Are Your Material and Data Flows in Synch?
Speakers and exhibitors at this year’s ProMat material handling show agreed that successful commerce is built on the ability to deliver both information and product.
by Tom Andel, chief editor
Technology futurists have been talking about what it will take to link the supply chain ever since they noticed people starting to listen to them. Supply chain connectivity was a great attention-getter, and people knew there was an element of truth in what the prognosticators were saying. Unfortunately, what often got left behind in these discussions was the starting point: the supply chain in your own enterprise. Before you can do business as seamlessly as the pure supply chain concept requires, you need to perfect and synchronize your internal supply chains flows: product and data.
Where do you start? Logistics execution.
First, you need a system that monitors activity at the point of sale (POS), whether retail or industrial. You also need a way to source those orders from the right sites and manufacturing points throughout your supply or manufacturing network — an advanced order management system (OMS). Next you’ll need to pump that information into a transportation management system (TMS) for routing and scheduling carriers. Then those orders will need to be transferred to a warehouse management system (WMS) for fulfillment.
This is a basic logistics execution system (LES). But according to John Hill, principal of eSYNC International, most U.S. companies have a way to go before achieving this level of enterprise connectivity.
"Systems don’t mean just getting some printers, spitting out bar code labels and slapping them on products," he told attendees of ProMat’s Executive Symposium. "We have to begin with a plan. Ask where you as a team hurt the most. Begin to characterize your needs in a holistic fashion and eat the elephant a bite at a time. One way is through benchmarking."
That means taking a look at your order fulfillment, inventory management and warehouse productivity. Start with the metrics on which you have sufficient data. Starting with these basics will allow you to build future enhancements on a solid foundation.
"If you improve the process and get rid of congestion in the warehouse, even without technology or systems, you can improve performance right away," Hill added. "Then you can apply automatic data collection [ADC] equipment and make some material handling improvements to give you another bump in the numbers. What’s the value of a 40 percent incremental improvement? If you’re a warehouse person it will be enormous, but that’s not where you start. Pull in sales, finance and other elements of the organization who can give you a perspective on the value of an increase in orders per hour to their own areas of responsibility. You’re building consensus and ownership of the process throughout the organization. You gain buy-in."
Once you’ve worked with your multidisciplinary team to improve opportunities in your own enterprise, then you can start thinking about supply chain links. Hill suggests you look at what’s being done in your industry and outside it, and put together a preliminary profile of your improvement project, probable return and likely cost. But move quickly. Taking a year to do this is analysis paralysis, he says. He suggests three to five weeks. Then feed your findings to upper management to maintain their buy-in.
"Logistics measures must be in harmony with a company’s overall business strategy," he concluded. "Speedy delivery and timely order status updates are part and parcel of Amazon.com’s brand identity. But if Amazon focused solely on reducing delivery costs it would cripple its ability to serve customers. Smart managers fuse their logistics plans with their business strategies to make sure that what’s measured in the field is seen to be of value at the top of their organization."
When you’re ready to share your data with other enterprises in your supply chain, consider the basic business exchange models. Jim Tompkins, president of Tompkins Associates, identified three during a between-session interview with MHM.
The first is B to B, and it’s simply the replacement of private-network-based electronic data interchange (EDI) with Web-based EDI. This can result in a small savings, Tompkins said, but it shouldn’t be seen as an end in itself.
The second is a marketplace model, where buyers purchase products and services put up for bid over the Web. Tompkins calls this e-squeeze because the objective of each participant is to squeeze the margin down as much as possible.
The third model is the one Tompkins has been talking about for several years: supply chain synthesis. This model goes beyond inter-organizational links and features a universal link uniting everyone in the supply chain.
"With a universal link you add middleware to the B to B to B to B model so when the consumer speaks, every business link in the chain knows it. At the end of the day, if you don’t have a C in your model, you don’t have a business proposition. That’s [necessary to] supply chain synthesis.
"The people who make this work — the Wal-Marts and the Targets — are finding huge success with it. They understand it’s not about store operations or distribution operations, it’s supply chain vs. supply chain."
