What You Should Know Before Buying A Supply Chain Execution System

Dec. 1, 2003
By John M. Hill, principal, Esync Fueled by the Internet, e-tailing and electronic commerce, the rapid growth of market demand for logistics systems can

By John M. Hill, principal, Esync

Fueled by the Internet, e-tailing and electronic commerce, the rapid growth of market demand for logistics systems can be traced to dramatic changes in corporate America's view of the supply chain and its importance to gaining and sustaining competitive advantage.

On the other hand, the significance of tighter control of inventories (whose carrying costs including warehousing by some estimates totaled over $400 billion in the U. S. in 2003) and improved customer service has been understood in most businesses for years. Quick Response, Efficient Consumer Response (ECR), Supply Chain Inventory Visibility (SCIV) and other logistics acronyms do not define new concepts. Why then have less than 50,000 of the U. S.' 600,000 warehouses implemented the systems developed to support the fulfillment and delivery components of contemporary supply chain management? Twenty years ago, the concern for many was technology readiness. Today, however, the constraint is not technology, but rather the inability of many organizations to assess the alternatives and effectively integrate the technology available. The process begins with understanding the options, matching them against your specific requirements and then formulating a prioritized plan for moving ahead.

Of the technology options that are ready, supply chain execution systems (SCES) drive order fulfillment and delivery. Coupled with demand management, advanced planning and scheduling, order management and processing systems and solid material handling, they marshal and deploy the resources required to ensure on-time delivery of the right products, in the right quantities and in the right condition. This article characterizes SCES with particular emphasis upon warehouse management. It profiles the market, trends, users, and the rationale for investment and provides a road map for prospective user assessment.


Major trends influencing trading partners and the implications for logistics are outlined below.




Changing Demographics

Broader Range of Products/SKU's

-- Inventory Management Challenges

-- Warehouse Layout & Storage Mode Selection Challenges

Demanding Consumers

Fewer Mature Products

-- Inventory Obsolescence

-- Manufacturing Pressure

Smaller Lot Sizes / Mass Customization

Quicker Turnaround

-- Manufacturing Pressure

-- Value-added Processing

Heightened Competition

Focus on Customer Service

-- EDI / Internet Ordering

-- Inventory / Order Status Visibility

-- Compliance Labeling

-- Reverse Logistics / Returns

Cannot be Out-of-Stock

-- Flow-through / Crossdocking

Sales-Driven Continuous Replenishment

-- Frequent Re-ordering

-- Direct Store Deliveries

Price Cutting

-- Cost Cutting

-- Warehouse Pressure

Industry Consolidation

Trading Exchanges

-- Leverage with Manufacturers

-- Wholesaler Consolidation


Manufacturers (SIC's 20 - 39)

Historically, larger manufacturers have made substantial investments in automatic identification and data capture devices, material handling equipment, and computers and software for improved management of work-in-process. With increasing demand from retailers and mega-wholesalers for quicker turnaround, smaller lot sizes and direct store deliveries, manufacturers must improve inbound and outbound pipeline management in order to remain competitive. Product delivery and the supply chain are high on the list of information systems spending priorities.

Wholesaler/Distributors (SIC's 50 - 51)

Wholesalers who intend to survive recognize the importance of contemporary material management techniques and information systems to their relationships with manufacturers and retailers. Although they are not burdened by the demands for POS automation facing the retailer, their ability to communicate with trading partners, receive, break bulk, kit, assemble, and redistribute in timely, economic fashion will be the measure of their success. In a study conducted by the Distribution Research & Education Foundation (DREF), wholesaler/distributors indicated that 21% of their fixed asset dollars had been spent on computers and related equipment and an additional 35% on warehouse expansion/enhancement. According to DREF, wholesaler/ distributors spent 18% of their information systems budgets on logistics. Further, two-thirds of the larger firms are alleged to have installed dedicated warehouse computers, a 60% increase in the last decade.

