Last weekend we had some friends over to visit our house and rather than cooking we decided to place an order for pizza delivery from Dominos.  Ordering a pizza today is amazingly convenient.  We didn’t even have to pick up the phone.  Instead we placed the pizza delivery order online using the Dominos web site and a credit card.  The fact that you can order a pizza online should probably come as little surprise in today’s increasingly Internet-centric world.  What did surprise me, however, was the new Domino’s Pizza Tracker site that provides you a step-by-step update on the status of your order.  Using the phone number that you used to place the order you can login to a graphical interface that monitors the progress of your delivery.  The web site also displays the street address of your delivery, the complete contents of your purchase and the exact time of your order.   The tracker shows five different steps throughout the food preparation and delivery process:

1. Order placement
2. Food preparation
3. Baking
4. Boxing and packaging
5. Delivery en route

My tracker even told me the name of the driver who was coming to our house!  All that was missing was a link the to the driver’s MySpace page so you could learn more about he or she before they arrived….

Dominos launched this new tracker service on January 30^th.   I am not sure exactly how it works, but the system somehow ties the local operations systems in each store to the B2C web site on a real time basis. One thing I will bet on is that it doesn’t use RFID.

The tracker site is one of the more customer friendly web experiences that I have seen in recent years.  In fact, there is even a survey that consumers can fill out after the delivery to comment on their experience.  So as I ate my pizza I started thinking about the idea of providing customers real time visibility into the status of their orders.  And I began to relate this to some of the customer visits I have conducted recently with multi-national corporations in the automotive, high tech and retail industries.  One thing that I am consistently surprised by is how little visibility many of the largest companies have to inventory moving through their supply chains.  Most of the order management portals large manufacturers provide their customers don’t come anywhere close to the supply chain visibility that Dominos offers its consumers.  So I ask you - if the average Dominos franchise with an employee base of 10 and annual revenues of $580K can notify me of the exact time that a pizza is boxed and taken out the door for delivery, why can’t a multi-billion dollar manufacturer of airplane parts be able to tell their customers when a $50M shipment of goods has arrived at a port and cleared US customs?

The good news is that many manufacturing leaders seem to be recognizing the challenges associated with lack of supply chain visibility.  At GXS, we have seen a recent surge in interest amongst large manufacturers seeking to provide their key distributors and customers with better visibility to outbound shipments.  The highest concentration of demand seems to be with industrial goods manufacturers who are seeking better quality data on ocean freight traversing long distance trans-Pacific routes.   Consumer products companies are slightly ahead of their peers in the automotive, high tech, aerospace and industrial machinery sectors when it comes to supply chain visibility.  In the industrial sector, it is not uncommon to find that neither buyer nor supplier has visibility to the location and status of shipments of goods once they leave the manufacturing plant.  Interestingly, this situation applies even to high value goods including consumer electronics such as high definition plasma televisions, kitchen appliances such as refrigerators and computing equipment such as robotic tape backup libraries.  Not only are these expensive goods targets for theft and counterfeiting, but many of them can be easily damaged without proper handling.  Due to the value of the goods, suppliers often purchase cargo insurance to protect against these types of threats.  Also due to the value of the goods, many suppliers seek out third party financing for their inventory in transit.  The financing frees up working capital that would otherwise be tied up in long distance supply chains. 

So the point here is that we have multi-million dollar shipments of industrial goods insured and financed by third parties and no one other than the transportation provider holding the actual inventory seems to know the location at any point in time.  Should industrial manufacturers hire pizza delivery persons to help them?  That is probably unnecessary.  But they should consider investing further in transportation management applications, particularly in logistics visibility suites that offer customers insights into the status of inbound freight.  I have written a few recent posts about the value of transportation management suites and some of the new software-as-a-service deployment models which are emerging that outline these concepts in further detail…

• Is Your TMS Application Costing You an Arm and a Leg? 
• SaaS – A Less Crude Approach to TMS

Steve Keifer

© Copyright 2008 GXS, Inc.  All Rights Reserved.

Earlier this week American Airlines cancelled approximately half of its scheduled flights due to concerns over a potential wiring issue in MD-80 passenger jets.  Over 1000 flights were cancelled on Wednesday and nearly 500 were grounded on Tuesday.  It has been a tough year for the airlines.  Not only are jet fuel prices rising rapidly which is driving carriers such as Aloha and ATA out of business, but operations disruptions are dealing further blows to the bottom line.  A few weeks ago I was in London during the week that Heathrow Airport’s long anticipated Terminal #5 was scheduled to open.  As you have no doubt heard a series of operations failures handicapped the new terminal and its major tenant, British Airways, for much of its opening week.  Fortunately, I have not been directly impacted by any of the operations disruptions or flight cancellations as my travel patterns tend to steer me towards flying United, Delta or US Air.  But even those of us who haven’t been stranded at an airport yet, may be impacted more than we realize.

