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  Sept. 14 , 2006 - SupplyChainDigest Newsletter
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New research reveals four key drivers of consumer demand and how well-known retailers are leveraging their supply chains to deliver superior customer service.

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First Thoughts by Dan Gilmore, Editor

Thoughts on Digital Distribution and More


A few random supply chain observation that may be of interest…

The Digitization of more and more physical goods generates two related thoughts in my mind. The news this week that Apple is launching a full-length DVD download service is likely to juice the video on-demand market in a way that existing efforts have not been able to ignite.

What it means ultimately is that supply chain and logistics professionals involved in the physical movement of products than can be digitized (mostly media and software-related products now: CDs, DVDs, music, desktop software, etc.) should be looking to broaden their skills sets, as it just seem inevitable that most of that movement will just go away. Books, magazines, newspaper, financial documents, etc. – the huge relative cost of physical distribution and the overwhelming preferences of younger customers for digital media means more and more goods that can be distributed digitally will be.

I occasionally wonder too whether supply chain and logistics/distribution professionals should play any role in electronic distribution. Once a product becomes digitized, are distribution processes and decisions now only under the province of IT and marketing?

Probably so, but a new discipline of “electronic distribution” will probably emerge somewhere…do any traditional logistics concepts apply?

Speaking of new disciplines, in our excellent Supply Chain Videocast™ yesterday on “Low Cost Country Sourcing Revisited,” Ariba’s Tapan Pandya made the point that the potential savings from offshore/Low Cost Country Sourcing initiatives often fail to materialized because the execution is left to buyers without the right skill sets to see the implementations through. I’ll add that often the implementation responsibilities are very distributed across sourcing, manufacturing, logistics, the import/export/trade group, etc., and a lot of dollars simply fall through those seams.  

The on-demand version of the Videocast will be available for you tomorrow. Check

We’ll be writing in the next few weeks about Service Oriented Architectures, or SOA, and what it means to supply chain and logistics managers. But an interesting angle has already emerged. As Gartner’s Andew White commented to us last week on our story about i2 suing SAP over potential violations of i2 supply chain software patents, as vendors (slowly) move to SOA-based software platforms, the potential for real issues with regard to software intellectual property and licensing are likely to emerge, and end users will be caught up in them.

To quickly summarize, in SOA-based systems, functionality (at various levels) can be “exposed” as services and usable by other services in the core application – or external applications. So, for example, if a Warehouse Management vendor has a service component that does inventory allocation, can a customer – or even another third party application – build a piece of software that uses that service? In effect, leveraging the originating vendor’s development for free?

It’s a tricky issue, and I don’t believe any of the vendors have really thought about this from a licensing or contractual basis. Nor am I sure what the right policies should be, if any. Stay tuned on this one...

A few weeks ago, Information Week magazine ran a cover story on “ERP Gets a Makeover,” featuring a cover illustration of a pig wearing new lipstick (which probably generated a few phone calls from ERP providers). There were guarantees from Oracle, SAP, Micosoft and a few others that the new (SOA-based, by the way) generation of ERP will be easy to use, integrate, adapt, etc. We’ll see. The reality, I think, is that ERP is no worse or harder than any other software (that doesn’t mean it is as functionality rich in specific areas such as supply chain), but the scope and pervasiveness of the never ending installs magnify everything.

The multi-billion dollar question, of course, is whether we’ll be down to just a few ERP vendors and not many other software/best-of-breed providers, or will the more open approach enable best-of-breed applications to plug and play much easier? Everyone seems to agree there will be some new era post the current ERP one – there always is – but no one seems to know what it really will look like. My own take: you are  never going to stop the desire for innovation, so companies will always in part look to solutions outside those provided by the same ERP vendor thousands of others have to gain competitive advantage. However, I do believe in the mid-term you will have a scenario almost like the old IBM mainframe days, where there will be a collections of vendors certified to run say on SAP’s Netweaver platform, and you will only choose from those if you are an SAP shop…

What topics, educational subjects, tools, or other resources would you like to see us cover in Supply Chain Digest? We have the most interactive readership platform in the industry – please help us to continue to deliver the information, news and insight you need.

Please, please drop me a line and let us know what is of most interest to you. Send to

Big improvements coming soon across multiple areas of these pages!