Retailers (SIC's 52 - 59)

Successful retailing depends upon having the right product in the right quantities at the right price on the store shelf when the consumer is ready to buy. For e-tailers, the same is true, but even more critically. If stock is unavailable at one location, the consumer will simply click on another Web site. The logistics infrastructure required to meet this objective is heavily dependent upon the information system that monitors consumer behavior, triggers order placement with suppliers and manages material flow from source to point-of-sale.

Ten percent of the retailers surveyed by Chain Store Age Executive revealed plans to cut back on distribution centers; 5% expected the number to increase and 85% expected their present number (average two/retailer) to remain the same. However, 20% of the sample noted intent to reduce distribution center square footage. Ostensibly to offset or permit this space reduction, 72% indicated plans to demand Just in Time delivery, continuous replenishment and/or VMI (vendor managed inventory) from their suppliers. Wal-Mart's recent mandate calling for RFID (radio frequency identification) tagging of all inbound cartons and pallets by their top 100 suppliers by January 1, 2005 (and all suppliers by 2006) underscores this trend.


To meet the challenges, users are looking for solutions or developing solutions in-house that will enable them to accurately identify, track, manage and report on material flow as well as efficiently allocate resources to related tasks throughout the pipeline. Attendees at recent Georgia Tech Logistics Institute Seminars emphasize such trends as:

-- Centralized distribution - a trend towards fewer, larger or more efficient distribution centers.

-- Channel-specific distribution center design.

-- Repackaging, labeling and pricing at the distribution center, not the retail store.

-- A move away from highly mechanized to more conventional or hybrid warehousing with increased emphasis upon on-line, real-time computer-based warehouse management systems.

-- Compliance labeling as well as supplier labeling and price marking.

-- Increased use of standard bar code symbologies for product, package and shipping container identification to facilitate warehouse management, shipment tracking and POS transaction monitoring.

-- RFID pilots to test the efficacy of the technology as an alternative or complement to bar code.

-- Suppliers managing retail store level inventory (VMI).

-- Trading partner communications via Electronic Data Interchange and the Internet (XML).

-- Growing use of decision support, modeling and simulation tools for system design, inventory deployment, warehouse stock location (slotting), and transportation planning.

-- Emphasis upon employee empowerment through the provision of tools to increase operational efficiency and productivity.

The foregoing trends, particularly the last seven, are gaining widespread support in all market sectors. In warehousing, an increasing number of companies have grown cautious about investments in large scale, mechanized or automated material handling solutions; opting, rather, for more flexible, fully conventional approaches or hybrids that combine mechanized and conventional alternatives. This development presents a very significant opportunity for rapid growth in the use of computer-based Warehouse and Labor Management Systems.


It is estimated that the total U. S. market for warehouse automation stands near $4 billion, with roughly 50% earmarked for software and services, 30% for computer hardware and peripherals and 20% for automatic identification equipment (e.g., bar code readers) and sub-systems.


The foundation for SCES, Warehouse Management Systems emerged in the U. S. market in the mid-1970's to facilitate real-time material tracking and resource management in conventional warehouses. Mini-computer based, early systems featured the use of radio frequency data communications to permit direct, on-line communications with lift truck operators and other warehouse personnel charged with receiving, storage, picking and shipment of materials. Reusable software that addressed basic warehouse functions was developed to reduce both cost and risk. Although the latter approach was preferable to custom software development, users and suppliers soon learned that the variation in requirements from user to user and, indeed, from site to site within a given corporation precluded "plug and play". In other words, virtually every installation required a degree of customization or tweaking that raised supplier costs and often resulted in less than optimum implementation. As a result, the market grew slowly, rarely meeting the expectations of the pioneers who pursued it.

By the late 1980's, however, well over 100 firms were offering Warehouse Management System packages. Concurrently, evolving standards for the use of bar codes for material tracking, a broader array of radio data terminals for industrial applications, dramatically improved computer performance at lower cost and a variety of software tools from UNIX and "C" to relational data base management were beginning to have an impact. By the mid-1990's, Warehouse Management Systems had clearly come of age. Industry leaders saw and continue to see revenues growing at better than 20% annually and have initiated programs to add functionality in the areas of labor (LMS) and transportation (TMS) management as well as supply chain visibility (SCV) and event management. SCES has emerged as the new acronym for systems that manage material and data flow in the supply chain.

