| March
10, 2005 |
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Dan Gilmore
Editor-in-Chief |
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The interest in what used to be called “hosted”
logistics software solutions is growing.
Over the past few years, this concept has gone by a
variety of terms: hosted solutions, ASP (application
service provider), and recently, with a big push from
IBM, “on-demand” software.
Of course, these concepts could apply to any supply
chain or other category of software. In practice, my
experience in the supply chain area is that the greatest
interest by far is in logistics-related categories:
transportation management, international trade logistics,
supply chain visibility.
A few months ago, we spoke with Yankee Group analyst
John Fontanella on this trend as part of our audio
Viewpoint series – you may also enjoy listening
to that interview.
In a traditional software purchase, a company buys a
perpetual license to the product upfront, generally
pays a maintenance fee on that software, and deploys
the software on computer platforms within their own
enterprise, being responsible for the general technical
support of the application.
The “on-demand” model in its purest form
actually offers the reverse of all of that. In reality,
however, there are several separate dimensions to an
“on-demand” solution, each of which can
be a separate business driver of the interest in this
approach (click
here for a graphic of the framework):
Deployment Model: Will the software
be installed at your site (the traditional approach),
or hosted at the software provider or other third-party?
Pricing Model: Will the software license
be purchased upfront (the traditional model), or will
it be paid for as it is used on a subscription/ transaction
basis?
Operating Model: Will the business
department or function using the software be managed
internally, or through use of a third party/ outsourcer?
For example: use of a 3PL to manage the transportation
function.
In my conversations with many companies on this topic
over the past few years, it is clear that when they
speak of the desire for a “hosted” solution,
the reason behind that can vary substantially, and can
impact their choices along this framework. For example,
one company looking for a hosted transportation solution
really just wanted to pay on a subscription basis, due
to limited capital availability. They ultimately acquired
TMS software on subscription, but deployed the software
internally in the traditional way. Others are fine with
licensing the software upfront, but do want to have
some other party host and manage the application. That
said, there is clearly growing interest in the full
“on-demand” model, meaning a hosted solution
paid for on a subscription or transaction basis.
So what’s happening here? Several factors I think.
Certainly the ability to avoid a large upfront capital
outlay, and better match savings with costs, is one
factor. Second, in many cases on-demand solutions can
be deployed more quickly, accelerating time-to-value.
A less discussed factor is that many IT departments
seem to be OK with the business using hosted solutions
that might not align with various technical standards
or with ultimate plans to go with the ERP module in
that area – there is something less “intrusive”
in the hosted model.
You can download a nice overview of this whole topic
by clicking
here.
Of course, we heard a lot about “ASPs” in
the dot.com bubble, and many of those companies are
long gone by now. But “on-demand” seems
to have some legs, and the tens of millions IBM is spending
to promote the concept generally to CXOs is certainly
helping the cause.
Why do you think we are seeing growing interest in “on-demand’
software? Why does it seem to be mostly focused on the
logistics/transportation area, and not other supply
chain categories? Is this the wave of the future, and
if so, what does it mean to end users and vendors?
Let
us know your thoughts.
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By Robert Shagawat
–
President
& CEO, Shippers Commonwealth, LLC
We all measure
what we do in some way … or someone does it for
us! In thinking about success metrics and key performance
indicators (KPI’s) in the transportation arena
over the years, certain truths became “self-evident”.
Managers don’t use transportation management systems
(TMS) transactionally (their people such as load planners/dispatchers
do this for them), but they do want to see how they
are doing and view and present their “image in
the mirror” for their executive team and within
the industry. Many TMS programs have only daily transactional
information, with a dearth of KPI’s needed to
steer the “supply chain ship” for the enterprise.
Executives crave scorecard and benchmark information,
which is hard to come by in our industry.
