The tech industry is no stranger to inflated valuations and over-priced acquisitions that ultimately destroy shareholder value. One can’t help but ponder these facts when observing the bidding war being waged between industry titans Hewlett-Packard and Dell for a previously little known data-storage company, 3PAR. Prior to Dell’s initial acquisition announcement on August 16th, 3PAR had a market capitalization of around $600M. As the bidding war has played out, 3PAR’s valuation has rocketed to over $2B. All of this for a company with just under $200M in revenue in fiscal 2010 that has yet to register a profit.
To be clear, this is not a commentary on the wisdom of this prospective acquisition. However, it provides a good opportunity to consider why such an intense battle would be fought over a relatively obscure company. Finding growth opportunities is challenging for large companies. HP and Dell’s dogged pursuit of 3PAR supports the view that cloud computing is an area of intense interest to the firms and that it is viewed as a growth vehicle.
Cloud computing solutions (aka hosted solutions) offer an alternative to on-premise systems that have traditionally been deployed. Some of the many benefits of the cloud deployment model include lower total cost of ownership (no upfront capital expenditure), reduced reliance on internal IT staff, and the ability to easily stay current with software/hardware updates.
In the supply chain execution space, cloud computing solutions have been around for some time with transportation management systems being the most widely adopted. As IT budgets and resources continue to tighten, companies are looking hard at this model for a wider range of solutions. For example, demand is increasing for full-function, best-of-breed warehouse management systems that go well beyond basic inventory control systems that have historically been on offer as a hosted solution.
Time will tell if this particular acquisition generates shareholder value for the ultimate winner. What is certain, is that cloud computing is an area that is expected to continue to grow quickly. Having the heft of an industry leader such as Dell or HP leading the charge can only accelerate adoption and growth of cloud computing for a wider variety of applications… including supply chain execution solutions.
Read the full press release.
Recently I read a blog post by Adrian Gonzales of ARC Advisory Group which included examples of how social media tools are being put to practical supply chain use in businesses such as Con-way, where Twitter feeds are helping match carriers with available freight. This combined with the fact that mobile internet use / wireless connectivity is growing faster than most people expected clearly demonstrates the practicality of two entirely different types of technology coming together to create an amazing hybrid supply chain solution. This leads me to wonder: is supply chain management ready to cross paths with social media?
On second thought, maybe we need to differentiate between operational supply chain management and supply chain management research and networking. Could it be that some supply chain management professionals are ready to acquiesce when it comes to testing and adopting some “bleeding edge” Twitter and mobile execution solutions if it leads to pragmatic business benefits, but that they aren’t ready to whole-heartedly make the jump into using Facebook and LinkedIn and Twitter as trusted sources for evaluating new technology purchases? What about giving feedback and collaborating about the solutions they already have?
Cisco recently won a “Best Use of Facebook” award for their Facebook fan page (http://www.facebook.com/Cisco). The page was originally created to aggregate all of Cisco’s social networks and content into one channel and create a unique experience for their fans, and now it’s grown to almost 80,000 members strong.
Seems my writing has led me to more questions than answers. What do all of you think? How to supply chain technology buyers like to collect peer group feedback on purchases and vendor experience? Are you ready for supply chain software vendors to jump in wholeheartedly with social media efforts beyond the popular blogs?
I have to admit I am not an avid World Cup soccer fan...but I have enjoyed the coverage and subsequent drama unfold with a few of the higher profile upsets and controversial rulings on the field. The ironic story regarding the English team's history with the "Ghost Goal" certainly caught my attention (England clinched its only World Cup victory in 1966 with a similar dispute goal line marker) as the one disallowed versus Germany, en route to a 4 - 1 German victory.What I found particularly interesting was reading how Sepp Blatter (FIFA President) first maintained the "human aspect" of the game was key and could not be replaced, only to later change positions and seem open to technological advances to assist the officials.
http://www.guardian.co.uk/football/2010/jun/29/sepp-blatter-goalline-technology
How does this relate to direct store delivery (DSD) companies and their challenges? It seems that Sepp did some soul searching and came around to the concept of at least considering, if not implementing, technological advances. So what are some signs for DSD companies to recognize when it is time to move forward with a project that advances their use of technology? Below I talk about five points that really should trigger at least an investigation into what alternatives exist.
