Web Services and Value Chains in the Adaptive and Dynamic Supply Networks

The Internet has enhanced the ability of organizations within the adaptive and dynamic supply networks to integrate their processes through collaborative information sharing and planning, and to improve internal operations through flexible workflow management. Clusters of these organisations within each supply network begin to form to create what is traditionally known as Value Chains. An important element of managing the value chain is the ability to incorporate the requirements of a diverse group of players both within and outside the organization to create an integration plan that can be synchronized with the organization’s manufacturing, distribution, transportation and warehousing processes.

To manage and facilitate enhanced collaboration among the various participants in the value chain, organizations are increasingly deploying web-enabled value chain management software solutions to address their execution, transaction and planning requirements. Up till the advent of Web Services and the Internet, business process integration often involved the development of interfaces between proprietary databases. The usual solution was to transcribe entire databases or one enterprise to the format required by the other by developing proprietary conversion programs that are specific to each application, a very tightly coupled solution indeed. This is very costly, not very flexible, and if either enterprise needs to upgrade or replace systems, the whole process of data interface has to be re-started.

Web Services technology allows online services to be encapsulated as re-usable components or applications with well-defined programmable interfaces (APIs) that can be consumed by other services using common web protocols. This “Web Glue” loosely couples the producers and consumers of services and information within the value chains via the Internet. In essence, this glue consists of well-defined objects and methods that define the communications protocol between applications, publicising the availability and the way these services (i.e. applications and information) are invoked and consumed. The standards also seek to facilitate the management and coordination of groups of services to present a unified view to the consumer of these services.

Imagine now for a moment, entire value chains that consists of enterprises that synchronises harmoniously within the eco-system, all empowered by information services made possible by web services that are registered and published in online “yellow pages”. New participants entering the eco-system no longer have to spend millions of dollars on proprietary systems to generate product and service awareness, and to participate in the eco-system of the value chain.

The market for value chain management solutions is relatively new and is experiencing rapid growth. Industry sources estimate that the advanced planning and scheduling market was $350 million in 1996, and is projected to grow at a compound annual growth rate of 46% to more than $1.6 billion by 2000. The warehouse management systems software market was approximately $270 million in 1996, and is projected to grow to more than $1.4 billion by 2001 - a compound annual growth rate of 40%. These numbers certainly point towards an exponential growth for the new breed of SCE web services platform that seek to empower the relationship dynamics of the modern adaptive and dynamic supply networks.

Supply Chain Execution (SCE) Solutions Driving Growth for SCM

Around 5 to 7 years ago, the buzz was all around how supply chain planning (SCP) will revolutionise supply chian efficiencies around the world. At that time we saw the rise of companies such as i2, Manugistics and AspenTech (can anyone remember this company?). Even SAP and Oracle got into the act.

Yet, all along without much buzz or fanfare, the growth of supply chain execution (SCE) applications continued unabated, albiet away from the limelight. Warehouse management, order management, freight management and transport management remain key areas for enterprises wanting to either lower costs or gain competitive edge. The study by ARC Advisory Group lends credibility to this thought.

Technology in SCM

Many SCM vendors are beginning to push the envelope of their solutions by injecting the latest technology into their applications. In the next few years, expect these technologies to become mainstream in SCM.

• Web Services. This software framework and standards is designed to be used by other software via Internet protocols and formats. It will strengthen the weakest links in manufacturers' supply networks and cost-effectively connect with a dynamic array of partners.
• Extended Internet. The extended Internet is an integral part of the extended enterprise -- Internet devices and applications that sense, analyze, and control the real world. Manufacturers will tap the extended Internet to raise their supply network processes' real-world awareness through the use of sensors and smart tags attached to physical assets. IBM, HP and Sun Microsystems have all released their vision of grid computing and pervasive network computing.
• Agent-based software. Intelligent agents will automate the resolution of supply network exceptions and improve learning. SCEM will be revolutionized by this concept.
• Pervasive Mobile Computing. Enterprises today are now more dispersed and collaborative in nature. This has led to the need of business on the move, or mobile computing. No longer are businesses confined to fixed premises, road warriors now take their work out of their offices and direct to their customers and suppliers.

Technology Trends in SCM

At the heart of today’s dynamic supply chains is a continuous, technology-enabled adoption cycle that will help manufacturing partners proactively detect emerging risks and opportunities, expedite exception resolution and capture opportunities, and continually improve their operational processes, all these across enterprise and international boundaries.

The transformation of today's linear manufacturing supply chains into dynamic supply networks will be supported by four emerging technologies; Web services, extended Internet (in short, the X Internet (or Extended Internet) is comprised of the myriad linkages between the physical world and the digital world. This burgeoning and utilitarian technology could prove to be the next big wave in the Information Age.) , agent-based software and pervasive mobile computing.

More about these technologies in the next few posts. Stay tuned.

