Reprint from Logistics Quarterly Magazine LogisticsQuarterly.com18 LQ™ september 2004

Is It Time to Implement?When there is an ad hoc change in a customer’s order, or a deviation from a planned process, SCEM can help you to sense that event and satisfy the customer. This article will provide you with a better understanding of SCEM and show where the deployment of SCEM capabilities can enhance the overall effectiveness of your supply chain and company.

Introduction Supply Chain Event Management offerings are finally com-manding attention in the marketplace. These types of soft-ware applications allow companies to track orders acrossthe supply chain in real-time between trading partners.Theinformation provided by these systems allows a company tosense and respond to unanticipated changes to plannedsupply chain operations. Customers understand that devia-tions from plan will arise – but increasingly it is how theirpartners manage the exceptions that make a difference incustomer satisfaction.

Imagine a shipping delay detected upstream in the supplychain.To ensure that the customer isn’t disappointed,the sup-plier is prepared to incur significant cost to make up for thelost time with expedited freight.As it turns out, the customerhas also had a change in plans, and the original requireddelivery date has been extended. In fact, the customer doesnot want the product quickly any more. When the down-stream players’ supply chain demands have more “wiggleroom”, then the perceived urgency of the disruption may notbe all it first appears.What would have been both a customerservice failure and an increase in costs could be transformedinto a mutually beneficial supply chain collaboration oppor-tunity.What is it worth to have the knowledge of supply chainchanges as they occur? What tools, systems and processesmust be in place to pursue this capability?

Defining Supply Chain Event Management Let’s define what we mean by supply chain event manage-

ment.A wise advisor and logistician, Bud LaLonde, ProfessorEmeritus at The Ohio State University,once said that if you fail

to set the level ofexpectations for anaudience, then theaudience will create itsown scorecard andevaluate you on theirterms. For many of theterms in the evolvingfield of supply chainmanagement, eachindividual or companyoften has its own set ofdefinitions. To set theparameters for this arti-cle, our definition ofsupply chain eventmanagement is themanagement of theinformation regardinga multitude of eventsacross a supply chain.In other words, an event is any happening or occurrencewithin a function or process of the supply chain that can bemonitored and reported upon.

SCEM does not plan,source,make,deliver or return a prod-uct, but rather conveys information regarding those supplychain processes at a specific event level, such as:

• a hand off from one supply chain entity to another

• the commitment of a product to an order

• the movement of a shipment between two logistics net-work nodes

By Chris Norek Ph.D. and Scott Sykes

Supply Chain Event Management

19LQ™ september 2004Reprint from Logistics Quarterly Magazine LogisticsQuarterly.com

• the placement of a product into storage.These events carry with them auditable documenta-

tion (increasingly all electronic) that enables systems tobe developed that capture and respond to their happen-ing (or not happening). It is the establishment and docu-mentation of a set of auditable, and recordable supplychain events, and the subsequent deployment of technol-ogy tools and software that monitor and report on thoseevents, that creates a supply chain event managementsystem.

SCEM’s Relation to Other Functional SystemsHow and where does SCEM fit within the overall enterprise

applications landscape? SCEM is a tactical application,and itis deployed in conjunction with other transactional systemsused within the enterprise, such as order management andmanufacturing execution systems. Again, SCEM is utilized tomonitor and report on events, which we defined as any hap-pening or occurrence within the supply chain operationsprocess. A summary of other functional systems linked toSCEM is included in Exhibit 1.

Reprint from Logistics Quarterly Magazine LogisticsQuarterly.com20 LQ™ september 2004

In deployingan SCEM solu-tion, it is impera-tive that thecompany firstarticulate a list-ing of eventsthat are criticalsteps in theirbusiness process– those that cre-ate ripple effectsup and down

the supply chain when they do not come off as scheduledand planned. Examples include the reporting of produc-tion yield quantities in a manufacturing process, receipt ofcontainers or rail cars for outbound loading and staging,or the hard reservation of inventory within a company’sinventory systems to a specific customer’s order. Afterdefining the business processes and the specific eventswithin them, the next step is to document and identify theentities within the company’s business systems that willserve as the electronic representatives of the actual stepsof the physical process. Think of these as fields in a data-base, or a status within an operational system’s transactionlog.Depending upon the business process to be monitoredand managed, it is not unreasonable for there to beupwards of one hundred potential events contained in theoverall business process.

A key in defining the events is to establish the properlevel of granularity such that the SCEM’s output yieldsactionable and value-creating information, but to not get sogranular that the managers in charge of the businessprocess become inundated with alert messages. One way tomanage this is to provide ranges to monitor events andmanagers are not notified unless the performance falls out-side of these ranges.

