Executive Briefings

On the Rebound:New Interest in Where Supply-chain Technology Can Take Companies

With economic activity heating up, businesses are again eager to compete in the global arena. To do so, they need to raise the performance of their supply chains to world-class levels.

After several tough quarters, the economy is springing back. Operational managers have very high hopes that new investments in software and other technology will score some much-needed points for supply-chain performance.

But any supply-chain managers who expect flashy, new technologies to blow away the competition overnight are going to be disappointed. The supply-chain game over the next few years will be more about fundamentals, both for the technology vendors and for the users.

Vendors know they must finally deliver on the unfulfilled promise to enable end-to-end, seamless supply chains. Integration will be made easier, so applications will be truly interoperable. The ability to collaborate among extended supply-chain partners is becoming an integral part of nearly every application. Web-enabled trading networks are going to become as easy to create as an e-mail list. To accomplish these tasks, vendors are rewriting their applications to meet the needs of today's highly distributed supply chains. Languages and platforms are becoming less proprietary, if not completely open.

"RFID is the most over-hyped technology in the supply-chain world."
- Andrew White of Gartner Research

Users are going to be busy building new, extended business processes around recognized best practices and that leverage the wide array of supply-chain technology. Most companies realize that they have been glacially slow in absorbing existing technology, and they also know their competition is going to pick up the pace of innovation. With the help of their technology suppliers, companies will be building flexible networks that provide value for every member - not just the channel master at the center of the chain.

For industries, the emphasis will be on developing better data standards that allow real-time exchange of data and interoperability of systems, regardless of platform or application.

New technology is going to play a very large role, but the innovation will be more evolutionary than revolutionary. Well-established technologies such as sensors, radio frequency identification and GPS will be improved and integrated into existing supply-chain applications. Mobile devices that have already changed how most people live their lives are morphing into remote connections to enterprise networks.

Of course, software spending is already picking up. According to a recent report from ARC Advisory Group, sales of supply-chain execution applications such as transportation and warehousing management will grow at a compound rate of 9.7 percent over the next five years to reach $5.2bn in 2008. The spending emphasis, at least in the near term, will be on these proven solutions. Business pressures will push sales of other types of applications. As worldwide commerce continues to grow, largely undiscovered applications such as global trade management will gain much more traction. Tools and add-on applications that allow enterprise systems to more easily extend to outside partners will grow.

The outlook that follows is the result of in-depth interviews with seven of the most knowledgeable supply-chain technology consultants and analysts whose expertise is sought throughout the industry. GLSCS would like to thank the following people for their time and efforts:

• Sundi Aiyer, senior manager, supply-chain service, Cap Gemini Ernst & Young
• Paul S. Bender, president, PS Bender and Company
• John Fontanella, vice president, Research AMR Research
• Adrian Gonzalez, director, logistics executive council, ARC Advisory Group
• Richard Sherman, president, Gold and Domas Research
• Navi Radjou, principal analyst, Forrester Reseach
• Andrew White, research analyst, Gartner Research

Changes at the Core
Several of the most important technological shifts in supply-chain solutions may be almost invisible to many operations managers because they are taking place deep in the applications, often at the data or architecture level, to allow more interoperability of applications, extended functionality to supply-chain partners and network-wide collaboration in real time.

For example, a major hurdle to extending supply-chain tasks across departments and between companies has been the rigid, company-centric enterprise resource planning (ERP) systems that have been the center of most corporate IT systems for nearly two decades. All other internal applications have to integrate into the ERP system, so companies are encouraged to buy all modules from that same ERP vendor. To share data with external partners, companies have turned to a wide variety of adaptors, middleware and messaging technology, but at significant time and expense.

A Total Inbound Solution for EMS Provider
Solectron, the $16bn electronic manufacturing services (EMS) provider, is using Arzoon's LIFE Logistics Resource Management applications to improve service and to reduce logistics costs for inbound shipments from its 7,000 suppliers. Solectron's manufacturing operations span five continents and flow more than $20bn in raw materials inventory through the company's supply chain each year.

As part of a larger internet initiative, the EMS provider is implementing Arzoon LIFE to manage its entire logistics network to include inventory visibility, transportation management and international trade logistics. The implementation is expected to reduce logistics costs by $20m over three years, which is significant in an industry that operates on margins of 2 or 3 percent.

By automating its carrier selection process, Solectron expects to reduce costly expedited shipments, labor costs and errors common with manual operations. Using information from a purchase order, the LIFE solution optimally selects a carrier based on defined business rules and tenders the load. The system notifies the carrier, or intermediary if appropriate, to schedule a pickup. The system accurately and automatically prepares all required documents. To assure supplier routing compliance, Solectron managers can monitor each shipment using Arzoon reports.

With over half of its suppliers and customers based outside the U.S., Solectron is tightly focused on complying with customs regulations to avoid border delays, liability and costly fines. Arzoon's Global Trade LIFE provides a centralized rules database that includes government trade advisories, license requirements, denied parties screening, controlled-country screening, documentation determination, tariffs and duties for more than 25 countries. Arzoon Global Trade LIFE helps Solectron comply with international trade restrictions by screening shipments and purchase orders prior to execution. If the screening indicates potential non-compliance, the solution sends alerts to all designated parties.

Using the Arzoon Global Trade LIFE total landed-cost calculator, Solectron generates scenarios detailing all costs involved with the importation of goods, including transportation, duties, taxes and import/export fees. For instance, where the company has a number of different suppliers for a particular component, Global Trade LIFE identifies the most cost-effective supplier based on the true, total landed cost.

Because of the complexity of its trade network, Solectron has thousands of components and finished goods in transit at any given time. The company needs a solution that provides visibility and information about all shipments and inventory in transit. Solectron also monitors the fulfillment of purchase orders down to the part number or SKU level. Arzoon's purchase order and freight tracing tools give Solectron visibility into both domestic and international inbound shipments. The Arzoon system issues proactive alerts when requested delivery dates are in jeopardy of being missed, so managers can bring the inbound supply chain back into synch with manufacturing schedules


This rigid ERP infrastructure and the architecture it is built upon does not support emerging business processes. Companies have made it clear that they need systems that support extended supply chains, not frustrate them. Technology vendors, perhaps reluctantly, have realized that they have to cooperate to succeed, according to industry guru Richard Sherman of Gold and Domas.

"There are times to compete and times to cooperate," says Sherman. "Manufacturers in such industries as high-technology, aerospace and even chemicals reached this understanding several years ago when the realized that everyone had three roles. At different times, they were suppliers, customers and competitors of each other, so they had to learn how to efficiently work together. The software industry is coming to that realization. The tech vendors are changing their products to allow more efficiency to take place."

Even the largest software vendors now agree that users prefer to assemble their own supply-chain systems using best-of-breed applications that meet their operating needs. They do not want to simply accept what their ERP vendor wants to offer them, according to consultant Paul Bender of PS Bender and Co.

"The big suite vendors are finally giving into customer demands to allow easier application interfacing by changing their system architectures," he says.

Changing Directions
SAP, for example, which has traditionally tried to offer just about every type of application under its own brand and written in its proprietary language to encourage the one-stop-shop approach, is reversing direction. While it will continue to provide an ever-widening range of functional solutions, all of its applications will be written on an interoperable architecture called NetWeaver. It uses web-services, which is the collection of protocols written in extensible markup language (XML), to allow information and entire applications to move seamlessly across the web.

"The economic model for the large ERP vendors is being undermined," says Gartner's Andrew White. "A few years from now, all the applications that a supply chain needs will move to the network. There will be little economic value in being the provider of every type of application. This change is happening slowly, but it is an inexorable drive taking all supply-chain technology in the same direction."

This shift has begun already with web-based applications that expose data among supply-chain partners and allows them to act on that information. Transportation management systems (TMS) have been pioneer examples of how a web-based application can bring network visibility to all parties in a supply chain so each party can see the same shipment information at the same time and act on that information in real time. Vendors such as OneNetwork, Descartes, GT Nexus and many others have facilitated the flow of information and the execution of business processes that are spread out among trading partners. In the product lifecycle management (PLM) space, Arena Solutions is a hosted application that resides on the vendor's system. External suppliers, designers and contract manufacturers can see the information they need to interact with internal engineers, purchasing managers and other supply-chain managers.

