Next-Generation Logistics Networks
The term on demand is graining mass appeal among software vendors who sell their software as a service. The movement, fueled by IBMs marketing efforts, has captured the imagination of the software industry. Software manufacturers and software consumers have accepted the emerging trend as a viable alternative to large-scale, client-server custom solutions.
The transportation management solutions (TMS) marketplace experienced early and lasting adoption of the on-demand model starting in the late 1990s. Traditional client-server transportation management solutions were expensive to purchase, install and maintain, making them a viable solution for only large corporations. On-demand TMS solutions change the economics, creating access to a much broader market that includes mid-cap and small-cap firms.
As the market for on-demand TMS matures, customer demand and service provider innovation are the catalysts for an emerging service category. This new service category is built on top of the ondemand delivery model and brings new capabilities that include:
- Partner connectivity;
- Real-time industry-related content; and
- Cooperative business processes that extend beyond the edge of the enterprise.
Next-generation logistics networks extend the on-demand delivery model, providing new savings and service opportunities by providing access to:
- Thousands of vendors, carriers and partners;
- Terabytes of structured data for analysis and decision support; and
- Configurable cross-enterprise business processes that incorporate best practices.
Over the next decade, next-generation logistics networks will significantly extend the horizon of logistics savings/service opportunities. While on-demand providers should be evaluated on the depth and breadth of their service offering, next-generation logistics networks should be evaluated on the depth and breadth of their networks:
- Quality of the connected partner list;
- Data volume and content management tools; and
- Cooperative business processes that can help your organization solve problems and save money.
On Demand Defined
On-demand solutions are characterized by delivery method, deployment model, upgrade process and pricing model.
On-Demand Delivery Method
The on-demand delivery method combines Internet infrastructure and ubiquitous desktop browser technology to create an efficient alternative to client-server solutions. Users of on-demand solutions require only an Internet connection and a browser to access the software solution.
On-demand vendors have leveraged browser technology to create highly configurable views to satisfy individual user preferences. Configurable views enable on-demand solutions to reach beyond the edge of the enterprise. Administrators can create user roles for partners outside the enterprise that provide controlled access to corporate data. For example, role-based visibility can allow a supplier to update status on a customer order while preventing access to other supplier information. Internet delivery is the catalyst for innovative deployment, upgrade and pricing models.
On-Demand Deployment Model
Internet delivery vastly simplifies desktop distribution across the extended enterprise, because only an Internet connection and a browser are required. On-demand vendors drastically reduce the expense and risk of bringing up the server/database infrastructure required to deliver the enterprise solution by allowing customers to leverage an existing live infrastructure.
On-demand solution providers serve up a single version of their product that is highly configurable. On-demand vendors replace customization by incorporating established best practices and allowing a high degree of configurability. Replacing customization with configuration reduces the time and risk of deployment and enables customers to deploy a solution in months rather than years without the assistance of a systems integrator.
On-Demand Upgrade Process
On demand has revolutionized the software upgrade process. Traditional client-server upgrades are typically delivered every 18 to 24 months and usually are accompanied by significant implementation work that adds expense, risk and time to redeploy the new version.
On-demand solutions deliver upgrades automatically, without user intervention or business disruption. New versions may be delivered every one to two months and are immediately available to all users, systemwide.
Streamlining the upgrade process allows solution providers to quickly deliver innovative ideas to their subscriber base. Upgrade economics are dramatically improved, significantly enhancing the ROI of the solution. Customer benefit streams continue into the future since the product is continuously upgrading, staying current with contemporary business practices.
Recently, government regulations regarding driver hours of service (HOS) changed significantly. TMS solutions use HOS regulations as a foundation for automated cubing and routing algorithms. Customers of traditional client-server TMS solutions need to wait for their vendors to incorporate these changes, then buy, install and test the new version. Since these new versions usually include other features, significant attention must be paid to the upgrade and testing process to avoid business process regression.
In contrast, on-demand solution providers can quickly make changes to their routing algorithms and deliver a focused release to their customers in weeks. The new upgrade is immediately available systemwide for testing and immediate deployment.
On-Demand Pricing Model
Traditional enterprise solutions require customers to make upfront investments in licenses and implementation. Implementation costs are typically three to five times license expense, adding to the fixed cost of the solution.
On-demand solution providers leverage the efficiency of deployment to offer pricing models with very low fixed cost and usage-based variable cost. Pay as you go pricing allows customers to more closely match economic benefit streams with expense, improving customer ROI and IRR.
Typical pricing models include annual subscriptions for customers who prefer predictable expense based on predictable usage, and transaction fees for customers who have less predictable usage patterns and prefer variable pricing.
Example On-Demand Software Provider: Salesforce.Com
Salesforce.com is arguably the most successful and recognized on-demand software provider. The company provides customer relationship management software that allows sales, support and marketing professionals to collaboratively automate and unify business processes that touch the customer. The company has tens of thousands of customers and hundreds of thousands of users.
Salesforce.com summarizes the difference between the various software sales and distribution models as shown in Figure 1.
Beyond On Demand Next-Generation Logistics Networks
Logistics and supply chain professionals have embraced on-demand solutions. Just as the on-demand delivery model revolutionized the software industry, next-generation logistics networks are extending the on-demand concept to create a platform for additional savings and innovation.
Next-generation logistics networks extend the on-demand, software as a service delivery model, providing new savings and service opportunities by providing access to:
- Thousands of vendors, carriers and partners;
- Terabytes of structured data for analysis and decision support; and
- Configurable cross-enterprise business processes that incorporate best practices.
Defining Next-Generation Logistics Networks
Next-generation logistics networks combine on-demand TMS features with the following capabilities:
- Reusable trading partner connectivity;
- Real-time content; and
- Cooperative business processes.