1. Hinderance or Help?
Your company bought that software (route accounting systems (RAS), mobile sales solutions, or maybe an inventory application) or possibly hardware with the intent of helping your employees get the job done faster and better than ever. At first things were great and you saw immediate improvement in your daily process, but those days are gone. Today you are more frequently forced to create work arounds or miss opportunities all together due to limitations in your technology suite rather than it helping you achieve improved results.
2. Reliability Issues?
How often do you hear your route drivers complaining of having to "re-key" a route due to data loss? Or perhaps a rushed purchase order has been placed due to an unrealized inventory issue from a batch posting failure? A better question would be - how many times can you let this happen before you realize there is a problem? Whether it is hardware or software that is letting you down, when these solutions start to impact your business due to failure it may be time to act.
3. Falling behind competitors?
When the calibre of your lawn falls behind that of your neighbors there may be some good natured teasing involved, but not much more. When your ability to deliver goods, invoice accurately or manage your supply chain falls behind your competitor you have a much more serious issue to deal with. In today's economy DSD providers are having their margins tightened while dealing with increased costs, so this is no time to give your competition a head start!
4. Increasing Cost of Ownership?
What did your IT staff look like when you first implemented your route accounting system? How did you roll out sales process changes with your route salesmen? What budget do you allocate to these activities now? Upgrades, maintenance, support and enhancements are all costs that hit the bottom line. If your IT spend continues to grow but your ability to handle new functionality (or possibly even maintain the status quo) hasn't progressed, isn't it time to start asking why?
5. End of Life?
Perhaps one of the more feared phrases of the IT world, if the above listed points haven't triggered the proverbial "spidey senses" then this one surely will start your temperature to rise. When Microsoft or IBM delivers the notice that product "X" is getting the End of Life treatment you may be able to stretch your utilization past the date, but if anything goes wrong the costs to support / correct / replace will be substantial. Better to act quickly and start identifying alternative paths to support your business.
The list of compelling events for your operations may be considerably different depending on the circumstances in which you exist. But by reading this, I trust that you are actively monitoring where you stand in your technology's life cycle...and good luck making your decisions!
Navarre Adds 3PL Services to Distribution Operation Using HighJump Warehouse Management System (WMS)
Computer Software Publisher and Distributor Uses HighJump 3PL Billing Management Software to Adapt Its Business Model
HighJump Software, a global provider of supply chain management software, announced Navarre Corporation is extending its service offering to include third-party logistics (3PL) services with the help of its HighJump solutions. Navarre is a distributor and publisher of computer software and home entertainment products. The company processes 2.2 million orders a year and manages 15,000 SKUs on a campus of three facilities with a combined 320,000 square feet in Minneapolis, Minn. and a 30,000 square foot facility in Toronto. After implementing the HighJump Warehouse Advantage WMS, Navarre has seen improvements in efficiency, worker productivity and inventory accuracy.
Read the full press release.
HighJump Software announced Foster Farms Dairy has selected the HighJump warehouse management system (WMS) to optimize its operations. The company processes a wide variety of dairy products at three plant locations and distributes throughout northern and central California from multiple branch facilities. In the project’s first wave, the HighJump WMS will be implemented in the company’s three manufacturing locations and one of its distribution centers.
Foster Farms Dairy recently began a search for a warehouse management system as part of its commitment to continuous process improvement and satisfaction of customer quality and service needs. Lon Nebiolini, Technology & Systems Director Foster Farms Dairy, said “We selected HighJump Software because of its strong reputation in the marketplace, successful applications in the food and beverage industries, and its full suite of supply chain execution solutions, which Foster Farms Dairy plans to take advantage of in the future. Another important factor was HighJump
Software’s adaptable architecture, which will maximize flexibility with respect to changing business requirements without excessive costs or business disruption.”
Read more about Foster Farms Dairy's selection of the HighJump warehouse management system (WMS).
It’s the point of decision: the consumer is reaching through the convenience store cooler door to grab her chosen brand. What affected her decision? What if you see each DSD technology touch point involved in getting the product to the store, and understand how it affected the consumer’s decision?
HighJump’s new video makes it easy to understand how a modern DSD suite works together, including route accounting system (RAS), mobile presell and delivery, surveys and data collection, load optimization, GPS tracking and more.
Related posts: The Real Components of a Direct Store Delivery Software Solution
“Gary and Amy are valuable additions to the HighJump executive management team and bring extensive experience to their roles,” said Russell Fleischer, CEO, HighJump Software. “Amy has served in many key positions at HighJump that make her uniquely suited for this newly created executive position, and Gary has extensive sales leadership experience in the supply chain software industry.”
