DistributionBusiness

JournalManagement

Spring 2002 Vol. 2 No. 2 Price: $5.00

Special Focus onthe IT Industry

An Internet Portalfor the Selectionof WarehouseManagementSystems

WoF2001 Highlights

Circle ofExcellenceAward Winner

Information Technology andthe Logistics Triad

Evolution of E-businessSupply ChainProviders

The Case for Integrated SupplyChainManagement

FPOScan fr om Matc hprint

Circle Number 48

FPOPick-up fr om film

Circle Number 49

Circle Number 50

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4 Staff

5 Editorial

7 Publisher’s Letter

9 Industry Roundup

10 An Internet Portal forthe Selection of Warehouse Management SystemsAn Internet-based system in Europe helpsusers pick both the right system and vendor.

16 Dynamic Logistics Planning Systems Streamline Military andIndustry PerformanceA new logistics modelbrings Defense Dept.and industry into the 21st century.

21 Information Technology and the Logistics TriadTransactional, relational,and portal processes arecompared for quality and cost.

24 The Case for Integrated SupplyChain ManagementClosing the gapbetween front-end sales and back-endfulfillment.

28 WoF 2001 HighlightsCombining learning and know-how to help professionals succeed.

31 Reader Service Card

32 Logistics in ChinaFocus on logistics and supply chain management helps spur China’s economic growth.

35 Evolution of E-businessSupply Chain ProvidersA total service provider model may help satisfye-business needs.

38 Spotlight on Educationand ResearchGermany’s Fraunhofer Institute is highlighted in this issue’s report.

40 The Challenge of a Fulfillment Start-Up inLess Than 90 DaysSuccess for this e-tailer depended on understanding how E-Commerce is different.

43 Advertisers Index

44 “e-Transformation”–Technology Strategiesfor Logistics OperationsMoving from brick-and-mortar business to e-Business involves far more than just having a company website.

47 Calendar of Events

48 2001 Circle of Excellence WinnerCoors’ environment and product quality goals are shared with supply chain partners.

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DistributionBusiness

JournalManagement

DistributionBusinessManagementJournalAmy Z. ThornPublisher

Ray KulwiecExecutive Editor

John T. ThornDirector of Business Development

Ron MalecArt Director / Graphic Design

Susanne MunfordProofreader

Editorial Advisory Board

Dr. Michael Crum, Iowa State University

Dr. O. Keith Helferich, Central Michigan University

Dr. Jezdimir Knezevic, MIRCE Akademy, U.K.

Detlef Spee, Fraunhofer Institute, University of Dortmund,Germany

Published quarterly by:

Distribution BusinessManagement Association

2938 Columbia Ave., Suite 1102Lancaster, PA 17603Phone: 717-295-0033Fax: 717-299-2154e-mail: dbminfo@dbm-assoc.comwww.DCenter.com

Distribution Business Management JournalA DBM Publication2938 Columbia Avenue, Suite 1102Lancaster, PA 17603Internet: http://www.DCenter.comJournal Reprints: 717-295-0033

Distribution Business Management Journal (ISSN 1535-1254) is published quarterly by DBM, Inc., 2938Columbia Avenue, Suite 1102, Lancaster, PA 17603,phone 717-295-0033, fax, 717-299-2154, internethttp://www.DCenter.com. Periodicals postage paid atLancaster, PA and at additional mailing offices.Postmaster send address changes to DBM Journal,2938 Columbia Avenue, Suite 1102, Lancaster, PA17603. Subscriptions in the U.S. $20.00 for one year,$35.00 for two years, single copies $5.00. Subscriptionsin Canada $25.00 for one year, $45.00 for two years, sin-gle copies $7.00. Outside the U.S. and Canada, $30.00for one year, $55.00 for two years. International singlecopy $9.00. Send remittance in advance to DBM, 2938Columbia Avenue, Suite 1102, Lancaster, PA 17603.

Printed in the USA copyright©2001 by DBM, Inc.

No part of this publication may be reproduced or trans-mitted by any means without permission from the pub-lisher. Permission to photocopy for internet use or theinternal use of specific clients is granted by DBM Inc.for libraries and other users registered with theCopyright Clearance Center, CCC provided that a basefee of $1.25 per copy of the article plus 60 cents perpage is paid directly to CCC, 222 Rosewood Dr.,Danvers, MA 01923

DBMJ

* System selection* System implementation* Information technology

and the logistics triad* Technology strategies

for logistics operations

This special-focus sectionincludes coverage of anInternet-based system forselecting WarehouseManagement Systems(WMS). Developed at theFraunhofer Institute inGermany, the programpermits users to definetheir needs and select suit-able vendors accordingly.Once the vendor and sys-tem are selected, the chal-lenge becomes successfulimplementation. The impact of informa-

tion technology uponbuyer, seller, and 3PL rela-tionships is examined in a

special academic analysison IT and the logisticstriad. Models analyzedinclude transactional, rela-tional, and portalapproaches, with a specialfocus on how IT createsefficiencies withinbuyer/seller environments.Finally, a special reportanalyzes the role of infor-mation technologies in thetransformation of businessfrom brick-and-mortar toe-Business modes.The special focus on

information technologiesin this issue is designed tohelp decision-makinglogistics professionalsmap out their technologystrategies for achievinglogistics and supply-chainsuccess in an increasinglyglobal business environ-ment.

Special Focus onInformationTechnologies

In This Issue:

DBMJ

The Internet will help usbounce back

The terrorist attacks of September 11resulted in the tragic loss of thousandsof lives. Any other consequences paleby comparison. However, they do exist.One, for example, was the threat to ourdistribution system, as reflected in short-ages of air freight service experiencedshortly after the attacks. Many logisticsproviders rose to the occasion, andturned to expanded ground service inorder to keep goods flowing throughsupply chains. It was typical ofAmericans pulling together to face up toand overcome a crisis.

A key to logistics success today is effi-cient information transfer. Better com-munication among supply chain partnerscan dramatically cut the time goodshave to be stored, staged, handled, andmoved. Now is the time, as the nation’sinfrastructure is being tested, to finallyget on the bandwagon and get real withcollaboration, sharing, and all the othere-commerce concepts. Although theseconcepts have become well known, inreality they are still not being put intobroad practice. Information—deliveredaccurately across the Internet—will helpus bounce back and meet the existinglogistics challenges. But we must takethe steps needed to make it happen. InPresident Bush’s words, “Let’s roll!”

Let’s take a look at what has alreadybeen accomplished with the Internet.With the collapse of a number of dot-coms, and flaws surfacing in the “NewEconomy” model, it isn’t surprising tohear some skepticism about how muchthings have really changed. That skepti-cism may even include the catchphrase, “The Internet changes every-thing!” But as the dust settles, the dot-

com survivors regroup, and old-econo-my companies charge into the neweconomy, I think it is still true. Yes, theInternet does change everything.

A good example of the change is pro-vided by contributing author Tom Freesein his article in this issue, “The challengeof a fulfillment start-up in less than nine-ty days.” Dot-coms and brick and mor-tars alike should pay heed to the differ-ence Tom points out between e-fulfill-ment and traditional warehousing fulfill-ment. In the light of recent e-fulfillmentproblems, many industry observers havesuggested that the remedy is a return tothe basics of traditional warehousing ful-fillment, a discipline that some e-tailersfailed to develop. In their haste to gen-erate business from their websites, ithas been said, many dot-coms over-looked the need for a strong back endhaving solid warehousing fulfillmentcapabilties.

No argument so far. Better warehous-ing would certainly have helped mini-mize some of those e-commerce prob-lems. However, the needs of e-fulfill-ment go beyond the traditional ones.Freese points that out by comparing atraditional standby, catalog fulfillment,with e-fulfillment. Although the basicprinciples are similar, Tom notes thatthere is one huge difference. Catalogcompanies know who they have con-tacted, and can pretty well project whatis going to sell. On the Internet, that’sall changed, because the sales messageis open to all comers. You don’t knowthe customers, and you don’t knowwhat the sales volume will be from oneday to the next. And yet you have toreact with lightning Internet speed.

Another way the Internet is changingeverything is in the trend towards global-ization of logistics activities. Informationtechnology, especially that of theInternet, is making integration of interna-tional logistics processes more of a reali-ty than ever before. And this integrationencompasses developing nations aswell as the highly industrialized ones.

This point was made during a specialsession at the Warehouse of the Future2001 Conference by Mr. Zhang Jian Wei,executive director of the Chinese tradegroup Sinotrans. Mr. Zhang pointed outthat multinational corporations set up inChina are integrating their global supplychains, and as a result global integratedlogistics and supply chain managementare being extended to China. This coun-try has much catching up to do in termsof its logistics capabilities. And it is

Letter From the Editor

moving ahead with strong governmentsupport to modernize its physical infra-structure to meet logistics needs. But itis the information technology infrastruc-ture, especially in relation to the Internet,that will propel China faster into theinternational logistics community.

The Internet does not in itself fosterenvironmental responsibility. But it canprovide the mechanism for improvedreverse logistics and recycling through-out the supply chain by enhancing com-munication among trading partners. Thedays of the throw-away society are num-bered, as both government regulationsand corporate environmental awarenessspur ever more effective reverse logis-tics processes. Obviously theseprocesses are far broader in scope thanjust the handling of returns, and take inrecycling and reuse of diverse productand packaging materials.

A case in point is the work being doneby Coors Brewing Company. As thecompany responsible for introducing thealuminum beverage can and aluminumcan recycling in the U.S. in 1959, Coorshas a history of environmental responsi-bility that continues to this day, andincludes its supply chain partners. Forthe future, Coors plans to rely heavily onweb-based, instantaneous informationand communication, as it continues itsbusiness and environmental successstory. You can read the details in thearticle, “Circle of Excellence 2001Winner”, appearing in this issue.

Finally, the Internet can help improvelogistics information transfer for the mili-tary, as pointed out in Keith Helferich’sarticle on dynamic logistics planning sys-tems. Many of the benefits of theseadvanced systems can also be enjoyedby companies in the private sector.

I think that as you read the articles inthe pages that follow, you are likely toagree that, from e-fulfillment to global-ization to reverse logistics, the Internetdoes indeed change everything. Andnow we can harness its power to helpus recover from the tragedy ofSeptember, conduct our business affairsmore intelligently and efficiently, andreduce the load on our distribution sys-tem and our logistics infrastructure.

Ray KulwiecExecutive Editor

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As we move into the year 2002,we are a changed nation. On apersonal note each of us willremember where we were on 9-11-01. As professionals we roseto the occasion and perseveredby keeping the flow of productsmoving through the supply chain.However, as each month haspassed, we become aware ofnew risks and have been forcedto take a hard look at the securityof our supply chain as well as ofour nation.

The Distribution BusinessManagement Association, DBM,has taken bold steps to addressthese vital issues. The first stepwas to establish a ReliefLogistics Team that assistedFEMA and the Salvation Army atground zero in New York. ManyAmerican manufacturers andlogistics providers answered thecall initiated by the DBMAssociation to volunteer theirtime and services to help stream-line the “relief” supply chain inorder to help the rescue workersand victims of 911.

The second step was to createa dedicated GovernmentLogistics and Security track inthe annual conference being heldat WoF2002 in hall C of the

Orange County ConventionCenter, Orlando, Florida fromJune 24 - 26, 2002.

The DBM Association is creat-ing a special program designedto assist the government in thearea of logistics. We are creat-ing an educational program thatwill assist the government in pro-tecting against; responding to;and recovering from; terroristattacks affecting the U.S. supplychain.

The new government logisticsand security track will premier atthe 2002 event. It has beendesigned for both governmentagencies and private entities tolearn “Rapid ResponseLogistics.” Attendees at the con-ference track will learn how toensure the rapid restoration oftransportation and distributionsystems and other critical infra-structure elements after disrup-tion by an unforseen threat orattack on the supply chain.

For the past ten years, thenation’s leading universities haveworked through the Distribution,Business ManagementAssociation to produce ournational conference on currenttrends and technologies in logis-tics. DBM is the nation’s leadingnot-for-profit logistics educationalassociation, and our 2001 nation-al conference attracted morethan 3,000 top logistics and tech-nology executives. In the past,such notable executives as Mr.James Kelly, Chairman/CEO ofUPS and Mr. Michael Wickham,Chairman/CEO of RoadwayExpress, Inc., have participatedin our keynote sessions.

This year the Honorable DianeMorales and General Proctor willpresent their vision, objectivesand expectations for DOD logis-tics. Their presentation willinclude thoughts on total assetvisibility, ERP, and end-to-end dis-tribution. These initiatives areimperative in any major logistics

undertaking, and will be of greatinterest to business and govern-ment executives. In addition, wewill have participation from theMilitary Departments, the JointChiefs of Staff, and the DefenseAgencies.

As the nation enters 2002, boththe country and the DBM Boardof Directors recognize the needto address the importance oflogistics within the Departmentof Defense. As a result ofSeptember 11th, defense logis-tics is center stage for the 2002National Conference in Orlando,Florida from June 24-26.

The 2002 National Conferencewill be an outstanding vehicle fordistribution & logistic profession-als and other senior leaders with-in DOD to share in the latesttechnological breakthroughs inlogistics and to network withother executives.

I hope you find this issue of theJournal helpful in navigating thelogistics of the uncharted roadahead. Join us at the annualconference in Orlando Floridafrom June 24 - 26th as we cometogether as professionals to learnhow to implement rapidresponse logistics in order toprotect and streamline our owndistribution channels and thushelp ensure the security of ournation’s supply chain.

Amy Thorn,Publisher

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Letter From the Publisher

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9

Industry Roundup

A review of trends anddevelopments in 2002up until press time

Manufacturing hoping forrebound

The decline in manufacturing activ-ity was not as great as anticipatedlast December, bolstering hopesthat a recovery may be in the mak-ing in that sector. The index ofmanufacturing activity monitored bythe Institute for SupplyManagement (formerly NationalAssociation of PurchasingManagers) suggested that the con-traction cycle is nearly over, and thebeginnings of expansion can beexpected reasonably soon. Prior tothe September 11 attacks, NationalAssociation of Manufacturers(NAM) president Jerry Jasinowskihad observed that the FederalReserve’s recent reductions in inter-est rates would help fuel consumerspending, as would the tax cut.Furthermore, inventory accumula-tions caused by the slowdown lastyear were expected to be workedoff by year end. The unfolding ofevents globally will show how closethose expectations will come tobeing realized. Another positivenote was that worker productivityrose in the third quarter of 2001 bya 2.7% rate, as reported by the U.S.Labor Department.

Supply chains--a switchfrom "push" to "pull"

Supply chains of the Internet eraare based on "demand pull" ratherthan "supply push", according toArindam (Andy) De, of i2Technologies. De made his obser-vations at the Warehouse of theFuture 2001 Conference this pastJune. He noted that customerdemand has replaced supply asthe primary driver of value chains.Thus, customers are no longerinterested in just buying physicalproducts. The product is an artifactaround which customers demandexperiences, De said. End-to-endfulfillment is about moving the cus-tomer's demand signal all the way

upstream and providing visibilityinto the supplier's inventory andcapabilities downstream. Thisapproach enables supply-chainpartners to work together from thesame demand signal, coordinateappropriate inputs, and collabora-tively satisfy the customer's need,based on an accurate orderpromise. Such a process involvesa fundamental shift from the tradi-tional "supply push" model to a"demand pull" model

Strategic planning a must Many of today's executives have

survived double-digit businessgrowth and have met the chal-lenges of satisfying frequentlychanging market demands.However, notes Richard W. Pierce,Senior Project Manager, SedlakManagement Consultants, thesame executives are often uncom-fortable with the strategic planningprocess. They doubt the value ofa multi-year planning exercise thatcan produce results that becomeobsolete before they are even pub-lished.

Nevertheless, Pierce explains,every executive needs to realizethat, no matter how difficult andimprecise the task, a strategic planis not an option in the achievementof long-term business success.The Cleveland-based consultantprovides the following reasons forcreating and maintaining a plan:•Stockholders insist on knowing

where the company is headed.•Outside investors must see long-range plans before they grant loans of operating or

expansion capital.•Human resource executives need to develop staffing plans.•Buyers need to order the right

materials and products.•Manufacturing needs the

information in order to plan for

increased production.•Distribution must plan storage

and fulfillment capacities to meet customer service needs.Pierce suggests developing three

scenarios for a five-year plan: 1) the most likely growth expecta-tions, 2) worst case minimumexpected growth rate, and 3) allowance for an unexpectedevent such as the addition of asales channel, with its associatedvolume.

“Comfort with strategic planningcomes with accepting that you'renever going to get it exactly right,”Pierce says. But once you candescribe "the most likely outcome,"and can accept the risks of theworst case scenario, you are onroute to minimizing detours alongthe strategic planning highway.

Another acronym: TSPJust as you were getting used to

ASP, 4PL, and other recently mint-ed acronyms, another has comealong: TSP, or total serviceprovider. Speaking at the recentWarehouse of the Future 2001Conference, Dr. Richard Dawe ofGolden Gate University, SanFrancisco, suggested that the TSPis the next logical evolution of e-Business supply chain providers.Dawe said that in theory, TSPscould be formed through portalsthat combine present logisticsproviders, (LSPs), application ser-vice providers (ASPs), consultants,contract manufacturers, andexchanges into e-Business utilities.Will that become the dominantmodel? Dr. Dawe thinks we'llknow in 3 to 5 years. The full arti-cle based on his presentationappears in this issue.

