CHICAGO -- For most industries, being able to efficiently move products through the supply chain is a lifeline.The push toward Internet commerce, however, has thrown logistics managers some curves and has left them struggling to adapt "old economy" practices to "new economy" requirements, according to logistics experts speaking here last week at the Institute for International Research forum.
In the emerging online business-to-business world, traditional order-, warehousing-, and logistics-management systems are unable to fulfill the increasing demand for products and services via the Web. This makes executing delivery problematic, the experts said.
Solutions vary: revamping logistics platforms, outsourcing to third-party logistics providers, and, perhaps more important, getting logistics professionals more involved in the front-end supply-chain planning process.
"Logistics is critical to the success of e-commerce," said Thomas K. Ryan, practice leader for enterprise application integration at eSYNC International, a logistics consulting firm in Chicago. "Everyone's moving so quickly to make sure they're able to collect orders online that they aren't asking whether they can or should take the order or if they have the logistics in place to fulfill the order."
Although the electronics industry is still trying to understand the full breadth of Internet commerce and how Web-based supply-chain capabilities will change the way they manage partners and direct materials procurement, the painful lessons learned by others are worth taking to heart and avoiding, executives noted.
Witness the troubles of Toys 'R' Us, whose logistics system broke down during the Christmas shopping season last year because the company couldn't handle the onslaught of customers looking to buy via its Web site. The toy retailer's online order-management tools weren't coordinated with the systems and people overseeing the movement of products through the supply chain, observers said.
"When Toys 'R' Us opened their business to the Net, ... the classic bricks-and-mortar company had to deal with a new distribution channel," Ryan said. "They weren't set up to cope with the kind of volume they were getting from the Internet."
High-tech companies are concerned daily with on-time delivery, time-to-market, system integration, internal and external supply-chain collaboration, and forecast inaccuracy. For some, the logistics associated with e-business is an extension of strategies already in place.
At Avnet Inc.'s Integrated Materials Services unit, investments were made years ago to ensure that the back-end systems could handle incoming orders, regardless of how they were taken, said Greg Frazier, president of Avnet IMS
"Whether an order comes in over the phone, from EDI, or from the Internet, our system is set up to handle that," he said.
Although some companies have proactively addressed the back-end issues associated with order fulfillment, many are still laying the groundwork for their e-business game plan.
Anything clouding visibility into supply or demand information can disable a manufacturing line or, worse, make the OEM miss a deadline in bringing a product to market.
That's why it's important to consider how the logistics functions will work at the same time a company is developing its e-commerce strategy, observers said.
Determining how robust the existing logistics platform is and what revisions need to be made are critical. Although orders may be initiated via a Web site, much of that data must be manually input into other supply-chain management, planning, warehouse-management, and logistics systems, said Burton Davis, director of e-business at software provider Oracle Corp., Redwood Shores, Calif.
In the Internet economy, the logistics platform will have to address content management, application development, cross-function integration, business intelligence, and mobile Internet access.
Companies will need to set up a platform that enables suppliers and customers to retrieve information about the demand picture, forecasts, delivery dates, shipment tracking, and other data necessary for planning their business suggestions.
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, Ryan said.
"Virtual hubs are going to be about improving the logistics functions," he said. "It's a place where data is aggregated."
It's important to develop systems that can handle increases in orders, offer product-availability information, and be managed in a Web environment, according to observers. Disparate systems need to be integrated, they said.
Logistics systems must work in tandem with platforms being used for customer-service management, inventory and warehouse management, manufacturing planning, and business analysis, said Arnaud J. Wilson, vice president of business development at UPS e-Logistics, Atlanta.
Once those systems are in place, logistics managers will want to pull down more detailed data, Davis said.
But, accessing that information through a PC in the office is no longer sufficient. Internal supply-chain managers, customers, and suppliers will want that information to be fed into pagers, cell phones, PDAs, and other wireless devices in real time, Davis said.
This level of logistics will likely involve software implementations to bridge the functions together, others said.
However, there are a few additional rules of thumb to follow on that front, considering the vast number of tools available.
In days past, many companies relied on their ERPs to handle all functions and integrate different internal operations. When they realized that wasn't working, they adjusted their business models to fit the technology.
"Don't sacrifice your business to fit a solution," eSYNC's Ryan said. "If you want to optimize your business, you have to define your strategy and then find an application that fits your business."
But companies shouldn't plunge into technology cure-alls, according to Roger W. Lowther, vice president of transportation services at USCO Logistics, a logistics provider in Palo Alto, Calif.
Another alternative is farming out logistics functions to third-party logistics (3PL) providers. Many companies have done so because they don't consider logistics a core competency.
Revenue from 3PL companies totaled $45.4 billion in 1999 and is expected to grow 15% to 20% this year, said C. John Langley, a logistics professor at the University of Tennessee.
The 3PL phenomenon is not new to the computer industry, with 82% of OEMs enlisting the help of outside logistics companies to manage returns, repairs, and other functions, according to Langley.
The idea is also gaining popularity with those involved on the inbound supply-chain side of the equation. For instance, companies such as network maker Cisco Systems, passive-component manufacturer BCcomponents, and chip vendors National Semiconductor and V3 Semiconductor have signed outsourcing contracts that will enable them to dedicate more resources to developing products and technology.
"Companies want to focus on their core competencies," Langley said. "The growth of the supply chain as a business practice means putting more focus on the needs of the customer," and many companies lack, or choose not to put up, the resources or capital necessary to invest in comprehensive logistics expertise.
The idea of drop-shipping packages directly to the end user is also appealing to companies looking to streamline the delivery process, said Bob Moncrieff, a director in the Mountain View, Calif., office of management consulting firm Pittiglio Rabin Todd & McGrath. And, as more companies post inventory, shipment tracking, and product-availability information on the Web, the drop-ship process gets easier because the necessary data is easy to find and access, he said.
The corporate mind-set is difficult to change, Lowther said. "Logistics managers in today's marketplace are looking for a crystal ball to answer how they should manage the changes. The problem is that transportation and logistics is seen as something that happens in the back end of the supply chain. That has to change," he said.
"If the logistics manager is not involved with the procurement, marketing, and financial departments on the front end of product development, all the planning in the world won't mean anything."