Resilient Supply Chains: The Next Frontier

The past two decades have witnessed dramatic improvements to supply chain performance through lean manufacturing, just-in-time (JIT) inventory, ever-increasing velocity, extreme outsourcing, and related transformations. In the ten years from 1992 to 2002, the ratio of inventories to shipments in the US fell from 1.65 to 1.35 (see figure 1). These are enormous numbers in the context of our multi-trillion dollar economy.

Figure 1.

At the same time, the complexity and length of supply chains have increased due to ever-greater out-sourcing and globalization. This is evidenced in the upward trend in the average length of haul for freight across almost all modes, over the past forty years (figure 2).

Figure 2.
Average Length of Haul for Domestic Freight

Today the material is acquired and integral processes are performed by a network of many dozens of "virtually integrated" firms, each master of its own specialty. We are getting more spread out, not just geographically, but also organizationally.

Supply Chain Brittleness and the High Cost of Glitches

There's no turning back to the old ways of doing things. These faster, leaner, more virtual chains have resulted in increases in productivity, as well as improved service levels. However, these improvements can sometimes come at a cost—increased brittleness of supply chains. Reducing inventory and building everything just-in-time, without taking steps to improve flexibility and resilience means that disruptions in the supply chain can quickly become expensive disasters.

As design and manufacturing are outsourced, it makes companies more vulnerable. If your contract manufacturer's line goes down, it is your line going down! If your key supplier's design doesn't work, it is your design that's now broken. In the move to extreme outsourcing, we've already seen many stumbles. "Throw it over the wall" approaches present new challenges to cope with.

The globalization of logistics adds yet more risk. Setting aside things like political upheaval or terrorism, just the everyday complexity of multi-mode, international logistics increases the chances of something going wrong at border crossings and hand-offs, and makes tracking all the more critical and challenging.

Firms are also doing more postponement, often involving in-channel assembly and sophisticated merge-in-transit operations. This requires coordinating goods in motion—multiple components that need to arrive together in precise time windows to be combined into the final product. If something goes wrong with even one delivery, then the whole order is late.

The high cost of supply chain disruptions was starkly highlighted in a study by Kevin Hendricks and Vinod Singhal. They found that each significant supply chain disruption resulted in, on average, -40 percent loss in shareholder value. The impact on operating income and ROA was even more dramatic (see figure 3).

It is well understood that expediting costs—increases in the cost of raw materials, as well as transportations costs—fines and penalties, as well as lost business—result from poor coordination in the chain.

Of course, there is the upside opportunities that can also be overlooked. A great product takes off, your competitors are witnesses, and move to counter your offerings, often approaching the same suppliers, creating scarcity of supply.

Somehow you need to create a smarter strategy to deal with the upside and the downside of the supply chains.

Figure 3.
Average Changes to Profit and Returns Associated with Supply-Chain Disruptions

The Resilient Supply Chain

Given these trends and the high consequences of glitches, the basis of competitiveness is shifting. It has become imperative to build more resilient supply chains—chains that are not just lean and fast, but that can also respond to disruptions, upsides and hard-to-predict events. There are an almost infinite variety of disruptions that can afflict a supply chain. Here are a few examples:

• Supplier failures (financial, production, design, etc.)
• Natural disasters
• Work stoppages—Labor disputes
• Infrastructure outages (fire in plant, power grid down, etc.)
• Unanticipated demand surge or drop-off
• Unanticipated supply constraints, allocation, price increases
• Political upheaval
• Price, currency, and interest rate fluctuations

Taken one at a time, disruptions appear to be rare, unpredictable, and often one-time events. However, in aggregate, disruptions are not rare. They happen almost continuously in any major supply chain. While they may not be predictable individually, it is possible to build resilient supply chains designed to mitigate and proactively deal with many of these risks.

It's time to change the way we think about risk management. The traditional view looks at risk management investments as insurance policies—necessary cost burdens that don't contribute to corporate performance. With a broader view, we see that disruptions, in particular mismatches in supply and demand, and logistical problems, happen every single day and seriously affect a company's performance. Effectively implementing risk management techniques dramatically improves a company's performance (lower total cost and higher service levels) compared with the traditional approaches that don't adjust well to unpredicted events.

Elements of Resilient Chains

So how can we build resilient chains? It is important to strengthen and build flexibility into the links in the supply chain. This means crafting formal and informal agreements between trading partners that can evolve over time and adapt to unforeseen changes. It requires a broad based approach to managing risk, as illustrated in table 1.

Table 1- Elements of Resilient Chains

Risk Management Elements	Benefits
Managing the Links
Flexible agreements	Relationships that adapt to market changes and evolving needs
Strategic relationships, vetting, proactive supplier performance monitoring and management	Avoidance of supplier problems, early awareness of supplier problems and rapid corrective action
Visibility, exception alerting (supply delivery, contract mfg, logistics, etc.)	Early awareness and rapid correction of issues at all stages of the chain
Dual-sourcing	No single point of failure
Proactive Risk Management and Predictive Business Intelligence
Risk identification, assessment, prioritization, contingency planning	Wiser use of limited risk management resources. Rapid response when things go wrong.
Developing and monitoring early warning indicators and systems for disruptions of all sorts.	Rapid response. Crisis avoidance or reduction.
Market intelligence, forward-looking, predictive analytics	Flexible, pre-emptive strategies. Proactive execution.
Forecasting and Design Practices
Range forecasts, consensus planning	Better preparedness for upside and downside demand risks
Design using common parts, SKU de-proliferation	Flexibility to meet variety of demand scenarios with given amount of inventory
Lead time reduction, postponed differentiation	Reduced inventory exposure
Manufacturing Flexibility
Flexible plants that can build a variety of mix and volume. Plants that can evolve. Common design platforms.	Mitigate demand-supply matching risk. Flexibility to quickly adapt to immediate demand changes and longer-term product changes in markets
Multiple upstream sources	Ability to ramp volumes. No single point of failure

The Next Frontier

Supply chains have evolved and continually improved over time. These improvements have tended to come in waves that build on previous advances. It takes a blend of strategies from relationship management, technology, smarter manufacturing, and logistics strategies. As you think about building a resilient approach, ultimately it will allow you to succeed at lean yet responsive approaches to the market place. Building resilient chains is the next frontier.

Figure 4.
Evolving to Resilient Supply Chains

The world is a chaotic, ever-changing place with an ever-accelerating pace. Product lifecycles continue to shrink. Disruptions are the norm, with fewer buffers—in time, capacity or inventory. So, while building resiliency in the supply chains processes, they will thrive and out-perform their competitors. Understanding the risks and managing to avert them can prevent unplanned cost and improves total performance. As the inventible disruptions occur every day in supply chains (as in life), those that are the most resilient will win by a long shot.

SOURCE:http://www.technologyevaluation.com/research/articles/resilient-supply-chains-the-next-frontier-17252/

Best Practices for Transporters and 3PL Service Providers

The current state of the goods transport business is such that most transporters and third party logistics (3PL) service providers are forced to offer their services at lower rates while faced with the continual rise in costs for doing business (e.g., increasing fuel prices, employee salaries, and other operating expenses). This scenario calls for transporters and 3PL service providers to streamline business processes and provide value-added services to boost their top lines and improve their bottom lines.

Such results can be achieved by implementing software systems equipped with built-in best practices and with the ability to adapt for future growth, entry into new markets and market segments, and changes in business practices. It also makes sense for transporters to enter into new business lines (e.g., providing services to manage entire supply chains for clients, including managing inventory, warehousing, in-plant services, etc.).

Transportation is the crucial link among all partners in any supply chain. Goods move from suppliers to manufacturers, from manufacturers to distributors, and from distributors to retailers. In cases of rejections, repairs, and customer service, goods move in the reverse direction. Transportation of goods is the lifeblood of most businesses, and in an ever-increasing global market, its role is becoming increasingly vital.

In the agrarian societies of yore, transportation of goods was limited to taking farm produce to the central market of the village. Then came trading communities, which would ship and receive goods via sea routes. Slowly, after the dawn of industrial era, goods were being made on a mass scale, and they were shipped both nationally and internationally.

Now, in the era of global trade, some industries manufacture parts at different geographies, and these goods are then transported and assembled at locations close to end customers. In other industries, products are made at contract manufacturing sites that are located in faraway countries having low labor and materials costs, and are transported and consumed at other locations.

