For Ditan Corp., a privately-owned, third-party logistics company based in Indianapolis specializing in direct-store retail distribution, meeting extremely tight just-in-time shipping schedules is a matter of survival.

Ditan's customers are the manufacturers of video games, movies, audio products and small-consumer electronics manufacturer (and those customers' customers). As Doug Greenstein, Ditan Corp. CFO points out, publishers and retailers in the so-called “new media” sector can't be out of stock in a sector where 60 to 70 percent of sales of first production runs take places in the first two weeks of a product's release.

Last year, Ditan processed 118 million units of interactive products and shipped those to about 26,000 direct store locations (during the holiday season it directs 150,000 orders per to stores).

To handle this kind of volume, Ditan has moved beyond its own operation (six regional and national distribution centers, five mobile computing centers) to a more expansive network which it manages with the help of software giant SAP. Ditan has turned their customers and the big-name retailers they serve into electronic supply chain partners, using the latest in supply chain collaboration tools that allows networked entities to communicate electronically with each other.

Ditan is a pioneer in one of the hottest supply chain trends-what SAP officials call “adaptive supply chain networks,” or communities of customer-centric companies that share knowledge, quickly seize new market opportunities, and proactively respond to shorter and less predictable product life cycles. Suppliers, manufacturers, distributors, and customers simultaneously share information and act on that information in real time, so that all partners work together seamlessly toward a common goal, SAP reports.

According to Greenstein, the collaboration tools Ditan employs “allows us to act almost as one company with our customers-both the publishers and retailers, and even some studios, that produce DVDs (and other products). Meeting new release deadlines is at the heart of this sector and their retailer customers always must be stocked to make their sales. They can't have an out-of-stock situation,” he said.

Hans Thalbauer, SAP's Vice President for Supply Chain Management based in Palo Alto, California, says this collaborative approach allows supply chain partners the sort of visibility in certain parts of their business that they enjoy internally. “As everyone starts to focus on their core competencies, it's really coming down to understanding customer demand and anticipating their demand and to do that companies need to introduce collaborative business processes. But the issue is how to do this,” he said.

According to Thalbauer, a lot of companies need to provide suppliers “information on the (inventory or stock) demand situation so they are informed earlier on about peaks in inventory levels and can decide if they need to replenish.” While the need is old, the process of integrating supply chains and sharing information throughout the supply chain is relatively new, particularly, he says, when “you're providing information on a continuous basis and the supplier takes over the role of replenishment (from the customer.)”

SAP, he says, is introducing software “that ties together demands under one solution to support all supply chain needs from planning to transportation/logistics.” The aim is to support different processes, while acting as a systems translator, so that companies not working on compatible systems can transfer and exchange information. And because processes can be transmitted to the Web via the XML standard, he said they don't need a SAP system to work business-to-business (B2B).

So, for example, larger Ditan customers like Lucas Entertainment enjoy a B2B relationship with Ditan, which means that their computer systems can communicate directly about inventory levels, shipments and needs for inventory replenishment. As Greenstein explains, “Larger publishers or content providers normally keep a significant amount of inventory under our control, whether it's new releases or catalogue fulfillment. And we constantly provide backwards and forwards inventory information, as well as historical data on new release products, which allow for advanced notification for distributing these products so we can help minimize freight charges and maximize inventory returns.”

But the system that Ditan has evolved with SAP over the course of six years goes beyond the manufacturer and also involves major retailers like Best Buy and Circuit City that “pull inventory” from Ditan so, as Greenfield says, “the publisher gets to see both the push and pull on stock and can react quickly on a real-time basis, which can knock a day or two off the production cycle.”

Smaller customers that aren't as technologically sophisticated can view the same supply chain data via a secured Web site, Greenstein says. “From the moment they transmit an EDI (electronic data interchange) order it enters our system and they can track it through our environment in practically real time from the warehouse to delivery. And we can even provide them historical analyses of their shipments based on SKUs or order sizes,” he added.

Although individual customers only have access to their own data and warehouse/shipping history, the technology allows Ditan managers to “see across all of our customers and release to them basic documents like cost-to-serve reports that provide them information on how much is costs to ship their products to end users and our distribution centers. While we don't identify competitors, we will provide them the average cost of a shipment to various retailers, which helps them negotiate better pricing from their retailer, suppliers and packager partners.”

