New Partnership Channels

Material handling technologies are evolving and so are the methods of putting them together. Part 1 of our series looks at the new relationships froming among vendors, service providers and their customers.

CREATING YOUR MH SYSTEM: Part 1•Partnership Channels

Material Handling technologies are evolving and so are the methods of putting them together. Part 1 in our series looks at the new relationships forming among vendors, service providers and their customers. Next month, Part 2 explores how to make your existing material handling system evolve with your business – through retrofitting.

Increase Your Options

Thanks to the Internet and e-commerce developments, you have more choices for "who" and "how" in creating your automated material handling system.

by Leslie Langnau, senior technical editor

Want to buy material handling equipment? Check out the Internet. In fact, many of today’s material handling engineers use Internet-based "channels," not only for purchasing functions, but for system design as well. Other logistics functions range from simple vendor investigation to handling old responsibilities like shipment tracking in new ways.

These transactions are changing business relationships. New types are forming, including alliances, vendor collaborations, exchanges and supply chains. In addition, supplier-direct and distributors are dealing with the effects of going digital.

Because of the flexibility inherent in digital technology, industry analysts like AMR, Patricia Seybold Group, Boston Consulting Group and Frost and Sullivan expect business relationships to become more fluid, joining and parting at will. (Given recent developments in the investment community, such fluidity is even more assured.)

"We’re seeing fewer long-term vendor-customer relationships," agreed Bob Rienecke, general manager of Diamond Phoenix. "Younger people are responsible for equipment-buying decisions. These new kids go to the Internet readily, so they check out a potential supplier’s Web site first. Then, they’re ready to go right into discussions about what that supplier can do to help solve their business problems, which definitely shortens the selling cycle.

"These new engineers expect a Web site to be an information resource. Thus, we’re seeing growth in the purchase of information systems."

Despite the media hype, however, information transmission remains the most successful application of these new material handling procurement channels. So far, actual on-line purchases of industrial equipment have not reached expected levels. Much of the activity involves the transmission of data on shipping, order and inventory status.

The reason behind the slow implementation is that most e-commerce models do not fit industry requirements. Part of the problem is integration. Data formatting, for example, can be done through ASCII files, EDI or XML languages. All parties need to agree on a format. Vendors involved in high-tech products and solutions claim XML will be the format of the future. Many industrial companies, however, have significant investment in EDI. Thus, it can take months and thousands, even hundreds of thousands, of dollars to set up the control and communication infrastructure for one relationship, let alone several.

Another issue with these new channels is who receives attention, the customer or the channel partner? Says Ed Rigsbee, CSP and author of PartnerShift — How To Profit from the Partnering Trend, vendors are often more concerned about their partners than their customers. Shipments and deliveries are often so tight in these arrangements, that if a partner has a problem, it could put the vendor out of business.

These factors have not deterred the formation of, and experimentation with, new relationship formats, though. "People are still forming and developing exchanges, groupings and supply chains," said Rienecke. "Despite the current economic reassessment, people are checking their business plans and directions, making sure they are taking the right steps to do what they really want to do."

Collaboration: Real or a Trojan horse?

The relatively new, broadly defined concept of collaboration involves an idealistic goal that everyone, including passionate competitors, will cooperate for the greater good. "The reality is," says Bob Parker, vice president and service director at AMR Research, "that companies that collaborate, regardless of whether it’s on new product design, demand forecasting or dispute resolution, do so in their own self-interest and with the clear intention of improving their organization’s market position."

Collaborators may be a source for your automated material handling system needs. But there’s plenty of controversy surrounding just what is collaboration. Few companies have truly implemented it into their supply chain strategies, partly because of its broad definition.

"Collaboration can be viewed as any interactive process between one company and another," said John Raguin, general manager for Collaboration Solutions at Ariba. "It extends interenterprise functions and capabilities between multiple enterprises around a given product or service need. It’s similar to EDI — the main difference being that it can be executed more quickly than EDI. It’s a concept that enables users to handle tasks in ‘right time.’"

"It facilitates coordination between team members and customers," agreed Heidi Gabrielson, director of marketing at SiteScape Inc.

In a manner similar to e-mail, it lets people work in their time frame, rather than make convoluted arrangements to work at the same time. Another advantage of some collaboration software is it keeps a history of correspondence and transactions. This allows new team members to ramp up to speed quickly on a project.

On the exchange

There are more than 1,000 URLs that claim to be exchanges. Most involve finance, insurance and other non-industrial companies. Some are private, others public, with the trend toward private because it offers protection for anything a company considers proprietary or patented.