Transporters Have Distinct Needs

Because of the nature of global trade, goods are being transported to faraway places in larger quantities. Transporting goods over long distances both economically and with minimal transportation time requires special knowledge, resources, and expertise. Since the size of transport operations is becoming huge, transport organizations need reliable transportation management systems (TMSs) to communicate effectively with suppliers, distributors, retailers, and service providers. With the help of a capable TMS, transporters can plan and execute their shipments with more accuracy and with less effort. They can also lower their operations costs by means of optimized loading (to get better fill rates) and by reducing empty run miles and wasted time.

Best Practices for Transporters

The unique nature of the goods transport business calls for unique features in a TMS. Transporters deal with many organizations, so they need to have a system to which all of these organizations have access to perform everyday transactions.

Best practices related to goods transportation can be divided into six parts: 1) supply chain management (SCM), 2) billing management, 3) key performance areas measurement (KPAM) management, 4) key account management, 5) quotation management, and 6) fleet management.

1. Supply Chain Management

Transporters need to understand their clients’ requirements and to be an integral part of their clients’ supply chains. They should help their clients achieve the desired visibility level of inventory during transit, as well as reduce transit times, maintain service levels, and reduce transportation costs.

Transporters can devise innovative ways to achieve many of these goals. Technologies such as global positioning systems (GPSs) and general packet radio service (GPRS) can be used to track the location of a vehicle during transit. This will help in achieving better customer service and in making changes in planning at the receiving warehouse (such as appointment scheduling, unloading, put away, etc.) on the fly. Route and load optimization features will assist with route selection to reduce transit times and empty miles run, as well as optimize loading to lower transportation costs.

Providing 95 percent or more visibility during transit can help transporters’ clients reduce their overall inventory levels, and thus save in operations costs. Many times, a vehicle can be loaded at 100 percent volumetric capacity, but it could still be at less than 50 percent in terms of weight capacity. Similarly, sometimes a vehicle is 100 percent full in terms of weight capacity, but less than 50 percent full in terms of volumetric capacity. In these situations, the load planning features of a TMS can help achieve optimized capacity of use of the vehicle. Using load consolidation, which means using opportunities for loading vehicles during return trips, will help transporters’ clients reduce transportation costs.

2. Billing Management

Transporters need to ensure that there are no delays in the payment of their bills. Each bill for each activity they perform must be accurate, and they should ensure no opportunity is lost to bill every activity they carry out. They need to have checks and alerts so that bills are created and presented to clients on time, thereby minimizing payment delays. In addition, transporters need to have an activity-based accounting system so they can bill accurately for each and every activity. They can pass a percentage of the cost savings from reduced operation and transportation costs on to their clients, which will help to maintain a happy and loyal clientele.

3. KPAM Management

Each client of a 3PL service provider signs a service level agreement so that key performance areas can be defined and measured in order to rate the provider’s quality of the service. These agreements differ based on the needs of each client. A TMS with KPAM capabilities should be able to define and measure the agreed-upon key performance areas.

4. Key Account Management

Transporters and 3PL service providers have some major clients for whom they create dedicated customer service, marketing, operations, and accounting teams. In many cases, a team may be comprised of members from different divisions so that all the client’s needs are met through one channel, and the client does not have to deal with several people for a single area or issue.

Another aspect of key account management is that all the client’s needs related to logistics are met by one service provider. For this, the service provider may offer these services itself, or it may procure these services from other service providers to create a single window through which it provides all services to the client.

5. Quotation Management

By using seasonal or historic costs and by comparing rates, transporters can provide accurate quotations to clients. Quotations can take into account opportunities for consolidation, load optimization on equipment, and any other cost-saving measures so that the transporters can pass the cost savings on to their clients, potentially ensuring more business from these clients.

6. Fleet Management

By performing a complete and accurate cost analysis (equipment purchase cost and equipment operations cost) and revenue analysis (revenue realization from equipment being used for the fulfillment of certain orders over a certain period of time), transporters can find out which vehicle types are more profitable and which ones are not. It may be discovered once profit-loss calculations are done that some vehicle types are, in fact, incurring losses. This analysis can help transporters keep a mix of profitable vehicle types in their fleet in order to optimize their margins. Vehicles that create loss for the transporter can be modified to make them profitable (for example, one transporter modified its motorcycle-carrying trucks to accommodate 110 motorcycles instead of the truck’s original capacity of 81 motorcycles).

Recommendations for Transportation Service Providers

Today, most clients are concerned about visibility in the transportation of their goods, reduced transportation times, and fewer hassles in the transportation of their goods and in their SCM. They are also keen to outsource many business processes connected to transportation-, warehousing-, and logistics-related activities so they can focus more on their core business.

Transporters not only have to think about how to deal with their customers well, they also have to think about how to manage their own internal processes properly in order to keep their bottom lines in check. For a long time now, transporters and other 3PL service providers have been operating on thin margins; the time has now come for them to improve their operating environment. By providing better supply chain and transportation management capability, transporters can provide better visibility to their clients, as well as reduce transit times. By providing a single window for all logistics services, they can remove many obstacles from their client’s logistics operations. Such measures will also add much value to the services offered by these service providers.

By taking the actions above to ensure clients are satisfied, transporters have the opportunity to add value to their services by providing new service offerings, thereby increasing their business. Some business lines offer better margins and growth rates, such as express service, warehouse management, consulting services for creating new supply chains or for streamlining existing supply chains, and providing software as a service to clients. Transporters can also improve their bottom lines by bettering fleet management, billing management, and key account management capabilities. By managing and excelling at both customer-facing and internal processes, 3PL service providers have a greater chance of surviving the difficult reality of their business climate.

Recommendations for Transportation Software Vendors

Many of the needs of transporters and SCM service providers are unique. Software vendors would do well to understand these requirements and to develop software features that address these needs. For instance, at the shipment tendering process, players include the client, the broker or fourth party logistics (4PL) service provider, and the transporter. Which player should view what information is a crucial decision, as much of the information is confidential. A TMS should be able to take care of this aspect in addition to providing configuration options to change workflows in the process, depending on client needs.

Similarly, the service provider needs to bill clients for all transportation-related activities. Billing rates will be different for different activities and for each client. Likewise, billing for different equipment used to perform activities will vary. TMS software should provide billing functionality for all of these aspects.

TMS software should also be capable of integrating with any kind of third party software system, as service providers need to have information exchange capability with their clients and their partners. The system should also have interfaces for handheld devices, as employees of these service providers need to work in the field, and they need to constantly exchange information with the core system.

SOURCE:http://www.technologyevaluation.com/research/articles/best-practices-for-transporters-and-3pl-service-providers-19235/

As Hype Becomes Reality, a Radio Frequency Identification Ecosystem Emerges Part Three: Radio Frequency Identification Opportunities Abound and Summar

As the radio frequency (RFID) ecosystem continues to evolve, so will the opportunities for innovative applications of RFID technology that will have a positive impact on our everyday lives. The decreasing costs of tags, transponders, antennae, and sensory network equipment will also have a profound impact on the potentially ubiquitous nature of RFID technology. As far as implementation costs are concerned, practice makes perfect; so as more and more RFID implementations are completed by experienced systems integrators and as the ecosystem of service providers grows, competition should drive implementation costs downward. In addition, while maintenance contracts for RFID services can generate substantial service revenues, the cost of supporting such contracts should also decrease. Today, most RFID implementations are in some fashion "custom" projects, but the degree of customization should diminish over time, thus reducing costs.

Out of the gate, we have witnessed the early adoption of RFID technology primarily in five lines of business: manufacturing, distribution and warehousing, retail, health care, and government. An early Massachusetts Institute of Technology (MIT) study of RFID innovation demonstrates this, as indicated in the following breakdown of end user respondents by primary line of business and by application (see table 1 and table 2).

Table 1. RFID User Respondents by Line of Business

Line of Business	Percent
Manufacturing	32.90
Distribution and warehousing	13.30
Retail	11.80
Government	6.60
Health Care	6.60
Professional services	5.30
Consulting	3.90
Transportation	3.90
Commercial services	2.60
Education	2.50
Mail or parcel delivery	1.30
Other	9.20

Table 2. RFID User Respondents by Application

Application	Percent
Supply chain management	91.10
Asset tracking	82.30
Transportation	58.80
Security and access control	44.10
Point of sale	41.20
Retail item tracking	25.40
Miscellaneous	49.90

Multiple responses per respondent

It is worth noting that since this analysis was conducted, the RFID systems adopted by transportation, distribution, and warehousing organizations appear to be using higher cost RFID systems. These systems frequently incorporate higher frequency, active, read-write tags and associated hardware to support applications such as materials management, yard management, rail car identification, and container tracking. Technology Evaluation Centers Inc. (TEC) expects considerable change in these metrics over time as new industries put RFID to use.