Reusable Trading Partner Connectivity
Next-generation logistics networks allow users to quickly connect to a community of vendors, customers and logistics service providers. Nextgeneration logistics networks combine on-demand TMS functionality with an integrated value-added network. Standard formats and flexible protocols allow trading partners to connect with ease and ensure compliance with the native formats of major enterprise packages.
Connection reuse is a requirement for logistics networks that allows vendors, customers and logistics service providers to connect once for all. Connection reuse enables new participants to leverage existing connections to a broad network of participants.
The power of a network increases with the number of established service providers, including:
- Truckload carriers;
- LTL carriers;
- Intermodal providers;
- Railroads;
- Ocean and air lines;
- Freight forwarders;
- 3PLs and brokers;
- Consolidators; and
- Parcel delivery providers.
Customer and vendor connectivity allows innovation in customer service and fulfillment. Next-generation logistics networks integrate with enterprise distribution and order management systems to extend visibility across the supply chain. Connection ease and Web front ends allow best-practice data integration, once reserved for the largest players, to be extended to smaller suppliers and customers.
Logistics networks should be evaluated by the ease of connectivity and the size of their partner network. The ultimate logistics network would include partners from a variety of vertical industries and geographies providing a complete spectrum of service offerings.
Real-Time Content
Next-generation logistics networks produce structured data as a byproduct of managing millions of execution-based transactions. Mining real-time transactional data and historical/summary information into valuable content is the next frontier in logistics to streamline operations and support planning and analysis functions.
Simple Content Unlocks Business Value
Content can be simple or complex. A few examples of simple content that create significant value:
- A partner directory that allows members of the network to find a particular logistics service provider by service type, region of the country and business scale.
- Automated updates to networkwide fuel indexes, from the DOE, to enhance accuracy of fuel accessorials and automatically feed customer-specific regional pads.
The first example creates value in allowing a shipper to find a new carrier and vice versa; the second automates the tedious process of updating contract data when weekly indexes change. Both of these examples are live and operational in certain logistics networks today.
Statistical Processing Supports Planning and Decision Making
Real-time content can be extended to include historical data and statistics to support analysis and decision making. Consider the power of a networkwide statistic that calculates the average on-premise time for a given network location. Collecting historical arrival and departure time and calculating the average would calculate this statistic. This statistic could be used to feed automate routing tools to improve route quality. Routes would include more realistic dwell times at locations; consignees with very long on-premise times would not be routed as the first stop, if possible. Emerging logistics networks extend on-demand TMS by offering a variety of contentbased services that aid the users market analysis, operational planning and decision support activities.
Cooperative Business Processes
Cooperative business processes allow members of a logistics network to coordinate activities to achieve a business goal. Network members can be from different divisions within the same company or from entirely different firms. Cooperative business processes leverage the networks common data model, infrastructure and security framework to securely extend each participants enterprise system across internal boundaries. While ERP systems manage each firms internal business process, logistics networks manage intra-firm business processes.
The common infrastructure provided by next-generation logistics networks allows partners to use native communication, workflow and event management capabilities to manage process flow across enterprise boundaries. Here are some simple yet powerful examples:
- Tendering-to-partner private fleets to share capacity;
- Ready-to-ship-enabled inbound consolidation; and
- Multi-firm consolidation using a third-party planner.
Common data models and shared infrastructure allow partners to create simple cross-enterprise processes to unlock significant business value. The examples below are in production and are enabled by a next-generation logistics network.
Private Fleet Sharing
Leading retailers are allowing partners to dynamically tender to their private fleet through a cooperative business process. This allows shipping partners of the retailer to attach the retailers private fleet to their route guide for additional capacity. If the retailers fleet can efficiently pick up the partner shippers freight at a competitive price, then the retailers fleet reduces deadhead and the partner shipper gains access to capacity at a competitive price.
Ready-to-Ship Signal Enables Inbound Consolidation
Consignees who attempt to manage inbound freight know the importance of quality shipment readiness data from suppliers. Mergein- transit and pooling strategies require advanced information about the quantity and available date of product at the suppliers dock. Ready to ship information, provided in advance, enables consignees to automate inbound routing and consolidation to lower transportation cost and ensure product delivery.
Multi-Firm Consolidation Using a Third-Party Planner
Consolidating freight across customers is a common value proposition for 3PLs. Executing multi-party consolidation is often thwarted by the quality of order data the clients send to the 3PL. Orders may be faxed, sent via EDI or in a flat file, complicating data exchange among clients and virtually eliminating the possibility of automating the cubing and routing process using off-the-shelf optimization technology.
Next-generation logistics networks allow 3PLs to leverage a common data model and standards-based connectivity to create a normalized, multi-firm order well. Automated cubing and routing algorithms process the normalized order well to route freight at the lowest cost while honoring capacity and service constraints. The resulting routes may be sent to each supplier to schedule pick-up appointments.
The common data model provided by the logistics network provides the foundation for multi-firm freight cost allocation. The 3PL can allocate costs to each order based on a variety of allocation techniques, then electronically bill the client and pay the carrier.
Next-generation logistics networks extend current on-demand TMS functionality, broadening savings horizons and enabling innovation. Figure 2 compares and contrasts client-server TMS, ondemand TMS and logistics networks.
While on-demand TMS providers should be measured by feature set, next-generation
logistics networks should be measured by the:
- Breadth and depth of connected partners;
- Relevance of native and partner-acquired content; and
- Innovation and savings delivered by cooperative business processes.
Beyond on-demand TMS, next-generation logistics networks are enabling supply chain innovators to streamline transaction processing, access industry content and deploy cooperative business practices with their partners. The potential of logistics networks is only limited by scale, reach and the imagination of their designers.