One of the biggest problems with some exchanges, however, is determining whether companies are involved in them primarily to drive prices up or keep costs down. On-line auctions, for example, are often blamed for this notorious business practice.

Others, however, view on-line auctions as a way to automate what engineers and purchasers are already doing by phone when they play suppliers off each other. The biggest plus of auctions is that it reduces paperwork and costs.

But you need to ask, what will you gain if you implement an on-line auction? "For example," continued Raguin, "if there are only three suppliers of an item, why go through an auction? Why even go through e-commerce? Using on-line auctions for purchases of a certain dollar value is a point solution. It’s better to use them to automate a function, such as automating RFQs, to really get the benefit this process can contribute to your bottom line."

Going direct

Direct procurement can also be made easier by going on-line. You gain a wider perspective of your procurement across the supply chain. And, rather than go through EDI, e-mail, phone and fax, all communications can be routed through a common buy-side portal.

What about distributors?

E-commerce has been a concern for many distributors, and their vendors. Two vendors, however, have found ways to implement e-commerce strategies that include their distributors so that everyone wins, including the customer.

Maytag’s Web site guides customers through its product selection. When a customer begins making a purchase, his ZIP code is used to transfer the order to the distributor or store in his area. Customers can complete the purchase through a credit card or go to the distributor or store. Maytag charges distributors and stores a transaction fee for directing the sale to them. More than 600 distributors and stores have signed up for this service.

Miller Electric links its Web site to those of its distributors. Buyers browse products on the Web site, which is managed by a service provider. Miller, as the wholesaler, is not charged for this service. Its distributors, however, pay $500 per month for the buyer information to be transferred to them. Buyer data is transferred based on ZIP code, with notification of a successful transaction automatically sent to Miller. The benefit to the distributors is that they have the latest Miller product information, and they can set their own prices.

Each "e"-channel has pros and cons. But each continues to evolve, working toward becoming an optimum solution. Given the continuous state of flux of the Internet and Web-based processes, no channel may arrive at a "final destination." So it might be best to keep in mind advice from Michael Yamatov, president, Richards-Wilcox. He said that "technology does not solve problems. It’s really the integration with customers that provides a solution." MHM

What Does It Mean?

E-marketplace, e-commerce and e-procurement are just a few of the terms thrown around every day by vendors, engineers and the media.

But that doesn’t mean that everyone agrees on their meaning. Here are some definitions from Jim Tompkins, president of Tompkins Associates.

E-marketplace: using Web resources to find new sources for products.

E-commerce: using Web resources to place orders on an ongoing basis.

E-procurement: may involve e-marketplace or e-commerce functions.

Problem-Solving Techniques

Material handling consultants and vendors of automated material handling systems are on their customers’ teams, helping them navigate through turbulent times.

by Christopher Trunk, managing editor

Business executives are exploring new ways to keep their businesses afloat. Executives are hitting consultants and material handling systems integrators up for quick, practical and economic answers to challenges posed by today’s fast-paced manufacturing and distribution environment. As the Internet promotes greater cost competition and speed to market, etc., the expertise of these material handling professionals is helping businesses retain current accounts and attract new customers with help from automated material handling systems.

"The environment today is much more solutions-driven," says Ken Ruehrdanz, manager, marketing communications for Rapistan Systems. "Instead of quoting on some hardware project, we are asking these executives, ‘Where does it hurt?’"

Examples that Ruehrdanz hears include:

• We can’t take orders fast enough;

• We need to take orders later in the evening and still ship the same day.

One of Rapistan’s customers needed to extend order cut-off from 3 p.m. to 8 p.m.. The UPS jet left at midnight, but the order might be taken at 7:45 p.m. "The question asked us is what material handling system can deliver on this promise? We had to figure out a way to pick, pack and ship that late order to the airport before midnight. These are the kinds of questions we answer these days," Ruehrdanz emphasizes.

A whole new way of doing business

Mike Kotecki, senior vice president, material handling integration for HK Systems, has heard a lot of questions like this. "Instead of customers coming to us with an armload of drawings or with a request for bid, the chief financial officer comes to us with problems of growth his company can’t manage," says Kotecki. "They’ve got new sales channels and think they need to grow a warehouse. Many want to discuss an e-commerce fulfillment center. That makes HK Systems more of a problem-solver than a chaser of bids."

Kotecki says there are other changes. The justification of projects is more financially oriented than ever. Elements like safety and ergonomics, and inventory accuracy used to be more important in the past. Now, companies say that no matter how justified a project might be from a tactical, gut-level standpoint, they need a financial model that clearly shows the new material handling system is also a good investment, rather than just an answer to some production problem.