To illustrate, let’s consider the mapping and deploymentof an SCEM solution for a manufacturing company thatoperates in a make-to-order model (see Exhibit 2). In thisscenario, the event management design is aimed at monitor-ing the completion of the order-to-delivery process. Uniqueelectronic identifiers are selected to model this processwithin the SCEM system and are monitored to achieve anelectronic audit trail of the business process. The eventsincluded in this example, and the systems they might origi-nate from, include:

• Order Management System• Capturing and Entering the order (either in a call centeror via electronic methods)

• Performing a check of available inventory to producethe order

• Purchasing System• Either reserving the required inventory for the Bill ofMaterial (BoM), or alternatively creating the electronicPurchase Order for the required raw material

• Transportation Management System• Scheduling the raw material inbound (if necessary)

• Truck loading and dispatching

• Post-shipment in transit trace-and-trace updates from thecarrier

• Delivery confirmation / Receipt acknowledgement fromthe destinator

• Manufacturing/Production Management System• Scheduling production for the order utilizing therequired delivery date to establish the latest acceptablejob date

• Starting production

• Monitoring of the manufacturing process at identifiedevent steps through the process where adherence to plancan be confirmed or denied

• Post-production quality inspection

• Product packaging and labeling

• Warehouse Management System• Warehousing processing steps (as prescribed by theorder profile)

• Scheduling timing and placement of product in the stag-ing area for vehicle loading

• Customer pick-up or load into carrier’s vehicle

• Transportation Management System• Truck loading and dispatching

• Post-shipment in transit trace-and-trace updates from thecarrier

• Delivery confirmation / receipt acknowledgement fromthe customer

Note that in the example above we listed 18 eventsthroughout the business process that serve as key perform-ance indicators (KPIs) for the order-to-delivery process.Whether the appropriate number of events for your compa-ny’s business situation is half- or double-that level is a consid-eration that you must make with your colleagues and tradingpartners. As a guide to that determination, we offer the fol-lowing insights:

• Begin your process design by first listing all the availableevent candidates that currently exist within your enter-prise systems (if you can’t capture the information, youcan’t manage the process with it)

• Assign more weight to event types that carry definite andknown up and down stream “ripples” (such as constrainedinventory availability,or goods damaged in transit)

• Determine the possible severity of each event-type out-come in terms of cost,quality and service,and ensure thatthe most critical potential stumbling blocks are most read-ily monitored

• Establish thresholds within each process area whereyour key events transpire, and determine what actionsshould be taken and which process owners should bealerted when an event outcome exceeds a threshold orrange.Perhaps most importantly, remember that often times

less is more. SCEM systems can be extremely powerfultools, but they can also overwhelm a new user if theprocess models and alert designs are not appropriatelycalibrated. (As an example, the distribution center manag-er does not need to receive a page at 10am on Saturdaymorning to inform him that seven trucks arrived at the DCthe night before as scheduled).

21LQ™ september 2004Reprint from Logistics Quarterly Magazine LogisticsQuarterly.com

Creating Value with Supply Chain Event ManagementIt is in the management of this granular event information

where your company can utilize SCEM applications toenhance customer satisfaction and improve operationalperformance. For example, by enabling a customer to dis-cover the status of an order you give that customer the assur-ance that you will deliver on your promises. In addition,delivering this capability to your customers can reduce yourcost-to-serve because the inquiry can be made via a self-service web portal with no human intervention on yourcompany’s behalf.

Further, when there is a deviation from a plannedprocess, your SCEM application enables you to sense thatevent, and thus respond in a way that ensures your cus-tomer is satisfied despite an unplanned occurrence. Inmany instances, the response to the supply chain event istransparent to the customer because you were able todetect the deviation early enough to address it without thecustomer’s knowledge. Clearly, any business system thatenables you to keep tabs on the performance of your entiresupply chain – to monitor all events, and manage onlythose occurrences that “trip an alert mechanism” – willserve to improve your performance, lower your costs, andenhance your customers’ experience.

Companies that deploy supply chain event managementsystems can expect to achieve the following operational andeconomic benefits:

• Lower inventory levelsBy having a real-time view of the supply chain, lower safetystocks are needed for variations Increases return on assetsand lowers inventory carrying costs

• Increased customer satisfaction Visibility provides comfort to customers that shipments willarrive as planned If a changes does occur, a customer can benotified rather than be surprised

• Reduced transportation costsLess need to use expedited forms of transportation if delays

are known in advance and areaccommodated

• Reduced labor costsLess need for overtime for address-ing unplanned events Better laborplanning is enabled

• Lower manufacturing costsFewer emergency changes to theproduction schedule

ConclusionsAs we have discussed, SCEM sys-

tems do not buy,make,move and sellproducts, but rather serve to deliverinformation surrounding those keysupply chain operations as theyoccur (or don’t occur). In the sce-nario discussed for the make-to-order company’s order-to-deliveryprocess, the source systems for the“electronic representatives” of thephysical process are the company’sexisting systems used to manage:

• Order Management

• Procurement

• Manufacturing

• Quality

• Warehousing, and

• TransportationThe scope of the scenario we used to illustrate supply chain

event management pulls its information heavily from ERP andSCM systems that are already in place for most product-basedfirms. As you consider your firm’s next step in weighing thepotential for supply chain event management in your business,keep in mind that SCEM is a complementary solution to whatyou have in place,not a substitute or a replacement.