New integration/ development lab opensTompkins Associates recently

hosted the grand opening of itsnew development lab on October25 in Orlando, FL. According tothe firm, it is North America's firstand only fully operational solutionstesting facility. The lab is designedto provide customers with a no-risk environment for testing best-

continued on page 47

DBMJ

WarehouseManagement Systems(WMS) are an impor-

tant component of modern logis-tics systems. No warehouse ordistribution center (DC) can func-tion without them and they canonly be integrated into interna-tional logistic chains if they havesuitable interfaces for integrationinto the worldwide informationnetwork. The need for suitableinterfaces and the requirementsof modern, highly structured dis-tribution centers place highdemands on WarehouseManagement Systems. However,despite the high requirements ofmodern logistics systems, thereare more and more warehousesthat “only” require the basic func-tionality of a WMS. The range ofrequirements are covered by theWMS available on the market. The user who has to select a

WMS for their DC quickly asksthe question: Which WMS is rightfor me? The Fraunhofer Institutfür Materialfluß und Logistik willhelp answer this question andothers with their internationalWMS questionnaire. This ques-tionnaire will provide potentialusers with an overview of theWMS available on the market and a comparative analysis of the systems. The Warehouse Logistics web

site was developed and designedby the WMS team, consisting ofemployees from Fraunhofer IML(D) and IPL Consultants (NL), andcontains a wealth of informationabout warehouse logistics. TheInternet pages are multilingualand designed so that the lan-guage can be changed for eachpage. Currently, the web site isavailable in German and Dutch.An English language option willbe added later this year. It is important to the WMS team

that enterprises, consultants, andresearch institutes around theworld become interested in thenew Internet portal. For this rea-son, the web site has to be multi-lingual. The Internet portal is a

Refereed Article:

An InternetPortal for theSelection ofWarehouseManagementSystemsBy Dipl.-Ing. Detlef SpeeMaterial Handling Systems Department Head, andDipl.-Ing. Olaf FiggenerFraunhofer Institut fuer Materialfluss und LogistikDortmund, Germany

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platform for the exchange ofinformation, experience, andideas. Third parties are able tomake contributions as long as thetopics correspond to the structureof the Internet pages. FraunhoferIML and the IPL consultants stud-ied 60 WMS in Germany, Austria,Switzerland, and the Benelux.These countries represent thelargest share of the Europeanlogistics market. The study will beexpanded to include Englishspeaking countries (Great Britain,USA, Asia) as soon as the website (www.warehouse-logistics.com) is available inEnglish.

How does this WMS studycompare to well-knownmarket studies? •This study is Internet-based and,

in contrast to a book, can beupdated constantly.

•By studying the systems, theWarehouse ManagementSystem experts at IML and IPLwill validate the approximately1000 answers given by the sys-tem manufacturers to the ques-tionnaire.

•The descriptions of the systemswill be entered in a database.This data can be accessed viathe web site.

•Potential users are able to use aselection tool to help themdefine and select a suitable sup-plier.

•The manufacturers have accessto the database and are able toupdate the data at any time(Important: validated functionsare only released to interestedparties after they have beenrevalidated).

•An updated survey will be con-ducted every year, and a valida-tion of new and not yet validat-ed questions will be carried out.

•Interested parties can save arequest profile that they can usefor new database queries.

•The results and the questionprofile are saved as a PDF fileand sent to the interested par-ties. This is done to ensure that

the potential user has good doc-umentation for their project.

•The Warehouse Logistics website provides links to the manu-facturers who participated in thestudy.

•An overview of the participatingmanufacturers is given. Thisincludes: turnover (sales), staffsize, reference projects, sub-sidiaries/offices, etc.The four main groups of ques-

tions in this study are: companyinformation, technical aspects ofthe software that relate to thesystem, the structure of the dataand information, and the func-tions of the system.

Results of the MarketStudyThe current findings of the study

have produced some interestingresults. An overview of the func-tions of the WMS has shown thata survey of the market is neces-sary in order to make a qualifiedselection of a WMS. This overviewincluded functions that have beenrealized in WMS and, in particular,those that have not yet been real-ized. The following section illus-trates some examples of thesefunctions: The majority of warehouse man-

agement systems offer basicfunctions, such as the definition ofa reorder level or dwell time moni-toring. Other functions, such asthe adherence to shared storagebans on dangerous goods, areonly available inabout 16% of thesystems. Systemswith expandedfunctions are theexception ratherthan the norm(Figure 1). One of the basic

functions of man-aging a ware-house is the abilityto block a storagespace or an item.This example illus-trates the impor-tance of defining

the range of function of a WMSpackage: all of the examinedWMS support the basic functions.Several systems can distinguishbetween different types of block-ing in the warehouse: blocking thestorage of goods or the retrievalof goods, or completely blockingthe warehouse. One out of tensystems can only block an entiresection of the warehouse (forexample, blocking aisle 4 in a highbay warehouse for scheduledmaintenance) by blocking the indi-vidual storage spaces in that sec-tion. This process takes too muchtime and effort. The easiest wayto block a section of a warehouseis by using a mouse to select thesection on a graphic image of thewarehouse. There are several reasons why

items need to be blocked orreserved in a warehouse. If anitem is blocked or reserved, itshould not be delivered or takenout of storage until a certain pointin time. For example, the followingreasons will result in an itembeing blocked or reserved:

•The item has been recalled andcannot be delivered. If there is aproduction shortage, it might benecessary to block the item fora special batch or productiondate.

•The item is being inventoried.•The item has not been put

through the necessary qualitycontrol tests.

Figure 1 – The Range of Warehouse Management Functions ofthe Examined Systems

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age space not being used.On the other hand, almost 85%

of the systems were able to blockor reserve a batch. However, only 72% of the sys-

tems support the blocking ofitems that have expired. Less than50% of the systems allow itemsto be blocked or reserved thathave exceeded a specific ware-house dwell time. Nine out of tensystems allow complete stocks to

be reserved, and 75% of the sys-tems allow substocks to bereserved.

The Study as a selection toolThe heart of the portal is the

international market study onWMS. Because the study hasbeen designed for the long term,the WMS team has decided to usethe Internet to publish the results.This move will guarantee world-

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•The item is being discontinued.•The item has expired.•A certain number of items have

to be available to ensure that acustomer can receive subse-quent deliveries. This can beaccomplished by reserving acertain number of goods for aspecific customer.

In order to effectively manageinventory, it has to be easy tounderstand the reason behind ablocking. This means that theWMS should be able to managedifferent blocking labels. Duringthe validation of the WMS, itbecame clear that the systemshandle the functions “blocking”and “reserving” differently, asshown in Figure 2. Incredibly,only 50% of the systems canmanage a blocking label as stor-age space information. As well,the use of a blocking label withmany systems resulted in a stor-

What does the Warehouse Logisticsweb site offer its visitors? The menuitem “WMS Team” provides a profileof the international project team anda brief overview of the servicesoffered by the WMS team. The website also provides contact informationand links to Fraunhofer IML and IPLConsultants. As the name suggests,the menu item “Current News” offersnews from the world of WarehouseManagement.

The menu item “Important Datesand Events” offers updated informa-tion about all events that are relatedto the topic of WMS.

Figure 6: An Overview of theImportant Dates and Eventsin the Field of WMS

Corresponding to the basic principleof the portal, the events and the linksto exhibitions, conventions, andforums are not limited to Germany orthe Netherlands, but include activitiesfrom around the world. The web siteprovides a date, location, and link foreach event. The links allows the userto quickly access the web site of theevent organizer in order to gain moredetailed information.

The menu item “Literature andPublications” offers newspaper arti-cles on the WMS study and informa-tion about technical publications andcurrent presentations. Some of thematerial can be downloaded. Englisharticles and publications will be addedto the site as soon as the English ver-sion of the web site is available.Those interested in making a possiblecontribution to this web site shouldcontact Detlef Spee atspee@iml.fhg.de

One of the main uses of the Internetis to provide information. For this rea-son, the portal contains the menuitem “Links”. The “Links” page con-tains links to the home pages of WMSsuppliers and project groups, such asthe Fraunhofer IML work groupseLogistix or myWMS. These projectsillustrate the current solutions ofDortmund logisticians for meeting thenew requirements on concepts andsoftware. The work group eLogistix (http://www.elogistix.de ) develops

solutions for logisticsthat have been affectedby the expansion of E-Business. The“myWMS” project is anopen source softwareproject. The basic ideabehind myWMS is theuse of standard compo-nents to create a tailor-made system(WarehouseManagement System).The myWMS workgroup provides moredetail on their web sitehttp://www.mywms.net/.

Features of the Website “www.warehouse-logistics.com”

Figure 2. Supported WMS Functions: Blocking Options

FPOPick-up film

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when software is purchased andinstalled. The following criteria arealso important in the decision mak-ing process: - development of the supplier and

its current size- automation of the system- unique selling point of the soft-

ware- project experience and refer-

ences of the supplier- international representation- average costs of the system

This type of information, as longas it is provided by the WMS

supplier, can be called upwith a click of the mouse.

Access to the StudyResultsThe results of the study

can be accessed via thelogon page (menu item“WMS Access”). After youhave faxed in your registra-tion to the WMS team, youwill receive a user nameand password by e-mail. The results of the study

can be accessed by usersfor specific projects usingan economically priced,time limited login; consult-ing companies can havelong-term access thatallows project profiles tobe saved. In the fourth quarter of

2001, the English version of the“Warehouse Logistics” portal isexpected to be available. Then,information about the internationalsuppliers (for example, Interbiz,Computer Associates, EXE, and

ManhattanAssociates) willbe available, andthe data base willbe expanded toinclude WMS sys-tems available inthe US market. Questions or

comments canbe directed to theWMS Team ofFraunhofer IML

and IPL Consultants. The emailaddress is info@warehouse-logis-tics.com.

wide access to the data within avery short period of time. And, thedata can be updated on a continu-al basis, which could not be doneif the results were published in theform of a book or CD ROM.Ability to update data is crucial inthe software market. Strategicdecisions such as the selection ofa WMS have to be made on thebasis of current data, which will bemade available on the WarehouseLogistics portal so that all interest-ed parties can view it interactively.A total of 57 systems suppliers

participated in the initial study . A special questionnaire was usedto determine the performancespectrum of the systems. Thisquestionnaire was filled out on the Internet and verified by theIML and IPL. The results are nowavailable online. The WMS team currently pro-

vides a WMS selection tool, whichis available on the Internet underthe menu item “WMS Selection”.Users are able to select a WMSsystem that is appropriate for theirapplication in only two steps. In the first step, the systems are

compared against the selectedknock out criteria, which are takenfrom a catalog of criteria (Figure 3).The result of this step is a short listof suitable systems that meet thecriteria.

In the second step, the functionsof the systems in the list areselected and weighted. The WMSteam divided the questions intogroups to make it easier to selectthe systems. As a result, questionsfor several functions could be

important. Twenty functions werecompiled in this way. Each func-tion was weighted between 1(unimportant) and 5 (very impor-tant). The weighting was furtherrefined using the individual ques-tions, which were also weightedbetween 1 and 5. A weighting of 0excluded the function from theselection. The results are displayedin a bar graph (Figure 4).

Figure 4: Typical WeightedResults for a SpecificApplication

The Warehouse Logistics website also provides contact infor-mation and company profiles ofthe WMS suppliers.

Figure 5: A CompanyProfile of a WMS Supplier

A WMS is not selected solelybased on its functions. A long-termbusiness relationship is started

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Figure 3: System Criteria

FPOAssemb le fr om disk

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A s we progress in the newcentury, global compa-nies as well as the U.S.

Department of Defense (DOD)require a new logistics vision. Thisarticle covers the development ofa global, dynamic logistics plan-ning and execution system—theAdvanced Logistics Project (ALP)—that is designed to meet the needsof DOD as well as those of globalindustrial organizations.From the viewpoint of DOD, the

U.S. and coalition forces must beable to effectively deploy militaryforces to hot spots around theworld. This deployment involvesnot only key personnel and troops,but also materials and equipmentranging from ammunition andplanes to food and clothing.Creating logistics plans(“Logplans”) that can support suchdeployments is a significant chal-lenge that requires answers to thefollowing questions:

1. What materials are available, where are they located, and what is their status?

2. What transportation resources are available, where are they, and what is their status?

3. What are the materiel needs of the different combat units beingdeployed; when is the material required, and what additional support must be provided?

4. When multiple requests are made for the same scarce resources, how should these resources be allocated?

5. How should changes to the sta-tus of materials and/or requests be monitored, so that affected requests can be identified and satisfied by alternative means?

Industry Article:

Dynamic Logistics Planning SystemsStreamline Militaryand Industry Performance A collaborative Advanced Logistics Project isbringing the logistics vision of the U.S.Department of Defense and its industry partnersinto the 21st century.Commercial applications also hold high promise.

By Omar Keith Helferich, Ph.D., Vice President Supply ChainIntegrated Strategies Incorporated,Leo Pigaty, Lieutenant General (Ret.), U.S. Army, andTodd M. Carrico, Ph.D., Director/Program Manager, DARPA Joint Logistics Technology Office/Advanced Logistics Project

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6. How can dynamic replanning besupported in a scalable way, given that changes in the state of the supply chain may affect hundreds, or even thousands of plans?

7. How can the logistician monitor the global status of the supply chain?

DOD Logistics Enters the21st CenturyDOD has created a vision, called

Joint Vision (JV2020) that com-bines information superiority withfour main pillars—1) dominantmaneuver, 2) precision engage-ment, 3) full dimensional protec-tion, and 4) focused logistics. Thepillars are similar to the key com-mercial elements of flexibility, seg-mentation, agility, integration, visi-bility, variability, and velocity(1,2,3,4).What is needed to carry out the

vision is an extremely rapid auto-mated crisis action planningprocess, having links to all opera-tional and logistics planners atmultiple echelons within the orga-nizational military and industrialstructure. The system must alsomake possible a common under-standing of the operating situation.It must permit real-time monitoringof operations being executed, andinitiate automated rapid replanningwhen dictated by deviations in theoperating situation.The DOD vision must incorporate

the concepts of AdvancedPlanning Systems (APS) whenused in conjunction with ERPtransaction systems across a glob-al extended inter-enterprise sys-tem. In an era of downsizing,DOD will become increasinglydependent on commercial assetsand capabilities (5). The combina-tion of dynamic planning and exe-cution, utilizing e-business tech-nologies, is the direction beingtaken by leading organizations.Therefore, all elements of the DODlogistics community, including pri-vate sector partners, must putgreat emphasis on meeting theplan’s objectives through each

component’s activities, programs,and initiatives, on a priority basis.The effort should include ongoingand planned initiatives as well astheir performance tracking, toensure compliance with end objec-tives. Key to success is establish-ing user confidence and accelerat-ed implementation of dynamicbusiness processes built on mod-ern information technology.

The Advanced LogisticsProject (ALP)As with many global companies,

logistics provides the foundationfor DOD to achieve its missions. Itis the link to a nation’s war fightingforces. DOD logistics is focusedon sustaining fielded weapons sys-tems and moving combat materieland personnel in support of strate-gic, operational, and tactical objec-tives. A program under develop-ment, the Advanced LogisticsProject (ALP) supports the conceptof focused logistics. It leveragesadvanced information technologiesto gain unprecedented controlover the logistics pipeline (6). Animportant goal of ALP is develop-ing the theory, algorithms, andimplementation needed to supporta significantly faster creation ofLogplans, while providing adynamic capability for global,multi-enterprise replanning asrequired by the situation.

The ALP VisionALP has been spon-

sored by the DefenseAdvanced ResearchProjects Agency(DARPA) and DefenseLogistics Agency (DLA).It is designed toaddress the shortcom-ings of current logisticssupport systems andseeks full developmentof a significantlyimproved capability.ALP will enable logisticsorganizations to resolvecomplex logisticsissues simultaneously,resulting in improved

response times, reduced invento-ries; more capable, and smaller,tailored support packages; andless vulnerable logistics communi-cation lines. The result is a large potential cost

savings for both the federal andprivate sectors, through greatlyimproved management of manu-facturing, storage, transportation,and repair assets. Development ofcollaborative technologies that areautomated, multi-enterprise, glob-al, multi-echelon, and real-time, isintended to provide logisticiansand warfighters an unprecedentedability to plan, execute, monitor,and rapidly replan and re-executelogistics support, even whileassets are en route to the theaterof operations. The ALP prototype developed to

date has demonstrated a couplingof continuous planning and execu-tion monitoring into an interopera-ble course of action (COA). Itgives users revolutionary capabili-ties for managing the logisticspipeline through the development,testing, and integration of tomor-row’s advanced information tech-nologies. The ALP visionary, end-to-end concept is shown in Figure1. The system design philosophyencompasses a single softwarearchitecture and implementation,and object-oriented methodology.It has been tested against user

Figure 1. End-to-end system vision includes the abilityto plan, execute, monitor, and rapidly replan and re-exe-cute logistics support, even while assets are en route tothe theater of operations.

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cases involving real military/indus-trial complex problems. The ALPenvironment also supports com-plex distributed DOD and commer-cial data sources with graphicalvisualization and web-based inter-action capabilities.

The ALP SystemALP is focused on four areas to

achieve end-to-end, totally integrat-ed logistics systems. As shown inFigure 2, these functional goals or“grand challenges” (7) are:

1. Plan generation—As with allleading global companies, DOD isinterested in automatically generat-ing logistics plans at variousrequired levels of detail, and insynchronizing operations and logis-tics actions including identificationof requirements, courses of action,and logistics support plans.Automated logistics planning tight-ly links operational and logisticsrequirements planning and execu-tion processes to produce an exe-cutable and detailed logistics plan. 2. End-to-end movement con-

trol—This concept incorporatesboth military and commercialassets to maintain end-to-end con-trol of the transportation/logisticspipeline through the automateddevelopment of responsive trans-

portation plans, schedules, andcontinuous monitoring techniques.

3. Rapid supply—This conceptprovides continuous demandassessment and sourcing informa-tion for both DOD and commercialinventories. It permits logisticiansto ensure that the right suppliesare at the right locations whenrequired, while maintaining a mini-mal inventory. By managing sup-ply channels across a virtual inven-tory of DOD and commercial ven-dors, suppliers, and manufactur-

ers, DOD can realizeimproved materielreadiness whiledecreasing cycletimes. The bottomline is that unitdemands will befilled faster andcheaper whileenabling the DOD todramatically reduceinventories and over-head costs. Specificcapabilities beingaddressed includereal-time visibility,linking betweencommercial sys-tems, and optimizingof materiel ship-ments and datagathering.

4. Real-time logistics assess-ment—This program will identifyplan deviations within 15 minutesand update a logistics plan within10 minutes of the detected devia-tion. Advanced visualization cou-pled with plan sentinel “triggerevent” technology will provide allusers the capability of rapidlyassessing the logistics situation.Converting logistics data into intu-itive, information-rich visualizationswill permit logisticians to under-stand the current situation and pro-ject future states. By relating oper-ational and logistics componentsagainst a shared situation, linkagesbetween operational events andlogistics capabilities can be estab-lished.Decision makers will have a real-

time capability of monitoring and

potentially changing wholeresource units (product, trans-portation, labor, dollar allocations),either adding them to or deletingthem from the operations plan.This capability allows for rapid,comprehensive response toevents such as 1) speeding updeployment of manpower and crit-ical items, 2) deploying to meet athreat from weapons of massdestruction and/or terrorist attack,3) redeploying due to weather orother situation impacts, and 4)replanning due to other contingen-cies that generate competingdemands and cause schedulediversions.

