, markets, and sells logistics software.Provides logistics software either through license or ASP model to companies that manage logistics activities.

LOGISTICS EXCHANGE (LX)An internet-based marketplace for buying and selling logistics services, managing logistics content, and optimizing logistics activities.Consolidates the procurement of logistics services, enforce workflow processes, execute service agreements with logistics partners. LXs usually assume little or no responsibility for the actions of the parties involved.

LOGISTICS VISIBILITY PROVIDER (LVP)An internet-based service that provides the integration to and captures the data from logistics service providers; cleanses, verifies, and analyzes the data; and reports on logistics activities to facilitate supply chain visibility.Serves as a clearinghouse of logistics data to provide shippers with a global view of logistics activities, regardless of mode of transportation or service provider used.


Enterprise-Wide Benefits

IN-TRANSIT INVENTORY VISIBILITYLower safety stocks, avoid materials shortages and stockouts.Customer Service, Manufacturing, Procurement

REDUCE ORDER CYCLE TIMESImprove outbound and inbound fulfillmentCustomer Service, Manufacturing, Procurement

INTEGRATED TRADE COMPLIANCEReduce border delays, avoid excess payments and finesCustomer Service, Producrement

TOTAL LANDED COSTAccurately predict inbound/outbound costsCustomer Service, Sourcing/Procurement

SUPPLIER COMPLIANCEReduce inbound freight costsProcurement


AUTOMATE TENDERING, TRACKING, RFP, TRADE COMPLIANCE, ETC.Reduce errors, increase efficiency, Lower labor costsAll