As the capabilities afforded by SCEM systems become bet-ter understood, they will increasingly become central solutionelements of extended supply chains. Further, as supply chainscontinue to expand across geographies and enterprises, theinclusion of SCEM applications as part of the technology land-scape will become a critical aspect in achieving more tightlyaligned, interconnected supply networks.

Summary Points for SCEM• Key is to use information to react to an unplannedevent and make arrangements to reduce the impact ofthe change.Customers realize that not everything goes asplanned but they don’t like being surprised when it is toolate to make an adjustment.

• Monitor events and notify management of exceptionsthat need to be managed.This frees up time from havingto monitor all events.

• Store the data regarding the events to enable analysisat a tactical and strategic level to identify process weak-nesses, pursue continuous improvement opportunities,and identify strategic trends.

Order Entry

CheckRaw Material

Inventory

Schedule Inbound

Schedule ProductionProcureRequiredMaterials Start

Production

FinishedGood

Tagging*

Reprint from Logistics Quarterly Magazine LogisticsQuarterly.com24 LQ™ December/January 2005

WELCOMEto the first article in LQ’s

Technology Toolbox,a series of arti-cles focusing on technology issuesrelated to supply chain management.Throughout this series, I am lookingforward to providing practical informa-tion that you will find useful in yourday-to-day duties.The world of technol-ogy is an exciting one. However, itchanges constantly and we need to bevigilant to keep pace with it. Myapproach to technology was foundedfive years ago while I was on the facul-ty of the University of Tennessee inlogistics and transportation. At thistime, we were at the height of the dotcom boom. I was doing some execu-tive teaching in the technology arearegarding supply chain management. Iquickly realized that to truly learn thetechnology “space,” I had to totallyimmerse myself in technology. So I leftacademia and joined an eCommerceconsulting firm. During my tenure atthat company I learned about thepower technology could provide tobusiness as well as the dangers derivedfrom putting too much faith in technol-ogy. In this introduction to LQ’s Tech-nology Toolbox Department, I will pro-vide some of my “lessons learned” intechnology during the last few yearsand set the stage for future articles.

Technology is an enabler,not a solution I have had several people ask me overthe last several years,“What is the best

____ (fill in the blank: WMS, TMS, fore-casting) package on the market?” Thebest package depends on your compa-ny’s wants and needs.Prior to embarkingon a technology implementation, yourcore group should first diagram andevaluate your current processes.Next, you should identify the areasof improvement and then decideon the functionality needed andchoose a package based on this infor-mation. Too often, companies skip tostep three and select a package anddon’t get the full benefit of the technolo-gy’s functionality. Implementing technol-ogy without first fixing the process towhich it is applied only speeds up ineffi-ciency.

Poor integration often negatessuperior software applicationsThe backend integration or “heavy lift-ing” in technology implementation isoften where true success or failure ofsoftware implementations lies. Most, ifnot all software applications have thenecessary functionality to solve supplychain problems. However, getting thedata into the software is often where dif-ficulties arise. Integration may not be theglamorous part of technology, but it isessential.There have been several highlypublicized incidents where a softwarepackage didn’t meet expectations.Companies have even blamed poorearnings reports on these types of failedsoftware initiatives. It is my belief thatmany of these failures could have beenavoided by more realistically estimating

the time requirements to implementthese packages and the specific integra-tion challenges.One positive note here isthat over the last few years applicationproviders have realized that companiessometimes select “best of breed”in eacharea of functionality rather than a fullsuite of solutions from the same compa-ny. In these cases, each provider has standard “hooks” or integration proce-dures that allow them to connect to com-plementary or competitive packages.

Investigate the same technology every year or soIn technology, trends come and gomore quickly than in most areas of busi-ness. I have talked to executives whohave said “we looked at that company/technology last year,”assuming that they

COMMENTARY

Technology ToolboxToo often executives abdicate responsibility for IT decisions due to the exasperation that they feel towards information technology. Not surprisingly, executives also often complain of the lack of valuederived from high-priced technology investments. LQ’s newest department has been created to helpexecutives in a wide array of disciplines generate higher value from their companies’ IT investments.

