Supply Chain Technology

When you hear a news story about a supply chain issue at your favorite retailer, you might think that it is not your problem, but you might want to reconsider.  According to the recent 2009 Global Retail Theft Barometer Report from the Center for Retail Research, United States retailers lost an astounding $42.2 billion last year due to retail crimes such as shoplifting, employee theft and supply chain fraud/errors.  The $42.2 billion breaks out into the following main categories:

• $18.7 billion for employee theft
• $15 billion for shoplifting
• $6.8 billion for supply chain errors or fraud

That $6.8 billion a year translates to over $70/year of additional cost the average family pays because your retailers do not have the appropriate technologies and processes to reduce these errors and catch instances of fraud.  All of the costs above translate into higher prices for consumers since the retailer needs to cover the costs to stay in business.  The report estimated that the cost of store crimes to consumers is over $435 for the past year.  These are meaningful amounts for most families and might warrant the question: what are you (retailer) doing to make your supply chain more secure from source to consumption at the retail shelf?

While I am sure many retailers are painfully aware of the statistics, these numbers should be a wake-up call for many retailers about the need for additional investment in track and trace technologies and supply chain logistics software. An important fact this study highlights is that not only is shoplifting a major issue but having your own employees steal from the company is a problem that needs a better solution than many retailers have today. With improved supply chain visibility and a movement toward real-time inventory availability on the store shelves, retailers will have better information to start uncovering areas that merit additional investigation.  At these levels of loss many companies will have a compelling ROI case.

Next time you speak to a friend who works at one of your favorite retailers, you might want to ask if they are investing enough in supply chain technology and visibility from store shelf to purchase. It could end-up saving you some money.

I know most sequels don’t live up to the original (Lord of the Rings: Return of the King, being a recent exception) but there was a lot of interest from the first post I thought it warranted another chapter.

One question I was asked was: what are the other game changers that Vitasek and Dittmen have identified?  You cannot have a top ten list and only talk about one.  While I encourage you to read the full report, the top ten are (in no particular order):

• Mandate for Measurement
• Supply Chain Collaboration
• Lean/Six Sigma Applied to Supply Chain
• Managing Complexity
• Supply Chain Technology
• Network Optimization
• Global Supply Chain Implications
• Sustainability
• Risk Management
• Managing out Costs and Working Capital

What struck me about several of these game changers is the need to embrace technology permeated throughout many of the themes.  Whether it is a collaborative planning and forecasting (CFPR) systems, interlinked execution software, network optimization tools or risk management models; there is a need to invest in supply chain logistics software.  Companies cannot be best in class and in some industries will not be able to survive without having a strong technology backbone that captures the necessary information and provides the tools to make important strategy decisions.

I encourage every company to take a hard look at their supply chain technology infrastructure and domain knowledge of these solutions so they can identify gaps and the action plan to address.  Then your company won’t get surprised like the orcs did when the king/economy returns… 

• Wal-mart is actually growing square-shaped watermelons in order to facilitate packing/shipping (they stack better than oval watermelons!)
• Home Depot is moving toward "self-distribution" - a logistics model favoring direct store delivery from suppliers to a model that moves most products first through Home Depot distribution centers
• Kimberly-Clark is consolidating distribution operations into regional mega-distribution / mixing centers positioned close to key customer markets

I still remember arriving in France for the first time fresh out of college. It was exhilarating yet petrifying. People were speaking in another language, which caused all sorts of questions to race through my head: how do we get from the train station to the hostel? Is someone going to steal my bag? What food am I ordering when I point to this line on the menu? 

If your business is growing to the point where you are serving a global market, you might be feeling the same sort of excitement and anxiety. 

First the bad news: the LSP market is still relatively unconsolidated which means there are few providers that can handle all of your supply chain requirements across multiple continents.

Now the good news: if you are a United States based company, outsourced logistics is even more prevalent in Europe and Asia so you should have a multitude of options to consider.