In general, increased usage of RFID technology should be expected as enterprises invest in supply chain management (SCM) and logistics applications to automate processes, such as automobile assembly and final product distribution. There is clearly an upward trend regarding the number of surveyed enterprises reporting current and active evaluation of RFID applications and projects. Such future applications of RFID technology will be influenced by the nature of the object needing identification and the environment in which the object resides. In this regard, various frequency ranges are available for different RFID applications. For example, high frequency (13.56 MHz) hardware is adoptable worldwide and is more tolerant of harsh environments, so supply chain applications are trending toward smart labels at high frequency.

Current and Future RFID Opportunities

If variety is the spice of life, there will be no lack of spice when it comes to the innovative adoption of RFID technology by industries. Analysts expect that we will routinely find RFID tags associated with common products in our homes and places of work in a just few short years. Horizontal applications areas include the following.

• Improved manufacturing processes
• Supply chain performance
• Asset tracking and status change
• Product safety and serviceability
• Security and anti-counterfeiting
• Quality control
• Access control

There is also a great variety of vertical RFID applications. The following is a sampling of the various applications of RFID technology across different verticals. The list is based on current RFID projects, as well as on responses to recent analyst firm surveys regarding future RFID usage.

Consumer Packaged Goods Applications

• Tracking of product through the supply chain from the manufacturer, through distribution and the retailer stock room, to the sales floor to improve supply chain visibility
  
  
• Supply chain efficiency improvements that streamline move and shipment activities
  
  
• Compliance with retailer mandates, in many cases via a "slap-and-ship" approach
  
  
• Anti-counterfeiting protection, along with supply chain visibility
  
  
• Inventory control applications that improve the accuracy and timeliness of material transactions within a distribution environment

Examples

• Gillette tracking of product sold through Wal-Mart
  
  
• Hewlett Packard tracking of product sold through Wal-Mart
  
  
• Thomasville Furniture retailer (Wal-Mart and Target) compliance
  
  
• Goldwin Sportswear (a Japanese company) program that not only provides better visibility into the supply chain for apparel products that are manufactured in China and distributed in Europe, but also provides a means of verifying authenticity to deter counterfeiters
  
  
• Unilever smart pallet system that improves inventory control within warehousing and distribution operations

Retail Applications

• Supply chain visibility and improved transaction accuracy and efficiency that enable smoother receiving, reduced shipping errors, and reduced inventories
  
  
• Inventory control applications that employ smart shelves to monitor the whereabouts of items such as digital versatile discs (DVD) within a retail store
  
  
• Improved returns management that enables identification of specific item purchased (or not) at a specific price
  
  
• Retail visibility at the shelf level that reduces rates of shelf stock outs
  
  
• Potential for streamlined self-checkout when RFID tagging becomes predominant at the item level

Examples

• Wal-Mart and Target programs to deploy RFID, which include mandates to suppliers
  
  
• Tesco and Metro RFID programs
  
  
• Best Buy program to deploy RFID
  
  
• Piggly Wiggly program to integrate RFID into its supply chain
  
  
• The Gap pilot program to boost merchandise sales by improving in-stock through the use of automated restock notifications

Automotive Applications

• Tagging of aftermarket parts for retailer compliance, potentially increasing visibility through the supply chain
  
  
• Inventory control applications (35 percent of survey respondents used RFID for material management)
  
  
• Tire manufacturer compliance with Transportation Recall Enhancement, Accountability, and Documentation (TREAD) Act mandates to support recalls
  
  
• Manufacturing efficiency improvement that is used to identify the next manufacturing process operation (such as "paint this vehicle forest green")
  
  
• Tracking of finished goods to improve visibility and reduce shrinkage
  
  
• Anti-theft immobilization integral to key operation
  
  
• Asset tracking—tool crib check-in, check-out automation, and tool tracking

Examples

• Goodyear RFID tagging of individual tires to comply with the TREAD Act and Wal-Mart mandates
  
  
• Goodyear's work on a "smart tire" RFID sensor to alert drivers to low tire pressure
  
  
• Daimler Chrysler's RFID routing ticket
  
  
• Ford Motor Co. deployment of an RFID yard system and vehicle track and management system

Pharmaceutical Applications

• Anti-counterfeit solution that assures the authenticity of pharmaceutical products through the supply chain to the pharmacy
  
  
• Compliance with current and anticipated pedigree mandates without the need to file reams of paper
  
  
• Product quality assurance through the supply chain by monitoring storage conditions for temperature sensitive products
  
  
• Improved inventory management by facilitating individualized expiration date tracking
  
  
• Improved recalls management by better tracking the specific locations of all product subject to recall
  
  
• Reduction in product diversion by tracking cross-market movement of drug shipments from low price to high price regions

Examples

• Pfizer's Viagra tagging program to fight counterfeiting
  
  
• Purdue Pharma's tagging of bottles of the painkiller OxyContin to fight counterfeiting
  
  
• US-based wholesaler HD Smith's program to track the distribution of controlled substances

Logistics Applications

• Inventory visibility application that enables rapid and accurate location of specific vehicles within a large terminal facility, thus contributing to improved throughput, quality, and customer service
  
  
• Supply chain visibility applications, such as tracking trailers
  
  
• RFID capabilities for third-party logistics companies, which are needed in order for the increasing numbers of manufacturers who outsource their logistics operations to meet customer requirements

Examples

• Broekman Group deployment of WhereNet system to track vehicles at the Port of Rotterdam
  
  
• UPS use of RFID tags to track trailers

SOURCE:http://www.technologyevaluation.com/research/articles/as-hype-becomes-reality-a-radio-frequency-identification-ecosystem-emerges-part-three-radio-frequency-identification-opportunities-abound-and-summary-18378/

Three Ways ERP Can Help Manage Risk and Prevent Fraud

Business is all about taking risks. But intelligent managers know how to manage risks, thus preventing accidental losses as well as other operational, financial, and strategic risks—including fraud.

To manage business risks by using technology, we must first understand and prioritize the risks a specific business faces, and then understand how IT can help that business. Then we can come to understand how those risks intersect with the IT systems a business might already have in place.

One risk within your business may stem from operating in an e-commerce environment. In that case, you want to know how IT is supporting the Web portal. Do people simply view a catalog, or do they order online and log back into your system later to view their order status? How does that portal tie in with your back-end systems and business data?

Or maybe you have multiple business units, several running on a top-tierenterprise resource planning (ERP) system like IFS Applications. But a Mexican unit is still running a homegrown application, passing its data to you in spreadsheets modified to reflect currency exchange. The manual processes involved in this data transfer and data alteration represent a business risk that could be mitigated by the built-in security features of an ERP system.

So, while technology might be designed to assist in risk management, that technology must still be configured and used intelligently to deliver this business benefit.

Indeed, intelligent use of an ERP system can not only help ensure compliance with legal requirements and accounting rules, but it can also help prevent fraud. An ERP application and its user permissions settings can prevent theft. Aggressive and intelligent use of an ERP system's safeguards can save time during auditing. Properly configuring an ERP application can help protect your company from fraud and costly corporate mistakes in a number of ways. Following are three practical approaches a business can take to protect its assets through its ERP system.

1. Use a top-down approach to identify risks.

Business risk management requires a top-down approach. Senior management often focuses its efforts on creating competitive advantages and might not see one in spending extra money on compliance. But even companies not immediately affected by regulations like the US Sarbanes-Oxley Act (SOX) and the Health Insurance Portability and Accountability Act(HIPAA) of 1996 can benefit from applying some of the principles required for compliance to their business. Efforts to comply with basic data security and risk prevention guidelines can even further reduce the risk of financial loss through administrative mistakes or fraud. The specific steps necessary to ensure compliance with these guidelines will differ from one company or business model to the next, but any company needs to pay attention to such basics as good financial statements, data security, privacy, and housing of key information—and how that information affects things like ensuring accurate financial reporting.