Airline Disruptions Upset Travelers, but also Slow Supply Chains 

Many of you know may know that American is the largest passenger airline in the world.  But you may not know that American is also one of the largest air freight carriers in the world providing a range of transportation services to shippers.  American’s Cargo operations has the capacity to move 100 million lbs of cargo weekly including everything from small parcel packages to heavyweight bulk pieces up to 300 lbs.  Thousands of businesses rely on commercial airline cargo services to provide expedited delivery of freight to locations worldwide. Freight forwarders are some of the largest customers of airline cargo operations.  Forwarders will purchase capacity from commercial airliners on behalf of their end customers to route international cargo between origin and destination.  So the point is that when an airline cancels flights, it not only has to inconvenience the passengers, but it also must reroute time-critical cargo shipments.   Even though the wide body aircraft such as Boeing 777 and Airbus 340 which carry much of the international cargo were not affected by the FAA inspection mandates, the smaller connector flights which route the cargo to its final destination were affected.  Many businesses depend upon air freight transportation as a critical conduit for their supply chains.  As a result, cancellations and disruptions to air travel impact the bottom line of the airlines as well as the profitability of their business customers.

Growing Transportation Challenges in the Supply Chain 

It seems that transportation challenges are becoming more and more significant issues for supply chain managers in 2008.  Not only must you factor in weather and traffic, but there are an increasing range of political and economic factors that must be considered.  The environment is an increasingly sensitive topic as more corporations are seeking to become carbon neutral.  Transportation processes are receiving a high degree of focus in these corporate social responsibility initiatives.  In January, I wrote about several transportation related issues discussed at the National Retail Federation Show.  These included the growing problem of port congestion and potential labor strikes in the Western US hubs of Long Beach and Los Angeles.   Recently, however there seem to be two new transportation related challenges disrupting supply chains: 1) airline operations disruptions and 2) the falling US dollar.  Having discussed the former, let’s now explore the latter.

The Falling US Dollar 

What does the US dollar have to do with transportation processes and the supply chain?

There was an interesting article in Thursday’s Wall Street Journal about how manufacturers in rural regions of the Midwestern United States are encountering challenges exporting their products.  You might not be surprised to see such a headline.  For the past twenty years we have been inundated with stories of how offshore manufacturers using low cost labor are making US products uncompetitive in the world market.  However, Thursday’s Wall Street Journal story (Container Shortages put US Export Boom in a Box)  had a very different theme.  As the value of the dollar has fallen against the major currencies, prices of US manufactured goods are becoming more competitive in international markets.  As a result, US exports are beginning to grow at a pace not seen in decades.  The problem is that the US has fine-tuned its transportation infrastructure to support the highly imbalanced import flows experienced over the past few decades.  With supply chain trends beginning an unfamiliar reversal, the transportation infrastructure is struggling to keep pace.  One unexpected challenge is the shortage of shipping containers – the big, metal boxes that are used to house goods as they travel on rail cars and steamships en route to their destination.   The Journal stated:

“…Finding enough of the big metal boxes used to be a cinch, because the nation’s massive hunger for imports meant they were constantly arriving and stacking up from Long Beach, California to Long Island, NY.  Shipping companies typically scoured the country for anyone willing to fill outgoing boxes…” 

But most of these cargo containers are used to move consumer goods that are unloaded at retailer distribution centers near major metropolitan areas.  US exports tend to be agricultural products and industrial equipment produced in the rural sections of the country.  The head of container research at Drewry Shipping Consultants was quoted stating:

“There are some places, particularly in the Midwest, where there’s a complete lack of containers.” 

As a result, exporters are struggling to fully capitalize on the growing market opportunity.  There have been lost orders and shipment delays.  After all, what does a manufacturer do if they cannot find enough container boxes to ship their products to overseas destinations?  Well a more expensive, perhaps easier alternative is air freight.  That is unless it is flying BA through Heathrow or American on an MD-80 or whoever the next target of FAA inspections is….

Best Practices for Managing Supply Chain Disruptions 

So what should retailers and manufacturers do to avoid supply chain disruptions from unpredictable transportation challenges?

Risk mitigation strategies such as diversifying the transportation vendors, port facilities and trade routes utilized in your supply chain will provide some level of resiliency against unforeseen congestion and bottlenecks.  A more expensive option is to buffer additional inventories at strategic points in the supply chain.  But the truth is that no amount of planning or hedging can provide 100% avoidance of transportation related disruptions.  As a result, supply chain managers should place as much emphasis on preventative measures as they do on their ability to quickly to react to disruptions when they occur.  When an air freight shutdown or a container box shortage arises, transportation managers should be able to quickly adapt their supply chain models to route around the bottlenecks.   A key factor that will influence the agility and responsiveness to supply chain challenges is the level of information you have about your transportation processes.  Suppose you shipped an order to a customer in Western Europe earlier this week.  The goods were to be shipped air freight for arrival on Friday afternoon.  Will your shipment be impacted by the problems at Heathrow or at major American hubs?  If you don’t have good visibility to your logistics processes then you may not know who your freight forwarder contracted with for the trans-Atlantic route.