Having pondered on this in the past, the KPI’s
which are most important for transportation management
becomes clearer when we design systems and see how people
actually use them. My colleague Dan Walker at MeadWestvaco
once said that all transportation metrics come down
to four letters: D-R-U-M, representing Distance, Rates,
Utilization, and Mode. In thinking about a DRUM reporting
suite, as we developed our Shipment Intelligence Center
for Shippers Commonwealth clients, the following measures
were among the most useful ...
Click
Here for the Full Column
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How much faster tag read rates are expected from
the EPC Gen2 standard? Answer
below
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Feedback is coming in at a rate greater than we
can publish it – thanks for your response.
We’re still backed up. Our feedback of the
week is a nice letter from Gary Huysman of Target,
who responds to a couple of the questions we raised
in reporting on the RILA conference session that
featured the logistics VPs of Target and Wal-Mart
answering audience questions.
We
also received a number of responses on our First
Thoughts piece two weeks ago on the proposed new
technology for moving containers and even whole
tractor-trailers above existing rail lines through
use of linear induction motor technology. We’ll
print more next week as well.
For
the complete comments from readers, click
here.
Keep
the dialog going! Give us your thoughts on this
week's Supply Chain topics.
feedback@scdigest.com |
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Interesting article
in Manufacturing Technology News from independent consultant
Erik Keller that suggests with the rapid rise of virtualization
and outsourcing, many companies are still trying to
manage these vastly different supply chains with the
software tools they acquire in a very different era.
“Many manufacturing applications installed in
the 1990s – including ERP and supply chain management
systems – were put in place with the idea that
most manufacturing occurred within the four walls of
a single company,” Keller writes. Companies generally
“still have the same systems, but rather than
re-tuning them – or building newer systems –
they have either shut off major portions of them, or
decreased the number of users.”
The result, Keller argues, is that companies don’t
have key information they need to assess how their extended
supply chains are performing. “A fewer companies
have deployed collaboration tools that bridge issues
between suppliers and buyers. Even fewer have deployed
solutions that deliver quality, scheduling, and planning
data between U.S.-Based manufacturers and their foreign
suppliers.” SCDigest has written about this issue
– and opportunity – several times, most
recently in our report on “Global
Commerce Management – The Executive Case for Operational
Excellence”.
Keller rightly suggests that companies need to do an
assessment of their current supply chain technology
portfolio and capabilities, and how these match with
a more distributed and virtual supply chain future.
For most, such an assessment will identify an obvious
need to upgrade, extend, or acquire new functionality.
Our report identified the enormous financial rewards
for companies gaining control over their extended global
supply chains through such improvements.
Keller’s article is not available on-line, but
send an email to the feedback button and we can send
a copy.
Is there a mismatch between your company’s technology
support and its global supply chain strategy (remember,
we’ll keep the letter anonymous upon request)?
It’s clear there has not been much investment
in this area – what is the issue: a lack of
education? Lack off senior executive understanding/support?
Unclear
ROI? Let us know your thoughts.
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View
Full Article >>
The lobbying effort of Wal-Mart and
other retailers to extend the workday for truckers to
16 hours took a blow yesterday, as Rep. John Boozman
withdrew his amendment to change hours of service rules
and extent the drivers day, at least according to the
Teamsters (see link above – we are trying to get
other verification).
The Boozman Amendment, named for Rep. John Boozman,
who just happens to represent the district that is home
to Wal-Mart’s headquarters, has been floating
around for several months. It would have made a change
to HOS rules extending the maximum driver day to 16
hours, as long as the driver took an unpaid 16-hour
break. The amendment was to be debated this week as
part of actions in Congress around the highway spending
bill.
But the amendment ran into plenty of opposition. Joan
Claybrook, president of the safety advocacy group Public
Citizen, said drivers could end up starting their workday
at 8 a.m. and quitting at midnight. "This is a
sweatshop-on-wheels amendment," Claybrook said.