Part of this top-down approach involves identifying what information is key to your business. For a manufacturer, this data might consist of accounting, payroll, and health insurance information, plus things like physical plant assets and inventory. In contrast, a professional services environment is much simpler, with key information consisting of things like customer service and payroll data, with the only other real assets consisting of phones and perhaps leased office space.

Of course, this information comes from the heart of a business: its key business processes, or the mechanisms by which resources flow in and out of the company. When these processes differ, they prevent different risks. A company selling a small number of high-value products (industrial equipment, for instance) to a small number of customers faces a very different risk profile than a company selling hundreds of thousands of items to a large number of customers.

A company serving a smaller number of customers with very high-value products needs to make sure that only authorized people are able to set up new customers in their accounting systems. Consequently, the company must be careful to ensure that payment terms, credit limits, and other controls are set up properly.

However, the customer creation process will not be a critical control point for a company with a higher volume of customers and lower value per sale. It is important to understand your business flow and transaction volumes and the implications for relationships with your trading partners. An ERP system can be an excellent tool for formalizing processes for setting up new customers, and perhaps more importantly for setting up supplier relationships in your systems.

Surprisingly, many companies with powerful ERP packages in place circumvent those controls by using Microsoft Excel more than they say they do. Unmonitored use of Excel and other tools outside of an enterprise application may be of special concern during and after mergers and acquisitions. In a merger situation, a company must determine the maturity of the acquired company's IT tools and processes, and how best to integrate them into the existing systems. But at least during an interim period, the primary means of transferring information from the systems of the acquired company to its new parent may be unsecured spreadsheets.

Even without the challenges of mergers and acquisitions, a business might use outside tools like Hyperion as part of its reporting routines. Any time that tools outside an enterprise application are used, you need to ask how your data transfer methods can ensure completeness and accuracy in your business processes as data flows between two or three—or maybe more—separate and distinct systems. Using ad hoc tools like Excel—tools without a lot of built-in controls—means it's harder to guarantee data integrity. Taking measures to reduce alterations to your data outside of the ERP system makes a huge difference not only in preventing incorrect or fraudulent activity, but in streamlining your processes before an audit.

2. Harness the general user controls in your application.

Even when a company keeps 80 percent of its information in a top-tier ERP system and minimizes risks resulting from the use of ad hoc tools, it may not be familiar with the capabilities of its ERP system and how that system can be configured for risk management. Often, these capabilities are overlooked during implementation because risk management was not a main deliverable in the project proposal—and of course the company isn't anticipating an audit or attempted fraud. Because risk management can take a backseat to other deliverables, it's important for project managers and consultants to act as advocates and encourage people to consider three main risk management areas during ERP planning and implementation:

i) Prevent mistakes and fraud through role-based security. This is an ERP feature not everyone understands. You must ensure the right people are assigned to the right activities and prevented from engaging in the wrong activities. Generally, this requires a separation of powers, as you don't want to allow one person to complete every activity within a business cycle—whether that cycle is orders-to-cash or purchase-to-pay. For instance, if a single person can create a supplier, create a purchase order for that supplier, purchase the product, and cut and send a check, how do you ensure that person's cousin doesn't suddenly become a supplier? If that person also has access to inventory records, he or she could make an adjustment to inventory to hide the fact that a product from his or her imaginary supplier was never received. Physical inventory would never catch it, but the company would have paid for the imaginary product, and before the discrepancy is detected, the perpetrator could have inventory-adjusted it out. Some enterprise applications simplify identification and elimination of role-based security risks (see figure 1).

Figure 1. Segregation of duties analysis (provided by IFS North America).

Even some companies that attempt to segregate all the necessary functions to deliver role-based security still employ a financial clerk. This clerk can perform a number of tasks for accounts receivable, accounts payable, general ledger, and inventory adjustments. This violates a number of rules of financial segregation, despite the fact that the company is using a major ERP system designed to deliver financial segregation and role-based security, and in some cases separates those duties in other positions.

Correctly segregating duties to manage risk requires analysis of a company's key business cycles to identify which administrative roles need to be separate and distinct. This is not as simple as it sounds: in a small or midsized department, three people may have different roles in the company, but they are also each other's back-up. As each employee goes on vacation or takes sick leave, others assume the absent employee's duties, often with help from a system administrator. When the employee returns to the office, often there is not a process in place to remove the system permissions. Without diligent attention to assigning and managing these user permissions, before long, role-based security disintegrates.

Role-based security must be built into an application, defined and configured during implementation—and then maintained.

ii) Implement detective as well as preventive controls. Sometimes a company's administrative staff is too small to segregate roles with enough granularity to truly benefit from role-based security; or, it may operate in too complex a manner to make role-based security practical. But even when good preventive controls such as role-based security are in place, it is critical that a company can monitor employees' access to its business systems, and track what they do with that access.

Let's say that according to your role-based security schema, an individual can create customers in the system, but normally does not set up a whole customer record, leaving some of the work for others. It makes sense to monitor this individual on a monthly basis to track that key activity (see figure 2). Another way detective controls can be useful is if a double approval of check is required. The system may have to be altered when the president, for instance, is out of the office. But when the president returns, he or she can review a log to see what checks were cut in his or her absence.

Figure 2. Activity and event tracking (provided by IFS North America).

Detective controls can also be used to ensure that preventive role segregation controls are not being circumvented. You can do this by checking to see who is changing people's access in the system. Reviewing audit logs of permission changes is one way to maintain good segregation of duties.

Some activities, however, require timelier tracking and validation than permitted by reviewing log files. Fortunately, some ERP systems proactively send messages when specific events occur (see figure 3). For instance, perhaps your chief financial officer (CFO) wants to be automatically notified when anyone writes a check for over $10,000.00.

Figure 3. Functional area conflicts (provided by IFS North America).

The general awareness that the ERP system can create these alerts may serve to prevent some large-scale fraud. But there are cases when an employee knows of a limit and engages in fraudulent transactions under that limit. So, in addition to established limits that alert you to checks over $10,000.00, you could also create a control that notifies you if two or more transactions for over $9,000.00 or $8,000.00 occur in a defined period of time (for example, in 14 hours). Tracking an accumulation of minor events is a smart thing to do, as those minor events can combine to make a major one. But you may want to avoid broadcasting these incremental controls, or they could be rendered ineffective.

iii) Manage IT-driven risks. Apart from managing regular users, an ERP system should offer preventive and detective controls to thwart system administrators, database administrators, and programmers from making mistakes or engaging in conduct that could present financial risk to the company.

As is the case in identifying risk on the business-administrative side, managing risk on the IT side of an ERP package starts with an analysis of where business risk and IT intersect. This involves determining how the application's architecture supports the IT side. Situations should be avoided where a single person has access to the source code of the ERP application and the database it runs on. In such cases, an IT manager or system administrator can do more damage than a simple user of the system, and moreover may have the skill to conceal any illicit behavior during an audit. So it's important to use the ERP application's multitiered environment to segregate roles on the IT side, ensuring the database is secured on a separate server from the source code of the application.

Only the database administrator should have access to the database server, and someone else—like the ERP manager—should have access to the source code or the system itself. This ensures that the database administrator can change the raw data in the database, but not the application's source code; and that the ERP manager can change the source code of the application, but not the underlying data it's running on.

IT preventive and detective controls need to be closely intertwined. For instance, log files can track changes to tables made by the database administrator. But many times a database administrator is only given entry access, and can therefore enter but not change data in the application's underlying tables. If a database administrator is particularly astute, however, he or she could get into the log files that track changes to that database and alter them to hide various database transactions. That why it's important to consider using an ERP application's capacity to track when a database administrator is logged onto the server, and keep that information on yet another server to which the database administrator doesn't have access permissions (see figure 4). Consequently, in the event that there are unexplained inventory changes or other anomalies, you can compare the timing of those events with the administrator's activity in the system.

Figure 4. Table showing log-in times (provided by IFS North America).

Some ERP systems have migration utilities—a development environment that allows technical staff to identify new segments of code and move them into a quality assurance (QA) environment for testing. After testing, the code goes into a staging area or even directly into production. In order to allow rapid recovery, in case that new code does not perform as anticipated within the application, there is also typically a quick back-out capability that returns the system to its previous state.