Read the press release.
No this blog entry is not going to be a behavioral reminder from your pre-school teachers…rather this is about how the supply chain software market continues to change, specifically for DSD users. Long gone are the days where features and functionality were the key factors to any software purchase decision. It is true that without solid functionality and key market features software will quickly drop off the desirable list, but these two points are merely the first gauntlet to pass towards a positive decision regarding software selection.
Today, being able to provide “out of the box” integration options, tool kits and breadth of product solutions are more important than ever in the DSD world. A next generation RAS is great, but what else comes with it? Does it provide a flexible mobile sales solution? What about your inventory and truck loading solutions? Traditional (aka Green Screen style) RAS solutions have been able to provide batch data entry for inventory, and load sheets for your picking team but does this technology really cut it in today’s world? That covers some of the basic points of entry of data into your system…but what are you going to do with it once you have it there? Do you have a robust report generation solution? Even better than that, how about a data mining tool with not only canned reports, but also an easy interface where users can define their own “custom” queries to identify the exact data elements you want and need for executive dashboards?
Beyond what I would consider fairly “standard” offerings listed above, many operations are running back end ERP software solutions as well. Being able to provide reproducible integrations to these solutions is quickly becoming as important as the software solution itself. Software users today have existing structure and systems that are not going away, and any future solutions must integrate easily and seamlessly in order to maximize benefit of your DSD solution. This is one area where most companies want to avoid being on the “bleeding edge” of technology, and would really prefer to see an offering that can reference others.
Another reason to consider integration options is as simply as taking advantage of the strength of other solutions. Leveraging the functionality of other solutions not only provides the users benefit, but can do so in a more cost effective manner (if done properly) than building additional modules outside of your core competencies. This may be a difficult decision for some to make, but I think that this is an area that can definitely be used to your advantage if properly evaluated.
I will end this post with the following question…can you really only consider one component to your DSD solution in isolation, or will you look at the end to end integration of all components?
Our New Partnership with MercuryGate: What It Means for HighJump Customers and Prospective Customers
This week HighJump announced a product partnership with MercuryGate to provide extended capabilities in TMS. See the press release: HighJump Software Expands Transportation Management (TMS) Capabilities Through Partnership with MercuryGate.
I would like to provide some additional commentary on this partnership and what it means for HighJump customers and prospective customers.
HighJump acquired our TMS capability in 2006 when we acquired Pinnacle Distribution Concepts and its Freight Logic product (which we rebranded HighJump Transportation Advantage). HighJump Transportation Advantage has strong capability for domestic shippers who primarily ship outbound and need optimization across truck load and LTL. However, HighJump Transportation Advantage has functionality limitations for inbound management, international shipping, multi-mode optimization, and capabilities for some logistics services providers (multi-client consolidation and optimization, cost allocation methods). We feel that this product partnership with MercuryGate provides a leading TMS with capabilities that are expected from transportation supply chain management users with complex requirements.
HighJump will continue to support HighJump Transportation Advantage and the 33 customers using the product. In fact, we have significantly invested in data center capability and transitioned the SaaS datacenter from Tennessee to Minnesota. This datacenter move allows us to provide on-going support to customers running HighJump Transportation Advantage.
Through this partnership, HighJump will provide a re-branded version of the MercuryGate eTMS and MOJO solutions as part of our Supply Chain Advantage Suite. The offering is called HighJump Transportation Management. Workflow integration across inbound, yard, and warehouse is done through the HighJump adaptability platform utilizing the web services available from MercuryGate using Service Oriented Architecture (SOA) philosophies. HighJump Transportation Management will be hosted in MercuryGate’s existing datacenter. HighJump Supply Chain Advantage may be deployed on-premise or through our recently announced cloud deployment option.
For new customers we will offer HighJump Transportation Management. We will also offer existing Transportation Advantage customers the option to migrate to HighJump Transportation Management through a migration program with preferred pricing.
Related Resources:
HighJump Software, a global provider of supply chain management software, announced today it is augmenting its existing capability in transportation management through a partnership with MercuryGate. The partnership will bolster HighJump Software’s current supply chain management software suite by adding new functionality for the management of international inbound and outbound transportation and robust transportation management functionality for third party logistics (3PL) providers.