The Web-based system depends on Ditan's SAP-based data repository, but Greenstein says, “It's not a pure SAP final product. We provide the cosmetic front end that's key to our suppliers, customers and specific suppliers.”

What's driving development of collaborative tools

Thalbauer and SAP officials cite a number of key factors driving SAP customers of all types (see box) to make the move to electronic collaboration. The first is globalization, which is forcing companies to off-shore their manufacturing and source for goods worldwide to stay competitive. This trend means that, “companies have to become more efficient in their transportation processes-everything from which carriers to choose, to deciding whether to outsource transportation services to a 3PL,” he said.

Here are some other drivers behind supply chain collaboration:

Longer supply chains require far more visibility “If you start outsourcing,” says Thalbauer, “what happens is you suddenly lose visibility of production, orders, your shipments…So our customers are requesting information from their suppliers and shipping partners during the production phase; not just sharing information about inventory, but about the work process, the quality of the product, the order entry side and the shipping process, as well.”

To reach beyond supply-driven efficiency, the business model is increasingly influenced by a pull- or demand-driven environment, the ultimate source of demand being the final customer. Supply chains must now balance push and pull dynamics. Companies must understand how market trends impact customers' requirements and improve responsiveness to their demands by bringing profitable, high-quality, value-added products to market faster than the competition.

Today's gyrating energy prices are affecting both production and transportation costs, which Thalbauer says is forcing SAP customers to seek whatever means possible to reduce costs and promote efficiency. “They must quickly respond to sudden changes in supply and demand, which means higher forecasting accuracy and more scrutiny of the transportation piece of the supply chain than in the past.”

The networked economy is creating new information channels that allow for communication via desktops, EDI and the Web, all of which are leading to the proliferation of opportunities for collaboration and information sharing.

Regulatory compliance such as the U.S. Sarbanes-Oxley Act, the Waste Electrical & Electronic Equipment (WEEE) directive, and U.S. Food and Drug Administration requirements require improved tracking information.

SAP's latest supply chain planning and collaboration solution aim to enhance an existing supply chain by delivering full planning capabilities-strategic, tactical, and operational. By design, the solution is integrated for supply network collaboration-customers, suppliers, manufacturing, and product management-to provide the flexibility to support demand, forecast, calendar, event, or order-driven supply chain process models.

At Ditan, Greenstein says customers in the U.S. have been able to dramatically reduce inventory that they place in Ditan's facilities. With far greater access to information than in the past, they can replace original manufacturing orders on a much tighter basis and replenish inventory appropriately, all of which is boosting customer satisfaction and retention.

In time, Greenstein would like to broaden the types of “information and services we provide our clients and be able to bring this information down to our secondary and tertiary suppliers, as well as provide more sophisticated analytics. But we realize the system is constantly evolving. Our next step is to bring it outside the domestic United States and into Europe and South America, where we're growing distribution channels.”

Sidebar: Customers Using SAP Collaborative Supply Chain Tools

Bang & Olufsen is a Danish manufacturer of high-end stereo and audio equipment. The company collaborates, plans and executes purchasing activities electronically using collaboration applications with over half of its suppliers. The manufacturer plans to have all of its several hundred suppliers up and running by the fall.

Philips domestic appliance division uses supply network collaboration on a global scale. The deployments have been centered around Asia, including China, Singapore and Indonesia, among others, where Philips' manufacturing plants are connected with suppliers via collaboration applications. For example, small Chinese suppliers speaking only Chinese and large urban suppliers who use English can be connected. As a result, Philips Indonesia manufacturing plant is fully supplied with components and raw materials through supply network collaboration with every single supplier to that plant. The company aims for rapid expansion of the application footprint in other Philips divisions and to other parts of the world.

Bosch, a large automotive company, is an early adopter of supply network collaboration and is considered the largest implementation based on global reach, number of suppliers and functional use of the product. With SAP, Bosch is sharing inventory levels, forecasting plans, integrating environments and increasing the synchronization of resources with its suppliers.