Reverse Logistics

Reverse Logistics is also a new and growing section of logistics, as customers seek the option of returning goods for repair or exchange. Wikipedia gives a good definition of Reverse Logistics. The e-commerce ways of doing business online will only accelerate this trend. Since so much merchandise is sourced from Asia in the first place, reverse logistics activity is likely to be very substantial in the region in the next few years. There are a number of service providers who specialise in this kind of activities, for example Supply Chain Services Inc. There are even online publications which give the latest news on reverse logistics.

eCommerce logistics outsourcing

A derivative of logistics BPO, this is a specific service offering, where service providers leverage their existing expertise in the warehousing operations area to offer order e-fulfilment-related services including pick-and-pack, gift wrapping, kitting services and express delivery. An example of this is the recent collaboration between Toy’R’us and Amazon.com, for the former to utilize Amazon.com’s delivery channel.

Today, we are witnessing a significant consolidation and integration of many e-procurement hubs and trading exchanges that had mushroomed in large quantities over the past two years. Already, industry leaders are leading this consolidation by placing their huge procurement activities onto exchanges founded by them. Many of these trading hubs and exchanges currently lack a logistics platform that is necessary once the order flow is processed. This logistics back-end platform is integral to any exchange, linking suppliers and buyers, as well as their respective logistics providers to retrieve information about the order picture, forecasts, delivery dates, shipment tracking, and other data necessary for planning their logistics delivery. A logistics hub would allow buyers, sellers, distributors, and transportation providers to tap into one central source, pull data from ERP systems, and receive order-tracking alerts and notification of potential problems.

Emergence of eLogistics

The Internet is changing the traditional channel through which buyers and sellers communicate. It has substantially changed manufacturing flow and distribution patterns, profoundly impacting the logistics service marketplace. Increasingly systems and services will be positioned as Internet-centric in order to optimise the availability and “distribution” of the highly complex “information” that drives the growth and development of the logistics BPO world.

Companies that fully embrace such “eLogistics” opportunities are expected to achieve substantial competitive advantages over non-IT-savvy players. eLogistics will bring traditional logistics providers opportunities as well as challenges. We have recently seen new players such as Electron Economy (now acquired by SynQuest, which subsequently merged with Viewlocity) gained an early advantage in their ability to leverage their IT capabilities to compete in the eLogistics marketplace.

Traditional logistics service providers need to catch up to retool their legacy systems quickly to meet the requirements that e-commerce firms require. 3PLs have traditionally moved products in bulk, from the factory to the warehouse to the retail outlet. In the B2B / B2C e-commerce space, this is not the case. There is a need for “back-end operations” such as order fulfilment, reverse logistics, etc. To stay in the race in the complex ecommerce logistics marketplace, 3PLs will need to focus their efforts on providing the back-end operations, demonstrate that they can provide “e-fulfilment” and the ability of react in “internet speed” — otherwise, they will not be viable as future Internet players.

Motorola builds a supply chain control "tower"

In order to reduce its supply chain costs and achieve full supply chain visibility, thereby giving it an edge over its competitors, Motorola is pioneering the concept akin to the airport control tower, it is called a supply chain control tower. Just like an airport control tower, Motorola's control tower will enable it to marshall its resources to enable efficient order landings and delivery take-offs. If Motorola manages to execute this well, its command and control ability over its entire value chain is going to power its rise once again as an electronic giant.

Logistics Trends - Outsourcing of Logistics / Supply Chain Functions.

Today, it is an accepted fact that the majority of Original Equipment Manufacturers (OEMs) are enlisting the help of outside companies, usually to a third-party logistics provider (3PL) to manage their supply chain, returns, repairs, and other logistics functions. These companies want to focus on their core competencies and many lack, or choose not to put up, the resources or capital necessary to invest in comprehensive logistics expertise. Hence, we see over the last decade, the rise of 3PLs. Revenue from 3PL companies totalled $45.4 billion in 1999 and is expected to grow 15 percent to 20 percent in 2000. With outsourcing comes the next wave in logistics practice, Logistics Business Process Outsourcing or Logistics BPO.

Logistics business process outsourcing (BPO), although an outcome of the traditional outsourcing of logistics, is a relatively new development. Logistics BPO is an IT-enhanced and integrated outsourcing function that stretches from the vendor to the end customer. This set of activities comprises much more than delivery- and warehousing-related functional activities. Logistics BPO goes beyond merely the physical flow of the products to encompass the process and information necessary to optimise a customer’s logistics activities. What drives the growth of the logistics BPO industry will be the effective integrating and bundling of traditional third-party logistics services with today’s internet-based information technology-based solutions

Lawson and Intentia have merged

In April 2006, Lawson Software and Intentia merged to form the new Lawson. This merged entity now delivers enterprise applications in 20 languages to more than 4,000 customers in more than 40 countries. Lawson applications support global processes, from order to cash, demand to distribution, or forecasting to financials.