Technology GoalsALP research has pursued three

technology goals as follows:

1. Distributed agent architec-ture—This innovative architectureapproach is modeled after thehuman cognitive process. Thedesign provides seamless interop-erability among all components atall echelons. It ensures a scalable,integrated framework to accom-modate using worldwide legacyand contemporary applicationsand data sources.The use of agent technology

within ALP involves an expandermodule for decomposing incom-ing tasks into doable subtasks thatare performed by the system. Thesystem then allocates those tasksappropriately and monitors theexecution as replanning is devel-oped, and periodically reports sta-tus. It also notifies operators oftask completion.2. Distributed information man-

agement—This system managesfine-grained information effectivelyacross a wide area network. Itprovides data aggregation tech-niques that support continuoustop-down and bottom-up informa-tion flow, using Windows NT sys-tems across standard internetbandwidths.3. Real-time information fusion—

This system fuses streams of real-time information and distributes it

Figure 2. Advanced Logistics Project (ALP) is focused onfour functional goals or “Grand Challenges”—automatedplan generation, end-to-end movement control, rapidsupply, and real-time logistics assessment or executionmonitoring.

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throughout the logistics domain tosupport execution monitoring andcontinuous information integration.

ALP Agent ArchitectureDOD consists of hundreds of

internal organizations, each with itsown specific planning and logisticsneeds. These organizations in turnneed to interact with systems thatoften have their own logistics sub-systems as well. Thus, the ALParchitecture required an abstrac-tion of a logistics system’s func-tional behavior. The selectedabstraction was called an agent.As shown in Figure 3, the ALPagent consists of four compo-nents, as follows:

1. Task expander—This compo-nent takes a request for support asinput, and creates a set of tasksinto a data structure called theLogplan.2. Allocator—Military and com-

mercial data sources are accessedto determine what resources areavailable to allocate to the tasks.The allocator then reads all avail-able Logplans and assignsresources to each task in the planto optimize the objective functionfor the plan. The data structure is

then updated, given the new dataallocations that have been made.3. Assessor—As different tasks

are being executed, this compo-nent tracks status of the logisticssupply chain. The assessor contin-ues to monitor each activity cur-rently in the plan, and generatesan exception that triggers actionsif the plan execution deviatesbeyond a certain predeterminedthreshold.4. PlugIns—These modules give

agents their individual domain-spe-cific functional behaviors and busi-ness process characteristics, andalso provide valuable interface ser-vices by reading information fromexternal data sources through user

interfaces.

The underlying agentarchitecture that drivesthe ALP engine iscalled Cougaar(Cognitive AgentArchitecture). Opensource and available toeveryone, Cougaarprovides the buildingblocks and domainindependent agenttechnology (8).

Conclusions—Implications forDOD and IndustryThe Advanced

Logistics Project (ALP)has demonstrated aprototype of a dynamiclogistics planning andexecution system thatwould serve the total

global U.S. DOD-industrial complexrequirements. ALP is fairly modu-lar, and transition of inventory man-agement and contract sourcingapplications is under way with theDefense Logistics Agency. Supplyrequirements applications arebeing investigated by the medicalcommunity, and movement plan-ning applications are being used atthe U.S. Transportation Command.Leaders in the commercial sector

are striving toward a competitiveadvantage through linking of ERP,

APS, and e-business techonolo-gies, first on an enterprise level,followed by a global inter-enter-prise connection. DOD requiressimilar capabilities on a global per-spective to achieve dynamic logis-tics planning and execution deci-sion support systems (9,10,11).This linkage must be achieved atall echelons on an around-the-clock basis throughout the year,during peacetime and war.The number and diversity of oper-

ational units, business processes,databases, and geographical areasmakes the DOD-industrial logisticsplanning environment more com-plex than any other industrial sup-ply chain. In addition, the DOD-industrial environment is subject torapid shifts in resource require-ments and priorities that havemajor impact on security, humanlife, and cost.The ALP system would provide

global coverage for continuous,dynamic logistics planning andreplanning, with optimization ofresources at multiple operationallevels.

Supply Chain Planning andControl AdvancesThe ALP development provides

advances in several areas of sup-ply chain planning and control,including: dynamic inter-enter-prise logistics planning, automatedassessment and monitoring, andchanges in recommended coursesof action (COA).Dynamic inter-enterprise logistics

planning—The scope of ALPincludes supply chain planning thatlinks multiple global business unitsof all DOD services, plus makingsignificant connections to thecommercial organizations that pro-vide global logistical support. Thissystem represents the most com-plex logistics planning approachreportedly under development.Automated assessment, monitor-

ing, and COA—Another ALP goalis the monitoring of automatedplans based on actual events andongoing assessment. The ongo-ing monitoring and assessment

Figure 3. ALP agent architecture consists of four compo-nents. Expander takes a request for support as input andcreates a set of tasks into a “Logplan” data structure.Allocator accesses data sources to determine whatresources are available, and allocates them to tasks.Assessor tracks status of logistics supply chain as differ-ent tasks are being executed. Plugins give agents theirindividual functional behaviors and business processcharacteristics, and also read information from externaldata sources through user interfaces.

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uses the “intelligent agents” totrigger replanning as necessary,which results in adjusted recom-mended COAs. The concept is toautomate the logistics planningand appropriate COA for each ofthe various levels of commandauthority from headquarters staffto the field units. A review andoverride will be available for somecommand level/COA combina-tions. The automated COA con-cept is not new. In the commer-cial area, software is used to pro-vide automated replenishmentbuys, production decisions, materi-al flow, etc. Technology advances—The infor-

mation technology advances inALP include the world’s largestdistributed and most advancedcognitive-based agent architecture,and the most secure informationoperations over unclassified inter-net of any unclassified military sys-tem. The prototype also providesevidence of the fastest construc-tion of a detailed unit level logisticsplan. ALP also is the first large-scale distributed execution moni-toring/dynamic replanning logisticsprototype. Its design involves themost complex and diversified useof both DOD and commercial data-bases.The Advanced Logistics Project

has created a powerful, cost-effec-tive approach to revolutionizingglobal logistics business process-es. The built-in modularity andscalability, coupled with opensource technology, offers industrya unique opportunity to applyagent architecture efficiencies tolocal APS, ERP, and e-businesssolutions.

Lessons learnedThe ALP initiative provides impor-

tant lessons related to develop-ment of a complex dynamic logis-tics planning system. Lessons todate include the importance of asoftware architecture that facili-tates the plug-in of commerciallyavailable software modules. Anexample is use of “plug-in” soft-

ware modules for transportationrouting and scheduling, and opti-mization of transportation modes.ALP development also supportsprevious lessons that sophisticat-ed planning systems are verydependent on secure, reliable,electronic linkages that ensure up-to-date databases. The ALP pro-ject provides additional support forthe lesson that even though it wasdeveloped with a goal of totalautomated planning, it must pro-vide users with access to an over-ride capability, as the system mod-ules are field implemented.

References1. Donald J. Bowersox, David J. Closs,

Theodore P. Stank, 21st Century Logistics:Making Supply Chain Integration a Reality,Supply Chain Management Review, Fall 1999,Cahners Business Information, pages 44-51.2. Donald J. Bowersox, David J. Closs,Theodore P. Stank, Ten Mega-Trends that willRevolutionize Supply Chain Logistics,Journal of Business Logistics, Vol. 21, No. 2,2000, pages 1-16.3. Omar B. Chaudhry and ChristopherSchnieper, Toward Enterprise Supply ChainManagement, Supply Chain ManagementReview, Fall 1999, Cahners BusinessInformation, pages 72-84.4. James E. Morehouse, Extending theEnterprise: The Partnership Paradigm,Supply Chain Management Review, Fall1997, Cahners Business Information, page2. Hau L. Lee, Creating Value ThroughSupply Chain Integration, Supply ChainManagement Review, September/October2000, Cahners Business Information, pages30-39.5. DOD Logistics Strategic Plan Document,Deputy Under-Secretary of Defense,Pentagon, Washington, DC., 2000.6. The DOD Joint Chiefs of Staff, FocusedLogistics Roadmap, 2000, pages 1-3.7. DOD Joint Chiefs of Staff, FocusedLogistics Roadmap, 2000, pages 5-29.8. Cougaar Software Inc. has been launchedto offer the agent technology to the businesscommunity. Information is available at theCougaar website, www.cougaar.org.Developers in any government or non-gov-ernmental entity can pick up and apply thistechnology immediately.9. Mark Y.D. Wang, Sc.D, AcceleratedLogistics—Streamlining the Army’s SupplyChain, Arroyo Center, Published 2000 byRand.10. Robert A. Craig, Mark R. Crawford,Donald F. Egan, Harry L. Featherstone, andDonald T. Frank, Meeting DOD’s FutureLogistics Information Needs, LogisticsManagement Institute, June 1996.11. Logistics Transformation- Update, Focus,

and Accelerate, Deputy Under-Secretary ofDefense, Pentagon, Washington, DC,January 2001.

About the authors

Omar Keith Helferich, Ph.D., is VicePresident Supply Chain Management forIntegrated Strategies Incorporated. He isalso co-director of Council of LogisticsManagement research on securing the sup-ply chain from threats of disaster/terroristattack. Previously Dr. Helferich was Directorof the Supply Chain Management OutreachProgram for the Eli Broad College ofBusiness, Michigan State University;Managing Director of the Dialog SystemsDivision of A. T. Kearney, President of DialogSystems Inc., and Vice President ofCleveland Consulting Associates. Hereceived B.S. and M.S. degrees inCivil/Environmental Engineering and an MBAin Quantitative Methods from the Universityof Michigan, and a doctorate in businesswith concentrations in operations and logis-tics from Michigan State University. Anauthor and speaker on logistics subjects, Dr.Helferich is also an adjunct supply chainmanagement faculty member at CentralMichigan University. His current interestsinclude securing the supply chain from ter-rorist and disaster threats, supply chain strat-egy, advanced planning, network design,order management, reverse logistics, anddisaster recovery logistics for the AmericanRed Cross.

Leo Pigaty, Lieutenant General (Retired,U.S. Army) is an independent consultant. Hewas Senior Vice President and ChiefFinancial Officer for Los Alamos TechnicalAssociates, Inc. (LATA) FROM 1994 throughJanuary 2001. In addition to corporate exec-utive responsibilities he was responsible fordefense business sectors, including theAdvanced Logistics Project. Previously,General Pigaty served on active duty with theU.S. Army for over 33 years, engaged in allaspects of logistics, R&D, and acquisition forthe Army and the Defense Logistics Agency.He has a B.S. in Civil Engineering fromLafayette College and an M.S. in LogisticsManagement from the Air Force Institute ofTechnology.

Todd M. Carrico, Ph.D., is the CEO andfounder of Cougaar Sofware Inc. Previouslyhe was Program Manager for the DefenseAdvanced Research Project Agency (DARPA)Advanced Logistics Project (ALP), Ultra*LogProject, and the Director of the DARPA JointLogistics Technology Office. Dr. Carrico iscurrently an Associate Researcher in theKnowledge Systems Laboratory at StanfordUniversity, serving at DARPA under an IPAagreement. Prior to his work at Stanford, heserved as a Captain in the U.S. Air Force inthe Logistics Research Division of ArmstrongLab, Wright-Patterson AFB, OH. He has aPh.D. in Computer Science from WrightState University and a B.S. and M.S. fromWashington University in St. Louis.

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A logistics triad is a cooperative,three-way relationship between abuyer of goods, the supplier ofthose goods, and a logistics ser-vice provider (LSP) moving and/orstoring the goods as they passbetween buyer and supplier.Traditionally, logistics allianceshave been developed and ana-lyzed as dyads, i.e. relationshipsbetween LSP and buyer or suppli-er of the goods. This article pre-sents the logistics triad, in thecontext of three approaches tobuying and selling goods and(logistics) services. Informationtechnology (IT) facilitates triad for-mation, by enhancing order pro-cessing and exchange of informa-tion among the parties. However,IT can also be an obstacle toclose triad relationships, in that ITcan be used to intensify competi-tion-and inhibit cooperation—-between buyers, suppliers andLSPs. Imagine a simple market with

three buyers of a certain item,three suppliers of the item, andthree logistics service providers(LSPs) moving and storing theitem as it passes from supplier tobuyer. There are at least threefundamentally different approach-es for a buyer (Bi) and a supplier(Si) to conduct business-and toarrange for services from an LSP(Li): transactional, relational, andportal.

Transactional Approach The transactional approach is

shown in Figure 1. In the transac-tional model, all firms live fromtransaction to transaction, with notrace of long-term, cooperativerelationships. When the firstbuyer (B1) has a requirement forthe item, all three suppliers areinvited to submit bids or are oth-erwise contacted regarding avail-ability of the item, price per unit,credit terms, etc. Once a supplieris selected, the buyer engages ina similar procedure in search of alogistics service provider to movethe shipment. Pick-up and deliv-ery times, freight rates, etc. must

Refereed Article:

InformationTechnologyand TheLogisticsTriadAlternatives to traditional transactionprocesses promise higher quality andlower cost.

By Paul D. Larson, Assoc. Professor ,Transportation & Logistics Iowa State University College of Business, Ames, IA

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be agreed upon. Of course, thisassumes the goods are boughton an FOB origin basis. If thegoods were bought and sold FOBdestination, the supplier would bethe one to contact the three logis-tics service providers. The trans-actional approach is chaotic, laborintensive, and characterized byheavy use of phone and fax com-munication. It may yield the bestdeal in terms of purchase priceand freight rates, but at theexpense of high order processingcosts.

Relational Approach Figure 2 depicts a second

approach, the relational approach.Here, B1 reduces or even erasesthe transactional chaos by form-ing close, long-term, singlesource/provider relationships withone supplier (S1) and one logis-tics service provider (L1). B1negotiates long-term contractswith both S1 and L1. When B1has a requirement for the item, apurchase order is transmitted toS1, via phone or fax or e-mail. Arequest for logistics services issimultaneously sent to L1. Orderprocessing efficiency increases

dramatically, as B1 deals with twoparties in coordinated fashionrather than six parties in a state ofchaos. On-time pick-up and deliv-ery performance also improves,yielding lower stock levels at bothorigin and destination points.Prior research shows that cooper-ation between buyer and supplieryields higher product quality andlower total costs. (1) Arguably,the ultimate relational initiative isthe formation of a logistics triad. A logistics triad is a cooperative,

three-way relationship between abuyer of goods, the supplier ofthose goods and an LSP movingand/or storing the goods betweenbuyer and supplier. In 1989, Beier introduced the

logistics triad, consisting of ship-per (a.k.a. consignor), carrier, andreceiver (a.k.a. consignee), as the“minimum unit of analysis” forlogistics research. (2) Later,Gentry observed that “virtually noresearch addresses the three-waylinkage of the transportationprovider between suppliers andpurchasing firms.” (3) Bask linksthe logistics triad to third-partylogistics (3PL), suggesting that“the term (3PL) has its foundationin a triad form of relationships

Figure 1. Transactional model has nolong-term, cooperative relationshipsamong buyers (B), suppliers (S), andlogistics service providers (L).Bidders vie for each transaction. Thisfree-form approach may yield low pur-chase price and freight rates, but at thecost of high order processing costs.

Figure 2. Relational approachinvolves close, long-term relationshipsamong one buyer (B), one supplier(S), and one logistics service provider(L). This cooperative approach isbelieved to result in high product/ser-vice quality and low total cost.

covering seller, buyer and TPL”(a.k.a. 3PL) provider. (4) Bask alsoobserves that most 3PL researchfocuses on dyadic relationshipsbetween the 3PL provider andeither buyer or supplier (of thegoods). The trade press reports several

examples of logistics triads inpractice. Target Stores, ThomsonConsumer Electronics, and GencoDistribution Systems have formeda reverse logistics triad in whichTarget is the shipper (of returnedgoods), Thomson is the receiverand Genco provides logistics ser-vices. (5) A second example isthe Procter and Gamble supplychain initiative, whereby P&Gworks closely with suppliers and carriers. (6) Furthermore, SunMicrosystems has teamed withUSCO Logistics, leveraging infor-mation systems and the Internetto link supply chain partners. Sun and USCO have created aVirtual Logistics Network, in which suppliers (manufacturers),repair vendors, and logistics service providers collaborate todeliver a seamless link to Sun’scustomers. (7) According to a recent survey of

Danish logistics service providers,just-in-time (JIT) delivery objectivesand information technology (IT)are the top two facilitators oflogistics triad formation. (8) Eitherelectronic data interchange (EDI)or extranets can help coordinatepurchase of goods and inboundlogistics services. Onlineexchanges may also have a role intriad formation. Commenting onthe need for logistics to supportonline exchanges, Rosen states:“First you need customers; thenyou need suppliers. After that, thebiggest challenge for business-to-business marketplaces is logistics-integrating all the pieces of thesupply chain so buyers actuallyget the products they buy.” (9)B2B hubs began by facilitating for-mation of buyer/seller dyads, andenabling these dyads to buy andsell products electronically. Butthe logistics to service these

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transactions had to be arrangedoffline. However, B2B hubs areinitiating alliances with LSPs, sogoods can be bought and sold-and arrangements to have thosegoods moved and stored-can allbe made online. (10) Examples ofthese B2B hub/LSP alliancesinclude: PaperExchange.com/C. H.Robinson Worldwide, serving thepulp and paper industry; andPlasticsNet.com/SchneiderLogistics, serving the plasticsindustry. Whether these portalsfacilitate triad formation remains aquestion in search of furtherstudy.

Portal Approach The portal approach is shown in

Figure 3. A fourth party (X) entersto facilitate order processing andother communication betweenbuyers, suppliers and logisticsservice providers. Using a portal,B1 posts product and servicerequirements electronically, andthe business is bid on by interest-ed suppliers and LSPs. This isessentially a return to transaction-al chaos, though without the laborintensive, expensive order pro-

cessing. In theory, intense com-petition between the suppliersyields lower prices and higherproduct quality. In a similar fash-ion, competition between LSPs isthought to bring lower rates andhigher levels of service.

