Technology coupled with better planning and processes can help companies streamline and improve order fulfillment, but a truly “frictionless” environment remains an elusive, if worthy, goal.
Fulfillment is a complex set of processes. It can include any or all of the following: accepting an order, with all necessary credit checks and availability verifications; disbursing the order to appropriate suppliers; picking and packing the order; assembling components in production or in transit; shipping; tracking and delivering. Add multiple partners or border crossings to the mix, and the complications only increase.
Given this complexity, achieving true “frictionless” fulfillment, even in a perfect world, would be difficult. In the real world – where customers frequently change their minds, suppliers are out of stock, equipment breaks down and stuff happens – it is next to impossible.
Still, frictionless fulfillment is a goal worth aiming for, say the experts. There are huge savings to be gained by improving and streamlining fulfillment, and most companies can do a lot better than they are doing today. On a scale of 1 to 10, the majority of companies today are at 4 or 5 in terms of their fulfillment operations, says Michael Wohlwend, practice leader at eSync International, a logistics consulting and integration firm. Perhaps 5 percent of companies are at the 9 and 10 levels in at least part of their operations, he says.
Breaking out of the pack requires the right technology and processes. “The technology gap really is a big differentiator,” Wohlwend says, noting that even older frictionless techniques like flow-through distribution and cross-docking both require robust systems support. “The minute an item is received at the inbound dock your system needs to say, is there a demand for this product right now? If yes, kill the other tasks and cross-dock it for immediate shipping; if no, put it away. If your system can’t make that decision in seconds you are not going to be successful.”
Wohlwend estimates that as many as 70 percent of major retailers are today practicing continuous-flow distribution, where orders are pre-sorted by quantity, color and size according to individual store needs before being shipped. Though it varies greatly by industry, some 20 percent to 30 percent of companies in other sectors are doing some cross-docking, he says. This is where incoming goods are moved directly to outbound trailers without being put away in storage. These are Level 6 activities, says Wohlwend. The next big gains come at the top two levels, where companies have integrated their warehouse management system with transportation management, order management and supply-chain event management, and are connected to and collaborating with their key trading partners.
Joe Batteiger, director of marketing at Provia, a supply-chain execution software vendor, says that for many companies a lack of internal integration is a frequent source of friction. “One of the things we still see a lot is software products that have been implemented as spot solutions and are not fully integrated with other parts of the business. So if your warehouse management system (WMS) doesn’t talk to your transportation management system (TMS) or yard management system (YMS), you have a point of friction where you will have duplicate costs and a sub-optimal business process.”
Moreover, adds Provia spokesman John Clark, when related business systems are not integrated, each optimizes in an isolated fashion. “For example, if an order changes, the WMS may optimize a re-do in a certain way, not thinking about how that will affect shipping, but the impact may be significant. By having multiple systems integrated and communicating, you have the ability to look at it with a more holistic approach.”
This issue is magnified when a company moves outside its four walls to connect to trading partners. “Technology, particularly the internet where no one owns anything, suggests that there truly is a frictionless process,” says Pano Anthos, executive vice president and co-founder of ClearCross, a global trade execution software vendor. “But different solutions really weren’t designed to work together and when you have competing interests you end up with competition around standards, around user interfaces, around mind share – and all that competition creates friction.”
The only way to truly eliminate friction is to be completely embedded, he says. “I would argue that unless an application can run without a user interface it can never be frictionless.” That is the route ClearCross is taking with a soon-to-be-announced alliance with a major ERP vendor. “Our content will be accessed through ERP capability so that users will never know they are using our solution at all,” he says.
Others argue that advanced enterprise application interfaces and internet connectivity are making integration less of an issue. There also are new options: companies such as WorldChain have built a business around tying networks together, aggregating data from all participants, putting that data into a business context and making it available through the internet. “The real value is in grabbing data from legacy environments and putting it in a context where networked companies can manage the total system,” says David Allen, WorldChain CEO. “There are two elements involved: you have to have a common data model for all of the partners to work from and you have to have a common set of business processes.”
The “big, huge gaps in intercompany processes,” is where “the real friction of commerce comes in,” asserts Frank Cicio, senior vice president and general manager of Optum Software’s TradeStream product. Process inefficiencies probably contribute to between 25 percent and 50 percent of product cost and lead to an even greater expense in obsolete inventory, he says. “If inventory sits around for longer than X amount of time, X being an optimized number, then it is obsolete.” This doesn’t mean that the products are old, Cicio explains, but that they are tying up capital in an unproductive way. A Morgan Stanley Dean Witter report estimates that obsolescence accounts for 40 percent of inventory carrying costs, or about $800bn annually, he says.
As an example of process incompatibility, Cicio notes that each company in a supply network typically identifies the same inventory in different ways, with their own SKU description and order numbers. In developing TradeStream, Cicio says, “We basically saw a need to connect the dots between the companies to get rid of this friction.”