By Chris Norek, Ph.D.

25LQ™ December/January 2005Reprint from Logistics Quarterly Magazine LogisticsQuarterly.com

have the most up-to-date information to make an informeddecision. Unfortunately, in the technology world, a year canbe an eternity. More frequent checks on the functionality ofupdates to software can often result in surprisingly differentperspectives.There are,however,several ways to keep up withthe trends and functional capabilities of the multitude of soft-ware offerings. (I will discuss some of these approaches infuture columns.)

“Techies” do rule the world—make friends with themand learn from themYou may have seen the documentary “Revenge of the Nerds”showing the rise of “nerds” like Bill Gates and others. I experi-enced a similar perspective during my time in the internet con-sulting world.One of my initial learnings (although not affiliat-ed with supply chain management) of this lesson was basedupon one of my “technology masters’” creations, a programdesigned to submit a request for a first class seat upgrade withthe airlines so that he didn’t have to remember to call inadvance. Of course, he wouldn’t share the program with me.However, this is the type of leading edge/creative thinking thatis continually occurring in the software application and inte-gration world. Based on my experience, I would recommendthat you make friends with someone experienced in the ITarea if you haven’t already.This will accomplish two things: 1)you will learn about how you can leverage technology in yourjob and 2) possibly move you up on the priority list of themany requests that IT folks field each day.

Over the next several issues,I will explore various areas with-in technology that are both directly and indirectly related tosupply chain management, from purchasing to transportationand returns management as well as issues such as how toselect software applications.I will focus on the impact technol-ogy has on business and interrelationships with technology sothat executives in a wide array of disciplines can easily com-prehend the value technology affords their business.

It is my intent to give decision-making executives a seriesof short checklists of issues that they should keep in mindwhen discussing and evaluating technology options as wellwhen they become involved in the process of implementa-tion. The lessons learned/ checklist for this installmentinclude:1) Technology is an enabler, not a solution.2) Poor integration often negates superior software applica-tions.3) Investigate the same technology every year or so.4) “Techies” do rule the world—make friends with and learnfrom them.

I will cover both niche players as well as full suite and ERPplayers in my discussions.In addition,relevant hardware issueswill be discussed.As we begin this series, I invite you to writethe editor of LQ if there are specific areas of interest that youwant covered and we’ll try to accommodate them.

29LQ™ March 2005Reprint from Logistics Quarterly Magazine LogisticsQuarterly.com

BackgroundReduced capacity and resulting highertransportation prices due to the eco-nomic expansion and issues such ashours of service have forced compa-nies to reevaluate their transportationoperations.One way to increase the effi-ciency of the transportation depart-ment is to employ a transportation man-agement syestem (TMS) solution. Notsurprisingly, in this context a recent sur-vey from the Aberdeen Group showsthat expenditures on transportationsoftware will double in the next eight-een months either by companies pur-chasing new packaged or hosted soft-ware solutions or by adding modules totheir existing commercial systems.

As readers, you might be looking forspecific savings percentages that canbe achieved across the various solu-tions provided in this and future arti-cles. However, the actual savingsachieved varies so greatly, dependingon the functionality, solution, and com-pany that we cannot be specific aboutthe size of savings to be realized exceptto suggest that savings can range from 3-20 percent, depending on the applica-tion and the firm in question.

Types of Transportation Solutions• Routing and Scheduling—How canwe determine the most efficient routeand delivery times for particular ship-ments in a specified time horizon? Thisis sometimes referred to as the “newspa-per” problem trying to get the most effi-cient route for a newspaper boy deliver-

ing papers across a specified area.• Vehicle Utilization and Capacity—How can we best load a transportationvehicle to maximize the load and thenin aggregate, how do we best utilizethe fleet?• Rate Shopping—How can we auto-mate the search for the lowest rate for aspecific product across a specific lane?• Freight Audit and Payment—How canwe automate the process for ensuringfreight bills are paid on time and thendid we pay them accurately?

• Bid Optimization—How can we getthe best price for a set of loads within aspecified time period?

Which of these solutions should you consider?Irrespective of whether you contract outor use public carriers for all of yourshipments,you will have different needsthan if you are trying to make a privatefleet more efficient. Also, the type offreight you ship, the frequency and thetime requirements for delivery help

TECHNOLOGY TOOLBOX

By Christopher D. Norek, Ph.D.and Terri Ferraro

Transportation Management Technology:The Options and BenefitsOne way to increase the efficiency of the transportation department is to employ a transportation management system (TMS)solution.

Reprint from Logistics Quarterly Magazine LogisticsQuarterly.com30 LQ™ March 2005

determine if a software solution will improve your operations.Additionally, your perspective (supplier, customer etc.) deter-mines how you view transportation.You might need leadingedge functionality in one or two of these areas but need min-imal functionality in the others.