Transportation Management Applications 

The best way to take control of your logistics operations is with a Transportation Management System (TMS).  These applications can provide a centralized, enterprise-wide view of all logistics activities.  With rising fuel prices and the looming economic recession, I suspect more and more companies will be evaluating TMS deployments.  for the second half of this year.  Fortunately, a number of new software-as-a-service models are emerging that can help companies to accelerate the ROI and benefits of their TMS applications.

Steve Keifer

© Copyright 2007 GXS, Inc.  All Rights Reserved.

Crude oil reached over $100 a barrel this week prompting further discussion about energy prices effect on the economy.   As I was driving into work on Thursday, I was listening to CNBC on the radio.  The Squawk Box crew interviewed T. Boone Pickens on his thoughts about rising oil prices and the need for alternative energy sources.  He was introduced to the theme song from the 1980s TV series – Dallas –a clever set up to the entertaining interview.  The discussion inspired me to revisit the topic of transportation management suites that I commented on in my last blog entry (http://blogs.gxs.com/keifers/2008/02/06/is-your-tms-implementation-costing-you-an-arm-and-a-leg/ ).   Many retailers and manufacturers are implementing TMS applications to optimize their increasingly complex global supply chains.  Rising energy costs are just one of the many drivers for these applications.  However, the ROI from these TMS deployments is often delayed or reduced due to challenges with carrier on-boarding and data quality.  I believe that the emerging SaaS (Software as a Service) model offers a number of advantages for transportation applications that can help to accelerate ROI.  But before we discuss the SaaS model for TMS, allow me to offer some background information to support my argument… 

Shared Vendor Communities 

As industries continue to consolidate through mergers and acquisitions there becomes a greater degree of sharing of common vendors among large buyers. Within a niche industry it is common for many large buyers to share common direct materials suppliers. The grocery sector offers a good example. Large food retailers such as Metro, Tesco, Carrefour, LianHua and Woolworths all source from a common set of global brands such as Kraft, Nestle, Unilever, Henkel, P&G and Coca-Cola.   

Vendor overlap is not limited to large suppliers.  Overlap exists even in niche product categories.  Consider locally grown organic vegetables or patio furniture manufactured offshore.  For these types of products there is usually a small community of vendors who supply all of the major retailers.   

Supplier overlap occurs more frequently with providers of indirect materials and services.  For example, many of the world’s largest manufacturers, whether they produce automotive, electronics, aerospace, furniture and apparel products, are likely to share a common set of financial institutions for their banking and insurance services (e.g. Citigroup, HSBC, Allianz, AXA).  Similarly, this same group of manufacturers will all source their logistics services from a small community of transportation providers.    

The Network Effect of SaaS 

The growing overlap of vendors amongst large buyers offers an opportunity for SaaS application models to offer a tremendous competitive advantage over traditional software.  The advantages stem from a concept called “the network effect.”   Here is how it works.   In the traditional software model, each buying organization must establish a separate connection to each individual trading partner in their value chain.  The result is a spaghetti-like maze of connections between buyers and suppliers.  As a result, the process of trading partner on-boarding often takes years due to the need to connect each community member one-by-one. 

By contrast, when a buyer subscribes to a supply chain application using the SaaS model, they gain immediate access to the existing community of trading partners already using the service.  As more buyers and more suppliers join the community significant economies of scale are generated.  On-boarding times can be significantly reduced using the SaaS model.  Suppose a large buyer decides to subscribe to a SaaS application.  Instead of on-boarding the entire supply chain community, only a subset of the trading partners will need to be ramped.  This is because many suppliers are already utilizing the application with another buyer.  Therefore only the net new vendors must be enrolled. 

SaaS for Transportation and Logistics Applications 

In the case of transportation and logistics applications, the SaaS model offers a compelling “network effect” to all participants.  Once a carrier connects to the hosted transportation management application they can exchange data with all the buyers on the system.  As the community of buyers (and carriers) continues to grow, the value for all participants begins to multiply.  Rather than connecting to each of the hundreds of transportation vendors utilized throughout the world, corporate buyers can connect to the SaaS vendor once.  As new relationships between carriers and customers are formed, technical integration efforts are minimized.  

The chart above illustrates how carrier on-boarding can be accelerated via a SaaS model.   

SaaS is an emerging model that can accelerate the ROI and lower the TCO of many B2B integration initiatives.  TMS is not the only supply chain application that can benefit from a SaaS approach.  In future posts, I will discuss other applications of SaaS such as Vendor Managed Inventory and Supply Chain Finance.  In the meantime, there is a wealth of information the GXS Insights portal (www.gxs.com/insights) about SaaS including a video with AMR analyst, John Fontanella.

Steve Keifer

© Copyright 2007 GXS, Inc.  All Rights Reserved.