That being said, a few key points to look out for:
 

• If you work with a 3PL in the US, there is a good chance they have global partners. They should be on the shortlist for consideration. You will want to find out to what degree they are actually integrated versus having just a marketing arrangement in place.
• Are they a leader or laggard in terms of technology adoption? Some international 3PLs will buy ‘a system’ simply to state that they have one. Understanding their supply chain technology capabilities will be paramount to understanding the integration cost on your side.

FYI, that line on the menu? That night I had pâté with some kind of eggs.  It could’ve been worse…

Dan Radunz
Dan has a 13 year history with HighJump Software.  He moved up through the organization from software developer, to team leader, to Director of Technical Development Services.  Dan is a guru when it comes to the Advantage Platform, HighJump’s unique platform for supply chain technology that is highly adaptable and flexible.  I’ve had the privilege to listen to Dan speak of customers and prospective customers about the technology features of the Advantage Platform.  He has a knack for explaining highly technical concepts in a simple manor and can go deep in the weeds with the most technical audience members.  Dan will bring this technology leadership to the Direct Store Delivery Software products as we move forward with making newly acquired platforms available to existing customers.  Dan will also be critical in advancing our agile development methods across the organization.  
    
Millions of Moms, Millions of Flowers
Apparently, I wasn’t the only guy who found it easy delight my mother with a bouquet of flowers by placing an easy on-line order.  During the peak flower giving seasons of Valentine’s Day and Mother’s Day, a HighJump WMS warehouse management system customer ships millions of flowers in a very short time period (including my frequent orders).  The millions of WMS warehouse management system transactions required to support this volume are astonishing.  Only with supply chain logistic software that is benchmarked and proven to scale, is this type of operational volume accomplished.  It is a good feeling to know our software plays a critical role in these operations.
 

I was recently reviewing research from Brad Wyland at Aberdeen research which is sponsored by HighJump Software titled “Distribution Center Strategies in Today’s Economy: Managing Growth without Adding Labor or Space.” Brad uses an interesting analogy in this piece by comparing companies who will be well prepared to take advantage of an uptick in the economy to a basketball team that executes the fast break effectively. As Brad points out, the well executed fast break always starts with the rebound. A basketball team needs to be well positioned and organized for rebounding before they “run the floor” on the fast break. Similarly, companies who will be prepared to take advantage of what is sure to be a sudden revival of the economy must be positioned and well organized for the rebound.

It should not surprise me that Brad used a basketball analogy. I have known Brad for many years and during the college basketball season we will exchange a bit of email “trash talk” as his Pitt Panthers do battle with my Marquette Golden Eagles in the Big East. He holds the bragging rights this year as Pitt defeated Marquette handedly in Big East play.

So how should companies organize their distribution operations to take advantage of the rebound? As a software provider, part of me encourages businesses to make large investments in their supply chain technology infrastructure resulting in benefits such as improved throughput, increased inventory visibility, and better customer service through strong perfect order performance. However, as a business person I realize that most businesses will be scaling back capital expenditures. So what should companies be focusing on? I propose that most distribution executives should use this time period to perform a complete evaluation of their business processes and re-engineer where appropriate. Few companies are shipping at peak volumes in this economy.   It is a great time to execute on business process re-engineering projects utilizing methodologies like lean Kaizen or Six Sigma.

Once business processes are re-defined distribution executives should look to leverage existing IT infrastructure to the greatest extent possible. After all, a large system purchase will likely be scrutinized by the CFO. To get the most out of the supply chain execution software, utilize adaptability tools provided by the software provider that allows you change the software to match you new business process definition.

The economy will recover and will likely recover so quickly that many distribution executives will be caught by surprise. The savvy distribution executive will leverage this time period to prepare for the rebound. By re-engineering business processes and ensuring your technology supports these new processes you should be prepared to ship at even greater volumes (run the fast break) after the rebound.