Data Requirements Necessary for TMSYour company and/or your carriers must have significant,accurate data on your transportation operations.You need allvolumes,types of product,values,lanes of shipment and deliv-ery needs of all of your shipments. Prior to embarking on aTMS evaluation, you must ensure that all of this data is avail-able across your various systems.

Software Firm GroupingsThere are solutions specific to the transportation marketplace,solutions within a supply chain suite and solutions as a part of amore broad ERP system. In this column, we won’t specificallymention the names of the players because we would inevitablyleave out someone from the list.However,we can talk about theidea of “best of breed”versus transportation solutions embeddedwithin a set of broader functionality. Traditionally, the best ofbreed or “point” solutions had the most extensive functionalitywhich makes them appealing.On the other hand,many compa-nies don’t need all the “bells and whistles”of the leaders and arepleased with the transportation offering that is a part of a solu-tion suite. In terms of supply chain software companies, all ofthem got their start in one type of functionality (e.g. transporta-tion,warehousing) and then expanded the suite.In regard to theERP players,they are getting better in terms of TMS offerings butwould not portray themselves as always being functionally supe-rior to the best of breed companies.

What Executives Should Know/Do• Have your team evaluate the past data from your transporta-tion department to see possible seasonal trends for both vol-ume and price.• Ask that your team has gathered the necessary functionalityprior to meeting with any software vendors. This will ensurethat what is selected meets your needs rather than your com-pany’s requirements being molded to meet the functionalityof the software provider.• Make sure your company runs some of your data throughthe models to compare their output to your current state.

Benefits of Improving Transportation Management• Immediate improvements in operating cost — for example,when a lower rate is found, it is immediately realized as areduction. In other supply chain areas,improvement can takemonths to realize as in the case of inventory changes.• Better customer service — by arranging for high quality car-riers who deliver on time and protect the cargo, your cus-tomers will award you with more business in the future.• Happier employees — if you employ drivers and can getthem home as scheduled, they will be less likely to jump toanother company.

Reprint from Logistics Quarterly Magazine LogisticsQuarterly.com26 LQ™ June/July 2005

BackgroundLately it seems as if outsourcing is all therage as the use of third party logistics(3PL) and contract manufacturing rein-forces the argument to “focus on corecompetencies.”The providers have over-come their initial error of over promisingand under delivering of several yearsago and provided significant value withmore focused offerings. Additionally,customers are much more experiencedin understanding 3PL capabilities andestablishing appropriate provider serv-ice expectations.

FROM A DEFINITIONAL perspective,anyfunction you don’t perform in house canbe considered outsourced (e.g. pur-chased transportation); however, we typ-ically look at broader supply chain orlogistics functions as being “outsourced,”such as warehousing, order fulfillment,and international trade assistance.Thereis one choice that has to be made in theoutsourcing decision that isn’t given asmuch attention as it probably should—do you use the 3PL’s own software, orbuild/purchase your own and have the3PL tie into it? We will examine the keydecision criteria required to make thisdecision.

How are 3PLs PerceivedRegarding Technology?Third party logistics service providersaren’t typically viewed as the preferredsource for information technologyexpertise.Over 80 percent of 3PL users

say that having the right software andinformation technology capabilitiesare necessary for their providers topossess; however, less than 40 percentof the customers are satisfied withtheir suppliers IT capabilities andeven fewer rely on 3PLs for technologyleadership.

These responses of 3PL usersclearly show that the gap between

customer expectations and what the3PLs deliver (or are called on to pro-vide) is significant.

3PL Industry Challenges toTechnology LeadershipThere are many underlying industrychallenges that influence a 3PL’s abilityto close this gap:• Fragmented systems environment.

By Chris Norek

Should You Use Third Party Logistics Companies’ Software, or Use Your Own?Should you optimize your supply chain by tapping into the technology resources of a 3PL? Start by looking at these guiding principals to harness the right solution for your requirements.

TECHNOLOGY TOOLBOX

27LQ™ June/July 2005Reprint from Logistics Quarterly Magazine LogisticsQuarterly.com

Highly customized legacy systemscombined with “best of breed“ softwareapproaches create a “patchwork” of cus-tomer systems that 3PLs must integrateinto.• Lack of standardization in technologydue to changing customer require-ments.

Customers are often increasing theirrequirements of 3PL partners so that sys-tems are continually updated.• Mergers and acquisitions in the 3PL andshipper industries, requiring post-mergerintegration of processes and systems.

This challenge requires the mergedcompanies to create a seamless technol-ogy architecture in short time horizons,or manage an increasing variety of “lega-cy systems.”• 3PLs must provide a balance betweenglobal standardization and necessaryregional differentiation so that cus-tomers get the global visibility theyneed and the local touch they desire.