Implications forDistribution BusinessManagement It is clear that the relational and

portal approaches, as alternativesto the transactional approach, dra-matically increase the efficiencyof exchange, i.e. reduce orderprocessing costs. However, onlythe relational approach bringsadditional benefits of close rela-tionships between distributionbusiness partners. While the rela-tional approach offers further ben-efits (improved product and ser-vice quality, lower prices andrates) through cooperation; theportal approach may afford thesebenefits via competition.Previous research on buyer/suppli-er relationships shows that coop-eration, in the form of singlesourcing, improves quality andreduces total cost. On the otherhand, competition among suppli-ers (multiple sourcing) neitherimproves product quality norreduces total cost. (11) Further research is needed to

clarify the role of B2B hubs/logis-tics exchanges in the formation oflogistics triads. Do exchangesfacilitate triad formation-or arethey an alternative to logistics tri-ads? Porter covers both sides ofthe debate. She quotes ScottAlaniz and Robin Roberts ofStephens Inc., who suggest por-tals (a.k.a. exchanges) enablefirms “to collaborate with tradingpartners and coordinate order pro-cessing, materials, and parts pro-curement, receiving, production,distribution and related logistics.”However, she also notes that dataposted by-and available to-exchange participants “could easi-ly be used to undermine ratherthan reinforce established strate-gic supply relationships.” (12)

Figure 3. Portal approach permits abuyer (B) to post product and servicerequirements electronically, and thebusiness is bid by interested suppliers(S) and logistics service providers (L).The portal (exchange) is provided by afourth party (X). Competition amongsuppliers and service providers isthought to result in lower prices (rates)and higher product (service) quality.

Two important research questionsare: What circumstances, suchas product characteristics or ship-ping lanes, make logistics triads(i.e. relational approach) especiallysuitable? Under what conditionsis the portal approach preferred? Please contact the author via e-

mail (pdl@isunet.net) to furtherdiscuss approaches to buying andselling goods and services.

References 1. Larson, Paul D. (1994), “Buyer/Supplier

Cooperation, Product Quality, and TotalCosts,” International Journal of PhysicalDistribution & Logistics Management,24(6), 4-10.

2. Beier, Frederick J. (1989),“Transportation Contracts and theExperience Effect: A Framework forFuture Research,” Journal of BusinessLogistics, 10(2), 73-89.

3. Gentry, Julie J. (1996), “The Role ofCarriers in Buyer-Supplier StrategicPartnerships: A Supply ChainManagement Approach,” Journal ofBusiness Logistics, 17(2), 35-57.

4. Bask, Anu H. (1999), Third PartyRelationships in Logistics Services,Helsinki School of Economics andBusiness Administration, Finland, p. 9.

5. Anonymous (1998), “Target, ThompsonTreat Returns as V.I.P.s,” Chain Store Age(November), 102.

6. Burnson, Patrick (1999), “GettingLogistics in Order,” World Trade (August),50-52.

7. Andel, Tom and Lisa Harrington (1999),“Outsourcing Your Info Infrastructure,”Material Handling Engineering(November), 39-44.

8. Larson, Paul D. and Britta Gammelgaard(forthcoming), “The Logistics Triad:Survey and Case Study Results,”Transportation Journal.

9. Rosen, Cheryl (2000), “Logistics: TheNext Step for Online Marketplaces,”informationweek.com (May 29), p.26.

10. Banham, Russ (2000), “B2B HubsAdding Logistics to Services,” WorldTrade (April), 52-3.

11. Larson, Paul D. and Jack D. Kulchitsky(1998), “Single Sourcing and SupplierCertification: Performance andRelationship Implications,” IndustrialMarketing Management, 27(1), 73-81.

12. Porter, Anne Millen (2000), “ExpertsSee Big Future for e-Procurement,”Purchasing (March 23), S30-S44.

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The “new economy” that isaffecting the way busi-ness is conducted all over

the world has major implicationsfor all companies. This economycan be characterized by fourmajor macro-trends:* High tech, high value products.

Cell phones, pagers, personaldigital organizers, and comput-ers are obvious examples ofwhat are called “high tech”products today. Less obviousexamples that are neverthelesspart of the trend are found intraditional durable goods thatinclude “smart” appliances withvoice communication, autosequipped with voice instruc-tion, and toys with more pro-cessing power than the PCs ofonly a few years ago.

* Globalization. Manufacturershave moved production to allareas of the world. Chip manu-facturers, for example, havesupply chains that cross manyboundaries around the worldbefore final delivery is made.

* Fast-cycle logistics solutions.Speed of operations and trans-actions is streamlining the sup-ply chain. The auto industryprovides an example of thistrend. Manufacturers are on amission to build cars to orderin a time frame suitable formost consumers. Some haveannounced programs to build acar to order in 10 days.

* Information replacing inventory.Real-time information transmit-ted via electronic commerceprovides the key to conductingtransactions efficiently through-out an integrated supply chain,with a minimum of inventoryhaving to be held in any givenlocation.

The new economy representedby the above factors bringswith it new supply-chain chal-lenges to be addressed, includ-ing the following:

* A network of physical facilitiesis needed to allow for shortercycle times from order to delivery.

The Case forIntegratedSupply ChainManagement

Lack of integration between front-endsales activities and back-end fulfillmentactivities has been a major reason for the failure of supply chain management to completely live up to its promise. A closing of this gap will be a major focus early in the 21st century

Keynote Article:

Based on a keynote presentation at Warehouse of the Future 2001 by Craig M.Simon; Managing Director, FedEx Solutions; FedEx Services; Collierville, TN

24

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* Multiple order configurations,from full pallets to cases to“each” picks must be handledfrequently.

* Technology is needed to tieinventories together acrossenterprises and across theworld, allowing for globalsourcing of products with lessinventory being held. At thesame time, strict fulfillmentrequirements must be met.

* Warehouse connections mustbe maintained to inboundtransportation systems andorder management systems,so that products can be trulycross-docked.

How will the promise of thenew economy be realized? Avery brief historical review ofworld trade may help set thestage for this discussion.

Historical perspective Three factors have had the

greatest impact on global trade:war, politics, and technology.The aftermath of World War I ledto U.S. isolationism of the 1930s,with the establishment of the U. S. Tariff Act that restricted

imports through high tariffs.World War II ended the isolation-ist phase, and was followed bythe treaty of Rome in 1957 whichcreated the General Agreement

on Tariffs and Trade(GATT). The 1960s brought

about a militaryinnovation laterused in commercecalled the nose-loadair lift that dramati-cally increased aircargo handling. Thesame decade sawimproved oceantransport thanks tostandardization ofocean containers.Finally, over the

last two decades,technology advances includingEDI, ERP, telecommunications,and the Internet have driven anexponential rise in the rate ofglobal trade, Figure 1. Over thelast 60 years, the global trademarket has grown from $6.6 bil-lion to over $ 2 trillion, with thegreatest rate of growth begin-ning around 1980. It was alsoduring this latter period that agreater appreciation began todevelop for the concept of totalsupply chain efficiency.

Supply chain trends The quest for supply chain effi-

ciency and effectiveness contin-ues into the present decade.Several recent research studiesprovide insight into ongoingtrends in this area. The resultsof one such study, summarized

in Figure 2 predicts that by 2004companies will rely on outsourc-ing more than they did in 2000by a factor of over 3. And supplychain expenditures (associatedwith coordinating the integrationof multiple supply chain func-tions) will almost double over thesame time period. However, the major compo-

nents of supply chain cost,namely carrying cost of inventoryand transportation cost, willgrow at a rate of only about 1%per year. Showing a real overallgrowth rate of 11%, this studysuggests that companies will relyon supply chain specialists toimprove productivity (as in thecase of outsourcing), and thatsupply chain costs (such as car-rying inventory) will grow at aslower rate than the output of

the economy.Another study

reports on thestated objectivesof 300 supplychain executivesfrom Fortune 1500companies. Thetop three objec-tives are improve-ments in: 1) cus-tomer service, 2)reliability, and 3)order or channelmanagement,Figure 3. Theseare primarilygrowth initiatives,

“The forces unleashed by theInternet are almost surely to beeven more potent within andamong business, where uncer-tainties are being reduced byimproving the quantity, thereliability, and the timeliness ofinformation. This is the case inmany recent initiatives, espe-cially among our more sea-soned companies, to consoli-date and rationalize their sup-ply chains using the Internet.”

— Alan Greenspan, 2000

Figure 2. Projected high-growth areas over the next fewyears are outsourcing and supply chain management.

Figure 1. Trends in global trade and transportation

DBMJ 26

with warehousing and inventorymanagement, including pickingand packing of orders. Shipinvolves inbound and outboundshipping activities that facilitatethe transit of raw materials, sub-assemblies, and fininshed goodsfrom suppliers and manufactur-ers to distribution centers andend users. Returns providesafter-sales service and supportactivities that serve end users inthe return, repair, and exchangeof products. These functions must be inte-

grated with the appropriate tech-nology infrastructure. Elementsof the infrastructure include avalue-added network of alliances,customer relationship manage-ment, order management sys-tem, warehouse managementsystem, and shipping automa-tion.

Importance of informationintegration According to a January 2000

AMR research survey* of con-sumers who shopped the Internetfor the 1999 holiday season:

* 50% of websites were unableto determine product availabilityat point of order entry

* 40% were unable to commit toa delivery date

that help capture market share,as opposed to cost reduction ini-tiatives. This finding suggeststhat companies are counting onsupply chain management tohelp improve revenues and driveshareholder value.A final study identifies the

improvement potential acrossvarious supply chain functionalareas. The area with greatestimprovement potential is reliabili-ty—that is, producing resultsaccording to expectations.Companies can expect a 25 to80% improvement in reliabilitywhen taking on supply chain ini-tiatives. The second largestimpact area is inventory reduc-tions of from 25 to 60%, sug-gesting a significant impact onthe amount of time materials,components, and finished goodswill spend in warehouses in thefuture.

Meeting customerdemands A customer demand matrix is

shown in Figure 4. Essentially,customers want solutions thatare easy to use, have a globalreach, ensure high reliability, andare accompanied by a broadrange of services provided froma single source.How does a supply chain

provider pursue these lofty

goals? A path thathas proven to besuccessful is theintegration of theactivities of spe-cialists. It takes aspecialist to begood enough todeliver on reliabilityand ease of use.And, it takes inte-gration with otherspecialists to pro-vide the globalreach and broadrange of servicesthat customers arelooking for. Inmany cases, that

also may mean forming allianceswith specialists outside of thecore organization.An example of this approach is

provided by FedEx, which hasstructured itself to provide aportfolio of services that addressease of use, reach, and breadthof service. Over three years ago,it acquired several other special-ist companies, and now operatesas a collection of specialists,made more robust by a networkof alliance partners in technicaland logistics areas. From theviewpoint of the marketplace,this combination of resourcescompetes as one, single sourceorganization.The approach

provided by FedExincludes the func-tions supportingcustomerdemand—mod-ules that providethe “sell,” “fulfill,”“ship,” and“returns” activi-ties. Thus, Sellassists end usersin the buying,ordering, delivery,and servicing ofproducts. Fulfillprovides integrat-ed logistics ser-vices associated

Figure 3. Top priorities for improvement among supplychain executives are customer service, reliability, and order orchannel management..

Figure 4. Matrix depicting elements of customer demand.Basically, customers want it all from a single source—easy touse solutions that have a global reach and high reliability, andare accompanied by a broad range of services.

* 62% sent order status mes-sages, advising shipment oforder, but...

* Only 4% of order status mes-sages included carrier-trackingnumbersThe above findings suggest that

most service shortcomingsdemonstrate a lack of integrationbetween front-end, sell-side activ-ities with those of fulfillmentactivities. Put another way, youcan’t manage a supply chain with-out integration between the logis-tics functions, and with the saleschannel.

Conclusions The following conclusions can

be derived from the observationsdescribed in this article, and usedfor guidelines to achieving supplychain success:* Integrated supply chain man-

agement will be the focus earlyin the 21st century.

* One must optimize and inte-grate the logistics functionswith the sales channel, withoperational and informationalintegration taking place amongall areas.

* The difference between logis-tics and integrated supply chainmanagement is that logistics istypically unidirectional and tacti-cal, with optimization per-formed within individual logis-tics activities. Supply chainmanagement, on the otherhand, is bi-directional and all-encompassing along a supplychannel, using strategic chan-nel optimization.

* The importance of alliancesshould be stressed. One sim-ply can’t be all things to all peo-ple, and function without theuse of alliances to provide thebreadth of service that is oftenneeded.

* You don’t have to commit thecapital to own and manage theprocess and deliver results.

Craig Simon can be reached at 800-543-7657.

* Data from John Fontanella, The AMRResearch on Supply Chain Management

What are you doingJune 24-26, 2002?

CANCEL IT!

Get ready for the exclusive eventdesigned forDistribution &Logistics Management.

The evolution continues...

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DBM Association717-295-0033 • Fax: 717-288-2154www.DCenter.com

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DBMJ 28

As in the past, the WoF2001 eventcombined academic learning with industry know-how to help professional attendees learn how to attain logistics and supply chainexcellence.

One message came out loud andclear from this Warehouse of theFuture Conference on InnovativeSolutions for Distribution, Logistics,and Supply Chain Strategies—thewarehouse of the future is not limit-ed by the four walls of its building.In fact, some may not even havefour walls. That’s because the mis-sion of today’s and tomorrow’sleading edge facilities is not merelyto “house wares”, but rather toserve as the fulfillment backbone ofthe supply-chain network whoseultimate mission is world-class cus-tomer satisfaction.

WoF 2001 was definitely a majoreducational event. The three-dayconference program was organizedalong five major session tracks:material handling & operations fulfill-ment; EDI, WMS, AIDC

technologies; logistics engineering& systems integration; transporta-tion & logistics; and supply chainstrategies. Reflecting the educa-tional nature of the event, therespective track chairpersons wereDr. O. Keith Helferich, CentralMichigan University; Detlef Spee,University of Dortmund, FraunhoferInstitute, Germany; Dr. JezdimirKnezivic, Mirce Akademy, U.K.; Dr.Michael Crum, Iowa StateUniversity; and Dr. John Coyle, PennState University.

In addition, executive summitkeynote presentations were madeby Dr. James Tompkins, TompkinsAssociates (“The Nine Passions ofSupply Chain Excellence”); RobertSabath, Deloitte Consulting (“Backto the future 2001”), featuring a spe-cial address by Mr. Zhang Jian Wei,China National Foreign TradeTransportation Group (Sinotrans);Simon Craig, FedEx Supply Chain;and Robb Caseria, Group VP,Demand Fulfillment, Coors BrewingCompany.

As informative and high in qualityas the sessions and keynote presen-tations were, one does not learnfrom attending lectures alone. Onealso needs to view and “kick thetires” of the equipment, systems,and technologies that provide thereal-world solutions to attaininglogistics and supply chain objec-tives. And so conference attendeesexperienced “hands on” learning bytouring the Applied Technology Lab.The lab consisted of a life-size, inter-active model involving varioustypes of industrial equipment and

systems, organized into modules orstations that parallel the typical flowof materials and goods in a ware-house, starting at receiving, andmoving through storage, order pick-ing, packaging, and shipping.

Attendees also took specialapplied technology courses heldwithin the lab area itself.Surrounding the interactive labexhibit were over 70 equipment andsystems exhibitors, displaying latestproducts and systems in the areasof warehousing; logistics; distribu-tion; freight forwarding; and website development.

A unique feature of the conferencewas that attendees receive cumula-tive credits from U.S. and interna-tional universities. Each year a lead-ing university awards certificates ofeducation to the matriculating atten-dees; this time certificates wereawarded by Iowa State University.Attendees can apply earned creditstoward a Specialist Diploma inDistribution Business Management.The diploma is awarded upon fulfill-

TheWarehouse of the Future 2001

TheWarehouse of the Future 2001

Industry Article:

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ment of the following criteria:* Receipt of four certificates from

four different universities.* Upon earning four certificates,

the candidate is required to write apaper detailing how the knowledgegained has been applied to his/heroccupation and company.

* A board of leading academicsreviews the papers, and upon itsapproval, the candidate is awardedthe diploma.

Conference capsules“A company’s passion for opera-

tional excellence must transfer toeach link along its supply chain.This process is Supply ChainSynthesis (SCS),” said keynotespeaker Dr. James Tompkins,Tompkins Associates. Tompkinsadded that “SCS is the holistic, con-tinuous improvement process ofensuring customer satisfaction,from the original raw materialprovider to the ultimate finishedproduct consumer. SCS is the inte-gration, the unification, and thebringing together of the supplychain links to form a whole.”

There is still much to be done toachieve supply chain integration inindustry, according to Dr. Craig M.Gustin, Operations Associates. Inciting the results of a recent surveyconducted jointly by GeorgiaSouthern University and Operations

Associates, Gustin noted that only afourth of the companies surveyedindicated that they had successfullyintegrated their supply chain func-tions. More than 30% recognizedthe value of supply chain integra-tion, but were not successful inimplementing the concept, whilenearly a quarter recognizing thevalue of the concept decided not toattempt implementation. Finally,one-fifth of the respondents did noteven recognize its value.

For those who recognize supplychain value, their success in supplychain endeavors is linked at least inpart with the performance mea-sures used to evaluate employees,according to Dr. Thomas W. Speh,Miami University (Ohio). Thus, firmsthat talk about the importance ofsupply chain concepts but continueto evaluate employees using perfor-mace measurement systems thatare either adversely affected by, orcompleted unaffected by, supplychain improvements, then they willfail in their endeavors. Speh high-lighted the importance of the rela-tionship between supply chain man-agement and a type of strategic per-formance measurement systemknown as the balanced scorecard.

Measurement is but one aspect ofrecognizing the importance thatpeople continue to play in supplychain and distribution strategies. Inhis presentation, “Warehouses arePeople Too!”, Lew Roberts, L.Roberts & Associates, noted that thejob of the warehouse worker hasbecome increasingly sophisticatedand technology based. While tech-nology plays an important part inaccomplishing distribution strate-gies, it is people who are requiredto work with this technology.Roberts said it is vitally importantthat we pay attention to the peopleaspect of the supply chain specifi-cally through change management,education, and “on the job” trainingand mentoring.