For that reason, HK Systems now offers a return on investment spreadsheet at www.hksystems.com that walks you through both tangible and intangible justification. "Now, financials mostly rule the go, no-go decision on a project," he adds.

Cost savings remains a key factor. One way to cut costs is single-sourcing a business problem to an experienced systems integrator. Kotecki explains that some systems integrators, including HK Systems, can reduce prices further with single-sourcing by establishing a contingency fund that the buyer can keep if all goes as planned. With a conventional bid process, Kotecki says buyers typically pay a contingency fee, whether it’s stated or not, as all the vendors have to build in some extra cost to cover the bid process as well as additional cost in case something goes amiss. Ask about single-sourcing and setting up a separate, no-margin contingency fee to cover unexpected overages as a way to lower project cost.

Partnerships grow

Systems integrators and consulting firms faced with answering these broad business questions and delivering fast solutions have been moved in many cases to partner with automated material handling systems vendors, gathering to themselves vendors that specialize in conveyors and sortation, logistics execution system (LES) software, automatic guided vehicle systems (AGVS), pick-to-light, etc. Equipment vendors have responded by either partnering with consultant firms or by grafting a consultant branch onto their business. These kinds of partnerships were plentiful at the recent ProMat show.

A practical reason offered for these partnerships is that when a systems integrator bids on a job, it is familiar with how material handling equipment from various manufacturers works. The integrator knows how the controls function and how to train workers to use them. Partners are also using already-proven software interfaces that communicate with various systems like LES, carousels, pick-to-light and sortation systems. Again, the emphasis is on fast, sure solutions that don’t reinvent the wheel.

"Top managers are asking us whether it’s a good idea to keep this or that distribution center. They want to know if their supply chain is optimum, does their distribution network make sense in the bigger picture," says Juhani Antillo, CEO of Swisslog. This is why he says Swisslog has added its consulting division, to provide best practices from across several industries to its customers. Other systems vendors like Swisslog have taken similar steps.

Consultants weigh in

"The consultant’s role has changed. The aim is not to specify as much material handling equipment in a plant as possible. Instead, we’re advising our clients who plan to build a new warehouse in a particular location to stop and look at how it fits into their supply chain," says Tilo Schultz, COO, consulting division, Swisslog.

When his company is asked for advice, it suggests looking at all operations. "We see some consulting firms specializing in supply chain management, and others in industrial engineering or factory design. We don’t see many other consulting firms that integrate all these disciplines, and that’s what’s needed these days," advises Schultz.

Consultants report a compression in time for designing material handling systems. "Companies that jumped on the e-commerce boom wanted to get a facility with a high level of mechanization very quickly. But automation by nature is inflexible over time. As a compromise, material handling mechanization has been backed down in favor of more flexibility," says Lawrence Shemesh, vice president, Gross & Associates.

Shemesh sees more pockets of mechanization being applied to new facilities, using more conventional handling equipment that is more configurable in regard to both material flow and information flow. Shemesh says that though automation is good at making a process cost-effective and predictable, by nature automation is inflexible. "But it’s very difficult to change methodology as the business changes, that’s why pockets of automation and flexible design are important. I’m leery of a fully automated system stretching from receiving to shipping dock," says Shemesh.

To make the most of your new system, Shemesh recommends computer simulation beforehand. "Computer models can answer all the what-if scenarios, identify bottlenecks and expose the plan to real pick waves and batches before steel hits the concrete,"

he adds.

AGVs roll in

Automatic guided vehicles can be an important part of business problem-solving. "In the old days, we got requests for bid on 1,200 feet of conveyor. But maybe you didn’t really need that much conveyor, maybe an AGV can transport those loads instead," says Rapistan’s Ruehrdanz.

Using AGVs can also solve problems created by downsizing. "With less money to spend on labor, manufacturing and warehouse managers are more interested in AGVs," says Bradley Moore, senior account manager for Swisslog North America. He says that purchasing groups are asking him how AGVs are used elsewhere in their industry to improve both competitiveness and productivity. One example is how AGVs saved a facility from installing multiple palletizers by making AGVs take loads from various production lines to a single, high-capacity palletizer.

Another big change is that more AGV suppliers now offer up-front consulting services. "Buyers are looking to solidify a partnership first, and then rely on the vendor to supply all the kinds of systems and software they might need, killing the process of competitive bidding," says Moore. He finds that his customers just don’t have the internal staff to design a material handling system of their own. "Buyers just can’t keep up with technology and rely on these partnerships to deliver for them."