With this merger, the new Lawson now specialize sin service industries, healthcare, manufacturing, and distribution. Their cross-industry applications provide business intelligence, manage human resources, and maintain assets. All their products are designed to help streamline processes and operations. The new Lawson intends to be an international player in the ERP space, however, their supply chain capabilities have also be enhanced with the integration of Intentia's applications.

Bridging the Chinese Supply Gap

This article is interesting as it highlights the fact that many indegenious Chinese companies are today trying their very best to improve their supply chain capabilities in order to extend their marketing into the value chain of the international manufacturers.

And by all accounts, I think their initiatives are paying off. Many of these Chinese enterprises are serious about improving their overall quality and capabilities. As these improvements take place, there will be many opportunities for supply chain management (SCM) vendors to be part of these sweeping changes.

Adaptive Supply Networks

Over the last decade, increased outsourcing and alliance building have made it harder for manufacturers to spot brewing supply chain glitches.

The result? When unexpected supply chain events arise, manufacturers and their logistics service providers (LSPs) switch to firefighting -- a defensive mindset that carries a hefty price, which often leads to more damaging outcomes. Technologies are emerging which will soon enable manufacturers to sense and respond proactively to unanticipated variations in supply and demand -- and transform their static supply chains into what Forrester and some in the industry calls "adaptive supply networks."

Adaptive supply networks are business networks of supply chain partners that use technology to sense and respond in a coordinated fashion to changes in their environment. Supply Chain Event Management (SCEM) refers to the effective management of these changes or events in the supply chains. These supply networks will boast self-regulating capabilities akin to today's energy and telecom transmission networks. Within this context of adaptive supply networks, it becomes vital to understand fully the following logistics trends.

Oracle to Acquire Demantra

Oracle did it again. Lately it has gone into an acquisition frenzy and its latest score is Demantra (remember, not dementia). Demantra provides Demand-Driven Planning solutions that enable marketing, sales, and supply chain departments to create and execute to a one–number plan. The Demantra Spectrum Suite includes solutions for Trade Promotion Management & Optimization, Real-Time Sales & Operations Planning, Demand Management, and Retail Planning & Store Replenishment. These solutions manage the rapid creation, planning, and fulfillment of demand from promotion management to inventory replenishment, resulting in improved demand visibility, more profitable promotions, optimized service levels, increased customer responsiveness, lower operational costs, and increased sales and profits.

The acquisition is expected to not only help Oracle expand its supply-chain applications business, but also to help it focus more intently on particular industries, in this case the retail and grocery industry. Demantra recently landed customer C&S Wholesale Grocers, the second largest wholesale grocer in the U.S. It also counts as customers McCain Foods, Korbel and Welch's.

This acquisition dovetails nicely with its purchase of Retek last year in Mar 2005, which Oracle fought hard with SAP for. Together, Retek and Oracle will accelerate and deliver innovative solutions that streamline and integrate all aspects of retail businesses. The combined offering will provide a comprehensive, complete solution that includes back-office functionality for finance and human resources and extends throughout planning, merchandising, the supply chain, and multiple retail channels.

Bridging SCP and SCE

Companies have made enormous investments in supply chain systems, yet the ultimate goal remains elusive. Most businesses today do not operate high velocity supply chains and are not able to respond to supply chain changes as quickly and efficiently as should be possible. And speed is only part of the challenge. Many businesses outsource some production and fulfilment activities, adding complexity and reducing day-to-day control and visibility.

Most problematic, today’s SCM suites have strong tools for strategy, planning and execution, but inadequate tools for real-time management of supply chain operations. A gap between traditional supply chain planning (SCP) solutions and supply chain execution (SCE) applications is preventing businesses from attaining a high level of production visibility and supply chain responsiveness. This gap is slowly narrowing as a new software segment emerges. Supply Chain Operations (SCO), as we call this nascent market, bridges the gap between planning and execution, proactively managing the operational phase of the supply chain. This software automates responses and recommendations based on daily changes that impact the supply chain. Supply Chain Operations applications keep the business rolling while guiding activities to avoid inefficiencies and problems. In achieving this aim, three main areas in SCO become important focus; they are Supply Chain Collaboration, Supply Chain Visibility, and Supply Chain Event Management.

There are currently no public companies that cater primarily to SCO, as this is a nascent, but rapidly growing market. For this reason, potential customers will need to broaden their horizons in terms of evaluating currently available offerings.

Acceleration in SCE Market

Another segment of the SCM market, supply chain execution (SCE), has shown remarkable stability in an overall weak software market. Supply chain execution is a broad term referring to the framework for managing the flow of materials. Most commonly, it brings to mind the management of outbound distribution of finished goods – so-called outbound logistics. It is important to note, however, that logistics also involve management of receiving functions (in-bound logistics) and optimisation of warehouse activities (warehouse management). Ibelieve that SCE will be one of the fastest growing segments in supply chain management over the next several years, with Atlanta-based vendor Manhattan Associates and India-based vendor Four Soft Ltd being the key beneficiaries.