One type of change that people atall levels of an organization mustbecome better identified with is cor-porate environmental responsibilityand its relationship with reverselogistics and recycling concepts.

Robb Caseria, Group VP, DemandFulfillment, Coors BrewingCompany, noted that truly effectiveenvironmental responsibility mustbe shared with supply chain part-ners, such as suppliers. (See thearticle, “Circle of Excellence 2001Winner” in this issue.) He said thatCoors’ procurement departmentrequires that any suppliers workingon the company’s site must strictlyadhere to the company’s environ-mental principles and policies, andare evaluated accordingly.

Environmental responsibility asdefined by leading companies suchas Coors goes well beyond govern-ment mandated rules and regula-tions. However, it is a fact that

more strict government regulationswill be coming in the future. AndEurope is likely to be leading theway. Dr. Harold Krikke, ErasmusUniversity, Rotterdam, TheNetherlands, pointed out that theEuropean Union (EU) is consideringguidelines for a Europe wide intro-duction of producer responsibilityfor dealing with used consumerelectronics. Krikke noted that a sys-tem in force in The Netherlands mayserve as a model for EU considera-tion. The Netherlands makes OEMsand importers formally responsiblefor the collection and processing oftheir products and packaging oncethey are discarded. The principleapplies for many waste streams,including cars, portable batteries,and consumer electronics.

A special feature of another

Demonstration of hands-on session in theWarehouse of the Future Lab

Ribbon cutting ceremony at the opening of theWarehouse of the Future (Front Row: Amy Thorn,Executive Director, DBM Association; Ming Lam,President, South East World Wide, Ltd., Zhang JianWei, Executive Director and VP, Sinotrans; JohnThorn, Chairman of the Board, DBM Association)

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Logistics in ChinaChina’s importance in the global marketplaceincreases steadily. A special focus on logis-tics and supply chain management in thatcountry is helping to spur this growth.

For the second year in a row, a specialdelegation of logistics professionalsfrom China visited the U.S. and attend-ed the Warehouse of the Future event,held this past June in Atlanta.. Leadingthis year’s 16-member delegation wasMr. Zhang Jian Wei, Executive Directorand Vice President for LogisticsDevelopment at the China NationalForeign Trade Transportation (Group)Corp., or SINOTRANS. He is alsodeputy director for all transportation inChina. The following discussion isbased on a presentation made by Mr.Zhang at WoF 2001.

Today, China is greatly con-cerned with and enthusias-tic about the logistics

industry. It could be said thatlogistics has become a newindustry of great vitality, and hascaused high attention from vari-ous aspects of society includinggovernment institutes, manufac-turers, wholesalers, logistics ser-vice providers, educational organi-zations, and research institutes.Generally, the Chinese logisticsmarket has the following fourcharacteristics.

1. Early Stage ofDevelopment Presently there is a large gap

between Chinese logistics devel-opment and international logisticsstandards. Modern logisticsrequires that suppliers of rawmaterials, manufacturers, whole-salers, retailers, logistics opera-tors and end users be finallylinked together. From this per-spective the present Chineselogistics system and network isstill at the stage of initial develop-ment.

A general transportation systemhas been basically formed of rail-ways, highways, waterways, airtransport, and pipeline transmis-sion. There has been relativelygood progress in developingtransport lines, freight stations,transport vehicles and equipment,packing, and shipping facilities. Inthe telecommunications area, digi-

Industry Article:

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tal transmission artery networkshave been developed using opti-cal cables, digital microwaves, andsatellites, forming the technicalbasis for the exchange, manage-ment, and control of logisticsinformation.Nevertheless, the general scale

of the Chinese communicationsinfrastructure is still very limited.For instance, by the end of 2000,although the total length ofChinese expressways had reached16,300 kilometers (the thirdlongest in the world), highwaydensity was merely 14.6 kilome-ters per square kilometer (asagainst the 177 kilometers inGermany and 64 kilometers in theUnited States). And for every10,000 people, there was a trans-port network of merely 10.43 kilo-meters. Besides, the communica-tions networks are not evenly dis-tributed in the country, but areconcentrated mainly in the coastalregions. Much more developmentis needed in terms of internal riverchannels, ports, berths, railways,airports, and transport equipment. In addition, China lacks modern

facilities for logistics operations.Information technology is not yetbroadly applied, administrativemanagement lacks centralization,transportation cost is high, andenterprise management is poor.At present, the raw material inven-tory period for Chinese manufac-turing enterprises is as long as 20days, 51 days for finished prod-ucts, and 34 days for commodi-ties of commercial enterprises.Cargo damage exceeds 2%.Timely distribution is lower than90% on average, indicating a biggap between Chinese supplychain management and that of thedeveloped countries.

2. Great Potential forRapid DevelopmentAlthough today China is relatively

backward in logistics capability, atthe same time it presents a greatpotential for rapid improvement. Itis estimated that a 2% reductionin Chinese logistics costs in the

next five years would result in asavings of $120 billion (U.S.).(Currently, Chinese logistics costsaccount for about 20% of GDP ascompared to 9.7% in the U.S.)And, in the next few years, themarket growth rate of Chineselogistics is expected to be over20% annually.Currently third-party logistics

providers account for a minority oflogistics transactions in China.However, much more outsourcingis expected to be conducted inthe near future. The growth of the Chinese logis-

tics market is closely related tothe growth of the Chinese econo-my. Over recent years, China hasmaintained its economic growthrate at 7%-8%. In the next fewyears, Chinese import and exporttrade is expected to increase fromthe present $400 billion to $600billion. What is even more impor-tant is that the growth of foreigncapital investment in China isexpected to continue at a relative-ly a high rate. Currently 90% of the top 500

enterprises of the world haveinvested in China. These foreign-funded enterprises, along withsino-foreign joint ventures, havethe greatest need for logistics ser-vices. Domestic enterprises also are

developing greater need for logis-tics services. With the develop-ment of high technology, e-com-merce, and supply chain manage-ment, the production, sales, andoperating methods of Chineseenterprises are experiencing pro-found change. Many corporationshave started to integrate their sup-ply chains and adopt Just In Timeoperations. With B2B and B2Cbecoming gradually more popular,logistics outsourcing is expandingfurther.

3. Integral Part of theInternational LogisticsMarketWith economic globalization and

information technology develop-ment, the integration of interna-

tional logistics becomes more andmore obvious. Chinese logisticswill be a part of this global integra-tion process. Multinational cor-porations set up in China are inte-grating their global supply chains,and therefore global integratedlogistics and supply chain man-agement are being extended toChina. International logistics cor-porations are also entering theChinese market. Thus, companiessuch as Ryder, Exel, Pinalpina,UPS, FedEx, APL, and Maerskhave established branches in

China. As with most other industries,

logistics is increasingly becomingmultinational . Geographical limita-tions and regional separation havebeen replaced with integration ofglobal logistics. And Chineselogistics is gradually becomingone integral part of the globallogistics market. With China’saccess to the World TradeOrganization (WTO) more foreignlogistics enterprises will come toChina, expanding the scope ofexchange and cooperation.between Chinese and foreignlogistics enterprises.

4. Strong GovernmentSupport Currently, the Chinese govern-

ment has determined logistics tobe a strategic industry and includ-ed it into the 10th five-year devel-

Chinese Delegation tours the Warehouseof the Future.

DBMJ 34

opment plan. And in certain areas,local governments are giving ithigh priority as well. Related Stateinstitutes and the local govern-ments of Shanghai City, ShenzhenCity, Guangzhou City, Beijing City,Tianjin City, Shenyang City andShandong Province have formedand issued related policies andmeasures encouraging and push-ing forward the development oflogistics. In March of last year, the State

Economic & Trade Commission,

the Ministry of Railways, theMinistry of Foreign Trade andEconomic Cooperation, theMinistry of Information Industryand the State Administration ofCivil Aviation jointly issued“Opinions on Quickening LogisticsDevelopment in China”; setting forthe first time the directive thoughtand general goal of Chinese logis-tics development, and put for-warding a series of views onactively cultivating the Chineselogistics market, creating anappropriate environment for mod-ern logistics development,strengthening planning and con-struction of the logistics infrastruc-ture, promoting information tech-nology and new technological

invention, broadening the openingof the logistics market, and step-ping up training of logistics per-sonnel. In the same month, theMinistry of Communications hadalso issued a document encourag-ing development of integratedlogistics services by Chinesetransport enterprises.

About SINOTRANSThe China Foreign Trade

Transportation (Group) Corporation,or Sinotrans, was founded in 1950.Historically, it has concentrated onforeign trade transportation. Now itis also moving toward becoming amodernized international corpora-tion offering integrated logisticsservices.Currently, Sinotrans has devel-

oped 47 fully funded branch corpo-rations and 263 joint and coopera-tive corporations. Overseas, it hasdeveloped 48 fully owned branchcorporations and joint ventures,and 8 representative offices. Itsmajor activities include freight for-warding; sea-borne, air, and over-land transport; warehousing; andlogistics services. Sinotrans is the largest freight

forwarder in China, including airfreight. It is a major factor in sea-borne transportation and in ship-ping. Currently, logistics has beena major factor for Sinotrans. Theservice scope ranges from ware-housing management throughcargo collection and cargo distribu-tion, to third party logistics opera-tions. If Sinotrans was regarded in the

past more as a forwarder and carri-er in China, then today, it wouldassume a more important identity,that is, as a Chinese integratedlogistics provider. Its aim is tolower customers’operating costs,and to provide them with safe,timely, accurate, economical, con-venient, and satisfactory logisticsservices. Current customers include multi-

national corporations in China suchas Motorola, Philips, Panasonic,Samsung, Coca-Cola, Ericsson,and Acer. Services provided

include:

·Internal transport·JIT distribution·Warehousing and inventory management

·DC management ·Packing, draft, repair, and information feedback

To make further use of its con-centrated network resources,intensify project management,and upgrade grassroots operationquality, Sinotrans has set updepartments of logistics at 16 ofits coastal branch companies.They are in special charge of logis-tics projects like logistics market-ing and operation control. and areaimed to achieve breakthroughs inlogistics organization, logisticsoperation standardization, logisticsoperation efficiency and generallogistics service quality. Soon, itwould set up departments oflogistics at the rest of 14 localbranch companies. Meanwhile,Sinotrans steps up training oflogistics personnel. It organized anumber of training classes formanagers and professional per-sonnel and over 100 people hadtaken part in such programs. SoSinotrans has developed a teamof logistics professionals with highpersonal quality and rich workexperience. As is the case with logistics

development in general in China,logistics development at Sinotransis also at the initial stage. Andthere remains a big gap betweenit and internationally advancedlogistics corporations. Exactlybecause of this gap, Sinotrans isworking hard to learn, to practice,and to improve its logistics ser-vice expertise in a relatively shortperiod of time. Hence the impor-tance of missions such as therecent one to the U.S. and WoF2001. The delegation participatedfully in conference events,exhibits, and workshops, with thegoal of improving their knowledgeand expertise, so as to helpimprove Chinese logistics capabili-ties upon their return.

Chinese Delegation members pose with Circleof Excellence Award Winner (From L-R: JohnThorn, Chairman of the Board, DBMAssociation, James Coker, interBiz – a divisionof Computer Associates, Rob Caseria, GroupVP – Demand Fulfillment, Coors BrewingCompany, General Al Hansen, President andCEO, EMS Technologies; Ming Lam, President,South East World Wide, Ltd., Zhang Jian Wei,Executive Director and VP, Sinotrans.

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Experts predict that theapproaching e-business erawill require massive

improvements in global supplychain operations. These are thecommon processes in every orga-nization that fulfill customerdemand for goods and services,Figure 1. Greatly increased cus-tomer expectations, coupled withtremendous pressures on operat-ing cost, will compel theseimprovements. For some industries such as

music, software, printing, andeducation, the result will beentirely redesigned supply chainsas they replace physical distribu-tion with electronic distribution.In other industries, the redesignwill employ reengineeredprocesses, integrated systems,and inter-enterprise organizationsto achieve order cycle times, totaldelivered cost, order fill rates, andon-time performances that aremultiple times better than thoseof today. Crafting today’s supply chains

into the advanced e-chains of thefuture will not be easy, Figure 2.It will entail the internal coordina-tion of front-end customer rela-tions with back-end operatingprocesses, and the external coor-dination of the operations channelpartners. Supply chain operationscompetency is formed by technol-ogy, processes, and organizationdesign that align the business andmarket plan with the operationsplan, Figure 3. The evolution ofsupply chain competence is fromfunctional process execution(level I), to enterprise optimization

(level II), to channel collaboration(level III), and finally to virtual e-business connectivity throughportals (level IV). Studies by organizations such as

the Gartner Group, InformationWeek magazine, and professionalassociations continue to showthat the redesign of the elementsneeded for this evolution are lag-ging. One study found that 85%of companies fear they are unableto execute at a level III compe-tence, even though most of themexpect their vendors to have thiscompetency. The major barriersare: 1) cost, 2) technology, 3)trust, 4) planning, and 5) organiza-tions. A survey of manufacturers,

reported in the Summer 2001issue of Distribution BusinessManagement Journal, found thatless than 25% of manufacturershave e-commerce as one of theirtop 3 priorities. Likewise, othersurveys continue to show thatsupply chain systems implemen-tation has a lower priority than“front end” customer and securitysystems. The evolution lag isglobal. A recent study reportedthat only 4% of European compa-nies are e-operations ready.

Evolution ofE-BusinessSupply ChainProviders E-business technology has created theopportunity for significant performanceimprovement in supply chain operations.Realizing this opportunity will not be easy;however, it could be greatly aided by a newtotal service provider (TSP) industry.

By Dr. Richard L. DaweDirector, E-Operations Center, Ageno School of Business,Golden Gate University and Executive Coordinator, Fritz Institute of Global Logistics, San Francisco, CA

Figure 1. Common processes of allenterprises with fulfillment requirementsfor products and/or services.

Figure 2. Advanced e-chains of thefuture will involve coordination of front-endcustomer relations with back-end operat-ing processes, and the external coordina-tion of channel partners. The evolution ofsupply chain competence is from function-al process execution (level I), to enterpriseoptimization (level II), to channel collabora-tion (level III), and to virtual e-business con-nectivity through portals (level IV).

Refereed Article:

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How organizations will accom-plish the evolution is not clear;however, one potential resourceto assist with this unprecedenteddemand for supply chain compe-tence is the creation of a totalservice provider (TSP) industry,equipped with advanced e-busi-ness capabilities. In theory, totalservice providers (TSPs) could beformed through portals that com-bine present logistics serviceproviders (LSPs), application ser-vice providers (ASPs), consul-tants, contract manufacturers,

and exchanges into e-businessutilities. The TSP would provideintegrated channel operations,allowing users to pay for onlywhat they need through a figura-tive “flip of a switch,” like power,telephone, and water utilities. More than just a theory, TSPs

are already forming in the evolu-tion of the operations servicesindustry. Early examples are thedevelopment of software part-ners into ASPs that provide acomplete supply chain systemssuite with e-business connectivi-ty such as IBM, i2, Industri-Matematik, Arriba, and EXE.Another example is the allianceof LSPs and ASPs such as,respectively, Federal Expresswith SAP, and Ryder Integrated

Logistics with both i2 and IBM. It is becoming increasingly

common for service providers tocombine their offerings, or tomerge their organizations,because it is also becomingincreasingly common for cus-tomers to demand all of their ser-vices from one provider, popular-ly known as a 4th party logistics(4PL) provider. The TSP model isan extension of the 4PL model tooffer a complete package of sup-ply chain systems and worldwideoperations capability, connectedand controlled through e-busi-ness technology. Every organization will eventual-

ly require e-business processintegration to plan and executetheir supply chains, whether theyare involved with business-to-consumer (B2C) or business-to-business (B2B) transactions.There is no best practice for thedesign of e-operations capability.Jim Kelly, CEO of UPS, calls theapproaching era of e-business,the last competitive frontier. Theinjection of e-business technolo-gy into an already complex arenaof supply chain management willcreate a fire storm of hope, con-fusion, and panic. Many compa-nies will be unsure which way togo. Providers will also share thatfeeling as users turn to them tobe lifesavers. There are tremen-dous implications for both.

TSP user’s perspectiveUser choices include: 1)

whether or not to outsourcesome or all of their e-chain oper-ations to a service provider, 2)what to outsource, if they do,and 3) whether to outsourceboth operations and systems toa single TSP, or to select best ofbreed providers for both andattempt to integrate them. Thealternatives produce a dizzyingarray of possible combinations.A methodology for selection andoperations strategy needs to becreated to analyze quantitativeinformation and qualitative fac-tors, and this analysis needs to

begin soon. At stake is the com-petence in order fulfillment thatmight be the difference betweenbeing a future market leader or amarket follower.

TSP provider’s perspec-tiveProvider choices include: 1)

what services to offer, 2) whetherto create services themselves orfind complementary alliance part-ners, 3) how to create an inte-grated, seamless, global solutionfor customer needs, and 4) howto demonstrate the value addedby these solutions in each indus-try. The possibilities for productsand market are overwhelming soa valid methodology for evalua-tion of features and market valueneeds to be created thatincludes quantitative market dataand customer factors. The analy-sis needs to begin soon. Atstake is the competence inadvanced order fulfillment ser-vices that will create a viableprovider with huge potential forbeing an industry leader or, if thepotential is unfulfilled, being anindustry laggard. There are two approaches to

current TSP development: a sys-tems approach and an opera-tions approach, Figure 4. Anexample of the operationsapproach is Roadway Integrated

Figure 4. Two approaches are available forreaching a Total Service Provider (TSP) devel-opment: a technology (system) approach andan operations (process) approach. The goal iscompetence in advanced fulfillment services.

Figure 3. Supply chain operations com-petency is formed by technology, process-es, and organization design that align thebusiness and marketing plans with theoperations plan. Levels of supply chaincompetency described in Figure 2 areshown here in another format.