These challenges are driving 3PLs tore-assess their IT solutions and arespurring them to:• Reduce the total cost of ownership(TCO) through lowered implementa-tion costs and service-enabled func-tionality.• Increase process standardization andintegration simplification.• Create stable solutions with broadenterprise functionality.• Ensure flexible and scalable infrastruc-tures.• Develop deep industry knowledgeand global support.• Enforce an alignment between busi-ness and IT.

Third Party Software OfferingsWhile there are thousands of cus-tomized applications that 3PLs havecreated to serve particular customerneeds, there is a core set of softwarefunctions that are more pervasive for3PLs. Provider software and IT capabili-ties are directly correlated to the servic-es or business processes being out-sourced including warehouse manage-ment (WMS), transportation manage-ment (TMS), import/export manage-

ment, and supply chain event manage-ment (SCEM).

3PLs are in a unique position todevelop and provide additional IT serv-ices to their clients,including IT strategy,integration services, and advanced sup-ply chain applications (e.g., planning,SRM, CRM). However, in order for 3PLsto successfully develop and offer theseadvanced capabilities, which garnerhigher margins, they must create consis-tent and standardized technology solu-tions for core services.

An Executive Checklist for 3PLUsers• What will you be using the 3PL to do?

First, you must understand exactlywhat technical functionality and servicesare required to operate the tasks you areoutsourcing.• Will you need extensive functionality?

Understand if you need basic oradvanced functionality and capabili-ties. If you need basic functionality,using the 3PL technology will probablywork for you.• If you have a specific need,determine if the functionalityalready exists or will it be specif-ically developed for you?

Often, a 3PL will develop spe-cific functionality to serve a par-ticular customer, but it requiresadditional expense and develop-ment time.• Do you already have therequired capabilities within yourown systems?• Are you thinking about takingthe function back in house inthe future?

If you are only going to use the3PL for a defined period of time,itmight make sense to “bring yourown” technology to the tablewhen engaging the 3PL.

The same logic applies if youare considering using another3PL, either to replace the currentone, to divide responsibilities,or tomaintain the option to switch 3PLsin order to mitigate risk and count-er supplier (3PL) dependency.

• To determine how well the 3PL(s) canmeet your technology needs, lay out allthe functions you require in the solutionand identify gaps between your needsand the current capabilities of the 3PLs(not future or promised capability).• Check on the size and particular expert-ise of the 3PL technology team to see ifthey can grow and adapt with you.

SummaryThe growing use of outsourcing anduse of third party logistics providershas shed some light on the need foreasy technology integration betweenthe 3PLs and their customers. Thisissue of integration begs the questionof whether the 3PL customers should“bring their own”technology to use inthe 3PL relationship, or rely on the3PL for the needed technology. Theseare the key topics decision-makingexecutives should be aware of, and achecklist of questions and issues towhich they should give careful con-sideration.

Source: 2004 Capgemini and Georgia Institute ofTechnology Annual 3PL Study

29LQ™ October 2005Reprint from Logistics Quarterly Magazine LogisticsQuarterly.com

TECHNOLOGY SOLUTIONS are per-ceived along a wide continuum frombeing lifesavers and business changersto wastes of money and detractors ofcorporate performance. What are thefactors/issues that sway the pendulumfrom the one side of the spectrum tothe other? How can a supply chaindecision maker ensure that he/she is“checking the right boxes” in the tech-nology selection process? I willattempt to cover the key mistakesmade in choosing/implementing asupply chain solution. Again, pleaseremember that the intent of thesecolumns is to stay away from “techs-peak” to provide information to deci-sion making executives.

The following common mistakesmade when choosing and/or imple-menting a technology solution will beaddressed followed by some hints toavoid these mistakes:1) Holding on to unreasonable expecta-tions--forgetting that technology is anenabler, not a solution.**2) Integration is neglected to focus onfunctionality which can negate superi-or software applications.**3) Current processes aren’t addressedprior to launching technological solu-tions.4) Tendency to take one small step at atime without long term plans.5) Lack of knowledge regarding inter-nal systems drawbacks.

By Chris Norek

When and Why are Supply Chain Technology Dreams Dashed?When senior management reflexively embraces technology as a panacea for supply chain challenges, they often find it fails to enhance overall corporate performance. Here’s a better way to mitigate common mistakes and barriers to success.