To maximize the value from a transportation management system (TMS), shippers and 3PL’s are turning to systems that have capability for international and multi-mode shipments. The HighJump TMS can now coordinate and optimize complex multi-stop, multi-modal shipments, including ocean, air, rail, LTL, TL, and parcel. The solution also supports multi-currency and inter-geography shipments. Additionally, more companies are outsourcing their logistics to 3PL providers. The solution allows the 3PL to easily implement and on-board new clients and to leverage transportation across all of their clients reducing costs and maximizing profits. HighJump’s transportation solution continues to be deployed as a Software-as-a-Service (SaaS), which connects shippers with an extensive network of carriers and allows them to begin processing shipments using the system in a matter of weeks. The overall solution is web service enabled and utilizes HighJump Software’s unique adaptable architecture which allows companies to use their supply chain processes as sources of competitive advantage.
Read the HighJump Transportation Management press release.
Why am I happy that people don’t consider last Monday night’s college basketball game the greatest final ever? Luckily for me Gordon Hayward’s shot glanced off the rim and backboard allowing Duke to capture our fourth national title. Hats off to a great Butler team and a phenomenal tournament.
Now onto the topic of inventory. If you ask most CFOs, they would point to the balance sheet and tell you the dollar amount of inventory on the books. It seems like it should be an asset; it is something your company spent time and money to create. Heck, we make a living selling millions of dollars of software and services so companies can better manage and track their inventory with warehouse inventory management systems.
So why is inventory not an asset? Why does Dell dictate their suppliers locate their warehouses literally across the street from their facilities? Why has the concept of consigned inventory become popular in the retail world? Why do many companies such as Amazon and Target not ever inventory the item but allow the manufacturer/distributor to drop ship directly to the end customer? All of the above practices allow the company with power in the supply chain to delay or completely remove the necessity to take actual ownership of the physical product. Inventory has become the proverbial hot potato. No one wants to take ownership of the inventory and if they are forced to, they want to own it for as little time as possible. If inventory is an asset, then why does no one want to own it?
In almost every industry, the day the brand new product comes off the manufacturing line is when it is most valuable. Every week, day, minute afterwards the inventory is at risk of losing value:whether it is actual expiration dates/best before dates for food products, technology obsolescence as everyone is pushing for the next generation product, or the latest edition update to a college text book. This is why FIFO (first in first out) is such a popular pick algorithm as it rids the business of the asset that is declining the fastest and keeps the product with the longest runway on the shelf.
Another reason inventory is not an asset is the working capital it ties up. Every piece of inventory your company has in its possession is money that could potentially be used elsewhere in the business. The company loses the “optionality” to find the best return those dollars could generate. While it is quite possible putting that money into inventory of a hot product is absolutely the right decision, once the decision is made you cannot get that dollar back and put it into R&D or hiring a new person. This makes it absolutely essential that your company watch closely your investment in inventory.
It is surprising that many companies have not reduced the amount of inventory they keep in their supply chains. In a recent post by Dan Gilmore at Supply Chain Digest, he details by industry how many companies have not appreciably reduced their inventory since 2004. In a day and age when investment of every dollar matters, maybe people need to take a closer look on how to optimize their inventory levels throughout their extended supply chain. Supply chain management software solutions can help. Au revoir, Go Duke!
Related Posts:
Where is Your Inventory? Even Today Some Companies Still Don’t Know
All of the Inventory I Want to Ship Is Sitting In My Yard!
What’s so difficult? If you’re a third-party logistics provider (3PL)/logistics services provider (LSP), all you need to do is provide efficient warehouse management, exceptional inventory visibility, seamless freight management and timely and accurate 3PL billing. Oh, and you need to do it all more cheaply – and just plain better – than your customers can do it themselves. Bit of a tall order, especially when you’re trying to post your own profit too!
I imagine trying to stand out among other 3PLs is similar to any other more commoditized service. You’ve got to: (1) Find a way to attract new customers and (2) Keep the customers you already have so happy that they’ll gladly tell their peers about how fantastic your services are.
One of the advantages of being in the fast-growing logistics services space is that technology providers have their development teams working overtime to create tools to make things easier for you. With modern supply chain management software, you have the means to achieve those two huge tasks. Here are a few examples.
· Facilitated on-boarding new customers – the quicker you can do it, the sooner you can get paid, right?