"Information visibility gain through web-based applications is becoming prevalent throughout the value chain," says White. "Even greater value will come when entire business processes can be shared across departmental and enterprise boundaries. We call this trend business fusion."

As the big suite vendors increasingly adopt architectures that allow more interoperability, White says that traditional supply-chain applications will be replaced by process-based solutions built on a so-called composite application framework (CAF). These process-based solutions begin with the channel master designing the business process across all partners in the supply chain. This channel master essentially builds a custom application using the CAF, which consists of a workflow engine, a series of tools to accomplish the task, a data synchronization engine and whatever measurement and analysis tools are needed.

"The company uses what we call business fusion to develop a new super process across departments and partners," says White. "Software vendors that have made their business around packaged software will have made this radical shift to remain competitive. "They are having to eat their own children."

Before business fusion makes serious progress, however, companies and industries must dramatically improve data synchronization across applications and data standards throughout industries, White says. Different applications all have different database schemas. Suppliers, manufacturers and customers in the same industry refer to the same item with different data sets.

For example, if a retailer measures stock availability with Sunday as the first day of the week, but a major vendor starts its weekly replenishment schedule on Monday, any attempts to apply technology to this supply chain will face data synchronization problems. Similar examples abound, according to White, which is why so much effort is going into data standards.

"Until all parties and applications agree on data standards, we can't have business fusion," says White. "Data will have to take on a life independent of the applications that use it, and synchronization of data between disparate sources will become a key enabling technology."

White is working with retail industry group UCCnet to create a global directory of product information to solve this problem for the retail industry. All procurement systems from retailers and all selling systems from manufacturers will point to this global directory for product information. Regardless of the systems the individual companies are using, trading partners can easily implement VMI, CPFR, and other multi-enterprise processes.

Planning Around Demand Signals
Planning is perhaps the most important supply-chain process that companies want to improve through better technology, both to improve customer service and to squeeze out costly inventory. According to technology research firm IDC, $19bn has been spent on demand forecasting software and other supply-chain planning solutions, yet companies are still wrestling with conflicts between what the customers demand and what planning systems present. Despite these disconnects, companies will continue to use supply-chain planning systems, but with a few twists.

Nearly all of the large planning solution vendors, including Manugistics and i2 Technologies, as well as the large enterprise suite companies, have introduced adaptive planning tools to narrow the gap between planning and execution. These tools decompose the planning process into small components. When demand changes the assumptions in the supply-chain plan, just those portions of the plan that are affected can be updated and the plan re-aggregated.

Sprechen Sie RFID?
When Wal-Mart and its top vendors launch their radio frequency identification (RFID) initiative in November 2005, Germany's top retailer, the METRO Group, already will have had its program in operation for one year. In November 2004, 100 suppliers to METRO will affix RFID tags to their pallets and packages and deliver them to 10 central warehouses and around 250 stores within the METRO Group, which includes Metro Cash & Carry, Real hypermarkets, Extra supermarkets and Galeria Kaufhof department stores. Since late 2003, at its showcase "Future Store" in Rheinberg, Germany, METRO has been testing RFID transmission of product information such as price, manufacturer, expiration date and product weight. These tests were conducted using technology and expertise from SAP, Intel, IBM and around 40 other leading vendors.

METRO is initially testing RFID in warehouse management to enable the automatic inspection of incoming goods. Delivery of goods to the Future Store in Rheinberg are fitted with RFID tags in the central warehouse and read in upon arrival at the store. During transport from the store's warehouse to the salesroom, goods are read in again, and identified as items to be moved to the front of the store. The tests in Rheinberg have shown that RFID offers retailers and their customers enormous advantages: more effective processes and, consequently, lower costs, which benefits both parties. Using RFID, goods will be able to be located along the entire process chain--from production all the way through to the shelf in the store. Managing orders can be optimized, losses reduced and out-of-stock situations avoided, assuring an even more consistent availability of goods for the customer.

Based on its experience with tests such as the METRO project, SAP has launched the first packaged RFID solution for supply-chain management. SAP says the system allows companies to leverage data captured through RFID tags in their business processes by integrating ERP and SCM functionalities with RFID-enabled applications. Examples include packing and unpacking, shipping and receiving and tracking and tracing across the supply chain.


"By replanning just parts of the plan, companies can respond quickly to changes in the marketplace," says Sundi Aiyer. "The planning function becomes more relevant to good execution."

For retail supply chains, CGE&Y has created its own demand-driven approach that it calls consumer-based replenishment (CBR). Instead of trying to manage in-stock inventory levels through forecasting, as do such techniques as vendor-managed inventory and collaborative planning, forecasting and replenishment, CBR focuses on profitability metrics such as return on inventory investment. Suppliers gain control over their product's replenishment from manufacturing plan to the store shelf, which allows them to react to point of sale (POS) changes and minimize the demand variability created by the traditional wall between the retailer and supplier.

"We worked with a major lawn care products company and a big-box retailer to set up a CBR system," says Aiyer. "The vendor's Manugistics planning system received POS information directly from the retailer every night and was able to schedule its own replenishment plans in response to this actual data."

From the retailer's point of view, it can manage the suppliers' replenishment performance by common metrics and vendor scorecards, creating a healthy competition between them.

Aiyer says that CBR is being implemented in the build-to-order retail space where orders are often configured online in real time. These orders create highly reliable demand signals that can be used for sales purposes, as well as be shared with suppliers as long as there is an information hub or private exchange between the original equipment manufacturer and its supplier or contract manufacturer.

Incentives to Buy
For example, if an online customer order to Dell Computer includes a 17-inch monitor, its order management system will make sure one is in stock before the order is confirmed. If there are none, the Dell private exchange link to its supplier can check its inventory, attempt to arrange direct shipment and trigger replenishment. The same demand signal can instantly offer the customer who is still online an incentive to buy 19-inch monitors that are in excess supply.

"Signals that capture real demand as it is actually happening can improve performance, bring the demand and supply into synch and add profitability across the supply chain," says Aiyer.

AMR Research believes that more technologies and planning processes will be focused on what it calls demand driven supply networks (DDSN), rather than just trying to plan faster. DDSNs allow supply-chain information transparency throughout the network in real time. They use the same workflow and maybe even sharing the same application.

"The emphasis is on using real demand signals to constantly deviate from plans based on what is happening," says AMR's John Fontanella. "Users need systems that allow sales, marketing, manufacturing and procurement to manage processes on the fly."

Companies using DDSN take forecasts from customers and incorporate them into their own forecasts to temper their plans with as much reality as possible. One benefit is to build more "truth" into the planning process. If a customer is only buying a fraction of what their forecast calls for, then someone has to look much more closely at that customer. Conversely, if a customer is ordering much more than it is likely to buy, especially on products on allocation, the implication would be that it is just buying up capacity.

"This process makes the supply-chain manager ask more questions," says Fontanella.

The ultimate goal is to use real demand signals to avoid the classic bullwhip effect where forecasts are padded and altered at each stage in the supply chain, so the final plan ends up as a wild distortion of what the marketplace really needs.

"The step to solving this problem is to give everyone in the supply chain the same view of demand at any point in time," says Fontanella, who adds that without this demand-driven capability, it takes too long for changes to come up the supply chain. DDSN allows the demand information to be available over a network to all parties.

For several years, many companies have tried to use event management systems to gain visibility throughout the supply chain and to share alert information with trading partners. While some of these supply-chain event management systems have been effective for execution applications such as transportation management and warehousing management, they have not been very successful in planning.

According to Bender, companies have found that visibility is not enough. Supply chains need to anticipate problems and ultimately take action to solve the problems.

"The real goal is control," says Bender. "Visibility is just one of several elements that allow companies to control their supply chains."

Control begins with detection systems that can anticipate or predict when plans are likely to go wrong. Business intelligence systems gather data and monitor what is happening in the marketplace with competitors, customers, suppliers and so on. To some degree, customer relationship management systems can reveal demand trends.

