If your work relies on logistics, you are likely aware of the ongoing changes in this sector. But a closer look at the challenges, such as increasing logistics costs and increasing customer expectations, that practitioners are facing in their distribution and logistics operations reveals that the entire discipline is evolving. The proverbial “box pushers” who store and move goods, react to hurdles, and make logistics processes run will need to grow into a different role responsible for value creation and the operation and orchestration of their networks. A recent study on the “smart distribution center” identifies demand volatility as the single most important factor in difficulties in distribution and fulfillment setup; more important than all other factors combined.1
What is causing this and how can companies best deal with these challenges? The demand side is changing rapidly: Today, the customer has more knowledge about products and services than ever before through social networks and easier access to product- or company-related information. Service levels of same-day delivery or even sooner are becoming established by online retailers, and those expectations not only impact B2C businesses, but spill over into the corporate world as well.
A Shift to Demand Networks
All of these changes increase the complexity of logistics. Constant change calls for much more flexibility in distribution networks. At the same time, companies are introducing speedy replenishment services as a strategic differentiator to set themselves apart from their competition. Examples of this can be seen across a variety of industries; not only in retail and consumer packaged goods, but in manufacturing industries, as well as among the service providers that run the logistics business for others. These major trends require businesses to adapt their supply chains and transform them into demand networks that are all about the customer, the partners involved to fulfill demand, and the speed of that fulfillment.
For logistics, this means that service levels and cost need to be balanced constantly by considering global trade, sustainability, and multi-mode transportation and distribution. Short-term planning has to match logistics demands and capacities, while the entire distribution network needs to be considered in the optimization of goods flowing in the network — all with full cost transparency. For a network to be able to respond to changes and provide the required flexibility, processes need to be closely integrated to enable the fast exchange of exceptions and provide insight into plans, operations, and inventory. Finally, this requires visibility into the logistics network and traceability of material flows.
Introducing the Supply Chain Execution Platform
To help organizations move to demand networks, SAP has introduced the Supply Chain Execution platform that covers the planning, orchestration, and execution of the physical movement of goods. This solution connects the different participants in the value chain of logistics: manufacturing companies that ship goods, freight forwarders and carriers that provide logistics services, and the ultimate recipients of the goods. The main building blocks of the Supply Chain Execution platform are the three solution areas: Transportation Management, Warehouse Management, and Track and Trace, all merged on one single platform. With this platform, it is possible to align logistics processes with business priorities from order-to-cash or procure-to-pay scenarios through tight integration. By including analytics in transactional processes, real-time operational insight enables the actual operator to make the right decisions.
SAP Transportation Management
SAP Transportation Management (SAP TM) was created as a holistic solution for shippers and freight forwarders of all sizes and with both simple and complex, high-volume operations supporting multi-mode domestic or international transportation processes. Recent solution innovations address the business processes of rail transportation for shippers as well as rail carriers. In addition, strategic freight management capabilities cover the complete tender-to-contract process for shippers and the quote-to-contract process for logistics service providers (see Figure 1). Thus the different participants of the value chain can operate on the same platform, seamlessly integrated with SAP Business Suite. To better collaborate with business partners, the SAP TM collaboration portal allows for the coordination of network activities with carriers.
SAP Extended Warehouse Management
The distribution processes within SAP TM are tightly integrated with SAP Extended Warehouse Management (SAP EWM), which covers warehouse management for distribution centers and production warehouses. With recent innovations in SAP EWM, optimization capabilities find broader adoption in warehouse operations, as warehouse managers can use advanced workload calculation with predictive analytics for labor demand planning. A single point of entry for planning as well as shipment execution and monitoring is provided by the shipping cockpit that supports the operation itself and delivers embedded contextual analytics (see Figure 2).
Track and Trace
Tracking and tracing capabilities, the third component of the Supply Chain Execution platform, create visibility into logistics processes and provide end-to-end process monitoring for critical issue alerting. With SAP Event Management used for shipment tracking, it is possible to more quickly and more precisely know where goods are located. Companies are not only able to track the progress of orders and their fulfillment, but also trace back the distribution flow and the genealogy of the products handled.
An Ongoing Evolution
Planned innovations for logistics focus on optimizing integrated supply chain execution processes and connecting them to the Internet of Things. This will allow for the management of distribution hubs as well as deeper integration of the manufacturing material flow with production warehouses. Overall, the Supply Chain Execution platform strategy allows efficient and speedy fulfillment of customer demands. It breaks down the operational silos of separated responsibilities and allows greater focus on end-to-end business processes, creating the opportunity for logistics managers to become network orchestrators, creating value for the end customer.
For more information, please visit www.sap.com/scm or www.sapscm-webcasts.com.
1 SCM World, “The Smart DC: Delivering Value Through State of the Art Distribution & Logistics” by Barry Blake (March 2014; http://bit.ly/scmworld). [back]