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Logistics (RIL), the world’slargest LSP, providing logistics,assembly, inventory, and procure-ment services to the high tech,automotive, and consumer prod-ucts industries. An example ofthe technology (systems)approach is Electron Economy, astart-up with e-business technol-ogy that provides seamlessevent management across theentire market channel for thehigh tech and consumer prod-ucts industries. The objective of both approach-

es is to create a TSP that pro-vides services along both sys-tems and operations dimensions,a capability that doesn’t currentlyexist. Much of the technologyrequired for the systemsapproach is not yet available;however, it is under developmentin many Northern California com-panies such as Oracle, Ariba,CommerceOne, Peoplesoft,Broadband, SAP (North America),and eBreviate (EDS). Some arepartnering, as is the case withCommerceOne and SAP.Likewise, operations compe-tence is limited by a lack of glob-al coverage. However, mergers,and partnerships between suchorganizations as the Germanpost office and UPS (which isestablishing global operationscapability through acquisition ofsmaller operations providerssuch as Fritz Companies) are cre-ating this coverage. Figure 5 details the eight seg-

ments of the TSP industry thatare vying for pieces of the opera-tions services market and thefour service categories they pro-vide. The present market for out-sourced operations servicesdemonstrates two strong trends:1) the market for services isgrowing at approximately 20%per year with 73% of global com-panies using one or more out-sourced services and 2) thedemand for systems and e-busi-ness services is the fastest grow-ing feature with 90% of globalcompanies indicating they expect

ConclusionThe users of supply chain ser-

vices and the providers of theseservices stand at the crossroadof the biggest evolution in theirhistory. However; right now thatcrossroad looks more like a four-way stop with each waiting forthe other to make the first move.Users are waiting for the providerindustry to evolve to a TSP sta-tus, so they can acquire level IIIand IV competence without theexpensive and risky re-designs oftheir internal processes, technol-ogy, and organizations. Supplychain service providers, on theother hand, are waiting for aclear indication that users willbuy TSP services, if they are tomake the substantial investmentin time and technology neededto optimize global supply chainoperations. The evolution to advanced sup-

ply chain competence is yet tobegin. It is clear that advancedcompetence will eventuallybecome a competitive necessityand those without it will face asevere disadvantage. But howand when this competency willbe produced is not clear. TheTSP industry will continue toevolve, though the pace may beslowed by the current sluggisheconomy. Users of supply chainservices will continue to look fore value in the TSP offerings. TheTSP model will face competitionfrom cooperative exchangessuch as Covisinct in the automo-tive industry and from privateportals. Whether TSP becomesthe dominant model in the indus-try should be known in 3-5 years.

The author, Dr. Richard L. Dawe,can be reached at 925-798-9488or rdawe@ggu.edu

(i) “Third Party Logistics Study” CapsGemni/Ernst & Young, University ofTennessee, and Exel; July 2000

(ii) “Growth Spurt” a report on thesurvey of the 3PL industry byNortheastern University, LogisticsMagazine, November 2000, p. 77

future providers to have the keycomponents for collaborated andoptimized supply chains. (i) Thedownside to these trends are: 1)growth of operations outsourcinghas stalled at 73% over the lastthree years, with expansion com-ing from existing users who arebuying more services and 2) only27% of the companies in theprovider industry are consideredcapable of delivering advanced e-business solutions. (ii) Given thisgap between supply anddemand, providers have muchdevelopment work to do. The expansion of operations

outsourcing among those alreadyusing this service has beenabout 9% per year, mostly fromtransportation, warehousing, andfreight payment services. Whilethe growth of these services isexpected to continue, the largestgrowth potential will be for con-tract manufacturing and informa-tion technology services, morethan doubling the current rate ofoutsource adoption. Even thisdramatic increase in the trendtowards outsourcing will stillleave about 90% of all compa-nies with no plan to outsourcetheir information technology, andless than half of present out-source users planning to out-source IT, according to aNortheastern University study.Apparently, companies areunconvinced of the value-addedby the service provider industry.

Figure 5. Examples of providers in thenew TSP industry are at left. Categories ofservice provided are listed at right..

Fraunhofer Institute leadsthe way in appliedresearchThe Fraunhofer Institute

(Gesellschaft) is a leading organi-zation of applied research inGermany. It operates 49 researchinstitutes in Germany with about9,000 employees, about half ofthem scientists and engineers.Founded in Munich in 1949, theFraunhofer Institute expandedrapidly all over Germany by set-ting up nearly 50 institutes with alarge variety of research fields.One of its important fields ofresearch is material flow andlogistics. More than two-thirdsof the Institute’s revenue comesfrom collaboration with industryand the public sector (Over halfthe industrial earnings comefrom small and medium sizedenterprises). Apart from collab-oration with numerous compa-nies and research institutes with-in Europe, the FraunhoferInstitute also operates resourcecenters and research units in theUnited States.The Institute is thus an indepen-

dent R&D organization that alsoprovides consulting services.Each of its specialized institutesis affiliated with a university thathas a special strength related tothe focus of the individual insti-tute. Typically institute directorsalso serve as full professors atthe affiliated university.

The research fields of theFraunhofer InstituteEight fields form the core of

Fraunhofer research:

* Materials and Components* Production Technology* Information and

Communication* Microelectronics and

Microsystems* Sensor Systems, Testing

Technologies* Process Engineering* Energy, Environment, Health

Spotlight onEducationand ResearchA quarterly review of leading educational

and research institutions in the fields of distribution, logistics, and supply chain management.

Feature Article:

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* Technical and EconomicStudies

About Fraunhofer IMLThe Fraunhofer Institute for

Material Flow and Logistics (IML)was founded in 1981. Logistics isknown as the theory of planningand control of material, persons,information, and energy flows.The Institute tries to bring thistheory into practice and to createthe technical facilities for a for-ward-looking economical, eco-logical, people-friendly, and sus-tainable program.Corresponding with this global

approach, the research activitiesof Fraunhofer IML include vari-ous areas of material flow andlogistics such as the energy-effi-cient flow of material systems,integral business management,and intelligent organization oflogistic tools. Logistics interdis-ciplinary teams - engineers,mathematicians, computer scien-tists, and economists - worktogether to find technical, organi-zational, and economical solu-tions to customer problems.There are three main working

areas or sections in the organiza-tion of the IML: “Material FlowSystems”, “Enterprise Logisticsand Logistics”, and “Traffic andEnvironment”, each employingabout 50 scientists. The head ofthe institute is Prof. Dr.-Ing. AxelKuhn, who is also head of the“Chair of Oragnization andTechnology of Production” at theUniversity of Dortmund.

Material Flow SystemsThe Section of Material Flow

Systems is active as a serviceprovider in the areas of ware-housing, transportation, trans-shipping, handling, and order-picking systems, as well as inquality management and soft-ware, and relationships amongpeople, organizations, and tech-nology. The services providedfor customers range from theanalysis, planning, and concep-tion of material flow systems,

through to system selection,request for proposal, and costjustification. Scientists and technicians from

mechanical engineering, electri-cal engineering, computer sci-ence, and industrial engineeringdisciplines ensure a high stan-dard of performance within thearea of material flow systems.They solve problems togetherwith customers, using interdisci-plinary teams. The FraunhoferIML has mechanical, electrical,and electronic workshops forbuilding prototypes and forimplementing projects withindustrial partners.Improving delivery service and

reducing inventory require highperformance warehousing, trans-portation, and transshipping sys-tems. The transformation of newideas into practice-orientedprocesses and products repre-sents the essential premise forcustomer-oriented solutions.The integrated use of material

flow equipment such as driver-less transport systems, automat-ic cranes, and compact ware-house systems is an importantinnovation. Other new solutionsinvolve warehouse systemswhich operate around the clockas desired by the customer.Warehousing, order-picking, and

dispatch systems, dependingupon their structure and processorganization, clearly differ withregard to efficiency and costs.The requirement profile deter-mines the system selected. Inorder to fulfill this requirement,the Fraunhofer IML suppliesknowledge about the necessarytechnology and systems, meth-ods and planning expertise, andproject experience in such areasas order-picking systems. Thesolutions range from simplemanual handling to complex,highly automated order-pickingsystems and cost-effective com-binations.Robots are increasingly being

used in material flow systems.Involvement with robotic applica-

tions extends to devices andcomponents, gripping systems,sensor technology, and controls,and includes supporting the pro-ject from the problem definitionthrough initial operation and thetraining of service personnel.Within the supply chain, sub-

stantial benefits can be realizedthrough the formation of packag-ing patterns and freight spaceoptimization. The area of materialflow systems offers solutions forthe formation of dispatch units,for freight space optimization atseveral levels from the loadingdevices to the truck, as well asfor the automated control ofprocesses. One example of asolution is the use of robots toarrange outgoing pallet loads.A demonstration center for

material flow provides customersa first hand look at automationpossibilities and an opportunityto test prototypes in use. Newdevelopments arising from differ-ent pilot phases are run throughthe demonstration center beforethey are made available to tradeand industry. In this manner, anysources of error can be mini-mized, and improvements can beincorporated as quickly as possi-ble. The customers can combinetheir requirements with the exist-ing material flow system on loca-tion. Subsequently, customeremployees are trained on how touse the new technology in themost effective way.Corresponding with the

Fraunhofer philosophy, theSection of Material FlowSystems operates as a neutraland independent advisor and asa product development and soft-ware partner. Its objective is thedevelopment of new, innovativesolutions achieved through net-worked material flow systems forapplication in industrial and com-mercial enterprises, and by ser-vice providers. In some cases,collaboration is done with inter-national research partners in car-rying out leading-edge, applica-tion-oriented research projects.

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Internet facts. Internet usage has exceeded most

forecasts by growing at an astro-nomical speed. With 766 millionworld-wide Internet users, e-com-merce revenues are expected toreach $1.3 trillion by 2003, Figure 1.Revenue for B2C e-commerce inthe US is expected to be $75 billionin 2002, while B2 B revenues willgrow to $634 billion. B2B transac-

tions are projected to account for75% of total e-commerce transac-tions this year. Over 300,000 retail-ers are expected to be selling onthe Internet by 2002.

The Internet has become a part ofall of our lives. More than 90 millionpeople worldwide, and 47 millionpeople in the U.S. alone, log on tothe Internet. Some 1 billion people

will be on line inthe next threeyears.Forecasters pre-dict that by 2003the e-fulfillmentmarket will be 1.2trillion dollars.That’s not thestartling fact- thestartling fact isthat to handlethat volume willrequire some 1

million fulfill-

ment workers. The staffing require-ments, along with customer expec-tations of 100% accuracy, and thechallenges of getting every order toevery customer correctly and ontime, complicate the whole e-fulfill-ment challenge.

E-Fulfillment Facts E-logistics is more than warehous-

ing. It’s more than cross-docking.It’s that, plus packing and trans-portation. More importantly, it’s thecontinual tracking of information onthe package. It’s not only logistics,it’s also reverse logistics - thereturns, the warranties, and therejected shipments. It’s the pur-chasing and the inventory control (itdoes little good to have inventory ifyou don’t know where it is). It’sorder selection, gift-wrapping,monogramming, and a dozen otherthings. Fulfillment is not only laborintensive, it’s often capital intensiveas well.

While most e-tailers ship fewerthan 400 orders a day, the com-bined total will amount to some 2.1billion deliveries in 2003, and some5.8 billion in 2005.

Fulfillment is as old as the separa-tion of work tasks. In early timessome would hunt and some wouldgather; some selecting and satisfy-ing others’ needs. Most people lookat e-fulfillment very simplistically.It’s only warehousing. Anyone cando it. Its’ just “lick a label and kick abox.”

In reality fulfillment isn’t just ware-housing. Traditional warehousingtends to be pallet in, pallet out.Fulfillment is pallet in, or cases in,but almost always it’s eaches out.Traditional warehousing ships truck-loads or LTL. Fulfillment ships pack-ages.

Catalog Versus E-Fulfillment

Catalog fulfillment has beenaround for years. The catalog busi-ness is very similar to the e-fulfill-ment business. Professor TomSpeh, of Miami of Ohio University,has said that you can solve some

TheChallenge ofA FulfillmentStart-Up InLess ThanNinety Days

The new fulfillment scenario may be palletsin and cases in, but almost always it is“eaches” out. The first step to success isunderstanding how fulfillment in e-Commerceis different from the traditional processes ofthe brick-and-mortar world.

Figure 1. E-Commerce revenue projections. (ForresterResearch, 12/99 (IDC 2/2000)

By Thomas L. FreeseFreese & Associates, Inc., Chagrin Falls, OH

Industry Article:

$1,400

$1,200

$1,000

$800

$600

$400

$200

$0

180%160%140%120%100%80%60%40%20%0%

1998 1999 2000 2001 2002 2003

$43 $109

$251

$499

$843

$1331

$8 $18 $33 $52 $76 $108

Projected B2B revenue in billionsProjected B2C revenue in billions

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70% of e-commerce logistics prob-lems with catalog company tech-niques. The basic principles in e-ful-fillment are very similar to those incatalog fulfillment, but there is onegigantic difference. With catalog ful-fillment, you can forecast. Youknow who you sent the catalogs to.You know how many you sent. You

know what geographic areas theywent to. You also know the demo-graphics of the people you sentthem to. You know what the sec-ondary readership is. This informa-tion is all available, and from it youcan project what you are going tosell. You can project the size, thecolor, and the material.

It’s different when you go on theInternet. When you make that sameoffering on the Internet, it’s sudden-ly available to thousands, even mil-lions, of potential buyers. That’s thekey difference between e-fulfillmentand catalog fulfillment. Not only doyou not know or control who youmake the offer to, you have little orno history. E-fulfillment operates at“Internet speed.” Like it or not, it’salways 7 days a week, 24 hours aday, and 365 days a year (7/24/365),even if you’re not geared up for it.Why is e-fulfillment such a chal-lenge? Because the performancewe’re trying to achieve in this newsupply chain often exceeds existingsystem capabilities. E-fulfillmentoperations must have scalability toaccommodate the uncertainty. One

day you may come in and have5,000 orders to fill, but the next dayyou have 20,000 orders, becausethe marketing people decided,“let’s give people $10 off everyorder they place.”

A Fulfillment Case StudyThe uncertainty from day to day

described above was very similar tothe situation one e-tailer’s peoplefound themselves in. They had awebsite. They were getting orders,but decided to be more aggressivewith their marketing. They made anoffer on the Internet that gaveeverybody $10 off every order theyplaced. It worked. They got orders.However, they had more ordersthen they could handle, and every-thing ground to a halt. They hadmultiple SKUs in the same pickface. They had open backorders sit-ting around in various rooms—orders that they thought they couldfill, but when they went to the loca-tion the inventory wasn’t there; half-picked orders just sitting and await-ing more inventory to arrive. Theirinventory had flooded out of thewarehouse and was sitting in theirparking lot.

Initial OperationThe company operated out of a

10,000 sq ft facility with no truckhighdock and a capacity of 150orders per day. It carried 2,500active SKUs and faced a 10-dayorder backlog. There were signifi-cant back orders, and a minimalconfidence in inventory accuracy.Scenes from this “before” scenarioare shown in Figure 3.

The company’s request to its con-sultant was simple: “Move us into anew facility to address our current

business and up-coming holidayseason business, that will accom-modate 500% growth in less than90 days without interrupting any-thing we’re doing.”

The implementation team wasmade up primarily of “hired guns”.It was made up of “hired guns”because in an e-commerce start-uporganization, there is often nodepth of management or experi-ence.

Freese & Associates, Inc. wasbrought in for the distribution oper-ations, site selection, and facilityset-up. AnswerThink was brought inas the systems implementationgroup. Sprint Paranet was broughtin for the communication require-ments. Yantra was the e-commercesolution package. Local materialhandling companies were used torent equipment until the equipmentneeded for the longer-term designcould be acquired. Local person-nel agencies were used to providetemporary staffing.

New OperationThe company now functions out

of a 125,000 sq ft facility in a paper-less warehouse environment,Figure 4. It has three loadingislands with 12 docks. The capacityis now 10,000 orders per day.There are over 10,000 SKU primarypick locations; a 25,000 sq ft mez-zanine kitting area; a 25,000 sq ft,12-station, packing area; and a 50-station call center operating on a(7/24/365) basis.

What you don’t want to hear onceyou’re up and running. The follow-ing challenges were faced andresolved during the course of theimplementation:

1. “My label won’t scan.” In a

Figure 3. The case study “before” scenario: a) multiple SKUs per pick face, b) openback orders, and c) outdoor warehousing.

Figure 2. E-fulfillment is not just a sim-plified view of warehousing-”just lick alabel and kick a box.”

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paperless environment that meansyou can’t do anything. We experi-enced that. Everybody experiencesthat. The first time our label would-n’t scan, we found that the printerused to print some of the locationlabels had not printed them so thatthey were scannable. So, overnightwe printed new labels—got themup and got them scanning

2. “There isn’t such a location.” Ifyou have putaway logic in your sys-tem, the system tells you where toput things. It may even tell you toput an item in a location that does-n’t exist. That can be a disaster. Inthis case, there was a pole wherethe location should have been.Somebody decided to eliminate thelocation without telling the system.

3. “UPS already picked up.” Whenyour manifested shipment is pickedup and you find a number ofunshipped packages that were onthe manifest, you have a problem.You have to examine your opera-tional procedures, or otherwiseyour tracing and tracking of pack-ages becomes very suspect.

4. “The system is down for test-ing.” Anytime you do an implemen-tation in real time and in a short

period of time, with various peoplemanaging various aspects, it’s quitecommon for someone to conduct atest and forget to tell everyone else.

5. “The system won’t supportthat.” What do you do when youlearn, after the fact, that the soft-ware system won’t support a partic-ular operation? You determine howto support it anyway.

6. “We don’t have the SKU in thesystem.” E-fulfillment in e-com-merce is different from the tradi-tional bricks and mortar environ-ment. When a customer orders aproduct, they are ordering that spe-cific item. They see it on theirscreen. They’ve read the descrip-tion and they expect that exactitem, not a substitute. If theyordered a 16oz. container but themanufacturer has a 20 oz bonuspack, the latter is a different SKU,and your system should not acceptit. So your item masters must beaccurate. When your receiving sys-tem is based on scanning, then ifyou don’t recognize the SKU youcan’t receive it. If you can’t receiveyou have a bottleneck at yourreceiving dock.

7. “But they said I could skip thatstep.” With a number of temporary

employees in the training process,things sometimes get hectic. Atemp may often turn to someoneand say “what do I do about this?”and they are told to just skip thatstep and go on to the next. Youhave to be careful that you don’tallow that. You have to have a con-trolled plan in your training process.Otherwise, particularly in a paper-less environment, you can lose con-trol.