"Few software tools provide this capability because it is not easy to do," says Bender. "But companies need to build this capability into their supply-chain systems, because plans are always going to be wrong."

The next element is visibility, which is being built into most supply-chain systems to reveal such problems as shortages of supply, missed shipments or incomplete orders. Finally, supply-chain management systems need "solvers" that can take action on problems that are anticipated or that just happen. There are a wide variety of solver tools for different situations, many of which are included in planning systems. Optimization is the most common tool, but there are also statistical forecasting tools, heuristic systems, and simulations, just to name a few.

"Control is what supply-chain management is all about, and no single tool can provide it," says Bender. "Event management and visibility is not enough."

One step in this direction is an emerging technology that AMR Research calls inter-enterprise supply-chain coordination (ISCC). It incorporates demand collaboration, supply collaboration, supply-demand alignment processes, exception management capabilities and an optional rules engine that can kick in when problems occur. The idea is to use collaborative tools to make planning - or other supply chain tasks - more real-time. A workflow engine manages the process. Rules apply only if the users choose to automate a response.

For example, in the case of ISCC-capable planning solutions, a tolerance is built into plans. If event management tools indicate that the plan has fallen out of tolerance, then the application notifies as many parties as appropriate to take action. An optional step allows a rules-based engine to automatically take predetermined actions to fix the problem. This engine can be programmed only to recommend a solution to a human operator. Few companies use the full capabilities of this technology, according to Fontanella.

"Companies are very cautious about automating processes," says Fontanella. "They still consider supply-chain management an art, not a science that can be totally automated."

He predicts that it will be sometime before ISCC technology is allowed to take over any supply-chain activities because of the critical role that supply-chain decisions play in a company's success.

"Application software is capable of making decisions based on more variables than a human can process," says Fontanella. "However, the answer that comes out is often counter-intuitive. These answers may be right, but companies are very uncomfortable with trusting technology this far."

There are currently only a handful of ISCC-oriented solutions readily available today, including such companies as Blue Agave and Sockeye Solutions. For example, Blue Agave's Active Performance Management solutions continuously monitor customer demand and supply and production processes, proactively resolving issues such as revenue-at-risk, stock-outs, late orders, excess inventory, and material shortages, mitigating their impact on customers.

In the case of Sockeye, the application does not replace existing planning, sourcing or other systems. It uses collaboration and workflow templates to keep these applications up to date. The company recently introduced an application template that allows the entire organization and its customers to access the available amount of inventory, capacity and reservation across the entire supply chain in real time.

"For true supply-chain collaboration, companies need the ability to bridge inbound and outbound processes," said Randy Sabourin, vice president of business development of Sockeye Solutions. "To achieve this, they need to have visibility and the ability to commit to requirements that affect demand and supply to a raw material level if required. Sockeye's Network Commitment Collaboration Application Template allows users to accurately give customers an available-to-promise in real time despite enterprise limitations, ultimately resulting in scalable, low cost deployments of highly reactive solutions that maximize returns and improve customer service."

Global Trade Management
Global trade management (GTM) solutions have been around for several years, but they have never been viewed as must-have applications. That may be changing. These applications allow importers and exporters to screen trading partners against lists of prohibited parties and countries. They help classify products for customs purposes, produce trade and transportation documents and calculate landed costs for planned or actual shipments. As valuable as these applications are, sales have not kept pace with the growth of trade itself.

There are several reasons, all of which are related to marketing issues, not the underlying technology.

"Most importers and exporters have simply relied on outside customs brokers and freight forwarders do this type of work," says Bender. He adds that these intermediaries insist that their expertise cannot be replaced with software, which resonates with companies that are not anxious to bring more operational tasks in-house. "The software vendors have to compete with established solutions, which is always very difficult."

Bender believes that GTM software will make inroads primarily because of new corporate concern about cargo security and compliance with CBT regulations.

Gonzalez says that both the users and the vendors realize that even more value can be found in strategic processes such as procurement and sourcing. Using these applications, companies can make better choices about suppliers based on landed costs, quotas, local content and other hard-to-research cost issues.

Business cases are now being built around multiple users purchasing, product development, logistics and legal departments.

"CFOs are now taking notice of these applications," says Gonzalez, "but the vendors have to show how their applications minimize the order to cash cycle, cost of goods sold and expedite days sales outstanding."

GTM is increasingly available as web-based hosted solutions from companies like Open Harbor, Arzoon and Precision Software. Both Arzoon's Global LIFE and Precision's TRA/X Trade Logistics are also sold as modules in larger integrated transportation and trade suites that allow users to manage the complete import or export process in one combined application online with vendors, carriers, service providers and other trading partners.

Stand-alone vendors include Nextlinx, Xporta and Vastera. While most of these vendors sell the application as packaged software, it can configure it as a shared service to allow access by all supply-chain partners. Vastera also offers a completely managed service, rather than software, that acts like an in-house customs broker. SAP now offers a global trade management module that integrates directly into all of its other enterprise applications.

RFID Wrestles with Retail
The greatest irony in retail supply-chain technology is that today's hottest trend has the least value for the vast majority of vendors and retailers. At least that is the opinion of quite a few industry experts and probably the 100 vendors that have to comply with Wal-Mart's November 2005 RFID implementation deadline.

"RFID is the most over-hyped technology in the supply-chain world," says Gartner's White. The problems are legion: Tags are too expensive for wide use. Cartons with RFID tags toward the interior of full pallets are often invisible. The electronic product code (EPC) that is intended to be the data standard for retail RFID has yet to be finalized, so the information that will be conveyed to Wal-Mart will lack the vendor identifier. Privacy concerns threaten to limit the use and value of RFID beyond the retailer's backroom.

"Whatever gets deployed in the next year or two will not be a RFID system that every other manufacturer or retailer in the supply chain can use," says White. "What little benefit that may accrue will go to Wal-Mart, not go to the supplier."

For Wal-Mart, the RFID data will be limited to backroom inventory management where the giant retailer hopes to cut labor costs by about $6bn. RFID-driven automation should allow Wal-Mart to receive shipments and replenish shelves with fewer people with lower skills.

For suppliers, White advises them to spend their efforts making better use of point-of-sale data they receive from their retailers to synchronize demand and supply.

"POS data can tell you when a product sold, and you can use that as a trigger for replenishment," says White. "RFID information that is likely to be available to vendors will do nothing to help reconcile demand and supply. People are sucked into the hype."

Enabling Global Drop Shipping With Live Data
JDS Uniphase (JDSU) is reducing its inventories while dramatically improving order cycle time by enabling its outsource manufacturers to ship directly to customers on a global scale. The fiber-optics components maker is using ClearOrbit's Advanced Contract Manufacturing module to seamlessly collaborate in real time with six contract manufacturers, suppliers and their suppliers, around the globe. The ClearOrbit module is an extension to JDSU's hosted Oracle ERP system. JDSU retains complete visibility and control over the disposition of inventory during the staging and shipment processes at supplier locations, including the printing of shipping documents, commercial invoices and barcode labels, with all of the necessary customer information printed in JDSU's format, using JDSU's ERP data. JDSU also remains the single point of customer contact, and the brand the customers associate with the products delivered. The contract manufacturers interact directly with a single JDSU data model via real-time web pages and web service protocols.

The contract manufacturers always have the latest customer information because they link directly to JDSU's constantly updated database of its trading partners in its Oracle 11i system. The ClearOrbit collaboration software suite allows all the trading partners to access the same database, which is housed, hosted and controlled by JDSU, the originator of the purchase order and the sole point of customer contact. The trading partners interact with that data where it resides naturally, and they can access component inventory, part status, shipping status, datasheets and more all through the web.


Navi Radjou of Forrester Research believes in the long-term potential of RFID, but for now, he is concerned that the large investments being made in RFID technology right has little or no direct return for the suppliers that are spending the money.

"That is not good business," says Radjou. "It is all about compliance with large customers such as Wal-Mart and the Department of Defense (DoD)," he says. "Wal-Mart should gain better visibility into its inventory, but from a value chain standpoint, there is no benefit across to the suppliers."