Most products are commodities these days. The competitive edge goes to the supply chain with the best customer service. Motorola’s personal communications sector serves a couple types of customers with its supply chain model: retail stores and end consumers. Products include cellular phones, pagers and consumer two-way radios. This manufacturer’s performance is measured on the net landed cost of these products in the supply chain. It’s vital that it make up for the profit margin that gets squeezed as product leaves its dock.
"Margins in the electronic marketplace are not stable, so we wanted a more stable market opportunity in the form of value-added distribution services," said Nagesh Sridharan, global program director, during his executive symposium address. "When we examined our inbound and outbound supply chain, we noticed there was a lot of inventory. We needed to get a handle on the supply chain and determine how we could work with our customer partners to jointly streamline it."
First, using a modeling tool from Insight, Motorola mapped its inbound and outbound supply chain networks. It modeled the cost buildup in the supply chain, the lead-time buildup, the inventory buildup and overall customer service issues, then came up with three models of fulfillment that collectively meet the company’s customer needs.
The first model is warehouse replenishment, where Motorola makes bulk shipments to its customer DCs. This model accounts for 85 percent of the manufacturer’s business. It is based on collaborative forecasting and matches supply with demand.
In the second model, Motorola gets orders directly from retail store locations and delivers to those stores. According to Sridharan, this shaves cost from the supply chain.
"Activity in our DC goes up because we are shipping directly to many more locations, and the value-added increases along with the costs in our DCs," he says. "But the overall supply chain cost decreases because we compensate for those costs with value-added distribution."
The third model is consumer-direct, where the consumer places an order with Motorola’s retail customer, which in turn gets electronically transmitted to Motorola’s North American Regional Fulfillment Center. Motorola then fills and ships the order to the end consumer. This eliminates two links in the supply chain and shaves significant cost, according to Sridharan.
"The value added and logistics here increase and the inventory moves up to maintain a high service level," he explained. "We as the manufacturer have an obligation to make sure we manage inventory so there’s a 99 percent chance we can fulfill the order. As you come down this fulfillment channel, the order volume in your order management system goes up, your supply chain shortens and this gives you the lowest net landed cost."
In adopting the consumer-direct channel in its North American fulfillment center, Motorola classifies orders into two groups: high runners (those that ship every day) and low runners. Orders come into the company’s order management system 24 hours a day. From there they feed into the fulfillment system, where like-orders are batched. Once orders for an item reach a certain level, a batch is released to the floor for fulfillment. Picks are generated for the whole batch.
Sridharan explained that for Motorola to adapt its existing material handling system to this model it had to make several small orders look like one large order.
"We use the existing storage and material handling automation to deliver material to a program in the pick/pack/ship line," he said. "We designed this to handle 25,000 orders a day. The material is delivered in totes to stations on the line and they are scanned. The system, knowing which consumer is to get the components, generates a pick label and parts and collateral material are put in a tote box. Since we are doing direct-to-consumer shipment, the pick-to-light station directs the operator to put a letter in, explaining that with this product they have coverage in certain parts of the country, caller ID and other kinds of features."
A weighing station checks that all the items on the order are in the tote box. Then a packing list is generated and the order is packed and conveyed to shipping where an invoicing and sortation system scans the parcel on the fly and sorts based on service level or carrier.
In adopting this model, Motorola put picking, packing and shipping within walking distance of each other and achieved an 18 percent reduction in headcount while increasing pick productivity by a factor of 10. The WMS directs the conveyors and carousels to replenish, and after the products are picked and packed, they go to shipping. They are then automatically manifested by the company’s TMS and the parcel carrier is notified via EDI. An advance shipping notice (ASN) is also sent to Motorola’s B to B customer. The customer gets an e-mail notifying him of the shipment and giving the tracking number of the parcel.
Motorola’s goals are to achieve the lowest net landed cost by cutting the cost of logistics, the cost of customer acquisition and the cost of service activation. Some Motorola cost centers are still going through the complex process of setting up consumer logistics at the DCs, and some of them still have regional DCs in multiple parts of the country from which they distribute to the consumer. Nagesh Sridharan admitted this is inefficient and a logistics nightmare. Motorola is heading toward getting full visibility of true consumer demand. "That allows us to control forecast accuracy and level-load our operation," he explained. "That’s the single biggest productivity increase for us because the operation hits peaks and surges. The more out-of-synch you are, the more resources you have at work in the supply chain."
