Supply Chain Vision Means LES Is More
WMS is making way for LES, or logistics execution systems, but supply chain partners must also evolve if they're to profit from the changes in their distribution network.
by Tom Andel, editor
In the world of supply chain technology, there seems to be a new list of buzzwords and acronyms every month. Once you finally get used to one, there’s a new one to take its place. Take WMS (warehouse management system), for example. That’s being overshadowed by another three-letter word: LES (logistics execution system). Disgusted?
Get used to it. In this case, change is good. Imprisoning your fulfillment strategy to the four walls of a warehouse is cruel and unusual punishment — to your customers. Your logistics plan should be executed for the good of your entire supply chain. That’s why LES is a step in the right direction.
"Too many companies still look at a WMS for managing the activities within the four walls as opposed to creating a basis for decision-making beyond those four walls," agrees Rich Sherman, senior vice president of visioneering for EXE, a leading LES vendor. "We’re moving into a generation of information sharing and collaboration among supply chain participants to reduce inventory and improve the velocity and flow of product from point of supply to point of consumption. We must go beyond the four walls for 100 percent accuracy and the ability to provide real-time information about what’s happening in the supply chain."
That’s the key to sharing the benefits of technology investment among all supply chain partners. In the past, when a supply chain initiative was introduced at the front end of the chain, someone at the back end would be left holding the inventory. That doesn’t have to happen with today’s LES, says Sherman.
"If we can track actual inventory movement and flow across all the participants in the supply chain, and if we can adjust that fluid process based on actual demand changes, we can share in the inventory risk," he explains. "What happens today is that with all the bottlenecks, all the fracture lines in that fluid process, someone incurs a risk of building inventory in anticipation of customer demand. This is why trading exchanges and e-marketplaces are critical components of this capability to implement process control and supply chain management. The capability to consistently understand and manage actual product flow against planned product flow and be able to identify any exceptions as early as possible in the process is what this technology is all about."
What does that mean to the warehouse? It must respond in real time. Today’s LES packages can reslot inventory in the warehouse in response to new product introductions as well as to new customer demand. With SKU proliferation, shorter product lifecycles and the resistance to carrying inventory, we’re seeing the number of orders increase, but with smaller quantities and fewer line items on them. More LES packages can now support an event-driven, pull-based supply chain. Scott Rishell, vice president of industry marketing for irista, says we have workflow engines to thank for that.
"The warehouse and distribution center is becoming more of a manufacturing facility, with light manufacturing and value processing," he says. "Workflow engines provide the ease of configurability and the flexibility to change a product’s course throughout the warehouse or allow for order personalization. They also let you change the destiny of those orders at any given time. Some of the older WMS used wave planning, grouping a bunch of orders and releasing them in a wave. But once those get going, they’re like a tidal wave — hard to stop and hard to change."
Workflow engines allow the user to change the number of flex points in the system so a particular order can be moved in a different direction — to value-added processing, for example. Shipment method can also be changed. Part of the order could be re-routed to staging for expedited shipping, ahead of the rest of the order.
"That’s where WMS needs to go," says Rishell, "but most systems haven’t been architected to handle that."
E-commerce is easing the transition from WMS to LES. In fact, supply chains are starting to link with LES through the Internet. Chris Newton, senior analyst, supply chain strategies, for AMR Research, says flexibility is a key LES feature.
"If you’re selling stuff over your Web site, and all of a sudden Product B becomes your featured item, that product will start moving quicker through your warehouse and it will need to be reslotted to make more efficient picking," he explains. "Tomorrow you may feature another product. The warehouse must also be able to share that information in real time with other Web sites and with partners."
Another promising LES trend is the ability to look at an order and determine how profitable it is to fulfill. However, if e-commerce hasn’t yet taken hold of your business, you may not need all the bells and whistles many tier-one packages are providing. If this describes your company, you’re in good company. Now that the competition among LES providers in large tier-one markets is so stiff, smaller tier-two and tier-three clients are becoming more attractive. Vendors are offering options specially designed for less sophisticated applications.
Art Fleischer, with Ann Arbor Computer, says this is one of the strongest LES trends he’s seen. He cites a recent study by VDC reporting that 70 percent to 80 percent of tier-one companies have installed an LES system fairly recently, supporting the notion that smaller companies can expect more support in their LES applications.
"These smaller companies are being pressured to compete with larger counterparts in the e-commerce arena, and that's forcing a lot of them — especially the ones without a large IT infrastructure — to look to the LES vendors. In some regards that’s pushing people to ASPs, because that takes the trouble and risk out of having to put the infrastructure in place."
What's an ASP?
ASP, or Application Service Provider, is another three-letter acronym about which you’ll be hearing a lot more. There are a few variations, but in most models, third-party logistics (3PL) providers are alleviating clients of investing in the software and hardware that go along with an LES implementation. They’re not only providing the LES, but the warehouse, the material handling equipment, the radio frequency (RF) guns and the people to aim those guns as part of the package. But packages vary. It’s still up to you to find the one that fits your supply chain requirements.