Radjou says that top 100 Wal-Mart suppliers are so frightened about missing Wal-Mart's November 2005 deadline that they are not even thinking about supply-chain benefits. In fact, the mandated time line is so tight that no ROI calculations are being done beyond complying with the demand of a major customer.

"My concern is that when these suppliers will be so turned off to RFID after they exhaust themselves to comply that will not want to go back and do the job right," says Radjou.

He thinks that solving the technological and cost problems of RFID will take about five years and will take a united effort from R&D companies, hardware vendors, software developers and industry groups. Even when these hurdles are overcome, he believes adoption will be evolutionary.

"RFID in itself is not going to improve the supply-chain performance," says Radjou. "Companies need to develop new processes that leverage this technology. Retailers and their vendors need to learn new ways to act on the granular location information that a shortage that has been communicated.

Cap Gemini Ernst & Young's Aiyer agrees that RFID is currently being oversold, but he thinks there are benefits, even to the vendors being forced to comply with Wal-Mart and the DoD. He points out that inventory visibility into receiving areas, store backrooms and other corners of the supply chain have never before been a priority for anyone.

"These trading partners are really thinking about the value of data collaboration at every point in the supply chain," says Aiyer.

As companies become more RFID compliant and have more granular visibility of products, Aiyer believes vendors will be able to replenish more quickly to meet demand in specific stores.

Mobile Resource Management
Among the simplest technologies being used in supply-chain applications today are handheld devices as simple as cell phones and personal digital assistants (PDAs). Transportation management system vendors such as NTE have long made cell phones part of their dispatching system. Descartes System uses wireless capabilities to link fleets with an enterprise routing and scheduling solution.

ARC Advisory Group refers to the field-based wireless technology as mobile resource management (MRM). Gonzalez sees MRM as filling a vital gap in obtaining more timely, accurate and complete information.

"Small carriers and suppliers have not been able to provide their large customers with updated information, but the wireless piece makes it affordable for these smaller players to be information players," says Gonzales. "Now drivers just need a device that sends a text message confirming arrivals and departures."

For example, execution system provider Radcliffe provides Blackberry e-mail devices from RIM to drivers to automatically schedule and confirm dock appointments through its TMS system, thereby maximizing precious driver time and keeping loading area clear.

According to AMR Research's Fontanella, the future of handheld devices is even brighter as wireless devices morph into multifunctional terminals.

"Now drivers are beginning to carry combination cell phones, scanners, and global positioning system (GPS) location devices," says Fontanella. "If a driver wanted to have the same functionality, he used to have multiple devices, but few companies went to the expense or the effort of integrating them all. Now, with one device, direct store delivery drivers can reconcile proof of delivery with invoices, which feed into a CRM system in real time. The location of the driver is always known, and he can always be in contact with the dispatcher. It adds a lot of functionality to what express delivery drivers have been using for years."

Consultant Bender agrees that the use of wireless handheld terminals will explode for use by delivery fleets.

"The convergence of technologies that are being built into handheld devices will change the logistics systems for many companies," says Bender. "It is not just about features such as geographic location, navigation support and real-time traffic information. These devices increasingly will be able to support complex changes to delivery schedules and VMI programs."

For example, a food store route delivery typically has 30 scheduled stops that are locked in when the truck leaves the distribution center. Any change in what each store will accept or wants will either disrupt the plan or leave the customer dissatisfied. If the first store was supposed to receive 20 cartons but wants 30 instead, what is the driver supposed to do? A handheld device can upload the situation to an enterprise system that can replan the route on the fly. The driver will receive an update schedule that may help him fill the store request and skip the last seven stops. Meanwhile, another route driver with excess product is directed to these seven stores.

"With this type of power in the field, VMI becomes a much more attractive way to service customers," says Bender. "Supply-chain plans can be constantly up to date."
As powerful and inexpensive as the mobile devices are becoming, they are only a mechanism for capturing, communicating and displaying information.

"The value is in tying the mobile devices into a routing, dispatching system or other application," says Gonzalez. "The hard part is integrating the mobile technology into a system that leverages the information."

Smart Devices, New Processes
According to Forrester's Radjou, a wide variety of smart, sense-and-response devices will increasingly become important links in supply-chain technology. Forrester calls these sensors, GPS devices, RFID and other established technologies the "X internet" because sensing data flows from the external device into online planning and execution systems to support new business processes.

The most publicized X internet examples center on cargo security. Concerns about terrorists using inbound ocean containers to smuggle in weapons of mass destruction have prompted a number of initiatives by the Department of Homeland Security (DHS), including Smart and Secure Trade Lanes and Operation Safe Commerce that are testing X internet technology. One such pilot program includes use of RFID technology placed inside containers to track movement and to sense any attempts to tamper with the contents. Both Hewlett-Packard and Target Stores are participating. While the success of this security initiative has yet to be announced, Forrester reports that Target Stores' use of Savi Technology's RFID-based visibility application to track inbound containers has greatly enhanced the retailer's ability to provide real-time status updates and detailed manifest data to supply-chain systems.

X internet-based systems are also found in very ordinary applications. For example, Radjou says that Michelin is a leader in using X internet technology for managing assets and building new value in its supply-chain operations. Its e-Tire online service is an add-on sensoring system that measures air pressure and temperature of tires in commercial fleet operations. An alerting system allows fleet operators to avoid tire failures, reduce downtime and improve fuel economy. Michelin has also been using RFID tags to track the 20 million tires in transit through its supply chain at any one time, which not only helps with inventory management, but speeds recalls should they become necessary.

Many types of X internet devices, such as fill-sensors, have been around for decades. Suppliers would use manual or telephonic connections to determine when customers needed replenishment of liquids or gases. By linking sensing devices into internet-based systems, suppliers make the process more efficient.

What makes the technology cutting edge is the transmission via cellular and the systems that they connect to. Forrester's Radjou agrees that none of these X internet technologies are really new, but he sees a lot of excitement around them because they can provide tremendous ROI.

"How companies make use of these devices for business innovation is what is revolutionary, not the technology itself," says Radjou. "We will see innovative companies finding new business processes that take advantage of the technology."

Because X internet systems constantly receive feedback on how assets are performing, they can support other technologies that look forward into how the asset is likely to perform in the future. This combination of technologies can create entirely new business opportunities.

For example, sensing devices are increasingly finding their way into automobiles, heavy equipment and even jet engines to monitor usage and wear. By feeding this information into predictive analytics software, service providers can determine when the equipment will need replacement parts. Delta Airlines has adopted this approach and has reduced the need for routine inspections by two-thirds. With less time tied up with inspections, Delta's maintenance staff is managing rival carriers' fleets. Delta earned $150m in 2002 and expects to build the business to $500m by 2005.

Defense industry contractors are finding themselves forced into using this system because the DoD is embracing what they call performance-based logistics. The military just wants to operate its weapons systems, not maintain them, so it is increasingly making the defense contractor responsible for the readiness of the planes, missiles and other assets.

"There can't be any excuses about spare parts availability," says Radjou.

With the contractors financially responsible for weapons being operational, they have to use sensors in the assets to monitor performance. They are using predictive software, spare parts support applications and planning optimization solutions.

"They are tying all of these technologies together to provide the performance the DoD demands," says Radjou. "This same concept is finding its way into the commercial world."

Radjou says X internet-based systems can allow companies to adapt instantly to changing market requirements. For example, Mexican cement supplier CEMEX tracks all of its delivery trucks and their shipment status using GPS. Its service window is only 20 minutes, which is nine times faster than the competition. If a truck is headed toward a traffic jam or its load is hardening, CEMEX can use the GPS system to reroute the truck or redirect it to a nearby construction site. Such capabilities have been limited to large companies because satellite GPS systems such as Qualcomm's Omnitracs are expensive. Radjou believes costs will be coming down after 2006 when a European-based consortium launches its Galileo satellites to compete with the U.S. GPS system operated by the DoD.

Conclusion
Indeed, the next year or two will be an important period for supply-chain technology. Fortunately, it will not resemble the wild and crazy days of the dotcom boom when technology was believed to be the silver bullet for all supply-chain challenges. It will be a time when companies solve fundamental problems that have held back progress of supply-chain performance. The new technologies we see will allow us to unleash the functionality and value in existing investments and to enable new processes that benefit every member of the supply chain.