The key to achieving this goal was real-time, industrial strength visibility, he says. “We’re not talking about just shipment visibility, but everything that is going on with regards to an order, whether in the warehouse, on the factory floor, in transit, or whatever – to have a baseline repository with all that data.” The second step was to have a relational database that cross-indexes orders by all its names and numbers, so that it can be traced and monitored by any reference. “If that order passes through 10 different companies, each of which calls it something different, to finally get to a client, you could go to company 10, key in the original order number and it could instantly pull up that order and tell you exactly the status.”
Once this visibility is achieved, then it is possible to use a messaging system to alert appropriate people to areas of friction as they develop, so that remedial action can be taken. Perhaps 80 percent of exceptions can be handled automatically by establishing business rules about how to handle them, says Provia’s Batteiger. “The real benefit of notification is that it allows you to fix problems before the customers know they exist.”
“Solving problems before they happen” is the marketing slogan being used by Viewlocity to promote its newly expanded capabilities in this area. Formerly focused only on integration, Viewlocity now is leveraging the 3,200 installations of its integration broker to also provide visibility through data acquisition. What we are doing is linking everyone together so they have visibility and monitoring capability at the same time,” says Mary Haigis, chief marketing officer. “So if you see your suppliers’ supplier is going to be a week late, you can find out how that is going to impact you and take corrective action. That is the way you make a frictionless supply chain.”
“We are only now starting to find out where all the friction points are. It’s like putting on a pair of glasses for the first time.”
Rick Franke of Manhattan Associates
Visibility and connectivity also allow companies to begin to work toward true supply chain synchronization. This is particularly important for companies that make complex products and have complex orders that involve a lot of things coming together, says Chris Jones, executive vice president for marketing at SynQuest, a supply-chain software vendor. “To have things come together in a sequenced fashion you need to be able to understand that one supplier has a three-day lead time and another has a five-day lead time and what the transportation constraints are.” All component shipments may need to be optimized around the slowest part and not the fastest. Without visibility, companies can end up express shipping a component that can’t be used until the slowest part comes in three weeks later.
This type of synchronization is one of the benefits Lucent Technologies is realizing with its use of TradeStream, says Cicio. “Lucent ships against large projects and inventory could be coming in against orders for two to three months and sometimes be sitting there for that long. But now we are synchronizing suppliers so they know when they have to ship. Everybody sees what is happening so if any piece is delayed they know they don’t have to ship tomorrow, maybe they have two weeks, so inventory is not piling up and everyone is working more efficiently.”
Clearly changes are a major and recurring cause of friction in fulfillment processes. They can originate with the customer or result from a problem anywhere along the chain. “We have learned from our customers that more than 60 percent of the transaction volume in fulfilling orders are changes,” says Cicio. “This involves massive amounts of money that companies often are not even aware of.”
As processes are automated to deal with these changes, fulfillment performance improves, resulting in fewer incomplete and delayed orders and more efficient inventory management. For example, says Cicio, if an order to be fulfilled is sent to three different suppliers and one finds that through an error it had promised inventory that it doesn’t have, alerts can automatically be triggered with options for the customer. “Do you want us to ship part of the order now and the rest later? Do you want to source it somewhere else? If so, TradeStream automatically would generate a purchase order or delivery order to that new source.”
Having real-time inventory visibility can eliminate friction in other areas of the fulfillment process as well. Knowing where goods are located across a network of facilities, including at suppliers’ locations, can enable accurate delivery promises to customers.
“It is amazing how many companies are still taking orders for products that have been out of stock for weeks and weeks,” says Tim Zach, marketing director at UPS e-Logistics. “Many companies have the mindset of, ‘let’s just get the order and then we will scramble like heck to try to fulfill it,’ but that opens a huge can of worms.”
Knowing your inventory on a real-time basis is only half the problem, however, Zach says. “The other half is really knowing what your capabilities are in fulfillment, the capability of your distribution center to actually move that product out the door. Many companies fall down on that one as well.”
Visibility and connection to suppliers also is key to efficiently sourcing orders being filled. “The art and science is to work out from where you are going to fulfill an order, because it is no longer assumed that it will always come from the facility nearest the customer,” says Chris Stephenson, vice president of product management at EXE Technologies, the nation’s largest WMS vendor. “Fulfillment of a single order may happen across many different facilities, which means you have to have a unified view of inventory and orders. I think supply network visibility is an absolute essential as we move forward.” EXceed Visibility is the EXE product that provides this functionality.
Being able to allocate orders to the right source is particularly important in a multi-channel environment. “Today orders come not just from stores but from a variety of sources,” says Rick Franke, senior director of consulting at software vendor Manhattan Associates. “You have to know real-time which SKUs are in what facility so you can route orders to the appropriate DC or to a manufacturer for a drop ship.”