Lessons Learned You need flexibility within your

plan. E-commerce and e-fulfillmentprovide a dynamic environment.You have to be flexible. You have toanticipate peaks other than just sea-sonal peaks. You have to anticipatepeaks within the day, within theweek, within the month. That is thenature of doing business on theInternet. Therefore, you have tohave contingency plans.

Returns are one of those thingsthat are often forgotten in the e-ful-fillment area. The reality is that inmany fulfillment situations, bothcatalog and e-fulfillment, it is notuncommon to get from 20% to40% of the goods shipped outreturned. Your customer expectsyou to handle the return with thesame Internet speed that you han-dled their shipment.

E-fulfillment is where today’s neweconomy meets the old. High tech,nice websites, warehouse opera-tions, fulfillment, the delivery of thepromise, that’s where the old econ-omy meets the new. Fortune andother publications are beginning torate e-commerce companies basedon their fulfillment proficiency, noton their website or business plan.In e-business it’s pallets in andeaches out.

Selling is only the start of the e-ful-fillment cycle. Getting the goods tothe customer is really another story.People are finding that logistics isprobably the restrictive limiting fac-tor that they have for Internetgrowth today. In an e-commerceinfrastructure you have a front endand a back end. The front end, ismarketing, web content, buy-sell

Figure 4. The case study “after” scenario: A paperless warehouse environmentwithin a 125,000 sq ft facility; a 10,000 order per day capacity, over 10,000 SKU pri-mary pick locations, and a 50-station call center providing 7/24/365 operation.

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transactions, and the creation ofthat electronic order. The back endis the whole fulfillment piece, thereal time order management, thetrack and trace information, thesupply chain and inventory man-agement, the order information ser-vices, and the delivery of productto the customer’s door. Instead ofrushing head long into e-com-merce enterprises that plan to sellproducts over the Internet, youmust first develop a strategy of anefficient backend fulfillment opera-tion. That involves the ability tomass customize on demand, andthe ability to pick small order quan-tities. What is needed is a scalableprocess that will permit growth.You must streamline pick, pack,and ship capabilities without incur-ring bottlenecks, and provide ade-quate staging areas for bothinbound and outbound flows. Asignificant problem area in e-fulfill-ment is the bottleneck often creat-ed by packing stations. In mostcases you’re able to put away andpick at a rapid pace, but when youstart doing mass customization andproviding special packaging andpackage shipments, that’s wherethings slow down. That’s wherethe real labor intensity comes in.It’s very difficult to automate aprocess when you have differenteaches of different sizes and withdifferent shipping characteristics.

Typical e-fulfillment startups lackexperience. They often lack prod-uct demand history and good itemmasters. They don’t know cuberequirements, item weights, orflammability characteristics. E-commerce startups often lack real-istic SKU forecasts. They lack pro-cedures and practices, and theyoften lack experienced managers.More importantly they don’t gener-ally allow sufficient time,resources, or attention to the fulfill-ment end of their business. It is agood idea for them to pay attentionto the lessons learned by thosewho have already made the jour-ney.

Do you know which piece of thesupply chain your WMS is missing?

Clorox, Williams-Sonoma, and Honda do.

Call!

Advanced Logistics Systems, Inc.360.378.5398 – Or

www.advanced-logistics.comFind out about our Advanced Business Solutions

Index of AdvertisersCompany Page Circle

Advanced Logistics Systems 43 57Atlas Mezzanines 56 62Battery Handling Systems 15 54BT Prime Mover 64 64Dcenter 30 56Distribution & Fulfillment Expo 27 55Ergotron 55 61Global Strategies 2 50GNB 0 48InterBiz 13 53Kardex 1 49Keith Manufacturing 66 66Knapp 54 60Landoll 49 67LXE 6 51Ranpak 53 59Retrotech 8 52Speedways Conveyors 47 58Steel King 65 65WB McGuire 56 63

Circle Number 57

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In today’s new economy, logis-tics operations are under increas-ing pressure from evolving tech-nologies. Successfully reacting tothese pressures for change canplace an organization under fur-ther pressure. The ability to easilydeploy these new technologiesrequires that organizations imple-ment a well-developed technolo-gy strategy.The core of a well-developed

technology strategy is to allownatural business evolution tooccur. This entails retaining thosekey elements of the business thathave made the operation suc-cessful, while integrating newtechnologies into the mix. Thechallenge to this approach is inmaking sure that each new tech-nology integrates, and, fits into,the business model, and supportsall other components. Consider the challenges faced

by an organization coordinating asupply chain that links bothdomestic and international suppli-ers with a customer base consist-

ing of both direct consumers viathe Internet, and a distributedreseller network. Orders must beexchanged, shipping schedulestracked, receipts matched to cus-tomer demand, and in cases ofshipping delays, decisions mustbe made concerning which sideof the customer equation isimpacted and to what extent. Any technology strategy must

meet these challenges head on.And it also requires tightly inte-grated components. There arethree critical components whichthe strategy must address. Inthis, and for ease of discussion,they will be grouped into these

three layers:Layer one addresses the central-

ized management of data; Layertwo, addresses the enabling ofeBusiness management process-es; And lastly, layer three address-es the need to have what can becalled ‘a window into the busi-ness’.

Centralized Data andAsset ManagementBusinesses today require ever -

expanding amounts of informationin order to make decisions, deci-sions that can impact the wholeorganization. This informationincludes data from the traditionalsources found in the corporatedatabases—, both those createdfrom legacy applications andthose built within new packagesthat are implemented. But to an eBusiness, this data

asset must also be expanded toinclude sources outside the tradi-tional host environment. Host datamust be combined with that oftrading partners (suppliers andcustomers), devices that play criti-cal roles in product managementand delivery, and the most data

eTransformation from the traditional brick-and-mortar business to eBusiness involvesfar more than simply just having a companyweb site. eBusiness can be defined as a collection of processes that allow both multiple departments and companies withinthe supply chain to work both cooperativelyand collaboratively.

By James Coker – Technology Strategist, interBiz, The eBusiness Application Division of Computer Associates

Industry Article:

Logistics“eTransformation”–Technology Strategies forLogistics Operations”

Figure 1. An eBusiness technology strategy must address how disparate sources ofdata can be combined into a single, unified view.

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45

rich source of all, the Internet.An eBusiness technology strate-

gy must address how these dis-parate sources of data can becombined into a single unifiedview. It must also allow for futureadditional sources of data as otherapplications are added, Fig. 1.. This single unified view should

provide not only for data sharingfor analysis, but also be the foun-dation structure for dataexchange up and down the sup-ply chain. With its increasinggrowth and promise of unlimitedbandwidth, the Internet is a keytool for use in this layer of thetechnology strategy, both as asource of information and apipeline for information exchange.The key element found within

the second layer of the eBusinesstechnology strategy is an“Intelligence Engine”, Fig. 2. Thisengine links the capabilities of the

major eBusiness enabled tech-nologies with the centralized datafrom the previous layer and coor-dinates a series of managementdirectives. This process empow-ers management by enablingmore timely, efficient and strate-gic decisions.

Intelligence EngineIn order to be well informed in

the decision making process, managers must have a good measure of performance at multi-ple levels within their organization.Data such as revenue, gross margins, cash availability, vendorperformance, and employee productivity are all elements ofdata that can be extracted from

corporate repositories. Basically while such data pro-

vides an internal view of perfor-mance when it is combined withdata from other discrete informa-tion sources available from theInternet or from trading partners,performance can begin to be mea-sured on a much broader scale.Such combined measurementsare defined as “Key PerformanceIndicators” or KPIs for short. Thistechnology enables managers tosee not only how they are per-forming in strategic areas internal-ly, but also how this performancematches up to others within theirindustry on an average, andagainst such metrics as “Best-in-Class” for their industry. Another example of a KPI is one

that measures current financialposition, bringing in data from mul-tiple sources to reveal cash posi-tion, short and long-term receiv-

ables position, and the currentmarket valuation of any corporateinvestments.

Event CorrelationAnother form of measurement

can be found in “EventCorrelation”. Managing aneBusiness is a matter of keepingon top of a rapidly changing envi-ronment. What if a major orderfrom a vendor is going to be late?What orders will be affected?What options are available forreacting to this event? New technologies can not only

monitor when such events occur,but can also assess the impact ofsuch an event on other elementswithin the supply chain, alert the

proper manager of the event, andrecommend specific action.Proactive management replaces operating in a reactive mode thatmanages problems after they sur-face, or doesn’t recognize that aproblem exists until it’s too late.As more and more data

becomes available to the“Intelligence Engine”, the abilityto direct actions becomes evenmore important. Incorporation of“Manage-by-Exception Rules” intothe analysis process allowstoday’s eBusiness manager tofocus on exceptions to the nor-mal, without having to first siftthrough reams of informationlooking for matters that requireattention.

Thus, management can nowfocus its attention where it canhave the most impact. Using a “Workflow” engine we

can also determine whom best tonotify of exceptions when theyoccur. In today’s mobile world,rules can be defined that decidenot only whom to notify, but alsogiven the time of day or day ofweek, how best to notify them.This notification could take theform of alerts via laptops, pagers,palm devices, or cellular phones.This technology truly enablesexecutives to assume true func-tional “Command-and-Control” oftheir eBusiness at all times.To this point the technologies

found in this layer have for themost part dealt with events thathave happened in the past, some-times correlated with data reflect-ing current status, but what aboutthe ability to predict a futureevent?

Artificial IntelligenceWhile some events are easily

predicted based on correlating aset of past events, others are notso simple to predict. What isneeded then is the deployment ofan “Artificial Intelligence” capabili-ty in the technology strategy. While artificial intelligence is not

a new technology, having beenused for many years in the areas

Figure 2. An intelligence engine links the capabilities of major eBusiness enabled tech-nologies with centalized data from various information providers illustrated in Figure 1. In so doing, it also coordinates a series of management directives.

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of process control and mostrecently in network and systemmanagement, it is new to thegeneral business world. Artificial intelligence is probably

one of the more exciting newtechnologies available to theeBusiness manager. Using aprocess called neural learning,artificial intelligence is now ableto be used in the eBusinessprocess to improve overall pre-dictive capabilities in areas suchas demand forecasting, perfor-mance analysis, process opti-mization, and even such criticalareas as fraud detection.Having placed an “Intelligence

Engine” on top of a centralizedview of the corporate data assetthere is one layer left to add tothe eBusiness TechnologyStrategy.

Contextual VisualizationData, on its own, is nothing

more than a collection of unrelat-ed facts. Data that has beenpassed through an analysisengine creates an abundance ofinformation for input to the deci-sion process. The last phase ofan eBusiness technology strate-gy deals with providing a ‘win-dow into the business’ or“Contextual Visualization” of this

information, as shown in Figure.3.A mass of information present-

ed out of context, or in a waythat makes it awkward to inter-

pret, is meaning-less to aneBusiness man-ager. This infor-mation needs tobe presented ina visually intu-itive way thatbrings its keypoints to theimmediate atten-tion of the user. While a list of

all customerorders is infor-mative, a list thathighlights in redthose orders indanger of miss-ing a ship date,forms a basis fordecision and action. A 3D graphof this year’s sales that high-lights any variance from lastyear’s sales or the sales forecastis much more meaningful that acolumnar report full of numbers.This information must also be

made available to managersthrough their preferred medium.

SummaryWhen all three layers of tech-

nology are assembled together,what emerges is an outline of atechnology strategy designed to

manage the transformation of atraditional logistics operation intoa true eBusiness, as shown inFigure 4. Integration of multipledata sources provides critical

input into the decision process.KPIs, event correlation, businessrules, predictive technologies,and workflow are all workinghand-in-hand to provide proactiveanalysis and alerts to managers,highlighting where attention isneeded. Contextual visualizationprovides the eBusiness Managerwith a window into the businessin a way that is both easy tounderstand and act on.Companies that build their busi-

nesses on such a technologystrategy are laying the foundationfor gaining the lead in the worldof eBusiness. This is a strategythat allows them to build on theirexisting investments in technolo-gy and propels them forward.They are positioned, better thanever before, to orchestrate theirextended enterprise up anddown the entire length of thesupply chain. Their managers areleveraging every informationsource available, analyzing pastevents and predicting futureones, to make more informedand proactive business deci-sions.Using an eBusiness technology

strategy allows managers tomanage the events around them,and to truly gain global com-mand and control of their entiresupply chain.

Figure 3. Contextual visualization converts raw information into a visually intuitive for-mat that brings key points to the immediate attention of the manager. Examples mightbe highlighting critical areas in red, or highlighting variances from last year’s performanceby means of a 3D graph.

Figure 4. Integrating the technology layers from Figures 1-3 pro-vides a strategy for transforming a traditional logistics operationinto a true eBusiness.

DBMJ

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INDUSTRY ROUNDUPcontinued from page 9

of-breed technology, equipment, andexpertise under one roof. Over 30software and material handling equip-ment vendors contributed technologyto this state-of-the-art facility. Thenew lab allows customers to compareand test new technologies and eqip-ment before they buy and to trainfuture users with no downtime.Technologies represented include mul-tiple sortation systems, conveyor sys-tems, supply chain management sys-tems, wireless network and RFdevices, web-based customer receipt,and more.

New 3PL directory The new 2002 edition of Leonard's

Guide, National Third Party LogisticsDirectory is now available with com-prehensive information on U.S. andCanadian providers of 3PL services.Included are classification, regionalspecialties, services offered, ICC/DOTnumbers, equipment available, suretybonds, cargo contingency information,and contact information. Cost of the620-page edition is $125.00. A $40.00savings is provided when the directoryis ordered along with the 2002National Warehouse & Distribution

Directory. Contact Leonard's Guide,Arcadia, CA; phone 626-574-1800; e-mail: info@leonardsguide.com; web-site: www.leonardsguide.com

News in the fieldSupply chain management leader

Exel acquires All Cargo Logistics, aleading Austrian air freight forwarder.Exel also has been selected by IKONoffice solutions, Inc. to outsource thestorage and distribution of its equip-ment inventory. Logistics.com intro-duces an advanced transportationmanagement system (TMS), integrat-ing logistics planning; execution; visi-bility; and reconciliation. ZebraTechnologies introduces a wireless RFoption for bar code label printers.Trucking industry leader DonSchneider (Schneider Logistics) hasbeen named Person of the Year byThe Logistics, Transportation andSupply Chain Management Society ofthe Robert H. Smith School ofBusiness, University of Maryland.Robert L. Otten is chief operating offi-cer of Landoll Corp., Marysville, KS, amaker of narrow-aisle fork lift trucks,transport trailers, and agriculturaltillage equipment. ManhattanAssociates was awarded the ISO 9001Certificate of Approval from SGSInternational Certification Services, Inc.

ProfessionalAssociation EventsCalendar

Warehouse of the Future 2002Annual ConferenceJune 24-26, 2002Orlando Convention CenterOrlando, FLwww.DCenter.com

WERC Annual ConferenceApril 28-May 1, 2002Hyatt Regency ChicagoChicago, ILwww.werc.org

2001 APICS InternationalConference and ExpositionOctober 28-31Henry B. Gonzalez ConventionalCenterSan Antonio, TXwww.apics.org/conference

Council of LogisticsManagement (CLM)Annual Conference September 30-October 3Kansas City Convention Center,Kansas City, MOwww.clm1.org

Each year, the DistributionBusiness ManagementAssociation (DBM) pre-

sents the Circle of ExcellenceAward to a leading company in aparticular industry segment thatrepresents the highest standardsof quality and technology, and pro-vides an environmentally responsi-ble supply chain model.Companies that are nominated forthe award have demonstratedleadership in achieving environ-mentally responsible supply chainprograms in terms of:

• Consistency• Integrity• Responsibility• Commitment• Leadership• Experience

The ten criteria for the Circle ofExcellence Award were developedby Dr. Omar Keith Helferich whileDirector of the Supply ChainManagement Program atMichigan State University, withassistance from DBM and otherleading universities offering supplychain management instruction. Insummary, the criteria are:

1. Increased awareness of environmental issues andopportunities.

2. Top management commitmentto supply chain environmentalinitiatives.

3. Ability to demonstrate benefitsof supply chain managementefforts.

4. Planning to continue supplychain environmentally responsi-ble initiatives.

5. Belief that environmentallyresponsible supply chain man-agement goes beyond compli-ance and generates an eco-nomic return for companystakeholders.

6. Improved environmental perfor-mance of suppliers, throughcollaborative relationshipsand/or improved material speci-fications.

7. Implementing at least one ofthe following models to

Circle ofExcellence2001 WinnerCoors Brewing Company combines excellence insupply-chain collaboration with high product quality and a strong commitment to environmen-tal responsibility.

48

Feature Article:

Circle ofExcellence2001 Winner

Circle Number 67

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clable.* Energy use per barrel of beer

produced was down nearly 5%last year, continuing the five-yeardownward trend for energy con-sumption.* Significant reductions in solid

waste (trash) have been achieved.Although Coors has always recy-cled cardboard, the installation ofa cardboard baler in Goldenimproved the effectiveness of thateffort and substantially reducedthe amount of cardboard that hadpreviously been sent to landfills.* Process-related hazardous

waste generation has continuedto decrease. In 1999 it wasslashed by 42% and these gainswere maintained in 2000.

Helping suppliers andpeers get greenerCoors’ procurement department

requires that any suppliers work-ing on-site must strictly adhere tothe company’s environmental prin-ciples and policies, and are evalu-ated accordingly. The companyhas adopted a “reward” approachthat fosters competition amongsuppliers, and rewards the mostenvironmentally friendly ones.

company, we can harness humancreativity to continuously drivedown pollution and waste, reduc-ing both economic and environ-mental costs, and enhancing thehealth and vitality of our organiza-tion, employees, customers, andcommunities.” The following areexamples of the company’sachievements in this area:

* Coors has successfully pur-sued a three-pronged strategy toimprove its packaging: reducingpackaging weight, increasing recycled content, and improvingrecyclability.* Reductions in the weights of

certain bottle sizes since 1988 haveprovided annual savings of 72 mil-lion pounds of glass. A redesign ofbottle boxes cut the amount of cor-rugated used by Coors by 8 millionpounds annually.* Post-consumer recycled con-

tent of glass bottles manufacturedby Coors grew from 9% in 1989to about 35% today. Recycledcontent of both aluminum andcorrugated used by Coors is about70%.* Most of Coors’ paper packag-

ing, which a few years ago couldnot be recycled, is now 90% recy-

improve environmental respon-sibility:a. Comprehensive approachinvolving supplier selection andevaluation, based partially on improved environmentalimpact.b. Development of standardsfor selected suppliers,c. Participation in developmentof industry standards toimprove environmental impact.