Do you think traditional supply chain has any role in digital distribution? Do we need a clear sub-discipline of global sourcing implementation in supply chain? Can you see IP issues emerging with SOA-based applications? What will be beyond the current ERP paradigm?

Let us know your thoughts.

Dan Gilmore







Knowledge You Need Before Purchasing Voice-Directed Applications in Your Warehouse

If you are considering integrating voice directed solutions into your warehouse or are just interested in learning more about the benefits of voice directed logistics solutions, this document is a must read.


On-Demand Videocast

Achieving “Real-Time” Supply Chain Integration

How Visibility and Automation with Suppliers Drives Significant Benefits, and Why It’s Easier than You Think

More information, or View it Right Now


Integrated Supply Chain Organization Research Project

Help SCDigest and The Logistics Institute at Georgia Tech with the important research.

Fast, easy web survey.

Summary report to all participants. Go to link above


Best Practices in Warehouse Returns

Ciber's Alex Parvenov offers valubale insight into how to improve the returns and reverse logistics challenge that is an increasing problem for many companies and adds greatly to logistics costs.


Sept. 14, 2006

Supply Chain Best Practice Tip of the Week: Doing Reference Calls and Site Visits Right

Too many efforts don't add much value; see our guidelines for getting results


Sept. 14, 2006

Wal-Mart Says RFID Rollout on Track


“We’re ready to pick up the pace,” says new CIO and ex-supply chain exec Rollin Ford.

Sept. 14, 2006

What is it with Game Consoles?


Supply chain hiccup delays Sony’s Play Station 3 launch, following similar problems with Microsoft’s X-Box last year

Sept. 7, 2006

Supply Chain Digest and The Logistics Institute at Georgia Tech Announce New Research into The Integrated Supply Chain Organization

Take our quick web survey, help the industry better understand this key issue

Sept. 7, 2006

i2 Sues SAP over Patents for Supply Chain Optimization

Software patent law is murky; impact on SAP if any unclear; fun stuff is the details that emerge as these suits progress; such suits are likely to increase, says Gartner analyst Andrew White

Sept. 7, 2006

Giant Oil Find in Gulf of Mexico Offers Promise that There is Lot More Oil Out There

World oil prices continue to fall; is this the first of many, or a single exception to the long term trend? increase in U.S. reserves of 50%?



Q. What percent of sales does the average manufacture spend on IT?

A. Click to find the 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 behind - be patient if your letter has not yet been published. 

Catching up again this week on a variety of letters we just didn't have room for over the past few weeks. Our feedback of the week stems from our News and Views article on Does Enhanced Supply Chain Security Pay?, in the form of a letter from James W. Cleveland who says absolutely yes. We have one more excellent response to our First Thoughts column on "Are You Treating You VARs Fairly," a few more comments on RFID Adoption: Slower, Better, and one from an article way back, on "The 50% Problem,", and an excellent letter on The Return of Vertical Integration? . Take a look, and join the dialog!

Keep the dialog going! Give us your thoughts on this week's Supply Chain topics. As always, we’ll keep your name anonymous if required.

Feedback of the Week – on the Value of Supply Chain Security.

There is no argument to the substantial value benefit of effective supply chain security (SCS). SCS enables end-to-end asset visibility, velocity and agility. Under adverse conditions SCS underpins brand security and business continuation.


Major US retailers import up to 85% of their inventory from China; and China is responsible for 61% of total US imports.  The importance of securing China supply chains is obvious for both revenue and security. Ideally C-TPAT certification and validation is the base framework to initiate the SCS market; if C-TPAT could be implemented in China or any other major trading partner. The US has no jurisdiction or enforcement authority in China.  Simply put, there is no visa which grants CBP or any non sovereign entity the right of enforcement. The absence of a bi-lateral agreement will continue to be a major roadblock to effective SCS and the market.  The path around this persistent roadblock is a solution that benefits and is inclusive of both China and its private sector.


China stakeholders and other major trade partners must benefit and actively participate in the solution.  The data necessary for effective SCS with interdiction will originate from multiple entities, domestic and foreign. The data governance would be similar to the conduct and settlement of exchanges of ATM and EFTPOS payment instructions. Instructions or rules would control the movement of assets globally.  Assets are cargo whose movement or transfer may be terminated or placed on hold when an instruction is not met. The business case for global settlement of exchanges of ATM and EFTPOS payment is applicable and supports revenue projections.  