"The last thing we need is for tired truckers to
become even more fatigued and threaten the safety of
those around them on the roads.” There was also
strong opposition from the Teamsters. It appears this
opposition has been successful.
Conversely, a Wal-Mart spokeperson had said they supported
the amendment “because we feel it would actually
enhance safety rather than hurt safety." Wal-Mart
employs about 7,000 truck drivers.
Do we need changes to the hours of service rules? Why
or why not? Was it smart to have a congressman from
Wal-Mart’s district leading the effort for change?
Let us know your thoughts.
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View
Full Article >>
As we wrote about late
last year in these pages, there have been some skirmishes
between Intermec and other RFID vendors (notable Symbol/Matrics)
and EPCglobal about intellectual property rights related
to RFID technology.
An agreement had been worked out between Intermec and
EPCglobal, under which Intermec was to donate 5 of its
patents to the group it believed were critical to Gen2
on a royalty-free basis. It also agreed to license an
additional 13 patents on a reasonable and non-discriminatory
(RAND) basis to enable EPC's Gen2 UHF specification
to go forward – meaning anyone could use the patented
technology, and only modest royalties would be required.
Recently, However, EPCglobal's law firm has come to
the opinion that none of Intermec's IP is actually necessary
for Gen2 compliance. Intermec responded by withdrawing
its patent agreement with EPCglobal.
As an article on the AIM Global web site says (linked
to above): “Intermec had originally agreed to
the policy because it believed its IP was potentially
necessary for successful Gen2 implementation. However,
if, as EPCglobal's law firm insists, none of Intermec's
IP is essential for Gen2 compliance, there is no reason
for Intermec to agree with EPC's RAND policy on these
13 patents.”
But, as always, the issue is complicated. While it may
be possible to implement the critical Gen2 UHF standards
without Intermec IP, those patents include technology
related to use of “frequency hopping spread spectrum”
in RFID system deployment, which is perhaps necessary
for the technology to work well in “noisy”
environments. Further, the Intermec IP in question does
not apply only to the Gen2 standards, but previous standards
(class 0 and 1) and RFID technology generally.
Intermec, however, says it will continue to support
ISO standards development, which takes a different approach
to handling IP. Further, Intermec will now be able to
license its technology and patents on a case-by-case
basis with specific vendors – which could have
significant implications both on those vendors costs
as well as which vendors Intermec will choose to work
with.
So what’s the upshot? According to AIM Global:
“In the short term, it clearly benefits Intermec
because it removes EPC's RAND restrictions. It may also
cause some hesitation on the part of customers because
of potential exposure to infringement suits. It will
also require more negotiating sessions between Intermec
and other RFID suppliers. In the long term, however,
it is unlikely to affect the eventual adoption and cost
of Gen2 systems.”
A lot more to come. We view this as yet another example
of how immature the entire RFID/EPC ecosystem really
is, and that those aggressively pushing widespread adoption
aggressively would do well to consider this reality.
What do you think of Intermec’s decision to drop
its IP agreement with EPCglobal? How critical is this
technology to “successful” deployment of
Gen2 EPC? What does this say on the state of EPC maturity?
Let us know your thoughts.
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The following questions were posed at the conclusion
of the short summary of discussion points shared by
Target's Mitch Stover and Wal-Mart's Johnny Dobbs.
What are your thoughts on three-shift or 7x24 operations?
Are some companies building more DCs than they need
to because they won’t take this step? Will vendors
to retail ultimately have to synch deliveries and operations
even more in tune with the big box retailers? And what
can we do about all those inventory paths into the system?
Here are a few thoughts: I have answered these questions
are in reverse, following the normal merchandise flow
into the supply chain.
The number and types of paths that our merchandise follows
into the supply chain will logically follow a path of
cost and efficiency. As our industry becomes more technically
enhanced, our vendors will begin to realize cost savings
associated with he changes. Understanding change is
uncomfortable, bottom line profitability will inherently
influence vendors to embrace the changes as profitability
becomes more attractive then their current status quo.