Warehouse Management Systems

A Warehouse Management System provides the bridge between corporate level production, scheduling, purchasing, logistics planning and order management systems that permits the dynamic response to order demand essential to supply chain management. With an accurate view of available inventory, equipment and staff, the WMS directs the operations that feed components and raw materials to production in the manufacturing environment and fill customer orders in wholesale and retail distribution. With bar code, voice data entry, RFID and radio frequency data communications technology, WMS' transform conventional warehouses by improving efficiency and productivity. WMS' add levels of control that permit users to better plan and manage resource and inventory allocation in both conventional and automated operations, while providing management and corporate systems with real-time visibility of actual performance.

With up-to-the-event inventory status by discrete location as well as an accurate profile of available labor and equipment resources, the basic WMS issues and manages tasks and monitors performance in each of the following primary functional areas:


-- Receiving

-- Basic Receiving (Routines for processing unplanned inbound orders)

- Conventional (Operator/Lift Truck)

-- Advanced Ship Notice (ASNs) or Purchase Order Receiving

- Conventional (Operator/Lift Truck)

- Automatic (Scanners/Conveyors)

-- Storage/Putaway

-- Dedicated, Random or Hybrid Storage

-- System or Operator Location Selection

-- Crossdocking

-- Put Confirmation via Radio Terminal

-- Inventory Management

-- Routine & Exception-Driven Cycle Counting

-- Rules-based Stock Rotation (FIFO, LIFO)

-- Order Processing/Picking

-- Order Grouping & Release Prioritization

-- Order, Wave or Batch Picking

-- Pick Confirmation via Radio Terminal

-- Shipping

-- Order Consolidation & Staging

-- Trailer Load Sequence Management

-- Shipping Check Lists

-- Manifests, Bills of Lading

Additionally, advanced WMS' support:

-- QC Sampling & Movement to Inspection

-- Task Interleaving

-- Inventory Quarantine, Allocation, Release

-- Shelf Life Monitoring

-- Inventory Relocation/Consolidation

-- Lot and Serial Number Tracking

-- Forward Pick Area Replenishment

-- Carrier Scheduling/Yard Management

-- Order Planning and Scheduling

-- Manifesting/Freight Rating Subsystems

-- Kitting/Pick & Pack

-- Compliance Labeling

-- Order/Shipment Planning and Scheduling

-- Labor Standards Performance Monitoring

Automated Material Handling Equipment Interfaces

Task release and execution monitoring are accomplished on the basis of operating strategies, rules and priorities established by the user. In addition to providing warehouse management with access to operational status at any time, the WMS provides regular updates on inventory and order status to host level systems upon inquiry as well as a scheduled and exception basis.

At a higher level, contemporary Warehouse Management Systems feature:

-- Accurate, timely data collection, neither symbol nor device dependent

-- High-speed, high-availability Open Systems platforms

-- Data base independence

-- User-configurable, easily modified software

-- Graphical user interfaces for day-to-day operation as well as accommodation of modifications to product files, location files, storage/picking strategies, etc.

-- User-friendly report writers

-- Clean, reliable external communications interfaces

Although perhaps obvious, it is important to note that a WMS is not an historical archiving system, nor is it designed to grind out lengthy reports, graphs, charts and other documents. It is an execution system and, as such, its primary mission is the management of facility resources, work and material flow to maximize the efficiency of moving materials to market. Burdening the system with myriad, non-critical administrative tasks can negatively impact response times and affect timely task execution. The WMS will indeed generate the data required for activity profiling, performance measurement, etc. Data manipulation for analysis, however, is best accomplished off-line - that is, on a PC or host system.

Part two will appear in the next issue of the Material Handling Newsletter.