Sustained market viability demands multiple sources for both supply and revenue. Market leaders understand the complexities and risks of business in the global commercial environment.  The uncertainty of operations and the potential threat to the health and welfare of employees are challenges to private sector development in 3rd world and developing countries such as Africa and India. But, market leaders know these countries represent opportunity for new business and long term growth. Effective supply chain security will reduce risks, uncertainties and enable development of new competitive sources and markets.



James W. Cleveland,  P.E.

Transportation Security and Asset Visibility


On Treating VARs Fairly:

I have been in the distribution field for years and have found two types of purchasing mentalities.  One is the partner/purchaser who works with his vendors to create new cost savings services though direct cost either savings or process savings providing the lowest landed cost for their services.  The second the “Traditional Purchasing Agent” is usually purchasing a narrow service with silo responsibilities ignoring all of the other elements in his business.  This is typical of the niche you describe.  They use people and resources as much as they can and buy from the lowest cost provider.    

With the partner/purchaser they sometimes pay a little, more for a particular service however ultimately work toward solutions where the purchaser successfully integrates the vendor’s solutions into their business and drives a tremendous amount of indirect cost out of their supply chains resulting with the lowest landed cost or value enhancement for the product delivered.  The Traditional Purchasing Agent – gets a low cost for his service while at the same time creates a suboptimal network, and passes cost of to other silos in his or her organization. Furthermore, they discourage innovation and new ideas, which alienates the creative suppliers, and they start to complain that their vendors do not bring them any new ideas.  My experience the low cost purchasing agent who is not creative and working with his vendors is at a disadvantage when it comes to innovation and delivering low cost or value to the organization.


Obviously, from my comments you know which purchase I prefer.


Peter J. Denil



I agree that there does appear to be a slowdown, but I think that is all it is--an appearance.  It is mid-year, Wal-Mart's mandate is 6 months off and there isn't a lot of press about who is now engaging in enabling their products because they are smaller companies that don't show a whole lot of value unless they tag everything.  It doesn't help the RFID vendors and technology providers to announce those.  It will seem as if it does suddenly pick up towards the end of the year once that mandate draws closer.

With regards to your comments on the conference sessions, I agree whole heartedly.  Every session starts out with a speech on RFID 101, then tries to dance around giving an audience any meat or telling them "how" to make successful implementations.  Most people have that 101 knowledge at this point and are trying to learn beyond that.  Another problem is that the conferences can sometimes be so expensive, the end users aren't attending, but rather only the vendors are. 

RFID Manager

Large CPG Company

Name withheld by request

From what I can see it looks like RFID-Radar is going to change the map.


Direction and distance information from a passive tag at good distances.


We investigated RFID but the metal bins, transponder, multiple reader requirements made it cost prohibitive.

This new wave of technology appears to leave traditional RFID in the dust.


Michael Watton


On Renewed Vertical Integration:

There are other reasons for vertical integration that go beyond protecting raw material/commodity availability.  By being vertically integrated a company can control the cost of vital parts of its supply chain.  As companies become more and more efficient, variances in material costs have a more volatile impact on the bottom line. 

When a commodity becomes "globalized" the consuming companies become exposed due to a new supply and demand curve.  This allows the producer of a commodity to raise the selling price with or without changes to their actual cost structure. 

For example, steel more than double in selling price on the global stage between Q3 2003 and Q1 2005.  Does anyone in their right mind honestly believe that the cost structures of all those steel companies doubled over that same time period?  If, as a consumer of steel, a company owned a steel mill with enough capacity to meet its needs, that company would have had a competitive advantage in its market segment just due to the global economics of steel.  Not to mention the fact that if they had excess steel capacity they could have sold it on the open market for a decidedly higher gross profit (just like all those steel producers did when posting record profits in '04, '05 and '06).

Jon McGregor


Q. What percent of sales does the average manufacture spend on IT?

A. 2%, according to Information Week’s most recent study, lower than the average of 3.2% for business overall. Retail was at only 1.6% of sales, BTW. Sectors like banking, with 6% of revenues spent on IT, up the average.

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