That doesn’t mean the consumer-direct model is without costs in even the most disciplined supply chain.
"When you pick up consumer direct you are forced to build inventory in-house to meet the changing service level," Sridharan explained. "When you cut over from an old model to a new one, if it is not properly timed, you pay dearly in terms of price promotion and discounts. But we figured even if we increased inventory to manage the service level, overall gain for the company, the customer and the supply chain is significant. We’ve also increased revenue from value-added services."
Motorola’s most important lesson from all this was that collaboration on planning, forecasting and new product introduction forces everyone to understand the customer’s and their own businesses better. It also forces partners to jointly improve their supply chain. That invariably leads to an increase in market-share with that partner and a stronger, more stable relationship."
Logistics and customer service have a direct link these days. The ability to provide order status information to the customer on demand is critical, even after product leaves your warehouse or distribution center. And if you can do that on-line, chances are you can also get more control over transportation costs.
"Brick-and-mortar companies are just now learning on-line order taking and customer service, and they’re trying to educate their customers," said Terry Mosbaugh, marketing manager for Neopost Logistics Systems, during a show floor conversation with MHM. "We’re helping them do that. We’re at a critical juncture in the supply chain between the shipper and the carrier. A manifesting station is an information generator. We offer the ability to do pre-shipment rating as a value-added customer service."
Customers can now get transportation information through a portal via your Web site. Your customer service rep can tell them when their order was shipped, what carrier took it, what service it was shipped with, the shipping and handling cost, and the expected time of delivery. If the customer gives an e-mail address you can even send an ASN.
What’s more, the communications enabling the transfer of transportation information are going wireless. This can make it less expensive to provide real-time information to customers. For example, Intermec offers dual radio access points enabling the use of voice and data via the same connection. This is being used in yard environments where split antennas provide simultaneous data collection and yard management using the same radio.
"With wireless access points, people don’t need to run Ethernet cable anymore," said Monte Lucas, Intermec’s manager of supply chain solutions for logistics and transportation. "You can buy an 802 card, plug it into your laptop, and your desktop is now wireless to the access point. At 11 mb speeds, your screens show up just like that."
Remember material handling
The process of setting up the product and data flow infrastructures shouldn’t be done separately. John Nofsinger, CEO of the Material Handling Industry (MHI), told MHM that putting material handling on the back burner was the biggest mistake made by e-commerce companies that failed in the past couple years.
"No one failed dramatically because he didn’t have the capability of electronically selling things," he said. "He might have failed because he didn’t have the infrastructures in place to deliver and fulfill cost effectively. There’s a migration away from a keypad-based business back to a brick-and-mortar-based business."
Jane Allred, representing Eskay Corp., agreed, adding that material handling must be considered early on if B to C is in your future.
"The B to C world has been behind the curve," she said. "B to B is making e-commerce work. The large retail folks are trying to figure out what they are going to do when people start sending in individual orders. They can’t get their orders out the door right now for their stores. When we talk supply chain, many people still think of the points before material comes in and after it goes out."
Leon Kirschner, president of Ermanco Inc., added that for all the communications wonders that can be accomplished over the Web, when it comes to material handling, face-to-face planning is still the way to go.
"As some customers drop their engineering staffs, we and our distribution channel provide a lot of technical assistance," he said. "I don’t know how you do that without first sitting around a table."
ProMat’s lesson was best summed up by Larry Brown, vice president of worldwide process technology and quality for Dell Computer Corp.:
"We have systems that virtually load trucks on the computer before we call for the trailer so when the trailer backs up what goes in it is fully understood. We don’t have to build more factories for Dell. By using material handling logistics technology, we get much more productivity out of our present factories. This contributes to the return on investment." SCF
Here’s how to contact the people and companies represented in this article:
SI Systems: www.sihs.com
Tompkins Associates: www.tompkinsinc.com