After several tough quarters, the economy is springing back. Operational managers have very high hopes that new investments in software and other technology will score some much-needed points for supply-chain performance.

But any supply-chain managers who expect flashy, new technologies to blow away the competition overnight are going to be disappointed. The supply-chain game over the next few years will be more about fundamentals, both for the technology vendors and for the users.

Vendors know they must finally deliver on the unfulfilled promise to enable end-to-end, seamless supply chains. Integration will be made easier, so applications will be truly interoperable. The ability to collaborate among extended supply-chain partners is becoming an integral part of nearly every application. Web-enabled trading networks are going to become as easy to create as an e-mail list. To accomplish these tasks, vendors are rewriting their applications to meet the needs of today's highly distributed supply chains. Languages and platforms are becoming less proprietary, if not completely open.

"RFID is the most over-hyped technology in the supply-chain world."
- Andrew White of Gartner Research

Users are going to be busy building new, extended business processes around recognized best practices and that leverage the wide array of supply-chain technology. Most companies realize that they have been glacially slow in absorbing existing technology, and they also know their competition is going to pick up the pace of innovation. With the help of their technology suppliers, companies will be building flexible networks that provide value for every member - not just the channel master at the center of the chain.

For industries, the emphasis will be on developing better data standards that allow real-time exchange of data and interoperability of systems, regardless of platform or application.

New technology is going to play a very large role, but the innovation will be more evolutionary than revolutionary. Well-established technologies such as sensors, radio frequency identification and GPS will be improved and integrated into existing supply-chain applications. Mobile devices that have already changed how most people live their lives are morphing into remote connections to enterprise networks.

Of course, software spending is already picking up. According to a recent report from ARC Advisory Group, sales of supply-chain execution applications such as transportation and warehousing management will grow at a compound rate of 9.7 percent over the next five years to reach $5.2bn in 2008. The spending emphasis, at least in the near term, will be on these proven solutions. Business pressures will push sales of other types of applications. As worldwide commerce continues to grow, largely undiscovered applications such as global trade management will gain much more traction. Tools and add-on applications that allow enterprise systems to more easily extend to outside partners will grow.

The outlook that follows is the result of in-depth interviews with seven of the most knowledgeable supply-chain technology consultants and analysts whose expertise is sought throughout the industry. GLSCS would like to thank the following people for their time and efforts:

• Sundi Aiyer, senior manager, supply-chain service, Cap Gemini Ernst & Young
• Paul S. Bender, president, PS Bender and Company
• John Fontanella, vice president, Research AMR Research
• Adrian Gonzalez, director, logistics executive council, ARC Advisory Group
• Richard Sherman, president, Gold and Domas Research
• Navi Radjou, principal analyst, Forrester Reseach
• Andrew White, research analyst, Gartner Research

Changes at the Core
Several of the most important technological shifts in supply-chain solutions may be almost invisible to many operations managers because they are taking place deep in the applications, often at the data or architecture level, to allow more interoperability of applications, extended functionality to supply-chain partners and network-wide collaboration in real time.

For example, a major hurdle to extending supply-chain tasks across departments and between companies has been the rigid, company-centric enterprise resource planning (ERP) systems that have been the center of most corporate IT systems for nearly two decades. All other internal applications have to integrate into the ERP system, so companies are encouraged to buy all modules from that same ERP vendor. To share data with external partners, companies have turned to a wide variety of adaptors, middleware and messaging technology, but at significant time and expense.

A Total Inbound Solution for EMS Provider
Solectron, the $16bn electronic manufacturing services (EMS) provider, is using Arzoon's LIFE Logistics Resource Management applications to improve service and to reduce logistics costs for inbound shipments from its 7,000 suppliers. Solectron's manufacturing operations span five continents and flow more than $20bn in raw materials inventory through the company's supply chain each year.

As part of a larger internet initiative, the EMS provider is implementing Arzoon LIFE to manage its entire logistics network to include inventory visibility, transportation management and international trade logistics. The implementation is expected to reduce logistics costs by $20m over three years, which is significant in an industry that operates on margins of 2 or 3 percent.

By automating its carrier selection process, Solectron expects to reduce costly expedited shipments, labor costs and errors common with manual operations. Using information from a purchase order, the LIFE solution optimally selects a carrier based on defined business rules and tenders the load. The system notifies the carrier, or intermediary if appropriate, to schedule a pickup. The system accurately and automatically prepares all required documents. To assure supplier routing compliance, Solectron managers can monitor each shipment using Arzoon reports.

With over half of its suppliers and customers based outside the U.S., Solectron is tightly focused on complying with customs regulations to avoid border delays, liability and costly fines. Arzoon's Global Trade LIFE provides a centralized rules database that includes government trade advisories, license requirements, denied parties screening, controlled-country screening, documentation determination, tariffs and duties for more than 25 countries. Arzoon Global Trade LIFE helps Solectron comply with international trade restrictions by screening shipments and purchase orders prior to execution. If the screening indicates potential non-compliance, the solution sends alerts to all designated parties.

Using the Arzoon Global Trade LIFE total landed-cost calculator, Solectron generates scenarios detailing all costs involved with the importation of goods, including transportation, duties, taxes and import/export fees. For instance, where the company has a number of different suppliers for a particular component, Global Trade LIFE identifies the most cost-effective supplier based on the true, total landed cost.

Because of the complexity of its trade network, Solectron has thousands of components and finished goods in transit at any given time. The company needs a solution that provides visibility and information about all shipments and inventory in transit. Solectron also monitors the fulfillment of purchase orders down to the part number or SKU level. Arzoon's purchase order and freight tracing tools give Solectron visibility into both domestic and international inbound shipments. The Arzoon system issues proactive alerts when requested delivery dates are in jeopardy of being missed, so managers can bring the inbound supply chain back into synch with manufacturing schedules


This rigid ERP infrastructure and the architecture it is built upon does not support emerging business processes. Companies have made it clear that they need systems that support extended supply chains, not frustrate them. Technology vendors, perhaps reluctantly, have realized that they have to cooperate to succeed, according to industry guru Richard Sherman of Gold and Domas.

"There are times to compete and times to cooperate," says Sherman. "Manufacturers in such industries as high-technology, aerospace and even chemicals reached this understanding several years ago when the realized that everyone had three roles. At different times, they were suppliers, customers and competitors of each other, so they had to learn how to efficiently work together. The software industry is coming to that realization. The tech vendors are changing their products to allow more efficiency to take place."

Even the largest software vendors now agree that users prefer to assemble their own supply-chain systems using best-of-breed applications that meet their operating needs. They do not want to simply accept what their ERP vendor wants to offer them, according to consultant Paul Bender of PS Bender and Co.

"The big suite vendors are finally giving into customer demands to allow easier application interfacing by changing their system architectures," he says.

Changing Directions
SAP, for example, which has traditionally tried to offer just about every type of application under its own brand and written in its proprietary language to encourage the one-stop-shop approach, is reversing direction. While it will continue to provide an ever-widening range of functional solutions, all of its applications will be written on an interoperable architecture called NetWeaver. It uses web-services, which is the collection of protocols written in extensible markup language (XML), to allow information and entire applications to move seamlessly across the web.

"The economic model for the large ERP vendors is being undermined," says Gartner's Andrew White. "A few years from now, all the applications that a supply chain needs will move to the network. There will be little economic value in being the provider of every type of application. This change is happening slowly, but it is an inexorable drive taking all supply-chain technology in the same direction."

This shift has begun already with web-based applications that expose data among supply-chain partners and allows them to act on that information. Transportation management systems (TMS) have been pioneer examples of how a web-based application can bring network visibility to all parties in a supply chain so each party can see the same shipment information at the same time and act on that information in real time. Vendors such as OneNetwork, Descartes, GT Nexus and many others have facilitated the flow of information and the execution of business processes that are spread out among trading partners. In the product lifecycle management (PLM) space, Arena Solutions is a hosted application that resides on the vendor's system. External suppliers, designers and contract manufacturers can see the information they need to interact with internal engineers, purchasing managers and other supply-chain managers.

