Warehousing and the global supply chain are becoming increasingly complex. To meet new business demands, many companies are placing more emphasis on software and automation to transform their business models and gain a competitive advantage. Here are some ways technology is playing a key role in that advantage.

U.S. businesses are under pressure to better manage increasingly complex supply chains and warehousing, both domestically and overseas. To meet new business demands, many companies are placing more emphasis on software and automation in the supply chain and warehousing as a means to transform their business models and gain a competitive advantage. They are turning to technology for help.

GTM Software
For a long time, basic import/export software products met international-dealing businesses’ needs. In recent years, though, “global trade management” (GTM) software has gained currency, reports Logistics Management this month. These integrated solutions help importers and exporters manage most aspects of international trade operations.

Notes Logistics Management:

Because GTM applications touch so many aspects of today’s global business environment, supply chain software vendors are looking to fold such functionality into their existing systems. As a result, a sort of feeding frenzy has erupted in this market segment, with software vendors snapping up GTM and related products as quickly as they can.

The most popular GTM function, customs and regulatory compliance, automates such activities as: product classification; restricted-party screenings and embargo checks; creating and filing trade documents; determining total landed costs; applying for export and import licenses; communicating with regulatory agencies; and determining eligibility for preferential trade treatment, among others. Unable to effectively handle these tasks manually, companies are investing in automation as a way to not only streamline their operations but also to avoid the fines associated with non-compliance.

Speaking of Automation…
Automating a warehouse can result in substantial improvements in productivity and in reduced costs. However, as Supply & Demand Chain Executive recently noted, deciding whether and how to automate can be a complex decision. Indeed, each case is different.

Here we look at the most common pallet automation system, the Automatic Storage and Retrieval System (AS/RS). Although it has been around since the 1950s, it still has not found wide adoption, due in part to its many disadvantages. Yet such a system can completely automate the put-away, replenishment and pallet picking, resulting in a continuous 24/7 operation. In many industries, a hybrid AS/RS system is more common, wherein pallet put-away and replenishment are automated but case picking remains neutral.

The typical business conditions that warrant automation are as follows:

• Standardized product sizes;
• Labor costs exceeding $30/hour;
• “Extreme” working conditions (e.g., freezers);
• High fixed costs, namely land and building; and
• Chronic labor shortage situations.

The graph below offers basic advantages and disadvantages of warehouse automation. Yet remember, as Supply & Demand Chain Executive put it best: “Only a thorough operations audit, along with a strategic view of the business environment, combined with careful financial analysis can reveal whether warehouse automation is a judicious choice, as well as provide recommendations on the kind of automation needed.”

Explosion of Demand for On-Demand SCM
To meet new business demands, many companies are placing more emphasis on the supply chain as a means to transform their business models and gain a competitive advantage. They are accomplishing this by “energizing” their supply chains by going on-demand.

Though it started as a niche player, on-demand supply chain management (SCM) applications’ emergence was greatly evident in the results of a survey of 180 supply chain executives conducted by research firm Aberdeen Group.

According to the Aberdeen report, “The On-Demand Tipping Point in Supply Chain”, approximately half of the survey’s respondents say they now use or are considering using on-demand SCM applications. However, adoption for on-demand SCM is still in its early stages. Further, the report says, “the mystique of using on-demand SCM technology is disappearing, making it a viable alternative for companies of all levels of supply chain maturity.”

Simply put: availability of on-demand SCM applications is accelerating, and 2006 appears to be the “watershed year” of when traditional “license and install” vendors realize that they must provide deployment choice to their customers; about half of companies are now willing to consider on-demand SCM; and user adoption of on-demand SCM is spreading from supply chain leaders to laggards.

These programs are delivered on a pay-as-you-go basis, usually over the Internet, and are hosted by a third party — both facts accounting for a major part of its high demand. Companies using such applications can often minimize in-house IT requirements and reduce costs associated with implementation. Current on-demand SCM users also report quick return on investment (ROI), as well as easy maintenance and upgrade possibilities.

However, companies are not moving to wall-to-wall on-demand SCM. In most cases, the Aberdeen Group reports, they’re using on-demand to create extensions around their existing supply chain IT investments or to replace selective modules that manage externally facing processes. The two areas of highest current on-demand adoption — and the highest-rated areas for continuing on-demand adoption — are transportation management and visibility. Also highly rated are collaborative forecasting, inventory optimization and demand/supply chain synchronization.

Common attributes of companies considering on-demand SCM include the following:

• Pressure to improve externally oriented processes, which legacy SCM applications do not support sufficiently;
• Constrained internal IT resources or have outsourced aspects of their IT organization; and
• IT portfolio strategy of investing internal resources on business differentiating areas, with the goal of using external technology experts for non-core processes.

On-demand application benefits shine in numerous areas when compared with traditional “license and install” SCM applications. At the top of the list is ease of upgrades, as the upgrade process is typically handled by the on-demand vendor, except for back-end integration changes. Thus, companies find that on-demand lets them automatically keep current with the latest functionality and therefore run more advanced supply chain processes than competitors. Many users report being pleasantly surprised with the speed and seamlessness of on-demand system enhancements.

The majority of current on-demand SCM users also cite overwhelming benefits in the fast rate of return (i.e., “velocity of value”), including better implementation speed and ROI than with their traditional SCM applications.

Moreover, nearly half of on-demand SCM users say they receive better customer service from their on-demand vendor than from their traditional supply chain vendors, an outcome of the fact that on-demand vendors are on the hook every day to make sure their applications are operating well for their clients.

On-demand vendors can also see what views and clicks are most popular with supply chain users and can streamline access to them to ensure ongoing incremental productivity benefits for users. Even in areas such as system uptime and application response time, which are traditional IT concerns about on-demand solutions, more enterprises report that these solutions outperform traditional applications than under-perform.

Despite the mounting evidence that on-demand solutions provide a faster rate of return, market adoption is embryonic. The top five challenges are as follows: data security concerns; concerns with integrating on-demand solution with internal systems; perceived lowered ability to customize solution; fear of application not being available (unanticipated downtime); and application response time or scalability concerns.

As warehousing and the global supply chain become increasingly complex, businesses must keep up. To meet new business demands, many companies are placing more emphasis on the supply chain as a means to transform their business models and gain a competitive advantage. Whether in the form of GTM software, warehouse automation or on-demand SCM, technology plays a key role in this advantage.

Resources

The Analyst Corner: Warehouse Management
by Ramez Rafla
Supply & Demand Chain Executive, April/May 2006

The On-Demand Tipping Point in Supply Chain
The Aberdeen Group, March 2006

Traditional or on demand supply chain?
IBM

Feeding frenzy
by Bridget McCrea
Logistics Management, June 1, 2006