TECHNOLOGY TOOLBOX

**Points made in the first TechnologyToolbox column that apply to the current dis-cussion

Reprint from Logistics Quarterly Magazine LogisticsQuarterly.com30 LQ™ October 2005

6) Not aligning systems with businesspartners.Unreasonable expectationsSoftware is not a panacea for businessills. In the first Technology Toolbox arti-cle, I referred to the idea that technolo-gy is an enabler, not a solution. Due toa lack of understanding of technology,many executives believe it can oftenaccomplish more than is realistic.Therefore, when the solution is imple-mented, it can disappoint the biggestsupporters. Obviously, savvy decisionmakers don’t run head first and ignorea potential problem but a desire for thepot of gold at the end of the rainbowoften causes companies to gloss overpossible problems.

Integration is neglectedNew supply chain software functionali-ty continually gets better but it is gettingthe data from your legacy systems to thenew solution where things can fallapart. Many companies have systemscobbled together with multiplebandaids to allow normal operations.Trying to overlap a new solution whichrelies on the data contained in thesesystems often requires significant cod-ing to allow the integration of the newand existing solutions.

A huge part of the success and tim-ing of a software implementation liesin the integration of back end process-es. This is made easier with service-oriented architecture (SOA) which isnow enabled with the internet. WithSOA, companies don’t have to hardcode into a specific protocol and theinternet-based solutions allow easiertransition of required data betweensystems.

Current processes aren’taddressed firstThis is one of those issues that is sobasic that you’d think all successfulcompanies would know to avoid thistrap. By implementing a technologysolution for an inefficient process, youonly increase the speed with which theinefficiency occurs. One benefit oflaunching a software selection is thatyou must document the currentprocesses as they are which often

brings to light areas of inefficiency thatcan be removed prior to implementa-tion.

Tendency to take one small step at a timeTechnology strikes fear in the hearts ofmany seasoned executives. As a result,there is often a tendency to addressindividual functional areas like ware-house management, transportationmanagement, and procurement. Theperspective of “let’s do this first and seeabout other functionality later” isn’t abad idea by itself but the single pointsolution should fit into a predeter-mined technology strategy for thefuture. By looking at a specific pointsolution, companies can fail to look atpotential synergies of multiple solu-tions together and can miss incompat-ibilities that require significant effort toaddress.

Lack of knowledge of internal systems drawbacksFor those who aren’t in the IT group orwho don’t use the systems regularly forreporting, data analysis, etc., a falsesense of security might exist. Peoplewho rely on systems folks to get themthe data they need often don’t have anappreciation for how much work it cantake to extract, organize, and analyzerequested data. I am constantly sur-prised by how hard it often is to getwhat many would consider “basic” dataout of systems.

Not aligning systems with business partners

As we progress to true total supplychain visibility, it isn’t enough to be ablealign internally. Companies must beginaligning their systems capabilities withthose of partners in the supply chain.Only when companies across the sup-ply chain are linked can true, total visi-bility result.

How to avoid the problems:1) Make sure someone or even a teamfrom the business/operations groupbecomes very familiar with the capabil-ities of current systems prior to launch-ing on a software selection process.

I can’t count the number of timesmy clients assume that getting specificdata out of their systems is easy whenit is in fact often very difficult. In fact,senior management often makespromises based on a lack of under-standing of the time it takes to gatherdata from the system. It would makesense to take a few minutes to see whatyour people have to do to pull the datayou request in evaluating the perform-ance of your supply chain. In addition,business people should be very famil-iar with the capabilities of current andproposed systems.2) Document your current processesand desired functionality prior to talk-ing with either internal systems peopleor outside vendors.

You need to ensure that the systemsthat you choose support your desiredoperating procedures rather than youroperations having to perform“workarounds” due to limitations ofyour current systems or even worse,new systems.3) Evaluate your business plan in con-cert with the technology plan.

While you might assume that the twoalign, you better make sure that youdouble check this. Again, technologyshould support the desired businessplan. Too many times, legacy systemslimit what business people would liketo accomplish.4) Map out your systems capabilitiesand structure with your supply chainpartners to ensure compatibility.

As mentioned, true supply chain visi-bility and integration requires not justlinking within companies but acrosspartners as well.ConclusionWhile we have all read the headlinesof the technology failures and theirperceived effect on business perform-ance, there are steps you can take toensure that you do succeed in yourtechnology planning and implementa-tion process. Hopefully, this article hasgiven you some “ammunition” to usewhen considering investments in tech-nology—either for existing or newsoftware purchases that can give you aquicker return on your technologyinvestment.

25LQ™ March 2006Reprint from Logistics Quarterly Magazine LogisticsQuarterly.com

BackgroundOne of the recent significant trends in

supply chain management is theupgrade of the traditional purchasingprocess from its perceived status as rou-tine and a “back office” function to amore strategic and visible area.Particularly, the traditional termof purchasing has beenexpanded and renamedprocurement, which encompasses morethan the tactical process of filling outpurchase orders. Procurement includesdetermining customer needs, under-standing the industry and the entireglobal supply base,determining a sourc-ing strategy, selecting suppliers andmanaging those suppliers over time.Thisarticle will cover the technology optionsto help your company improve its sourc-ing/procurement process and give exec-utives some advice to consider whilemaking these decisions.