"Information visibility gain through web-based applications is becoming prevalent throughout the value chain," says White. "Even greater value will come when entire business processes can be shared across departmental and enterprise boundaries. We call this trend business fusion."

As the big suite vendors increasingly adopt architectures that allow more interoperability, White says that traditional supply-chain applications will be replaced by process-based solutions built on a so-called composite application framework (CAF). These process-based solutions begin with the channel master designing the business process across all partners in the supply chain. This channel master essentially builds a custom application using the CAF, which consists of a workflow engine, a series of tools to accomplish the task, a data synchronization engine and whatever measurement and analysis tools are needed.

"The company uses what we call business fusion to develop a new super process across departments and partners," says White. "Software vendors that have made their business around packaged software will have made this radical shift to remain competitive. "They are having to eat their own children."

Before business fusion makes serious progress, however, companies and industries must dramatically improve data synchronization across applications and data standards throughout industries, White says. Different applications all have different database schemas. Suppliers, manufacturers and customers in the same industry refer to the same item with different data sets.

For example, if a retailer measures stock availability with Sunday as the first day of the week, but a major vendor starts its weekly replenishment schedule on Monday, any attempts to apply technology to this supply chain will face data synchronization problems. Similar examples abound, according to White, which is why so much effort is going into data standards.

"Until all parties and applications agree on data standards, we can't have business fusion," says White. "Data will have to take on a life independent of the applications that use it, and synchronization of data between disparate sources will become a key enabling technology."

White is working with retail industry group UCCnet to create a global directory of product information to solve this problem for the retail industry. All procurement systems from retailers and all selling systems from manufacturers will point to this global directory for product information. Regardless of the systems the individual companies are using, trading partners can easily implement VMI, CPFR, and other multi-enterprise processes.

Planning Around Demand Signals
Planning is perhaps the most important supply-chain process that companies want to improve through better technology, both to improve customer service and to squeeze out costly inventory. According to technology research firm IDC, $19bn has been spent on demand forecasting software and other supply-chain planning solutions, yet companies are still wrestling with conflicts between what the customers demand and what planning systems present. Despite these disconnects, companies will continue to use supply-chain planning systems, but with a few twists.

Nearly all of the large planning solution vendors, including Manugistics and i2 Technologies, as well as the large enterprise suite companies, have introduced adaptive planning tools to narrow the gap between planning and execution. These tools decompose the planning process into small components. When demand changes the assumptions in the supply-chain plan, just those portions of the plan that are affected can be updated and the plan re-aggregated.

Sprechen Sie RFID?
When Wal-Mart and its top vendors launch their radio frequency identification (RFID) initiative in November 2005, Germany's top retailer, the METRO Group, already will have had its program in operation for one year. In November 2004, 100 suppliers to METRO will affix RFID tags to their pallets and packages and deliver them to 10 central warehouses and around 250 stores within the METRO Group, which includes Metro Cash & Carry, Real hypermarkets, Extra supermarkets and Galeria Kaufhof department stores. Since late 2003, at its showcase "Future Store" in Rheinberg, Germany, METRO has been testing RFID transmission of product information such as price, manufacturer, expiration date and product weight. These tests were conducted using technology and expertise from SAP, Intel, IBM and around 40 other leading vendors.

METRO is initially testing RFID in warehouse management to enable the automatic inspection of incoming goods. Delivery of goods to the Future Store in Rheinberg are fitted with RFID tags in the central warehouse and read in upon arrival at the store. During transport from the store's warehouse to the salesroom, goods are read in again, and identified as items to be moved to the front of the store. The tests in Rheinberg have shown that RFID offers retailers and their customers enormous advantages: more effective processes and, consequently, lower costs, which benefits both parties. Using RFID, goods will be able to be located along the entire process chain--from production all the way through to the shelf in the store. Managing orders can be optimized, losses reduced and out-of-stock situations avoided, assuring an even more consistent availability of goods for the customer.

Based on its experience with tests such as the METRO project, SAP has launched the first packaged RFID solution for supply-chain management. SAP says the system allows companies to leverage data captured through RFID tags in their business processes by integrating ERP and SCM functionalities with RFID-enabled applications. Examples include packing and unpacking, shipping and receiving and tracking and tracing across the supply chain.


"By replanning just parts of the plan, companies can respond quickly to changes in the marketplace," says Sundi Aiyer. "The planning function becomes more relevant to good execution."

For retail supply chains, CGE&Y has created its own demand-driven approach that it calls consumer-based replenishment (CBR). Instead of trying to manage in-stock inventory levels through forecasting, as do such techniques as vendor-managed inventory and collaborative planning, forecasting and replenishment, CBR focuses on profitability metrics such as return on inventory investment. Suppliers gain control over their product's replenishment from manufacturing plan to the store shelf, which allows them to react to point of sale (POS) changes and minimize the demand variability created by the traditional wall between the retailer and supplier.

"We worked with a major lawn care products company and a big-box retailer to set up a CBR system," says Aiyer. "The vendor's Manugistics planning system received POS information directly from the retailer every night and was able to schedule its own replenishment plans in response to this actual data."

From the retailer's point of view, it can manage the suppliers' replenishment performance by common metrics and vendor scorecards, creating a healthy competition between them.

Aiyer says that CBR is being implemented in the build-to-order retail space where orders are often configured online in real time. These orders create highly reliable demand signals that can be used for sales purposes, as well as be shared with suppliers as long as there is an information hub or private exchange between the original equipment manufacturer and its supplier or contract manufacturer.

Incentives to Buy
For example, if an online customer order to Dell Computer includes a 17-inch monitor, its order management system will make sure one is in stock before the order is confirmed. If there are none, the Dell private exchange link to its supplier can check its inventory, attempt to arrange direct shipment and trigger replenishment. The same demand signal can instantly offer the customer who is still online an incentive to buy 19-inch monitors that are in excess supply.

"Signals that capture real demand as it is actually happening can improve performance, bring the demand and supply into synch and add profitability across the supply chain," says Aiyer.

AMR Research believes that more technologies and planning processes will be focused on what it calls demand driven supply networks (DDSN), rather than just trying to plan faster. DDSNs allow supply-chain information transparency throughout the network in real time. They use the same workflow and maybe even sharing the same application.

"The emphasis is on using real demand signals to constantly deviate from plans based on what is happening," says AMR's John Fontanella. "Users need systems that allow sales, marketing, manufacturing and procurement to manage processes on the fly."

Companies using DDSN take forecasts from customers and incorporate them into their own forecasts to temper their plans with as much reality as possible. One benefit is to build more "truth" into the planning process. If a customer is only buying a fraction of what their forecast calls for, then someone has to look much more closely at that customer. Conversely, if a customer is ordering much more than it is likely to buy, especially on products on allocation, the implication would be that it is just buying up capacity.

"This process makes the supply-chain manager ask more questions," says Fontanella.

The ultimate goal is to use real demand signals to avoid the classic bullwhip effect where forecasts are padded and altered at each stage in the supply chain, so the final plan ends up as a wild distortion of what the marketplace really needs.

"The step to solving this problem is to give everyone in the supply chain the same view of demand at any point in time," says Fontanella, who adds that without this demand-driven capability, it takes too long for changes to come up the supply chain. DDSN allows the demand information to be available over a network to all parties.

For several years, many companies have tried to use event management systems to gain visibility throughout the supply chain and to share alert information with trading partners. While some of these supply-chain event management systems have been effective for execution applications such as transportation management and warehousing management, they have not been very successful in planning.

According to Bender, companies have found that visibility is not enough. Supply chains need to anticipate problems and ultimately take action to solve the problems.

"The real goal is control," says Bender. "Visibility is just one of several elements that allow companies to control their supply chains."

Control begins with detection systems that can anticipate or predict when plans are likely to go wrong. Business intelligence systems gather data and monitor what is happening in the marketplace with competitors, customers, suppliers and so on. To some degree, customer relationship management systems can reveal demand trends.

"Few software tools provide this capability because it is not easy to do," says Bender. "But companies need to build this capability into their supply-chain systems, because plans are always going to be wrong."