8. Using tools to evaluate andscreen suppliers.

9. Considering environmental per-formance prior to continuingsupplier relationships.

10. Willingness to share informa-tion with other organizations.

This year’s Circle of Excellencecompetition centered on the bev-erage industry. The winner, select-ed from five finalists, was CoorsBrewing Company, Golden, CO.Accepting the award on behalf ofCoors was Robb Caseria, GroupVP, Demand Fulfillment and keymembers of the Coors team. Thefollowing discussion is based onRobb Caseria’s presentation at theWoF 2001 Conference.

The Coors storyAs the company responsible for

introducing the aluminum bever-age can and aluminum can recy-cling in the U.S. in 1959, CoorsBrewing Company has a heritageof environmental responsibility. InMarch 1990, the company formal-ly adopted the Adolph CoorsCompany Environmental Principlesto provide clear direction for theactivities of all Coors businesses.Top management is integrally

involved in developing and uphold-ing the company’s environmentalprinciples. Chairman Pete Coorssigned the latest environmental,health & safety principles docu-ment, which is posted throughoutthe company. The company hasreceived numerous awards,including two from the U. S.Environmental Protection Agency.As stated in its principles, “Coors

believes that, individually and as a

The DBM Association presents the Circle of Excellence Award to Coors Brewing Company atthe 2001 Warehouse of the Future Gala Award Banquet (From L-R: John Thorn, Chairman ofthe Board, DBM Association; Dr. O. Keith Helferich, Central Michigan University, Mr. JimChildress, President, LXE, Inc; Rob Caseria, Group VP – Demand Fulfillment, Coors BrewingCompany; Amy Thorn, Executive Director, DBM Association, Jezdimir Knezevic, MIRCEAkademy; M. Neville, interBiz, a division of Computer Associates; Jim Coker, interBiz, a divi-sion of Computer Associates.

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Each year it awards—andrewards—its top barleysupplier/growers for outstandingenvironmental practices.Coors works jointly with other

Colorado companies to set newpollution-oriented goals. In 2000,the company was recognized forachieving an environmental perfor-mance exceeding legal require-ments as part of the Governor’sPollution Prevention Challenge,which invites Colorado’s largestfacilities to set voluntary—beyondcompliance—measurable goals toprevent pollution. The companiesinvolved in the challenge look forways to improve their productionprocesses, use less toxic chemi-cals, institute recycling, and identi-fy ways to improve energy effi-ciencies.Coors is willing to share not only

information with other organiza-tions interested in improving theenvironment, but funding as well.Between 1990 and 1998, theCoors Pure Water 2000 programprovided more than $2.5 million tosupport more than 700 environ-mental projects. The companyand its distributors have workedwith local organizations to cleanup rivers and streams, restorehabitats, create wetlands, monitorwater quality and assist withwater conservation and educationprograms. Beginning in 1999,Coors has focused its environ-mental funding for “on-the-ground” projects located near itsfacilities in Golden, CO, Memphis,TN and Shenandoah, VA.

The supply chain challengesIn addition to its environmental

commitment, Coors faces threemajor challenges in its supplychain business climate: 1) logistics, 2) maintaining ongo-ing high quality, and 3) global con-solidation.

Logistics. Coors operates thelargest single-site brewery in theworld. It is an impressive facility.However, it presents a logistical

disadvantage vs competition,because it takes more miles to getproducts to customers. In today’smarket, where the customer hasmore choices than ever, even anextra day or two for distribution isunacceptable. Thus, the companyhas to be on the cutting edge ofweb-based ordering, inventorymanagement, and finished goodsshipment.Product quality. Coors’ stated

purpose is to provide generationsof beer drinkers with its refreshing“Rocky Mountain” style beer.However, because of competitiveand logistical challenges, it hasbecome more difficult to deliverfresh, refrigerated beer to cus-tomers. The company is thereforeworking with its distributor part-ners to ensure that fresh productsare delivered on time, in the quan-tities desired, and in the most effi-cient way possible.Consolidation. As a result of

global consolidation, the top 20beer brands now account for 57%of the world’s beer sales—a 20%increase in just seven years. Thismeans that Coors and other brew-ers are now competing againstfewer brands whose scope, influ-ence, and customer base is muchlarger than in the past. This kindof global competition puts pres-sure on the company’s entire sup-ply chain.

The supply chain solutionsTo meet its market challenges

and provide supply chain leader-ship, Coors has embarked on sev-eral major initiatives, a few ofwhich are described below.Innovative carrier equipment.

The first initiative is to use moreinnovative carrier equipment inorder to maximize payloads andreduce the number of trucksrequired to meet supply chainneeds. New, lightweight equip-ment allows for up to 51,000pounds in lading versus the con-ventional 45,000 pounds—mean-ing that the company can nowship nine trucks instead of ten inorder to get the same amount of

product delivered. This innovationleads to thousands of fewertrucks each year, saving on fuel,simplifying business, helping theenvironment, and better servingdistributor customers.Focused logistics teams. For

almost a decade, the logisticsteam was split modally, betweentruck and rail. Yet the sales orga-nization and distributors werealigned geographically. Last year,Coors reorganized its transporta-tion and warehousing functionsinto a “one stop shop”, with asmall team responsible for alllogistics in an assigned geograph-ic area. The reorganization hasimproved customer service andresponsiveness.Transportation management

system. To improve transporta-tion performance, Coors intro-duced a web-based transportationmanagement system (TMS).TMS benefits include automatedcarrier selection based on costand service, as well as an opportu-nity for continuous moves, vehiclecapacity management, and moreeffective rate management.Thanks to the new system, carri-ers now receive timely and moreaccurate information through auto-mated notification and load ten-dering. Warehouse network optimiza-

tion. Six years ago, Coors had 24warehouses located throughoutthe U.S. Today, Coors has cut thatnumber in half and is working toimprove the efficiency of its ware-house system even more throughits Network Optimization (“NetOps”) initiative. The “Net Ops”program allows Coors to optimizeits distribution network based onmanufacturing source, warehous-ing and transportation lane costs,and customer service. It allowsthe company to put less inventoryin the market, but more important-ly, in the right places. The pro-gram also allows for more directloading from packaging lines intorailcars and trucks, thereby signifi-cantly reducing double handling.In addition, the company’s internal

DBMJ 52

supply chain is capable ofincreased throughput, thereby off-setting the need to build morecapacity. Net Ops is expected tocut warehousing costs, avoid capi-tal spending, and help improvebrewery operations.

What’s in the future?Coors estimates that in the near

future, it will completely packageto order—any product, at anytime, and in any country. In thisenvironment, the company willdo away with forecasts andmaintain only minimum invento-ry. This scenario will be madepossible by three forces:Technology. Coors plans to

rely heavily on web-based,instantaneous information andcommunication. It will makewidespread use of automateddata capture, and focus near-term efforts on building compati-ble systems that make it possibleto pull all data and processestogether.Strategic alliances. The com-

pany envisions being at the cen-ter of a “spider web” of strong

third-party alliances that includesuppliers, 3PL’s, and even itsown distributors. Its role willincreasingly be to act as themaster coordinator of productflow.Globalization. Coors will

increasingly be a global companywith a significant presence over-seas. The supply chain “spiderwebs,” which will include pur-chasing, sourcing, and supplymanagement, will be managedglobally. The company’s supplychain management professionalswill also be well versed in coun-try-by-country tax structures andcurrencies, and will know how togain advantages from them.To sum up, Robb Caseria,

Coors’ Group Vice President,Demand Fulfillment, puts it thisway: “All companies must con-tinually seek ongoing improve-ments and opportunities in achanging business environment.They have to move forward—andfast. In a world of dizzyingchange, the most successfulbusiness leaders will be thosewho not only learn to anticipate,

understand, and manage thesechanges, but who have thecourage, fortitude, and staminato lead change efforts.”

By-products produce revenue

Many companies are findingthat environmental responsibili-ty can also be good business,in that recycling and variousaspects of total reverse logis-tics can be revenue-producingactivities. Coors BrewingCompany is finding that truealso in the case of by-productsits processes generate. Byconverting by-product streamsinto secondary sources of rev-enue, the company alsoreduces the impact on environ-ment and ecology, by makingcommercial products out ofmaterials that would be land-filled or otherwise treated astrash. A general description ofCoors’ by-products operationsis as follows:

• Waste beer is processedthrough an evaporator to pro-duce syrup and an alcohol con-densate. The syrup is sold asliquid feed to a major pet foodcompany, and the condensateis distilled into fuel-gradeethanol for use as an octaneenhancer in gasoline.

• Spent grains are sold as cattlefeed, in both wet and driedpellet forms.

• Used fermenting yeast is driedand sold to a major pet foodmanufacturer for use in petfood.

• Other by-products that wereformerly landfilled are nowsent to a third partyhauler/processor and turnedinto compost, in the largestcomposting operation in thestate of Colorado. Coors pro-vided seed money to get theoperation off the ground; it isnow self sustaining.

Coors team receiving the Circle of Excellence Award, from left: Francie Morgan, DirectorCustomer Assurance; Jere Zimmerman, Director Core Environmental Health, Safety &Energy; Cathy Clarke, Finance Director, Demand Fulfillment; Robb Caseria, Group VicePresident, Demand Fulfillment; Cindy Goldman, Assistant General Counsel; Wayne Pusillo,Vice President, Strategic Sourcing; Jeanne Dietz, Director Human Resources; and PeterKrueger, Director Supply Chain Development.

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outfitted with KEITH® WALKING FLOOR® systems, automati-cally loading or unloading materials in minutes. Loads are pre-staged without need trailers, saving time.KEITH Mfg. Co., 401 NW Adler, Madras, OR 97741 USA541.475.3802 • 541.475.2169 fax •sales@keithwalkingfloor.com

MATERIAL HANDLING/DOCK EQUIPMENT MATERIALS HANDLING EQUIPMENT

Hand Pallet Trucks move more palletsevery day than any other type ofMaterials Handling Equipment. BTPrime-Mover is proud to offer the BTL2300U Hand Pallet Truck through anetwork of more than 500 independentDealers throughout the United States.

For your local Dealer call (800) 523-0082 or visit www.primem-over1.com.

ORDER PICKINGLandoll Corporation man-ufactures narrow aisleelectric forklifts. Landoll’sBendi™ Series III has 180-degree front-wheel steer-

ing and operates in 78-inch aisles. ThePivotMast™ operates in aisles as narrowas 56 inches. Both models offer 4-wheelstability, handle grades, and eliminatestaging.

See us at the Warehouse of the Future Show!Landoll Corporation, 1900 North Street, Marysville, KS 66508(785) 562-5381; (800) 428-5655 • (785) 562-4853 (Fax)E-mail: mhpsales@landoll.com • www.landoll.com

LXE designsand manufac-tures rugged

data collection solutions including wirelesscomputers, scanners, and wireless networkingproducts for supply chain execution applica-tions. LXE also offers a full range of servicesincluding project coordination and networkdesign and installation. LXE is a whollyowned subsidiary of EMS Technologies, Inc.(NASDAQ:ELMG)LXE Inc., 125 Technology Parkway, Norcross,GA 30092 (770) 447-4224

W.B. McGuire, a division of OverheadDoor Corporation, is a leading manufac-turer of high quality loading dock equip-ment. Our product line consists of theinnovative Truss Head pit-type dock lev-elers, edge-of-dock levelers, seals &

shelters, safety vehicle restraints, and accessories. Together W.B.McGuire and Overhead Door Corporation can completely outfit yourentire loading dock area with our full line of door and dock systems.W.B. McGuire Company, One Hudson Ave., Hudson, NY 12534 •518-828-7652 • 518-828-1262 faxmcguireinfo@overheaddoor.com

Call 717-295-0033 to Reserve Your Space Today Or register online at www.DCenter.com

AIDC / RF TECHNOLOGYSchmalz offersErgonomic VacuumHandling Systemsthat include: The

“JUMBO” vacuum tube lifters with modelscapable of lifting from 20 lbs to 660 lbs; The“VacuMaster” hoist assisted vacuum sys-tems with standard models capable of lift-ing from 20 lbs to 4400 lbs; Vacuum Tablesand stands; Vacuum Clamping Systems;and Vacuum Components.

Schmalz Inc., 7711-109 Welborn St., Raleigh, NC 27615Ph: 919-713-0880 • Fax: 919-713-0883 Emailinfo@schmalzinc.com • Web: www.schmalzinc.comContact: Joe Reams Product Mgr. – Vacuum Handling Systems

ERGONOMIC SOLUTIONS

Monday, June 24, 2002

Call 717-295-0033 to Reserve Your Space Today Or register online at www.DCenter.com

Name ________________________________________ Position __________________________________________________________

Organization________________________________________________________________________________________________________

Address ________________________________________________ City ______________________ State ________ Zip__________

Country __________ Phone __________________________ Fax ______________________ E-Mail ________________

To Register, fax this form to DBM at (717) 299-2154 or you can register on-line at www.DCenter.com or mail this form to: DBM, 2938 Columbia Ave., Suite 1102, Lancaster, PA 17603. For info call DBM at (717) 295-0033.

2. What is your role in product acquisition?

❑ Authorize❑ Buy❑ Recommend❑ Specify❑ None

1. What products/services do you represent or are of interest?

❑ Air Freight ❑ E-Commerce Solutions❑ AIDC Systems/Devices ❑ Packaging, Containers, Pallets❑ Automated Equipment ❑ Robotics❑ Computer Hardware & Software ❑ Services (consultant, systems❑ Construction Integrators)❑ Conveyors & Sortation Devices ❑ Shelving❑ Intermodal ❑ Small Package & Express❑ Materials Handling Equip./Sys. ❑ Storage Equipment❑ Mobile & Wheeled Handling ❑ Third Party Contract Warehousing❑ Overhead & Lifting Equipment ❑ Transportation

3. What is your primary job function?

❑ Corporate Management❑ Vice President❑ Mid-Level Management❑ Manufacturing / Production❑ Engineering/MaterialsHandling❑ Logistics❑ Physical Distribution❑ Purchasing/Administration/MIS❑ Sales/Marketing❑ Wholesale Distribution

WoF2002 and D&F Expo exhibit floor only! (FREE ADMISSION WITH THIS REGISTRATION FORM!).............. ❑ FREE• Conference and Summit ........................................................................................................................................................................ ❑ $895.00

(includes conference & summit program, proceedings, college credits and a Certificate of Education from Auburn University, University fees, all necessary classroom materials, entrance into WoF2002 Event and D&F Expo, Monday evening reception, dinner at the Circle of Excellence Award Ceremony on Tuesday night, and coffee breaks.)

• Conference and Summit applicable discount ...................................................................................................................................... ❑ $______• Spouse Registration (includes full conference and all social functions included with the conference package)............................ ❑ $100.00• WoF2002 Open Golf Tournament (Limited Availabilities) Sunday, June 23, 2002, 8:00 a.m. - 2:00 p.m.... .................................. ❑ $115.00WoF2002 Open (Golf Tournament fee for conference registrants is reduced to) .................................................................................... ❑ $ 50.00

Includes green fees, golf cart, box lunch, and award reception. Tournament is a scramble format.• WoF2002 Tennis Tournament (Limited Availabilities) Sunday, June 23, 2002, 8:00 a.m. -1:00 p.m. .......................................... ❑ $ 55.00

(Tennis Tournament fee for conference registrants is reduced to) ................................................................................ ❑ $ 25.00Includes court fees, breakfast, and award luncheon. Tournament is a round robin format.

Check enclosed (Make checks payable in U.S. dollars to DBM.) ...................................... ❑ Total enclosed with this Form: $Charge my space to ❑ MasterCard ❑ Visa ❑ American Express

Card Number ________________________________________________________________________ Expiration Date __________________________

Cardholder's Name ________________________________________________ Signature ____________________________________________________

NOTE: Discount rate at show headquarter hotel in the Rosen Center is $145.00 per night. Call 1-800-204-7234 for reservations. Must specify DBMA, Distributon Management Association or the International Warehouse of the Future to receive discounted rate.

REGISTRATION

FORM

FEES & REGISTRATION:(Entrance to the WoF Learning Lab and D&F Expo is Free if You Pre-register!)To pre-register fax this form along with your credit card information to DBM at (717) 299-2154, or register on lineat DCenter.com, or mail your registration to: DBM 2938 Columbia Ave., Suite 1102, Lancaster, PA 17603. Forquestions call Amy Thorn at (717) 295-0033. Preregistrations must be mailed by May 31, 2002. After this time you must register on site. Registration fees aretransferable, but are not refundable. Admission to the WoF and D&F Expo exhibit floor is FREE if you pre-register.On-site registration will be open Sunday, June 23, 2002 from 12:00 noon - 6:00 p.m., Monday, June 24, 2002from 7:00 a.m. - 3:00 p.m., Tuesday, June 25, 2002 from 9:00 a.m. - 3:00 p.m. & on Wednesday, June 26, 2002from 9:00 a.m. to 3:00 p.m., in Hall C of the Orange County Convention Center, Orlando, Florida.

Tuesday, June 25, 2002

Call 717-295-0033 to Reserve Your Space Today Or register online at www.DCenter.com

Answers to FrequentlyAsked Questions:• Select the seminars of your choice in

any of the 5 tracks.• Attire to the event is business casual.• Suit and tie or formal attire is

required for the Circle of ExcellenceAward Gala.

• Earn college credit and a Certificate of Advanced Education from Auburn University!

• Conference Proceedings are for conference attendees only.

Conference Registration Includes:• Conference (Pick from 40 sessions in 5 tracks)• Official Proceedings (only for conference attendees)• Warehouse of the Future Exclusive Tour Package.• A Certificate of Advanced Education from Auburn

University plus Universities’ Fees & classroom materials.

• Entrance into WoF and D&F Expo Exhibit floor.• Cocktail reception Monday evening.• Cocktail Reception & dinner at the Circle of

Excellence Gala (Black Tie Optional)• All breaks

Wednesday, June 26, 2002

Call 717-295-0033 to Reserve Your Space Today Or register online at www.DCenter.com

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