"The licensing and pricing models will change," says Newton. "Some providers don’t house the server. Others are more subscription or transaction based, where you just rent the software and as an end user you pay some monthly fee. Either way, the LES is a mission-critical application, and the user must be comfortable with the idea of allowing another company to manage this piece of the business for him. There hasn’t been a lot of demand for this model yet, and a lot of ASPs don’t have the clients to serve as a reference base."
If you go the ASP route, you’ll get some things, but you can also give up some things — like flexibility. Because the ASP is hosted offsite, if you want to make changes to the system or upgrade it, you’re at the mercy of the software vendor and the hosting facility, says Rishell.
"In many cases your system is being shared with another customer on the same server," he adds. "And the server will have to be taken down occasionally for maintenance. That’s why you need to be careful whom the ASP contract is written with. You need 24/7 support now and into the future. The agreement should be with the software vendor and not the hosted service provider."
What you should know
Whether you deal with an ASP or take LES on yourself, make sure you start with a healthy warehouse operation. John Hill, principal, eSYNC International (formerly Cypress Associates), says you don't want to provide access to any outsider, customer or otherwise, until you have your internal act together. That means having a good order management system that can be tightly coupled with your LES.
"People five or 10 years ago recognized they needed a connection between their host system and the WMS to download orders and transfer information about inventory status back and forth," he explains. "That’s even more important today because we’re talking about orders placed last night that have to go out this morning. Once the order management component of your enterprise system is in decent shape, the next step is to take a look at how you’re managing the flow of material and all the resources in the warehouse. But if you stop there, you’re missing the boat."
That gets us to our next acronym: TMS, or transportation management system. A TMS can be bolted onto a WMS, but today’s LES is more likely to already have a TMS component. Hill says the ASP model also provides a good TMS alternative, acting as a central repository for rate information and carrier routes. But again, Hill suggests you understand the ABCs of LES before making any kind of investment — especially in an ASP.
"Be knowledgeable about LES beyond the superficial," he cautions. "That means knowing how they work, what the options are and how they do things. That’s important to your evaluation of potential third-party partners. If the 3PLs all say they have an LES and can get the goods out for such and such a price, I’d still want to know how they’re going to do it and how they expect to get the system done. How will they do compliance labeling?"
You’ll hear promises of short project timelines, and in many cases they’ll be valid. LES products are more stable today and the suppliers are more experienced in terms of moving things along than they were five years ago. But Hill concludes that it’s up to you to make good on that timeline promise.
"Some people tell me they can put in an LES in 60 or 90 days, but what about the culture issues?" he asks. "If the culture is right and the people have been properly prepared, if training is good and familiarization presentations are properly made, then that’s realistic."
Neil Thall, executive vice president of professional services for Manhattan Associates, backs Hill’s assessment.
"We have an installation for a simple system that goes in in eight weeks," he says. "That was unheard of three years ago. But the customers have to bring to the table a real good understanding of what they want and what they need. They need people who are ready to own the system. They must be responsible for making sure it runs. They also have to understand that if they’re going to buy something that exists and requires minimal modification, that they may have to change some of the ways they operate as well and get rid of some of the ego in how they operate — how they pick, for example. If a standard system provides five different options but you want to do it another way, is it really worth investing the money to make modifications?"
Keith Wing, product manager for Catalyst International, adds that when people hear an LES offers a standard or certified interface to the legacy ERP system they’re already using, they think implementation will be a snap.
"Sometimes such an LES won’t provide all the functionality you may need and you may have to add to it," he says. "People go into the sales process and they hear ‘certified standard interface’ and they don’t dig into it enough with the different LES vendors. They may still need to do some customization. If you underestimate what it will take to interface to your legacy system, it could result in cost overruns and project delays."
Pat Majure, vice president of sales and marketing for Majure Data, concludes that a successful start-up is not the end of an LES project. It’s the beginning of a way of doing business.
"The biggest problem in implementing these systems is a lack of focus or a plan for continuous improvement," he says. "You may have to start out not doing everything you wanted to do in order to get up and running in a timely manner. Map out how you’ll use the system to handle your changing requirements. It’s a matter of fine tuning."
Supply chains are learning that with an LES and a properly thought-out Web interface, collaboration can go beyond the limitations of enterprise resource planning (ERP) systems that lose visibility of inventory beyond the boundaries of the enterprise.
"Companies will be able to visualize and map supply chain networks from technical, logical and operational points of view," predicts Lars-Goran Olsson, director of product strategy for Industri-Matematik International. "This approach will help them view each node and link in the network and achieve the flexibility to support different channel strategies. It also will enable companies to ‘see’ where all inventory is located at any point in time and respond intelligently to exceptions." SCF
For more information...
A complete list of LES/WMS vendors can be accessed through our Web site: www.mhmanagement.com. The Web addresses of the companies mentioned in this article are listed below:
AMR Research: www.amrresearch.com
Ann Arbor Computer: www.annarborcomputer.com
Industri-Matematik Intl.: www.im.se
Majure Data: www.majuredata.com
Manhattan Associates: www.manhattanassociates.com