The next element is visibility, which is being built into most supply-chain systems to reveal such problems as shortages of supply, missed shipments or incomplete orders. Finally, supply-chain management systems need "solvers" that can take action on problems that are anticipated or that just happen. There are a wide variety of solver tools for different situations, many of which are included in planning systems. Optimization is the most common tool, but there are also statistical forecasting tools, heuristic systems, and simulations, just to name a few.

"Control is what supply-chain management is all about, and no single tool can provide it," says Bender. "Event management and visibility is not enough."

One step in this direction is an emerging technology that AMR Research calls inter-enterprise supply-chain coordination (ISCC). It incorporates demand collaboration, supply collaboration, supply-demand alignment processes, exception management capabilities and an optional rules engine that can kick in when problems occur. The idea is to use collaborative tools to make planning - or other supply chain tasks - more real-time. A workflow engine manages the process. Rules apply only if the users choose to automate a response.

For example, in the case of ISCC-capable planning solutions, a tolerance is built into plans. If event management tools indicate that the plan has fallen out of tolerance, then the application notifies as many parties as appropriate to take action. An optional step allows a rules-based engine to automatically take predetermined actions to fix the problem. This engine can be programmed only to recommend a solution to a human operator. Few companies use the full capabilities of this technology, according to Fontanella.

"Companies are very cautious about automating processes," says Fontanella. "They still consider supply-chain management an art, not a science that can be totally automated."

He predicts that it will be sometime before ISCC technology is allowed to take over any supply-chain activities because of the critical role that supply-chain decisions play in a company's success.

"Application software is capable of making decisions based on more variables than a human can process," says Fontanella. "However, the answer that comes out is often counter-intuitive. These answers may be right, but companies are very uncomfortable with trusting technology this far."

There are currently only a handful of ISCC-oriented solutions readily available today, including such companies as Blue Agave and Sockeye Solutions. For example, Blue Agave's Active Performance Management solutions continuously monitor customer demand and supply and production processes, proactively resolving issues such as revenue-at-risk, stock-outs, late orders, excess inventory, and material shortages, mitigating their impact on customers.

In the case of Sockeye, the application does not replace existing planning, sourcing or other systems. It uses collaboration and workflow templates to keep these applications up to date. The company recently introduced an application template that allows the entire organization and its customers to access the available amount of inventory, capacity and reservation across the entire supply chain in real time.

"For true supply-chain collaboration, companies need the ability to bridge inbound and outbound processes," said Randy Sabourin, vice president of business development of Sockeye Solutions. "To achieve this, they need to have visibility and the ability to commit to requirements that affect demand and supply to a raw material level if required. Sockeye's Network Commitment Collaboration Application Template allows users to accurately give customers an available-to-promise in real time despite enterprise limitations, ultimately resulting in scalable, low cost deployments of highly reactive solutions that maximize returns and improve customer service."

Global Trade Management
Global trade management (GTM) solutions have been around for several years, but they have never been viewed as must-have applications. That may be changing. These applications allow importers and exporters to screen trading partners against lists of prohibited parties and countries. They help classify products for customs purposes, produce trade and transportation documents and calculate landed costs for planned or actual shipments. As valuable as these applications are, sales have not kept pace with the growth of trade itself.

There are several reasons, all of which are related to marketing issues, not the underlying technology.

"Most importers and exporters have simply relied on outside customs brokers and freight forwarders do this type of work," says Bender. He adds that these intermediaries insist that their expertise cannot be replaced with software, which resonates with companies that are not anxious to bring more operational tasks in-house. "The software vendors have to compete with established solutions, which is always very difficult."

Bender believes that GTM software will make inroads primarily because of new corporate concern about cargo security and compliance with CBT regulations.

Gonzalez says that both the users and the vendors realize that even more value can be found in strategic processes such as procurement and sourcing. Using these applications, companies can make better choices about suppliers based on landed costs, quotas, local content and other hard-to-research cost issues.

Business cases are now being built around multiple users purchasing, product development, logistics and legal departments.

"CFOs are now taking notice of these applications," says Gonzalez, "but the vendors have to show how their applications minimize the order to cash cycle, cost of goods sold and expedite days sales outstanding."

GTM is increasingly available as web-based hosted solutions from companies like Open Harbor, Arzoon and Precision Software. Both Arzoon's Global LIFE and Precision's TRA/X Trade Logistics are also sold as modules in larger integrated transportation and trade suites that allow users to manage the complete import or export process in one combined application online with vendors, carriers, service providers and other trading partners.

Stand-alone vendors include Nextlinx, Xporta and Vastera. While most of these vendors sell the application as packaged software, it can configure it as a shared service to allow access by all supply-chain partners. Vastera also offers a completely managed service, rather than software, that acts like an in-house customs broker. SAP now offers a global trade management module that integrates directly into all of its other enterprise applications.

RFID Wrestles with Retail
The greatest irony in retail supply-chain technology is that today's hottest trend has the least value for the vast majority of vendors and retailers. At least that is the opinion of quite a few industry experts and probably the 100 vendors that have to comply with Wal-Mart's November 2005 RFID implementation deadline.

"RFID is the most over-hyped technology in the supply-chain world," says Gartner's White. The problems are legion: Tags are too expensive for wide use. Cartons with RFID tags toward the interior of full pallets are often invisible. The electronic product code (EPC) that is intended to be the data standard for retail RFID has yet to be finalized, so the information that will be conveyed to Wal-Mart will lack the vendor identifier. Privacy concerns threaten to limit the use and value of RFID beyond the retailer's backroom.

"Whatever gets deployed in the next year or two will not be a RFID system that every other manufacturer or retailer in the supply chain can use," says White. "What little benefit that may accrue will go to Wal-Mart, not go to the supplier."

For Wal-Mart, the RFID data will be limited to backroom inventory management where the giant retailer hopes to cut labor costs by about $6bn. RFID-driven automation should allow Wal-Mart to receive shipments and replenish shelves with fewer people with lower skills.

For suppliers, White advises them to spend their efforts making better use of point-of-sale data they receive from their retailers to synchronize demand and supply.

"POS data can tell you when a product sold, and you can use that as a trigger for replenishment," says White. "RFID information that is likely to be available to vendors will do nothing to help reconcile demand and supply. People are sucked into the hype."

Enabling Global Drop Shipping With Live Data
JDS Uniphase (JDSU) is reducing its inventories while dramatically improving order cycle time by enabling its outsource manufacturers to ship directly to customers on a global scale. The fiber-optics components maker is using ClearOrbit's Advanced Contract Manufacturing module to seamlessly collaborate in real time with six contract manufacturers, suppliers and their suppliers, around the globe. The ClearOrbit module is an extension to JDSU's hosted Oracle ERP system. JDSU retains complete visibility and control over the disposition of inventory during the staging and shipment processes at supplier locations, including the printing of shipping documents, commercial invoices and barcode labels, with all of the necessary customer information printed in JDSU's format, using JDSU's ERP data. JDSU also remains the single point of customer contact, and the brand the customers associate with the products delivered. The contract manufacturers interact directly with a single JDSU data model via real-time web pages and web service protocols.

The contract manufacturers always have the latest customer information because they link directly to JDSU's constantly updated database of its trading partners in its Oracle 11i system. The ClearOrbit collaboration software suite allows all the trading partners to access the same database, which is housed, hosted and controlled by JDSU, the originator of the purchase order and the sole point of customer contact. The trading partners interact with that data where it resides naturally, and they can access component inventory, part status, shipping status, datasheets and more all through the web.


Navi Radjou of Forrester Research believes in the long-term potential of RFID, but for now, he is concerned that the large investments being made in RFID technology right has little or no direct return for the suppliers that are spending the money.

"That is not good business," says Radjou. "It is all about compliance with large customers such as Wal-Mart and the Department of Defense (DoD)," he says. "Wal-Mart should gain better visibility into its inventory, but from a value chain standpoint, there is no benefit across to the suppliers."

Radjou says that top 100 Wal-Mart suppliers are so frightened about missing Wal-Mart's November 2005 deadline that they are not even thinking about supply-chain benefits. In fact, the mandated time line is so tight that no ROI calculations are being done beyond complying with the demand of a major customer.

