Innovations in Logistics Technology:

June 14, 2001
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E-commerce and the desire for a competitive advantage are destroying traditional ways of doing business in the transportation segment of today’s supply chain management, and logistics is now emerging as an area that can deliver tremendous benefits.

Cutting-edge supply chain logistics management solutions, from a traditional return-on-investment (ROI) perspective, are vital to a successful business, but, more important, the return-on-value (ROV) from these solutions is the real criterion of significance. Rather than focusing purely on return as a function of cost, examining ROV and its effect on revenue, customer satisfaction and long-term competitive advantage is a new way of analyzing the true bottom line.

Re-Examining Traditional Measures

Enterprises have traditionally evaluated the acquisition of business application software primarily as a function of return on investment. Certain assumptions were required for this model to provide a meaningful yardstick, and chief among those assumptions was the premise that the new system provided a more efficient means of addressing a current set of processes and activities. Moreover, and almost without exception, these replacement decisions focused exclusively on improving the efficiency of internal enterprise processes.

But the business world has changed, and along with it, so have the fundamental notions upon which enterprises base their marketplace advantage. Now new business models—courtesy of the e-commerce revolution—are displacing traditional methods of transacting business. As a result, strategies that base competitive advantage solely on current intra-enterprise process excellence are at the very least under threat, with a likely fate of being relegated to the proverbial woodshed. Looking beyond traditions, one sees the intriguing concept of transforming internal processes, functions, and cost centers into competitive weapons or even profit centers. As an enterprise looks outward into its value chain—defined as the trading partner ecosystem encompassing suppliers, partners, and customers—is there an opportunity to leverage internal excellence into inter-enterprise competitive advantage?

Transportation Logistics and Technology

The traditional model of transportation management is being transformed and redefined by innovative advances in supply chain logistics management. These technologies now encompass all material movements across the value chain from raw materials to finished goods. And now, thanks in large part to the advent of the internet as a flexible and robust medium of collaboration and process execution, supply chain logistics management strategies may be conceived and executed for immediate and sustainable competitive advantage.

The new complete supply chain logistics management footprint includes:

  • Indirect (non-manufacturing) materials procurement;

  • Direct materials procurement;

  • Global inbound movements (cross-border);

  • Domestic inbound movements;

  • Intra-enterprise (example: production site to warehouse);

  • Finished goods;

  • Domestic outbound; and

  • Global outbound (cross-border).

    Enterprises using new supply chain logistics management methods have recognized that the traditional view of transportation management as a cost center is too limiting, and, in fact, places them in a disadvantageous position vis-à-vis the competition. Second, limiting their transportation strategy to domestic outbound (customer centric) finished goods movements is short sighted as well. The real value, and hence sustainable competitive advantage, will be found in attacking the entire value chain from supplier to customer holistically.

    Current Issues in Global Logistics

    Three major business forces driving the need to change the way logistics processes operate today include:

    1. E-Commerce. E-commerce is a primary factor propelling the forces of increased globalization and increased customer expectations. The internet and related technologies are dramatically improving the ways in which companies transact all aspects of business with their suppliers and customers.

    2. Globalization. Corporations continue to internationalize their production, supplier, and customer bases to exploit opportunities for revenue growth and cost reduction.

    3. Customer expectations. The internet drives everyone’s expectation of a satisfactory customer-service experience. Consumer and corporate buyers demand more choices, accurate and faster fulfillment, and greater value from reliable suppliers.

    The Rewards

    These market forces are placing new demands on a corporation’s logistics capabilities, and those companies without the ability to adapt to this changing environment will be left behind. Corporations with lackluster and dated logistics processes will not be able to capitalize on the revenue and profit opportunities offered by e-commerce and globalization. Success requires new supply chain logistics management methods. The rewards generated from using such solutions are many:

    1. Reduce costs. Logistics operations that are segmented—domestic vs. international, by mode of transportation, or by business division—should be combined into a cutting-edge supply chain logistics management platform whenever possible. A single platform eliminates redundant systems and procedures. This reduces transportation costs by pooling purchasing power, consolidating freight movements, selecting the right rate, mode, route and service provider, and by decreasing partner communication expenses. This type of process and technology change is obviously easier said than done. Success requires a phased implementation that delivers a consolidated, innovative transportation logistics management solution at a rate the organization can absorb.

    2. Take control. Corporations can take control of logistics processes, even when they are managed by external service providers. The key to control and more effective decision-making is information visibility.

    Information visibility stems from collaboration and streamlined communications with external logistics partners. Control translates into reduced variability and improved customer-service reliability. Studies show that the variability in transportation lead times in a supply chain have a tremendous effect on inventory pipeline and safety stock costs—even more so than variability in customer demand.

    3. New business models. Logistics can be a “money maker.” Effective logistics capabilities—people, systems, and procedures—are very valuable assets. An increasing number of corporations are transforming their logistics departments from cost centers to profit centers by selling their services to other companies. Another opportunity lies in e-commerce marketplaces. Dominant participants in specific industry supply chains are establishing private marketplaces to improve the operations of the entire supply chain.

    These marketplaces can be stand-alone businesses that provide value-added services, such as logistics, to the marketplace participants.

    4. Increase revenues and profits. E-commerce initiatives and globalization represent a vast opportunity for revenue growth though domestic and international expansion. Most corporations don’t have the logistics processes in place to effectively and efficiently scale to meet this demand. Logistics is a key determinant of overall customer satisfaction and profitability growth because unsatisfactory fulfillment experiences provide motivation for customers to take their business—and your profits—elsewhere.

    The time to act is now. Change will not come easy or overnight. As a result of the business forces of e-commerce, globalization, and customer expectations, logistics is being transformed from an activity with a purely cost-minimization focus to one where value maximization wins the day. To reflect the new ground rules, systems that are now evaluated with a ROV model that encompass revenue growth and customer satisfaction will displace the traditional approaches that focus only on short-term cost reductions.

    As businesses look to sustain and grow competitive advantage into the future with inter-enterprise logistics process excellence, innovative supply chain logistics management solutions have been propelled to the forefront. Regardless of industry, these solutions deliver a significant ROV for an organization by leveraging existing capabilities and enabling new ones. wt

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