My assumption is that most vendors are waiting for the
Targets and Wal-Marts to invest in and trouble shoot
the different technologies before they embrace it.
The cost of maintaining reserve inventory at every step
of the supply chain impacts the final price we demand
from our customers, impacting which products our customers
eventually purchase. Vendors who are more responsive
to improvement of Flow Through product and Just In Time
deliveries will benefit from reductions in final product
pricing on the store shelves, making their products
more attractive to the customers. This is a Win-Win
for vendors and retailers. Vendors will continue to
improve their response time as Distribution improves
efficiency.
The movement to 7x24 operations can and will have an
upfront saving on the capital investment in bricks and
mortar, operating systems and support equipment. However,
there are other considerations that must be addressed
prior to staffing a building 7x24. Efficiency and capacity
can be a reflection of serviceability of the operating
systems. In order to set a building up for 7x24 operations,
redundancy must be built in to allow maintenance teams
the access to the hardware for preventive and corrective
maintenance. Scheduled down time found in operations
of less than 7x24 facilitates that access systems and
will need to be replaced. So, the answer to the question
concerning the addition of distribution facilities to
avoid moving to 7x24, yes, some companies will build
rather than take the scheduling step. However, this
is a result of opportunity costs, rather than purely
avoiding difficult staffing adjustments.
Gary Huysman
Target
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Given the
numerous delays I have been subjected to in getting
my goods from the West Coast ports to my facility in
Wauconda, IL I think anything that offers a real solution
to the problem is a plus and government funding should
be provided to further develop this approach.
PROS that I gathered from the article:
-- No pollution: a big plus for environmentalists.
-- Reduced congestion on highways / rails: A big plus
for everyday commuters
-- Reduced cost for transport: A big plus for companies
and end users.
CONS:
-- The trains: As a threat to their business, they could
mount a campaign to "de-rail" (pardon the
pun) the project before it even gets started.
-- Truckers: another group that might feel threatened
by potential loss of business were this to take hold.
-- Railyards and transfer station: Currently enjoy considerable
power in who and what moves in and out of their facilities,
could be diminished by this new technology.
So my question is: who can I contact to advocate funding
for the research needed to test this technology and
develop it into a real time, real solution to an ever
growing, series of delays in getting product to my door?
I will look forward to updates on what is happening
with this.
Cindy Bandur C.P.M.
Progressive Components
Great idea
to treat a symptom to the real problem. The real problem
is brain dead companies shipping “air” and
finished good from Asian not key components to be
assembled.
The last thing freight companies want is to solve this
problem as they make money on volume… but the
right way to solve and the right thing for our workforce,
national policy, customer service etc. is to not ship
as much finished product but rather key engineered
components
to be final assembled in the North America.
Think about it! I was just at the BNSF rail hub today
in Texas and they said their West Coast China volume
grew 20+ % last year. They cannot keep up. Choking
the
intermodal facilities and they expect at least another
10% growth this year. Although the pure BNSF freight
guys probably won’t like it on the surface but
the BNSF logistics thinkers will as rail and intermodal
never wins on spread but wins on moving inventory and
synchronized transport against orders and customer
service
if you engineer it.
Just think about if 20% of the volume came in postponed
component form you would likely create huge GDP improvements
for US. Help trade imbalance and cut back on the over-capacitied
logistics structure.
By the way if the average CFO would let a well informed
supply chain professional actually educate them on
Total
Cost not just labor cost comparisons in manufacturing
it likely is significantly cheaper for that company
but many CFO’s need a statistically oriented
supply chain total cost resource to inform and educate!
Just a thought… one that front and center to some
consulting work I was doing today helping several Korean
business think about how to setup distribution in the
US. The Korean’s got it as they are thinking
about making money, not saving money? Maybe we can
get US
business to think that way?
Jon Kirkegaard
DCRA Inc
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