"My concern is that when these suppliers will be so turned off to RFID after they exhaust themselves to comply that will not want to go back and do the job right," says Radjou.

He thinks that solving the technological and cost problems of RFID will take about five years and will take a united effort from R&D companies, hardware vendors, software developers and industry groups. Even when these hurdles are overcome, he believes adoption will be evolutionary.

"RFID in itself is not going to improve the supply-chain performance," says Radjou. "Companies need to develop new processes that leverage this technology. Retailers and their vendors need to learn new ways to act on the granular location information that a shortage that has been communicated.

Cap Gemini Ernst & Young's Aiyer agrees that RFID is currently being oversold, but he thinks there are benefits, even to the vendors being forced to comply with Wal-Mart and the DoD. He points out that inventory visibility into receiving areas, store backrooms and other corners of the supply chain have never before been a priority for anyone.

"These trading partners are really thinking about the value of data collaboration at every point in the supply chain," says Aiyer.

As companies become more RFID compliant and have more granular visibility of products, Aiyer believes vendors will be able to replenish more quickly to meet demand in specific stores.

Mobile Resource Management
Among the simplest technologies being used in supply-chain applications today are handheld devices as simple as cell phones and personal digital assistants (PDAs). Transportation management system vendors such as NTE have long made cell phones part of their dispatching system. Descartes System uses wireless capabilities to link fleets with an enterprise routing and scheduling solution.

ARC Advisory Group refers to the field-based wireless technology as mobile resource management (MRM). Gonzalez sees MRM as filling a vital gap in obtaining more timely, accurate and complete information.

"Small carriers and suppliers have not been able to provide their large customers with updated information, but the wireless piece makes it affordable for these smaller players to be information players," says Gonzales. "Now drivers just need a device that sends a text message confirming arrivals and departures."

For example, execution system provider Radcliffe provides Blackberry e-mail devices from RIM to drivers to automatically schedule and confirm dock appointments through its TMS system, thereby maximizing precious driver time and keeping loading area clear.

According to AMR Research's Fontanella, the future of handheld devices is even brighter as wireless devices morph into multifunctional terminals.

"Now drivers are beginning to carry combination cell phones, scanners, and global positioning system (GPS) location devices," says Fontanella. "If a driver wanted to have the same functionality, he used to have multiple devices, but few companies went to the expense or the effort of integrating them all. Now, with one device, direct store delivery drivers can reconcile proof of delivery with invoices, which feed into a CRM system in real time. The location of the driver is always known, and he can always be in contact with the dispatcher. It adds a lot of functionality to what express delivery drivers have been using for years."

Consultant Bender agrees that the use of wireless handheld terminals will explode for use by delivery fleets.

"The convergence of technologies that are being built into handheld devices will change the logistics systems for many companies," says Bender. "It is not just about features such as geographic location, navigation support and real-time traffic information. These devices increasingly will be able to support complex changes to delivery schedules and VMI programs."

For example, a food store route delivery typically has 30 scheduled stops that are locked in when the truck leaves the distribution center. Any change in what each store will accept or wants will either disrupt the plan or leave the customer dissatisfied. If the first store was supposed to receive 20 cartons but wants 30 instead, what is the driver supposed to do? A handheld device can upload the situation to an enterprise system that can replan the route on the fly. The driver will receive an update schedule that may help him fill the store request and skip the last seven stops. Meanwhile, another route driver with excess product is directed to these seven stores.

"With this type of power in the field, VMI becomes a much more attractive way to service customers," says Bender. "Supply-chain plans can be constantly up to date."
As powerful and inexpensive as the mobile devices are becoming, they are only a mechanism for capturing, communicating and displaying information.

"The value is in tying the mobile devices into a routing, dispatching system or other application," says Gonzalez. "The hard part is integrating the mobile technology into a system that leverages the information."

Smart Devices, New Processes
According to Forrester's Radjou, a wide variety of smart, sense-and-response devices will increasingly become important links in supply-chain technology. Forrester calls these sensors, GPS devices, RFID and other established technologies the "X internet" because sensing data flows from the external device into online planning and execution systems to support new business processes.

The most publicized X internet examples center on cargo security. Concerns about terrorists using inbound ocean containers to smuggle in weapons of mass destruction have prompted a number of initiatives by the Department of Homeland Security (DHS), including Smart and Secure Trade Lanes and Operation Safe Commerce that are testing X internet technology. One such pilot program includes use of RFID technology placed inside containers to track movement and to sense any attempts to tamper with the contents. Both Hewlett-Packard and Target Stores are participating. While the success of this security initiative has yet to be announced, Forrester reports that Target Stores' use of Savi Technology's RFID-based visibility application to track inbound containers has greatly enhanced the retailer's ability to provide real-time status updates and detailed manifest data to supply-chain systems.

X internet-based systems are also found in very ordinary applications. For example, Radjou says that Michelin is a leader in using X internet technology for managing assets and building new value in its supply-chain operations. Its e-Tire online service is an add-on sensoring system that measures air pressure and temperature of tires in commercial fleet operations. An alerting system allows fleet operators to avoid tire failures, reduce downtime and improve fuel economy. Michelin has also been using RFID tags to track the 20 million tires in transit through its supply chain at any one time, which not only helps with inventory management, but speeds recalls should they become necessary.

Many types of X internet devices, such as fill-sensors, have been around for decades. Suppliers would use manual or telephonic connections to determine when customers needed replenishment of liquids or gases. By linking sensing devices into internet-based systems, suppliers make the process more efficient.

What makes the technology cutting edge is the transmission via cellular and the systems that they connect to. Forrester's Radjou agrees that none of these X internet technologies are really new, but he sees a lot of excitement around them because they can provide tremendous ROI.

"How companies make use of these devices for business innovation is what is revolutionary, not the technology itself," says Radjou. "We will see innovative companies finding new business processes that take advantage of the technology."

Because X internet systems constantly receive feedback on how assets are performing, they can support other technologies that look forward into how the asset is likely to perform in the future. This combination of technologies can create entirely new business opportunities.

For example, sensing devices are increasingly finding their way into automobiles, heavy equipment and even jet engines to monitor usage and wear. By feeding this information into predictive analytics software, service providers can determine when the equipment will need replacement parts. Delta Airlines has adopted this approach and has reduced the need for routine inspections by two-thirds. With less time tied up with inspections, Delta's maintenance staff is managing rival carriers' fleets. Delta earned $150m in 2002 and expects to build the business to $500m by 2005.

Defense industry contractors are finding themselves forced into using this system because the DoD is embracing what they call performance-based logistics. The military just wants to operate its weapons systems, not maintain them, so it is increasingly making the defense contractor responsible for the readiness of the planes, missiles and other assets.

"There can't be any excuses about spare parts availability," says Radjou.

With the contractors financially responsible for weapons being operational, they have to use sensors in the assets to monitor performance. They are using predictive software, spare parts support applications and planning optimization solutions.

"They are tying all of these technologies together to provide the performance the DoD demands," says Radjou. "This same concept is finding its way into the commercial world."

Radjou says X internet-based systems can allow companies to adapt instantly to changing market requirements. For example, Mexican cement supplier CEMEX tracks all of its delivery trucks and their shipment status using GPS. Its service window is only 20 minutes, which is nine times faster than the competition. If a truck is headed toward a traffic jam or its load is hardening, CEMEX can use the GPS system to reroute the truck or redirect it to a nearby construction site. Such capabilities have been limited to large companies because satellite GPS systems such as Qualcomm's Omnitracs are expensive. Radjou believes costs will be coming down after 2006 when a European-based consortium launches its Galileo satellites to compete with the U.S. GPS system operated by the DoD.

Conclusion
Indeed, the next year or two will be an important period for supply-chain technology. Fortunately, it will not resemble the wild and crazy days of the dotcom boom when technology was believed to be the silver bullet for all supply-chain challenges. It will be a time when companies solve fundamental problems that have held back progress of supply-chain performance. The new technologies we see will allow us to unleash the functionality and value in existing investments and to enable new processes that benefit every member of the supply chain.