It is important to consider an application's capabilities in tracking the activities of employees involved in change management and in moving code from a development environment to a live one. A system administrator could maliciously change the application's source code or even create a program that changes the source code by using a migration tool (built into many enterprise applications) to hide a piece of code that executes functions a single time. This may result in the one-time transfer of $100,000.00 to a specific bank account. After performing its function, the code could be programmed to expunge the resulting log file—and finding the exact cause of that anomalous transaction is impossible without reviewing millions of individual lines of code.

There are two ways to deal with these risks from both preventive and detective standpoints. Detective controls include good cataloging to track the production environment, and who enters what code into production. Preventive controls involve, again, segregation of roles. A programmer's access would be limited, for instance, to the QA environment, while the ability to move code into production would be reserved for a system administrator. Once duties are segregated logically, it is a simple matter of determining how the ERP application can facilitate that separation of duties.

3. Enjoy the efficiencies that come with automated risk management.

The old axiom is that people will work harder to keep someone from stealing $10.00 from them than they will work to make that $10.00 to begin with. And while risk management is primarily about preventing loss, there is a real upside to automating processes that prevent costly mistakes and fraud. Implementing automated risk management practices within your ERP environment can help you document risk management and compliance activities. This can deliver efficiencies that you will appreciate during an audit, or anytime you need to document the safeguards built into your business systems.

Many ERP preventive and detective functions are automation tools that expedite the compliance and documentation processes a business may face. Once an ERP event engine (like IFS Applications) is configured to test for various exceptions and send notifications when they occur, you can document and use that exception reporting system to your advantage during an audit. To pass an audit, controls must be baselined, which means testing the controls and saving the test information so you can show your auditor that credit limits have not changed—and if they had, you would have been notified. Moreover, your ERP application should allow you to keep audit logs of every transaction in the system, providing additional documentation and detective controls.

Conclusion

Risk management within an ERP environment starts with a thorough analysis of where the risks faced by your business intersect with the technology. Fortunately, a top-tier enterprise application typically facilitates risk management activities, including preventive and detective controls.

But the technology is of little use if risk management is not a priority during the implementation process. Analyzing business risk during this critical time, and configuring the application to manage those risks, can prevent accidental and deliberate loss down the road. Moreover, these same risk management measures, once put in place, can also help you document your processes, risk management, and regulatory compliance.

SOURCE:http://www.technologyevaluation.com/research/articles/three-ways-erp-can-help-manage-risk-and-prevent-fraud-19507/

Warehouse Management Systems: Pie in the Sky or Floating Bakery? Part One: Myths of the Warehouse Management Systems and Implementation

I just returned from a week long conference and as one of the speakers/vendors there, I was not looking to receive the same thing that the attendees were looking to receive. I was looking for clients; however, I mostly found "patients". I found most of my time was spent psychoanalyzing what people had been told by competitors and other logistics companies. Many of the people I spoke with were confused about what was available. They had question after question about systems on the market; the ROI they could expect; the time it would take to implement a system; and of course, whether a system was for their company or not.

After the conference and feeling like pop TV therapist, Dr. Phil, I realized that people needed more education about what to look for when searching for awarehouse management system (WMS) or any new technology for a warehouse. I began writing on the plane ride home and came up with a list of myths of WMS solutions and suggestions when searching for a WMS solution. You have to know what features and functionality you are looking for when searching for a warehouse management system. There are some good systems on the market that do a lot of different things, but you have to know what your expectations are and how far those expectations are from reality. The best way to separate fiction from fact is to bring in an expert. Remember this is not like purchasing a car or a computer for you home. You cannot simply ask several people a lot of questions and then assume you are an expert. You have to begin with a foundation that is built without bias. Only then can you begin evaluating system. In other words, you have to know what your current needs are and what your future requirements will be before beginning your search, not just what bells and whistles are available.

This is Part One of a two-part series.

Part One will describe the popular myths encountered when looking for a warehouse management system.

Part Two will describe how to assess your current warehouse processes to find the best system that meets your needs.

The Myths

Myth #1 Huge Staff Reductions

Everyone I spoke with at the conference said she or he was told to expect to reduce warehouse staff by as much as 30 percent in the first year. The first time someone said this, my initial response was disbelief. After that, I had to respond to what I considered to be "a lie".

For example, the very first system that I implemented as a customer resulted in major staff reductions in specific areas of the warehouse, mainly receiving and picking. However, this was not solely because of the WMS system. We had four receivers who worked to complete the day's receipts by 4:00 PM. With our manual system, the product arrived at 8:00 AM and each receiver would process paperwork then putaway the product. However, this old manual process didn't work well with the new WMS system, so we began our transformation by having the delivery drivers arrive an hour earlier, which gave our receivers an hour of uninterrupted work. We also divided the department into receivers and putaway people, which let receivers process paperwork and answer receiving questions, while the others focused on the putaway. The net effect was that we reduced the staff in the receiving department by one person while simultaneously completing the same amount of receipts by 2:00 PM. In other words, we reduced the staff by 25 percent and completed the work in twenty-one hours instead of thirty-two hours. But was the WMS system the sole cause of the increase in productivity? Of course not! However, you would not know this as prospect speaking with the vendor. They touted that their system reduced our staff by 25 percent and allowed us to process the same amount of work in less than 60 percent of the time.

Important You have to be able to separate "fiction from fact" when speaking with a software vendor, a user, and even your own people!

Myth #2 Quick and Easy to Implement

Another person at the conference was told that a WMS system would be up and running in about three to six months. Again after giving a look of disbelief, I had to respond. I have worked with several different companies' implementing WMS systems and have yet to see someone properly implement a system in less than a year. Obviously these were larger warehouses, but this was even the case for ones that were 30,000 square feet with fifteen people. The problem was not that the systems were too complex, but that these companies had problems that needed to be addressed prior to going live on the system. Process failures are the result of a company's culture and not the result of an archaic system. Therefore, the culture must be addressed prior to, for example, installing barcodes.

Most people I speak with think that barcodes have been sent from heaven. However, once they purchase the software and begin dealing with consultants and software vendors—not to mention their own purchasing and customer service departments—they realize it will take divine intervention to get the system running. The problem is that as the frustration level gets higher, it takes longer to implement the system. Leaders of most organizations are under extreme pressure to produce, but execution must come from the middle managers. Middle managers are so overworked that they leave details up to the supervisors. Supervisors are so busy dealing with the day-to-day issues that things get overlooked and placed on the back burner. Pretty soon finger pointing starts and no one wants to take responsibility for taking so much time to do something that everyone thought would be so simple. Upper management was expecting to receive an ROI within eighteen months and it has taken twelve just to get the software working.

So what happens as the frustration level begins to rise? The implementation team begins throwing the once detailed plan out the window in an effort just to meet the new go-live date—a date that has been pulled out of thin air by their frustrated manager. Upper management begins citing "paralysis by analysis" with the common phrase being, "You guys are trying to over analyze everything and aren't getting any real work done. Get out there on the warehouse floor and get this thing up and running."

Fear sets in and the implementation team works to make the date, only to experience problems. Now the once demanding manager begins to wonder why no one saw these problems coming, and starts to ask, "What were all of those meeting for?" No one wants to say they did see the problems and that was why it took so long in the first place, but for the sake of time, the team chose to overlook the potential problems in order to get the system running.

Important You have to set a go-live date and work backwards. This is not a barcode system it is a project that requires a lot of attention to details. The smallest seemingly insignificant thing can cause a major problem. By working backwards from your date you can see what is reality and what is "pie-in-the-sky!"

Myth #3 Fast and Big ROI

As I listened to one vendor tout an ROI in eighteen months or less, I began walking away before I opened my big mouth and was forcefully removed from the conference. I can tell you this as a consultant and as the president of a WMS systems provider: You will receive every penny you invest in your system back, but whether that will be in eighteen months or thirty-six months depends.

I explained the problem with ROI in warehouses in an article several years ago titled, " ROI in Your Warehouse! (Real or Imagined?) ". You have to know what something is costing you before you can expect a return on your investment. When you first started reading, I began talking about cars, so let's go back there. Think back to the old car you used to own before you became a success. Think about conversations with friends and yourself to rationalize getting a new car. Your friend probably said, "That car is costing you a fortune. It's always in the shop and is a gas guzzler. Why don't you just get rid of it?" You probably said to yourself: "I just had a new alternator put in, a new oil pump installed, and now the car needs new tires and a new starter." You then concluded it was time to "invest" in a new car. So you went to the dealership and the sales representative told you about the gas mileage, the warranty, and of course the lumbar support in the driver seat. You read the brochure, told your family and friends, went for a test drive, and signed on the dotted line.