Logistics software fills the bill

Business executives are looking for advice from LES software vendors to meet challenges both within the four warehouse walls and across the globe — where their vendor’s vendor might be having troubles.

Examples of challenges include a list from Lilly Software Associates:

• A need to handle big and small orders simultaneously;

• A need to ship all UPS orders within 24 hours;

• A need for increased picking productivity with better order accuracy;

• A need to track those orders while eliminating paper work.

The Internet is again both a blessing and a curse to some companies. "With the Internet revolution taking hold of the business-to-business commerce, companies are finding the product they sell being commoditized. A value-added service is now the main way to differentiate between sellers," says James Le Tart, director, marketing communications for McHugh Software International. He says that timeliness, order accuracy and consistent performance across your logistics network are the main problems he’s asked about, rather than just solving some cost challenges at a warehouse.

To meet these supply chain needs, software vendors are offering more software that provides visibility of inventory, order status and shipment location over the Web. There’s also been increased interest in labor management software to improve worker productivity and order quality as the Internet has brought price pressures to bear on corporate executives.

One example of this supercharged software is Manhattan Associates’ introduction of ComLink software that works with its brand of LES to share data in real time across the supply chain. It links factory, retailer, supplier transportation partners, as well as gives access to corporate Web portals, independent trading exchanges and more.

The Viewlocity software provides supply chain visibility across platforms and across the world. Viewlocity is introducing software and an integration service aimed at the Fortune 1000. It links the customer’s ERP and supply chain software with that of its many hundreds of vendors and, in turn, their vendors as well. It can keep a lookout for all kinds of events, including transportation, customs, forecasting, inventory and production problems. It even plans to use an automated switchboard that phones or e-mails vendors or even drivers on the road with a gentle voice that asks about progress on expected critical deadlines. Software is coming a long way to manage events across the supply chain.

One factor that can make software integration easier to find is the trend toward standardization of interfaces between LES and other systems. "Now we see more standard, NT-based software in control and communications. In this way, our LES software can integrate more easily with controls for pick-to-light, sortation conveyor, carousels and AGVs," says Dan Trew, vice president, product strategy for Catalyst. The company is developing a new standard interface with both Rapistan and RTS pick-to-light systems. "Partnerships like that make for less risk, less modification, faster implementation, quicker worker training and easier software support," says Trew.

"Today, many consultants and software vendors offer trained experts in logistics," says Douglas Davis, president of Vertex Interactive. "LES vendors have both formal and informal partnerships with consultants like PricewaterhouseCoopers or Arthur Andersen, or with an execution consultant like Tompkins Associates." He finds that these partnerships give buyers access to the latest in best-practices and a better understanding of the right software to fit their business goals and problems.

Davis adds that a narrowing of the LES field will mean more customers going to each surviving vendor, making those vendors more experienced and resulting in even better software. "Consultants and industry experts can recommend the strongest LES vendors," he suggests.

Taking the leap

Not to be overlooked is the importance of choosing the right turnkey vendor to solve your problems. Bradley Moore of Swisslog North America advises you spend some time traveling to installed sites. "Also search the Internet, read material handling magazines and contact the Material Handling Industry of America about vendors who supply the kind of consulting and systems integration work you need," he says.

Talk to clients about how well their projects went and consider choosing one turnkey vendor. "It’s certainly faster than handling bids," adds Moore.

Robert Kudis, vice president of consulting for HK Systems, makes a final point of embracing your partner once you’ve made the choice. "Share objectives and make sure everyone on the team is pointed at the same goal. As a buyer, avoid sitting back, folding your arms and saying, ‘Go ahead. Now do the job.’ Projects always work better with vendors and buyers walking arm-in-arm to solve the same problem," he adds. MHM

Resources

For more information, contact these sources:

Catalyst, Dan Trew, [email protected]

Gross & Associates, Lawrence Shemesh, [email protected]

HK Systems, Mike Kotecki [email protected], and Robert Kudis, [email protected]

irista, logistics execution system software, www.irista.com

Key Handling Systems, systems integrators, www.keyhandling.com

Lilly Software Associates, www.lillysoftware.com, [email protected]

Manhattan Associates, www.manh.com or [email protected]

Material Handling Industry of America, www.mhia.org

McHugh Software International, James Le Tart, [email protected]

Rapistan Systems, Ken Ruehrdanz, [email protected]

Swisslog North America, Bradley Moore, [email protected]

Swisslog, Tilo Schultz, [email protected]

Vertex Interactive, Douglas Davis, www.vertexinteractive.com

Viewlocity, Mary Haigis, [email protected], www.viewlocity.com

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