Manhattan achieves this visibility with its new InfoLink product. Every movement of inventory or change in an order results in a transaction, automatically sending an XML message to update the master system. “With these technologies that are coming along now, you really get a global view,” says Franke. “We are only now starting to find out where all the friction points are. It’s like putting on a pair of glasses for the first time.”
One area where Franke sees an information gap causing problems is in the receiving process. “The industry is not doing a good job today of providing customers with appropriate information to automate receiving,” he says. Suppliers send advance ship notices (ASNs), but often customers don’t have trailer-level ASN information. “A trailer may show up from a consolidation or pool point and it may have 15 different purchase orders on it with over 15 different ASNs from the customer’s perspective.”
This can dramatically impact speed of fulfillment, says Franke, offering an example from Sports Authority, one of Manhattan’s customers. “When Sports Authority receives a trailerload of shoes from Nike on one purchase order, which is equal to one ASN, those goods can be moved through its facility in less than 24 hours and be out to its stores. But a smaller vendor, say a fishing tackle vendor, may only ship several boxes of fish hooks. These may come in on a trailer that has 10 to 15 ASNs and it can take upwards of 48 to 72 hours to distribute those goods. If you could provide visibility into that trailer with multiple shipments so that it was preceded by a single, detailed ASN, you could most likely shave a day or two off your cycle time to your stores.”
Cross-border Friction
This information gap is a source of friction at borders as well, he says. “When several orders come in on one trailer that has to go through Customs, someone still needs to manually go through and sort the different shipments out by customer, by ship-to, by ship-via and so on,” he says. This is why many companies are looking to third-party logistics providers to manage the loading of trailers in China, Hong Kong, Singapore and other offshore locations. “If you know that these 6,500 cartons are all in container XYZ, when that container shows up in Long Beach you might be able to send it straight to Memphis as opposed to being opened and forwarded there.”
There are countless additional opportunities for friction in international commerce, many of which can be mitigated with international trade logistics software. The foundation of these solutions is global regulatory content. “Once you have a trade data base in place you can start sourcing global goods more efficiently because you are able to see all the rules and regulations, tariffs and duties and preferential programs that apply,” says Greg Stock, vice president of marketing at Vastera, a software and content developer. In addition, these solutions automate many of the processes and most of the paperwork essential to getting shipments across borders without delay. “We are absolutely helping companies move their goods globally in a more frictionless way, but people are just beginning to realize that our tools are out there and the value they bring,” says Stock. “Most companies still see us as a ‘nice to have,’ not as a ‘must have.'”
Another perennial source of friction is product returns. “A lot of companies don’t want to think about returns, but they are going to happen,” says Zach of UPS e-Logistics. “If you don’t have a good process in place to handle them, returns can kill a company faster than anything. Many companies can have days’ and days’ worth of inventory in the reverse channel, tying up lots of capital. We emphasize to companies the need to accelerate the cash-to-cash cycle and reverse logistics is one obvious area where we can help them do this.”
In addition to electronically processing Return Merchandise Authorizations (RMAs), e-Logistics sometimes directs clients to Returns on the Web, a service offered by its parent company United Parcel Service. At this web site, customers can submit return authorization forms complete with reason codes and print-out returns label. “This gives the company visibility to the fact that a return is coming, and why,” says Zach. The reason for the return may also determine where the item is sent. If the item is to be restocked it likely will go back to the originating DC, but if it is under warranty and needs refurbishment it may go back to the OEM. “The power to determine where a return is sent really plays right into accelerating the cash-to-cash cycle,” says Zach. “Companies have known for a long time that they weren’t good at handling returns, but they are only now realizing how much capital it represents.”
As important as they are, technology and processes are not the whole story. Brian Hudock, senior principal at Tompkins Associates, a consulting and integration firm, says the most important thing a company can do to improve the flow of goods “is to understand where its business is going in the next couple of years, what kind of articles are going to be picked, and what kind of customers will be receiving its shipments.”
Planning ahead is crucial to smooth warehouse operations, Hudock says, because most facilities are designed to handle a certain size and weight range of products. “It is relatively easy to have a frictionless environment if you have pretty consistent order flows and a nice, uniform-sized product that can be automated consistently throughout the operation. What generally happens, though, is that most product lines change periodically, so no matter what type of wonderful automation you put in, it might not work if your product profile changes too much.”
This also applies to changes in storage or picking methods, he says. If you are moving from pallets and case picking to picking eaches for e-commerce orders, you probably need to redesign your floor space and work flows.
Wohlwend reiterates this point, adding that companies need to ensure that sales representatives understand the impact that new business will have on fulfillment operations. “We worked with a company where a sales rep allowed a good customer to apply the price break he was receiving for ordering a pallet to a pallet quantity, or 120 cases, even though he now was breaking up that order among six different SKUs. So your order processing time just increased by a factor of six, your cost per order just increased by six and yet the guy was getting the same price, and the company wanted to know why its operating costs were up 25 percent. Too many companies take new business without understanding the impact on their operations.”