A little while later, something started rattling that was not included in the warranty and as you were paying to have the dealer fix it, you started to think "Did I really need a new car?" You ask yourself, "How much was I really paying to maintain the car I had?" With the new car, your Department of Motor Vehicles renewal fee is higher; your insurance is higher; however, it probably gets better gas mileage, but the tank is bigger. Because you never tracked the expenses of you old car, you don't have a point of comparison. Well, it is the same with your warehouse. You need a point of comparison to see if you really need a new system.

You have to know what you are spending to expect a legitimate ROI. When a vendor says that ROI will come in eighteen months, that assessment is based on what you are currently measuring. Vendors never tell you that the cost to implement is not included in that eighteen months. Nor will they tell you that the cost to have the system interfaced to your existing (possibly outdated) ERP system or cost for the consultants, the overtime you will spend, and the loss of customer orders because this new system requires a learning curve, is not included in that eighteen month ROI. These are all questions that must be asked prior to the purchase. You can't just walk out of a site visit with the vendor and be consumed by the "new car smell," and then ignore what the true costs will be to get your warehouse from manual to automated.

Every penny you invest into the overall process will be returned to you! But when a vendor says the ROI is eighteen months ask them, "Is that real or imagined?" ?

Important Determine what tangibles your promised ROI is based on, then include the intangibles. Remember there are positions that your new system may require that are not required in a manual warehouse. "You don't know what you don't know!"

Myth #4 Features and Functionality (Bells and Whistles)

There are a lot of great systems in the marketplace—there are probably some systems that will cook breakfast for your warehouse personnel as they arrive to work, but do you need that? Do you need to cross-dock your orders when your fill rates are low, causing backorders to be received then putaway to stocking locations so a complete order can be shipped? Do you need a function that will re-slot your warehouse based on product movement when you can't even get your warehouse personnel to complete their replenishment instructions and clean the warehouse with regularity? These are all excellent functions that provide quantifiable value to some companies and extra maintenance payments to others. I am not saying you don't need the extra bells and whistles, but how often do you cool your soda in the glove box of your car? Probably never! And it will be the same with your warehouse. All you need are the basics to operate your warehouse effectively and efficiently. You have to determine what those basics are then begin your search to find them and implement them in a timely manner.

Important JTB: "Just-the-basic" is all you need to efficiently and effectively operate your warehouse. Your additional processes add a level of complexity that must be implemented, maintained, and more importantly, paid for!

This concludes part one of a two-part series.

Part One described the common myths of warehouse management systems..

SOURCE:http://www.technologyevaluation.com/research/articles/warehouse-management-systems-pie-in-the-sky-or-floating-bakery-part-one-myths-of-the-warehouse-management-systems-and-implementation-17530/

Transportation Management Systems: The Glue of the Supply Chain

Supply chains are becoming increasingly complex, and as manufacturers create a “value chain” that spans many countries, transportation of final goods or raw materials is a critical component to their business. If goods do not arrive at their destination on time, the manufacturing process will come to a halt and links within the supply chain will break, causing problems for other entities down the chain.

Along with this, the import and export of products is increasing, leading to greater movement of goods through distribution centers (DCs) and to a higher volume of products that need to be moved.

And then there is the issue of how companies deal with ever-increasing fuel costs.

It’s hard to imagine how companies can deal with the difficulties described above, but transportation management systems (TMSs) can do plenty to help manage the complexities of manufacturing today.

A Solution for the Complexities of Manufacturing

Given the growing need to move products inland and the increase in fuel prices, TMS software is a vital tool for today’s logistics industry, and the need for this enterprise application will only increase in the next five years.

As manufacturers’ supply chains continue to expand, developing networks and using different modes of transportation (truck, rail, air, and boat) can be quite a challenge. Networks and the use of these transportation modes need to be optimized. Otherwise, the following basic questions will be exceedingly difficult to answer, leading to serious visibility problems for the manufacturer:

• Where are the goods now?
• When and where are the goods to be shipped?
• What mode(s) of transport should be used to ship the goods?

So, what exactly is a TMS?

A TMS is designed to manage the different modes of transportation used to move products, whether finished or semi-finished. Transportation modes consist of ground, air, rail, and sea transport. A TMS determines the optimal path to transport products based on distance, location, and route.

The Anatomy of a TMS

A TMS’s basic functionality is comprised of the following:

Lane set-up: This has to do with multimode types of transportation. If moving a certain product requires three types of transportation methods (for example, rail, truck, then rail again), the system will be able to schedule all three of these means of transport.

Geographic set-up: This will link geographic locations together, as well as set up the service levels between different parties along the logistics chain.

Carrier and contract details: Whether the company using a TMS solution is outsourcing some of its transportation needs or managing transportation methods itself, the system will research the best rate of each carrier (transportation or logistics company), and select the carrier with the best price. Sometimes however, if a carrier has received three strikes against it (for example) for not delivering product on time, the system will not consider it an option, even if it offers the best price; the TMS solution will select another carrier that will fit the needs of the client, even if it’s more pricey to deliver. As well, sometimes the carrier with the best price is not in the appropriate range of location; thus, the TMS will not select it.

Transportation network optimization: This is one of the most critical components of a TMS. The TMS will define the following three aspects, each of which helps to manage the manufacturer’s “private fleet” (its fleet of transportation vehicles):

1. Strategic and master route design: This gives managers in charge of delivery the ability to decide the optimal route the driver of each vehicle can take, allowing expedient delivery of the product.
2. Territory design: This allows manufacturers to establish a standard route for regular, recurrent deliveries.
3. Routing and scheduling: This gives manufacturers the ability to optimize the schedules of all the modes of transportation it needs to use, as well as define the best routes possible. If a route is unavailable, the system, using global positioning system (GPS) technology, can determine another route.

A TMS can also offer advanced functionality, which does even more than the above. For example, a logistics company or a third party logistics (3PL) provider may have some stock to move out; the company loads the stock onto a truck and sends it off. This simple process may be good enough, but optimization has not been achieved at this point.

A TMS with advanced functionality is able to perform the following:

Cubing: This enables logistics managers to 1) maximize the amount of pallets or boxes that can be put into an enclosed space, be it a truck or an airplane, and 2) take into consideration heavy and light items. The data that is pulled from the warehouse management system (WMS) or enterprise resource planning (ERP) system gives managers the information on which pallets to load at the bottom so as not to damage any inventory.

These two capabilities allow logistics managers to assess how to save on fuel costs. The manager can compare if a load is better sent as one full truckload (i.e., at the maximum weight) with a discount, or sent as two less-than-truckload (LTL) shipments, which would save on fuel costs because the loads are lighter and require less fuel.

Advanced scheduling: Cubing ties into advanced scheduling and routing optimization. Advanced scheduling will take into account the above variables, and set out a path for the driver to take to deliver shipments 1) on time, and 2) in sequence, allowing the strategic placement of goods onto the vehicle.

Consolidation: This enables logistics providers to combine multiple loads, whether they come from one location or from multiple locations. It works with what is known as cross-docking and multi-stop pickups. If a logistics company wants to either cross-dock (the process where a shipment is unloaded at one DC and redistributed to other locations, whether retail locations, manufacturers, or other DCs), the system will figure out which items to consolidate with what load, and optimize the routing and cubing at the same time.

With the above functionality, each module within the TMS can be combined with any permutation so that different pickup and delivery models can be designed by the logistics company, and can be incorporated into the TMS. From this, the organization is able to optimize logistics processes, which are often very complex.

How a TMS Can Help Manufacturers: An Example

Let’s look at a concrete example to see how a TMS can help organizations optimize their entire value chain. Because the manufacturing environment is now global, this example will involve China, Canada, and Spain as parts of a manufacturer’s complete value chain. Consider the following scenario:

A manufacturer of cellular telephones has one DC in China, another DC in Vancouver, two manufacturing plants in China, one retail location in Vancouver, and another retail outlet in Spain. Thus, this manufacturer’s supply chain is highly complex for many of its suppliers and distributors to navigate. Figure 1 depicts the process, or flow, for moving product throughout this supply chain.