Procurement SolutionFunctionalityStrategic Sourcing/eRFX/ReverseAuction – used to standardize andautomate the sourcing process• Supplier identification and industryanalysis– Can set up a preferred supplier list inadvance– Can have an automated link intoProducer Price Index (PPI)• Automated preparation and submis-

sion of Request for Information (RFI)and Request for Quotation (RFQ)• Online negotiation (Reverse Auction oronline bidding)• Supplier Selection and bid analytics(determining the suppliers with the low-est total cost of ownership)• Contract Management– Repository for all contract information– Tie contract negotiated metrics today-to-day

Transactional Procurement – used toautomate the tactical process of day-to-day orders to suppliers• Automated requisition and purchaseorder process• Automated item selection from an itemmaster or electronic catalog

• Automated receipt, approval andelectronic funds transfer

• Electronic connection to suppliersystems Data Management – used tomanage and analyze procure-

ment data• Content management – data cleansing,standardization and normalization• Spend analytics – analysis of key spendcategories and key suppliers• Performance management – tracking ofkey performance indicators (KPIs) suchas spend savings,supplier performance

Transportation Procurement – usingautomated solutions to select carri-ers with which to negotiate and thenchoose the lowest rate for individualshipments• Allow transportation bids to be han-dled online thereby eliminating thepaper bid process and speeding up car-rier identification and qualification priorto face-to-face negotiations• Within transportation management sys-tems (TMS) lies the capability to automat-ically select and engage the lowest costcarrier for a specific shipment

Which of these solutions shouldyou consider?

Strategic Sourcing solutions shouldbe considered for any entity which hasa significant amount of spending withoutside suppliers (over $50MM total).

By Christopher D. Norek and Donavon Favre

Procurement Solutions:What Might Work For YouProcurement, know in the past as ‘Purchasing’, was once viewed as an unglamorous back-office function. It included negotiations with suppliers, procuring the parts and ensuring they were sent to the manufacturer of the products. Today, procurement’s status in the supply chain includes a wide array of requirements, encompassing everything from determining client requirements, to a global sourcing strategy. Here is a look at how technology and its application can help improve your company's growing procurement practice.

TECHNOLOGY TOOLBOX

Reprint from Logistics Quarterly Magazine LogisticsQuarterly.com26 LQ™ March 2006

The spend should also be segmented into categories (i.e.,sheet steel, contractor services) and sorted in descending dol-lars so only the top dollar spend categories are candidates for astrategic sourcing solution (the number of significant cate-gories will go up for firm’s with a larger amount of spending).For smaller companies, a hosted solution (software run by thesoftware company, behind their firewall) is less expensive andmore manageable.For larger companies with higher usage, thesoftware is typically purchased outright.

Transactional procurement systems are typically used toreduce the time and effort associated with the tactical aspects ofprocurement,such as requisition and purchase order creation aswell as, the approval and payment processes. Companies with10,000 purchase transactions or more per year should considertransactional procurement solutions. Companies with fewertransactions who don’t purchase a solution outright can takeadvantage of supplier internet sites for business-to-business trans-actions – for example, ordering office supplies or work glovesdirectly from a supplier’s website using a purchasing card.

Data management and analytics are valuable for mediumto large companies with a large number of part numbers andsupplier information.They are especially valuable for compa-nies with multiple locations and/or divisions where data is notcurrently managed centrally. With data standardization, com-panies can find common suppliers and items across divisionsand locations,allowing them to aggregate spend volumes andachieve discounts.

What Executives Should Know and Do• Have your team evaluate spending data from your procure-ment and/or payables department to understand your totalannual spend– Include all spending categories in addition to raw materials/com-ponent parts such as energy and information technology• Ensure that data has been standardized and normalized sothat your items are described consistently across all divisionsand locations• Analyze your current strategic sourcing and transactional pro-curement activities for efficiency and effectiveness– Aggregate all volumes to increase negotiating leverage– Look to upgrade and eliminate paper-based transactions inprocurement• Trial a strategic sourcing solution with two or three strategicsourcing events before buying

Benefits of Improving ProcurementProcurement has become very popular because most com-

panies can realize savings between 5 and 15% on material andservice cost reductions (including price, inventory, and pay-ment terms). Additionally, a focus on procurement results inimproved supplier management including measurement,con-tinuous improvement, and supplier relations.Lastly, by usingemploying procurement automation, your employees canbecome more efficient and effective with more time availablefor strategic procurement activities.With millions or even tensof millions of potential savings available, procurement willcontinue to be an area of increased focus.