· Getting the billing right – new automated 3PL billing technology is making it simpler make sure you are getting paid for each service you provide, and that you can easily account for those charges. You can also preset billing rules at a very granular level – a detail which might help your sales team seal a few deals?
· Tracking inventory attributes – it’s the nature of your business – every customer wants to track different attributes, even if the items are exactly the same as another customer. Now you can set up detailed – and different – rules for each customer.
· Offering more value-added services – the best way to set your business apart from 3PLs that just provide shelf space. These value-added services can be anything from repackaging to relabeling, kitting and light manufacturing. Adaptable supply chain technology can support the adding of new services that your customers are waiting for.
Guess it’s just perspective…it’s a challenging, cost-conscious industry, but you’ve got access to the technology to let you go grab your share of new business.
Related resources
Special Report: Four Ways 3PLs Can Harness Technology to Attract Customers and Drive Profitability
I was asked by a new HighJump Software customer to provide the welcome keynote at their annual sales meeting. This company is embarking on a shift from being primarily a provider of air cargo transportation services to providing a comprehensive set of solutions for their current and prospective clients. HighJump Software provides a key role in this transformation by providing the supply chain technology backbone for warehouse management systems and billing management systems.
I ran into several of the attendees the night before my presentation at the hotel bar where a good time was being had all. Surprisingly, the audience was very attentive for my 8 a.m. breakfast keynote even though many of them had a late night prior.
Some of the key points of my presentation were:
The Use of Logistics Service Providers is On the Rise
There are multiple market studies that have shown that an increasing number of companies are likely to outsource their distribution and logistics solutions. North America provides a substantial opportunity because the use of outsourced logistics is more prevalent in Asia, Europe and South America than it is in North America.
Economic Uncertainty Caused Businesses to Evaluate Outsourced Logistics Solutions, Warehousing Solutions and Transportation Solutions
It was reported that 3,000 domestic trucking companies went out of business in 2009 and over 1 million shipping containers remained idle as a result of the global recession. While overall volume certainly presented challenges for logistics service providers, the uncertainty in the economy caused many companies to rethink outsourced logistics solutions, warehouse solutions, and transportations management solutions. It also caused these companies to rethink their current relationships with their logistics service provider. As many companies were forced to do a deep dive on their financial performance, many concluded that using outsourcing allowed them to shift from fixed to variable costs and resolve balance sheet and cash challenges by selling assets associated with their supply chain.
IT Enablement and Broad Solutions – a Recipe for Winners
Buyers of 3PL services consistently state that IT enablement is a major consideration in choosing a logistics service provider. Cost continues to be the number one factor (as it should be) but logistics services providers can “change the game” by offering broad set of solutions, powered by technology and command premium pricing for these services.
Related Resources:
- HighJump Solutions Page for 3PL’s
- HighJump LSP Datasheet
- HighJump WMS Brochure
- HighJump Billing Management datasheet
- Georgia Tech/Capgemini 3PL Study
- Eye for Transport Web Site resources
- Are 3PL CEOs Bad at Strategy? By Adrian Gonzales of Logistics Viewpoints
I spent some time last week with a HighJump Software customer who is considering further expansion of HighJump WMS solutions in their distribution centers. The customer is undertaking a massive ERP program that will allow the ERP system to be the IT backbone of their worldwide operations. They are also evaluating WMS solutions from this ERP provider.
In a meeting with senior IT leaders of this organization, I explained that I was highly confident the outcome of their pending due diligence regarding total cost of ownership (TCO). I contend that a best of breed solution will result in lower long term costs for this IT organization. Here are a few things that make me confident in my position:
Best in Class Functionality
While ERP-based WMS solutions have advanced significantly, they are limited to the “classical” warehouse operations including receiving, put-away, inventory control, picking and loading. Supply chain best practices such a labor management, slotting management, advanced wave planning, and last mile delivery are not traditionally supported with ERP WMS solutions. This means that when supply chain operations teams demand these capabilities, IT organizations are forced to address them with expensive customizations or bolt-on solutions with multiple integration touch points.
Upgrades
A WMS solution typically has a 10 year lifespan. In this lifespan a WMS could be upgraded five times. ERP upgrades are generally more expensive to upgrade because of the interdependencies between modules and re-application of source code customizations. Additionally, corporate IT governance and change management processes often make it difficult to upgrade a single module. Therefore the business users may be forced to wait for new features because of dependencies on modules that have nothing to do with distribution and logistics. View this video to learn more about HighJump’s approach to simplified upgrades.