Figure 1. A value chain model.

Because products must be moved across many countries and via several transportation systems, three scenarios are possible:

1. The manufacturer will send the cell phones directly from the DC in China to the retail location in Spain. In this case, planes and trucks (air and ground methods) will be the chosen modes of transportation.
2. The manufacturer will have the cell phones moved through the DC in China to Canada (either by ocean or air), transported to the DC in Vancouver, and on to the retail location.
3. The cell phones are moved from China to the DC in Canada, but they are sent back to the China DC because of product defects. In this case, the DC in China sends the cell phones back to the manufacturer in China, which either repairs the defects or sends the phones back through its supply chain.

All three of these scenarios involve heavy TMS functionality. The scheduling and routing, cubing for the cell phone boxes, consolidation for cross-docking in different loading zones, dealing with geographic setups, and scheduling all types of transportation modes are critical to this process. If one of the DCs or manufacturing plants does not deliver its products on time, the TMS will adjust the scheduling or find an alternative route.

Because TMS solutions can optimize the loads put onto different vehicles or other modes of transportation, managers in this example can determine how much the fuel to deliver product to the different DCs will cost, and they can know when product is to be delivered and the optimal amount of goods to deliver to the appropriate location. The TMS incorporates the appropriate information into the routing optimization tool. This gives individuals within the supply chain the best information on how to save money and time by knowing what products to send and how to send them. This knowledge saves a company money on fuel and time, and ultimately increases the manufacturer’s bottom line.

The Final Word

A TMS is an indispensable enterprise application, and it will become more so over the next five years for a number of reasons. One reason is the fast pace at which countries like China continue to produce and ship goods to developed and developing nations. Another is the problem that DCs in countries like the United States and Canada are currently facing: the increasing volume of products coming into ports, necessitating these countries to build larger internal distribution networks.

TMSs will continue to help firms manage the movement of products within their own countries, as well as deal with the complexities of international business. The example above was a simple one, but the issues described are far more complicated in the real world of manufacturing. Thus, the functionality a TMS can provide logistics managers is, and will continue to be, critical to their business.

SOURCE:http://www.technologyevaluation.com/research/articles/transportation-management-systems-the-glue-of-the-supply-chain-19579/

EAI Vendor Extricity Teams with Moai to Automate E-Commerce Systems

In April Moai Technologies, Inc., a provider of negotiated e-commerce solutions, announced it has entered into a partnership with Extricity, Inc. to provide a single, complete interface, automating a full range of e-commerce systems. Extricity provides a family of business-to-business (B2B) software solutions, which are designed to simplify e-commerce automation and management. By integrating Moai's Dynamic Commerce Markup Language (DCML), an XML standard for Dynamic Commerce markets, with Extricity's B2B platform, net market makers and Global 2000 companies can better integrate e-commerce business processes.

Moai's DCML defines an open standard for auction and exchange transactions. Users can map their business process and objects into the exchange using the XML standard. Extricity provides integration, communications support, data exchange, and business process execution for Global 2000 companies and net market makers. It is designed to allow users to perform logistics management, inventory control, and order management in a rapid-deployment environment.

Extricity will support Moai's DCML, enabling Moai and Extricity customers to integrate their business processes into a LiveExchange auction or exchange site. DCML will provide a link to the dynamic commerce engine within LiveExchange, while Extricity will handle the execution of business processes before, after, or during a transaction. With this single, pre-integrated, seamless solution that delivers the full range of flexible, standards-based XML and other communications mechanisms, a successful integration of complex environments is possible.

"Successful integration of complex environments is an important step to seamless e-commerce practices among net market makers and Global 2000 companies," said Ray Letulle, chief technology officer at Moai. "By working together, Moai and Extricity will provide these companies and their customers with a unified solution for end-to-end integration, communications and negotiated e-commerce."

Market Impact

"Our goal is to provide our customers with the most complete and efficient B2B e-commerce solution possible," said Greg Olsen, chief technology officer at Extricity. "Moai's DCML provides improved and expanded access to negotiated e-commerce marketplaces and it facilitates the interconnection of separate marketplaces. By integrating with Moai's LiveExchange e-commerce solutions, we are increasing the capabilities and value we can offer to our customers."

Extricity is an Enterprise Application Integration vendor that specializes in a product called the AllianceSeries. The product performs supply chain integration, e-commerce supply-side integration, available to promise, and other business-to-business collaborative applications. It is based on the Extensible Markup Language (XML), an industry standard, which allows for collaborative workflow between applications.

There are no clear leaders in the EAI space, with the possible exception of Tibco, Mercator, and Vitria. Extricity is currently a privately held company and has not disclosed their revenues or market percentage; therefore it is difficult to say how strong their market presence is. Extricity Software is funded by SAP AG, Intel Corporation, Cambridge Technology Partners, Bay Partners, RRE Investors, B.J. Cassin Group, Piper Jaffray Ventures LLC, Telos Venture Partners, and Vector Capital L.P.

Their customers include Furniture.com, Rightfreight.com, Mary Kay Cosmetics, and AspenTech. Strategic partners include CommerceOne, Microsoft, Cisco, IBM, Intel, and PriceWaterhouseCoopers.

Extricity was awarded the best Business-to-E-Commerce Application award by Intelligent Enterprise Magazine in August of 1999. Business-to-business e-commerce and extended supply chain management are expected to grow exponentially within the next three years and Extricity will undoubtedly have a strong presence, especially given the power of the companies who are backing them.

User Recommendations

Business-to-business e-commerce is expected to have a very strong effect on the success of businesses over the next three years. Any company evaluating extended supply chain solutions to reduce the overhead of materials acquisition and exchange should give the Extricity/Moai offering a look. Given that DCML uses the XML language and is designed to provide an open interface, it has an advantage over proprietary approaches. What DCML attempts to define is the "dynamic transaction set" relating to e-commerce exchanges.

Areas of concern customers should be aware of:

How mapping is accomplished when dealing with custom solutions or marketplaces

Scalability and costs associated with future changes to DCML

The level of acceptance in the e-commerce community for DCML

How many companies have embraced/endorsed DCML? Investigate. Does DCML create barriers to entry? Will customers be locked in once they begin to use it?

SOURCE:http://www.technologyevaluation.com/research/articles/eai-vendor-extricity-teams-with-moai-to-automate-e-commerce-systems-15749/

PipeChain Adds Pragmatism Onto Simplicity

PipeChain, a Swedish provider of Internet-based supply chain execution (SCE) solutions (http://www.pipechain.com), recently announced that the new version of its product suite, PipeChain 2.0, will be launched by the end of 2001 and will also contain some eagerly awaited new features.

1. Ordering over the Internet will be supported by the new version, which will also allow users to access their customers' or suppliers' PipeChain Suite instances over the Internet without having their own license. The PipeChain Supply core module was initially based on the idea that the customer should not have to place orders at all, since the supplier will automatically deliver them when the customer needs them. While the idea was both bright and simple, and although it works well in most cases, there are times when automated VMI (Vendor Managed Inventory) is not the best solution. For instance, automated VMI is not an appropriate solution if the volumes are very small, or if the product is being phased in or out. For those practical reasons, orders can now be manually placed in PipeChain Supply. The feature adapts the product even more to the realities of the business and takes away the need for other network links, such as EDI (Electronic Data Interchange).

2. Another new feature of possibly a great importance to small companies is a new module that will be sold separately, PipeChain WebAccess. A small company delivering only a limited number of items to a customer does not really need a license. Instead, the supplier merely accesses the customer's PipeChain Supply over the Internet to confirm deliveries and perform other critical PipeChain Supply functions. Similarly, a customer with no license can access his supplier's PipeChain Supply. This new feature might also reduce the startup time for PipeChain implementations, since the software does not need to be installed at the sites of all the parties. Also, for companies already using PipeChain, it is an opportunity to link to all their customers and suppliers, even very small ones.

3. In the new version, PipeChain Analyzer, an analysis tool based on data warehousing technology, which has long been a part of the suite will include additional key performance indicators (KPI) making it more business-oriented. Using KPIs such as duration times statistics and service level, users can perform advanced analyses that help them steer their business.

Market Impact

Manufacturing and distribution companies continue their effort to meet high customer expectations for on-time delivery by achieving general responsiveness, speed and agility. While ERP systems have traditionally excelled at planning and financial integration functions, they have not, however, provided much return on investment (ROI) in warehousing, distribution network planning, or transportation/logistics management. Supply chain execution (SCE) is therefore gaining increasing awareness among companies that have been increasingly realizing that the planning can do only so much without the ability to make the right and timely decisions at the shop floor and/or in the warehouses.

PipeChain is one of a handful of nimble start-up vendors such as SupplyPoint, WorldChain, SupplySolution, and SCMdialtone that provide multi-partner supply chain planning and execution (SCP/E) functionality, primarily in a hosted environment. These vendors are mostly targeting midsize businesses that are under pressure to compete in the fast-moving e-business economy, or to react to a channel network's need for speed and agility by putting their own supply chain online, but are either unable to afford the participation within consortium and/or private trade exchanges (CTX/PTX) or have been deterred from doing it by the bad publicity from already disillusioned market places' users.

PipeChain controls flows of goods and information through its own interpretation of Just-In-Time (JIT) and lean manufacturing concepts, and is suitable for lean enterprises that wish to base their operations on real-time data instead of long-range forecasts. PipeChain functions as an "information peer-to-peer (P2P) overlay" that links together companies with different business systems (ERP or legacy-based) using a principle called 'water supply'. Namely, the flow of goods in a supply chain should emulate the flow of water in a water pipeline - the supplier delivers goods only and as soon as the customer places an order (opens the faucet).

The result is a single supply system with automatic ordering procedures (agreements) between customers and suppliers. Each participant always has the latest data, and misunderstandings are avoided because everyone works with the same picture of reality and the same self-explanatory icons on their computer screens. Without this overall view, which is still a prevailing case in day-to-day practices between business partners, each link in the chain acts according to its distorted interpretation of reality; these sub-optimal decisions accumulate in a cascading manner up- and/or downstream the supply chain.

Company Background

PipeChain, is beginning to make a name for itself in the expanding collaborative SCE market. It was founded in 1999, as a spin-off from its parent company, MA-System, a 25 year old Swedish WMS vendor (http://www.masystem.com). The company started its US operations in 2000 owing to the expansion of its high-profile European-based users, which currently encompass renowned global corporations like Ericsson, Volvo, ABB, Ikea, SKF and the Absolut Company. With the functionality available in the new PipeChain version 2.0 release such as extended web collaboration, demand planning, integrated warehouse management system (WMS) and transport management, company stands the chance of further expanding its customer base.

The PipeChain suite is a highly configurable software solution, that was developed from an inside perspective, in collaboration with customers, by true logistics experts. Practical experience and down-to-earth thinking have led to traditional approaches being replaced by own innovative solutions based on common sense of simplicity (e.g., JIT, kanban, VMI, and supply-on-demand principles).

Company Strategy

PipeChain has developed a product and service strategy that offers businesses a more affordable business-to-business (B2B) e-commerce alternative for building their own supply chain network integration. Rather than taking on an excruciating multi-year implementation to build supply chain integration through extensive middleware tools, trade exchange platform technology, and significant IT resources, the company offers a number of applications based on easily understood concepts that can be implemented rather quickly, in a matter of days or weeks. More importantly, PipeChain provides a number of SCE functionalities that may eventually evolve into a PTX-based community. The company offers a comprehensive set of tools across the spectrum of extended supply chain visibility, workflow alerts/exception management, and process coordination in joint requirements planning and execution via production, inventory, logistics, and transportation.

The company's recently unveiled product suite consists of the following components:

PipeChain Supply - a core SCE software module that automates the flow of goods between companies

PipeChain FlowProduction -- a finite scheduling software module that automates the flow of components and critical information through the manufacturing plant

PipeChain Analyzer - a business intelligence software module that monitors the performance (KPIs) of the entire supply chain

PipeChain LoadPlanner - a software module that optimizes the load unit and fill rate for the flow of goods between companies

PipeChain PTX - a Private Trading eXchange software building tool

PipeChain WMS - a Warehouse Management System

In addition to a well-rounded functional product offering, PipeChain has also embarked on some product technology related initiatives, in order to integrate to existing ERP, legacy, or even spreadsheet-based applications, as well as integration capabilities to other trade exchanges, while providing mandatory security and privacy of data (via digital signatures and scrambled data transfer).

The product features 3-tier architecture, and the support for SQL Server and Oracle databases, and Windows NT/2000 platform. The business logic on server and standard client are built entirely in Java, while the Web client is currently 100% HTML based on Java Server Pages. All the business logic lies in the server, and JDBC (Java Database Connectivity)/ODBC (Open Database Connectivity) is used for communication with the database.

To communicate with the ERP system in place, PipeChain uses number of open interfaces following established standards like XML, Flatfile, EDIFACT, IDOC, ODETTE, X12, Web Services/SOAP; the communication happens via file, Ftp, MQSeries, BMQ, IP socket, SMTP or HTTP/SOAP protocols. To communicate with other PipeChain components in the network, PipeChain uses Java RMI (Remote Method Invocation) over TCP/IP. Also, transaction converter is a framework (a Java-plug-in file or and XSL (eXtensible Style Language) file) that allows users to alter transactions to and from PipeChain. Synchronization of information can happen at determined intervals both via the Internet or a modem connection.

Challenges

Nonetheless, the company faces a number of challenges. For one, it competes against a slew of established SCM companies with stronger brand recognition and/or financial situations to jump at the window of this SCE opportunity, such as i2, FreeMarkets, Descartes, and Manugistics, although one should expect SAP, Oracle, J.D. Edwards or Baan to jump the bandwagon too. There are also a slew of peer competitors, such as webplan and Effinity to name only a few more beside the ones mentioned earlier in the text.

Moreover, the company's solution footprint needs improvements in terms of more sophisticated advanced planning & scheduling (APS), collaborative forecasting, and contract management and payment processes.

The company also acknowledges a nascent channel and/or reference sites (200 in total including the WMS instances, and only 10 in the US), and there are some indications of addressing it through partnerships with leading ERP vendors. The partnership with compatriot vendor IFS in April, one of the fastest growing ERP vendors and a relative newcomer to the North American market, could help PipeChain gain much needed traction in the market. The two companies will integrate PipeChain's SCE software with IFS Applications.

The partnership targets repetitive manufacturing industries - such as electronics and automotive - that require automated, highly repetitive supply chain solutions. Therefore, IFS customers should get the full range of VMI products from which to choose, integrating both to their high and low volume customers and suppliers. PipeChain's VMI solutions will be used for the high volume partners, while IFS' portal-based VMI solutions will be used for the low volume partners. IFS will package and sell PipeChain's SCE and VMI solutions as fully integrated components along with IFS Applications, which should offer customers a step-by-step evolution to the true extended enterprise.

Enabling manual order input in the latest product release should help PipeChain attract the enterprises that are not exactly in the lean operational mindset and the state of affairs, to gradually warm up to the JIT concepts and ideas. Also, while PipeChain can be implemented in various modes for different customer tastes (readiness), from manually without interface (which can be used as a proof of concept first), semi-automatically with Excel/Access interfaces, to full-scale implementation with PipeChain Converter Plug-Ins, the true integration of financial transactions to the back-end, in addition to inventory status and any other information visibility, would help users' acceptance tremendously. To that end, the company should attempt to strike a number of IFS-like partnerships with reputable ERP vendors.

User Recommendations

Mid-market and divisions of large companies, primarily in high volume distribution industries, with limited financial and IT resources, and with a need to protect their investment in ERP or legacy applications, but also with a need to inexpensively extend supply chain planning, synchronization and execution, with a PTX community establishment in the end, should evaluate PipeChain's value proposition. If your business demands a broader set of capabilities, such as content management, e-procurement, or product design collaboration, question vigorously PipeChain capabilities and/or product strategy in these areas, as well as its financial resources and reference sites equivalent to your company profile.

PipeChain is targeting the mid-tier of vertical industries that include High-Tech/Electronics, Furniture, Consumer Products, and Automotive. Current ERP users in these industries should inquiry how ready PipeChain would be to integrate with the system in place, as the company claims experience and ready-made connectors to systems like IBS and SAP. ERP vendors without strong offering in the PipeChain's sweet spot might want to consider partnership as to extend the value proposition to their customer base.

SOURCE:http://www.technologyevaluation.com/research/articles/pipechain-adds-pragmatism-onto-simplicity-16555/