Adaptability Tools
If your organization views distribution as a source of competitive advantage, then ERP-based WMS could be problematic. By definition, a competitive advantage must be unique to the organization. Business processes available in commercial off-the-shelf software packages (like ERP) therefore cannot contain business processes that are sources of competitive advantage.
To really ensure you have the flexibility to maintain and create further sources of advantage in your distribution operations, your supply chain logistics software must have the ability to create processes that are unique to your business.
HighJump has a unique approach that allows customers to define unique workflows that does does not involve any source code modifications. I am not aware of any ERP based WMS solutions with a similar architecture.
Without this architecture it can be very expensive for IT organization to deliver these workflow changes.
I recently received a direct mail marketing piece from a HighJump Software competitor. The mailer included a press release announcing that this company had “enhanced direct store delivery integration” and a one page datasheet which described a direct store delivery value chain as manufacturing + regional warehouse + mobile resources + retail shelf.
HighJump Software is the North American market leader for direct store delivery software solutions. If our primary competitor in the warehouse management systems market had encroached on our market position I needed to know. Perhaps they had acquired a route accounting solutions provider or acquired a provider of mobility solutions for mobile selling and delivery at the retail location. I consulted a trusted industry analyst who confirmed my suspicions… this was marketing hype and this company’s approach to direct store delivery still had significant “holes.”
Anyone familiar with the value chain of direct store delivery companies knows there are some specific complexities that must be addressed in order to have “comprehensive coverage across the extended supply chain.” Here are some things companies should consider when search for direct store delivery software solutions:
Certified Route Accounting Systems
Route Account Systems are unique software systems to manage the complexities of route-based sales and delivery. They typically manage the entire order-to-cash cycle and are geared toward the world where sales, inventory, and business metrics are all tied to a “route.” Although traditional ERP systems can be used for route accounting systems, they typically require customization to deal with complex pricing/promotion, cash settlement, truck inventory, and supplier e-commerce integration. To further understand the complexities in the beverage value chain read It is Hard for Anheuser-Busch to be Procter and Gamble.
Mobile Sales and Delivery Applications
Success or failure in a direct store delivery business is determined at the store shelf. Direct store delivery companies have large workforces of mobile sales and delivery professionals who need to be equipped with mobility technology for them to effectively accomplish their objectives. HighJump Software provides a comprehensive suite of mobility products which support industry best practices for order capture, goal-based selling, delivery tracking and cash settlement. For more details on these solutions read about our latest mobility suite product release HighJump Software Enhances Mobility Solutions With New Release of Mobile Route Sales and Delivery Software Suite.
Load Optimization
Optimized loading of side bay beverage trucks can be complex. While there are numerous packages for creating optimized load plans of traditional van trailers or flatbed trailers, optimizing for side bay beverage trucks is another animal. Additionally, this business problem becomes even more complex when you have a “peddle” environment (driver selling off truck without pre-sold orders) and driver preferences must be taken into account at the load and pallet level.
I think the moral of the story is “don’t believe the hype.” Direct store delivery software solutions are specialized for the unique needs of this industry. Direct store delivery software solutions deal with complexities of supplier integration, cash settlement and truck inventory. A WMS, TMS and retail workforce solution will not meet the needs of most food and beverage distributors in their direct store delivery operations.
Today HighJump announced that our latest route accounting system (RAS) has received certification with Anheuser-Busch InBev for use by their wholesalers. The result of this certification is that HighJump RouteCenter receives the highest level of compliance, Level 1 ISV – Strategic Partner. The news release: HighJump Software Named Strategic Partner by Anheuser-Busch InBev.
The role of route accounting systems in Anhueser-Busch InBev’s value chain is critical. In order to fully understand the importance of this software, it is important to contrast the value chain of the large four beverage suppliers from a traditional CPG value chain. Let’s explore the differences …
Traditional CPG Value Chain
The traditional CPG value chain is largely vertical. A vertical value chain is one where each component of the chain including source, make, deliver and sell is controlled by the same company – in this case the brand owner. This allows retailers and brand owners to collaborate about every aspect of the product including quality, new product introduction, price, promotions, and electronic commerce. With today’s sophisticated supply chain software it is possible for most CPG companies and retailers to know exactly what was sold (and at what price) at every retail location every day.
Additionally, most traditional CPG companies have the following inventory flow: manufacturing/production -> regional distribution center -> retailer’s distribution center -> retailer. In this scenario the retailer is primarily responsible for managing the inventory that is shipped from the manufacturer to the retail distribution center (ordering) and the flow from retail distribution center to store (although there are certainly evolving collaboration techniques to share this responsibility across the manufacture and retailer).
Big Beverage Value Chain
The value chain of the big 4 US beverage suppliers (AB InBev, MillerCoors, PepsiCo and Coca-Cola) are more fragmented than the traditional CPG companies. In the case of the beer suppliers, they manage the manufacturing/production process and then resell their beer to independent wholesalers/distributors that distribute and sell to the retail location. In the case of the large soft drink suppliers, they do not even manage the production process but leave make, deliver, and sell to independent bottlers.
Additionally, in most situations beer and soft drink products are delivered directly to the retail location and by-pass retail distribution. This approach benefits the retailer because they are not forced to handle and transport beverage products which are significantly heavier than most food products. The beverage companies benefit from the ability to merchandise themselves and manage promotions at a local level.
Why Retailer Collaboration is More Challenging in the Beverage Value Chain
Retailer collaboration through e-commerce initiatives is more complex in the beverage value chain. This is because unlike the traditional CPG chain which has full visibility to transactions with the retailer, the big 4 beverage suppliers are reliant on their independent distributors who transact with retailers. AB InBev needs to have the same level of visibility over their independent wholesalers as Proctor and Gamble has over its distribution centers….no easy task.
How the Route Accounting System Helps
The route accounting system is the core back office system for independent beverage distributors (think ERP for beverage distributors). Best-of-breed route accounting systems have certified integration back to the large beverage supplier organizations. Through this integration, the large beverage suppliers are able to have transaction visibility throughout their distributed value chain. This collaboration allows product, pricing, and promotional information to flow from the supplier to the independent distributor. It also allows sales transactions to flow from the independent distributor back to the supplier so that the supplier can provide this information to the large (and demanding) retailers. Therefore, it is really the route accounting systems which allow the large beverage supplier organization to provide retailers the e-commerce supply chain collaboration they demand.
I suspect, although it wouldn’t be admitted to in mixed company, that the pre
sumption has oft been made that having any sort of route accounting software in place puts that direct store delivery business ahead of most. Quite a stretch, considering the increasing complexity of food and beverage distribution processes and requirements, and the extreme range of RASs out there (think old pick-up vs. shiny new SUV).
Now, that old pick-up was, in its day, the envy of many. It could even drive through some bumpy terrain. But now, although it [usually] starts, and can [almost] reach highway speeds, it’s not too reliable, and you need to visit salvage yards to find replacement parts. Not exactly the chariot you want your precious cargo riding in, and not exactly cost-effective. Not the most inspired metaphor, but not too far off?
So how do you know if you’ve got a route accounting system akin to that old pick-up?
- Your processing times seem to be getting slower and slower.
- You spend days trying to extract data for reports you need to run your business.
- It’s tough to get applications to work together and you’re spending a lot of time and money making integrations work.
- There’s only one person there who understands the necessary workarounds of your RAS – and he’s retiring next fall.
No, we haven’t been shadowing you. The fact is: the symptoms you’re experiencing are quite common to DSD businesses running on dated technology. While your system may still work at a basic functional level (the pick-up still starts and runs, remember?), modern technology can provide new features, better access to company performance and smoother integration with other systems.
You may even be interested in the “full maintenance plan” (to extend the vehicle metaphor painfully further) for a modern route accounting system – otherwise known as an on-demand, or hosted system. This option removes the maintenance headache completely by having your supply chain management software vendor host your system for you. There is no hardware to purchase or maintain and patches and upgrades are done automatically.
This year may be the best yet for your direct store delivery business – do you have a swift, reliable and easy-to-maintain “vehicle” to get you there?
HighJump Software just announced the dates for Innovation 2010, which will take place at the Fairmont Scottsdale in Arizona. Mark your calendars for HighJump's user conference, October 24-27.
HighJump Innovation gives our customers a chance to network with industry peers and gain valuable insights into how to better leverage their HighJump solutions to achieve ongoing success. Attendees expand their understanding of successful supply chain management best practices in today's demanding environment.
Visit the Innovation website for more information.
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