The i Gives Manufacturers and Distributors Cost Control

Published: November 3, 2008

by Dan Burger

You make and distribute products. That's your business--one, the other, or both. But the pressure is on to squeeze more efficiency out of operations and drive more profits to the bottom line. You may have your choice of dragons to slay, but the decision to improve transportation planning, shipment execution, financial settlement, and tracking visibility are popular choices. Not coincidentally, this is one of those IBM System i strongholds.

Transportation management is closely tied to demand management, increased service levels, and more frequent inventory turns. But from the IT perspective, it is mostly about integration. Integration with enterprise resource management (ERP) software is practically mandatory. Integration with warehouse management systems (WMS) is part of a growing trend. The target is pretty big. Labor-intensive processes can be streamlined through automation and improved communication and collaboration with existing programs such as order entry, accounting, and customer service, just to name a few.

In a June 2008 report from ARC Advisory Group entitled The CFOs Guide to Transportation Spend Management, the advice includes leveraging a company's total transportation spend when negotiating with carriers rather than using a fragmented approach based on departments or business units, examining whether carriers are meeting service level expectations at the contracted cost, verifying correct invoicing and the freight settlement process, and assuring that charges are consistent with market prices.

The report asserts that many companies "lack the necessary data, metrics, processes, and/or technology to analyze, manage, and control their transportation spend."

Rising costs, particularly fuel costs, have made transportation issues a far more painful and therefore a "suddenly visible" issue for manufacturing and distribution companies. The ripple effect on the costs of all commodities and other materials has hardly gone unnoticed, particularly to the ultimate consumers who bear these costs. The increased scrutiny has also brought C-level attention to the hinterlands of many businesses: the shipping docks. The shipping department is no longer the forgotten zone, at least not at companies with the goal of controlling costs and increasing visibility from front end to back end. The scariest thing about poking around the docks is discovering the internal expenses relating to how loads get organized, how routes are planned, how freight carriers and package shippers are selected and managed, and how isolated this area is from the rest of the business.

If you are looking for trends in the manufacturing and distribution sector, look for transportation-related cost-cutting measures to grab some interest. It's in the middle of the action because it brings visibility and accountability to an area that for many organizations functions as if it's an island somewhere off the mainland.

In manufacturing and distribution, you'll find companies that have been standardized on the AS/400 and its successors or predecessors for many years, maybe even several decades. ERP software vendors such as Infor, JD Edwards/Oracle /, Lawson, and SAP have substantial numbers of System i users in their installed bases. And there remains a fair number of niche ERP companies with active and happy customers running on OS/400, i5/OS, and now i. The combination of today's Power System i hardware and industry-specific software provides a solid foundation for many companies and there are major investments committed to their continued success.

The ERP companies haven't focused on transportation management systems (TMS). That's not to say they avoided it, some had pieces in place whether they were developed in-house or through business partner relationships. It was important to some customers, but it hasn't been a high priority for a big percentage. That's changing. A number of factors come into play here, and fuel costs have been a flash point, an attention-getter.

"Shipping used to be a back-end process. It wasn't that well integrated into the order management cycle," says Andrew Karpie, senior director of business management and marketing at Varsity Logistics. "Now companies are interested in a complete order management process that extends beyond the dock."

Varsity Logistics caters to System i users that have standardized their ERP applications and sometimes a warehouse management system on that platform. As those companies have grown, organically and through mergers and acquisitions, they come face to face with new competitive challenges. One of the ways to run a leaner operation is to run a tighter ship in the shipping department.

It's fair to say that System i shops prefer to integrate solutions natively with i-based software.

Beyond the issue of changes brought on by growth is the complexity that has been added with the transportation environment. It has companies more engaged in managing their transportation carriers with a sharper eye on cost control and delivery fulfillment--on time and accurate.

There have also been complexities added on the demand side, Karpie notes. Expanding product types, SKU proliferation, and diverse consumer preferences have made shipping more complicated. Karpie says the Internet and online orders have become an important factor.

"There's been an increase in small package shipping. Orders have become smaller, but they still have to be fulfilled," Karpie says. "This is one thing that has fueled the parcel shipping business, and it has brought new service types into the distribution arena: new arrangements for point-to-point shipping; different circumstances; different costs; and different service levels."

"If you go back to when the trucking industry was highly regulated, it was a different story," Karpie continues. "One of the things deregulation did was it ended the separation of the parcel shippers and the freight shippers. Now parcel shipping companies have bought freight shippers and freight companies have increased their LTL (less than load) business to get into the small-order shipment area."

These developments have led to demand management and order fulfillment becoming more complicated. Distribution used to involve a large stock of goods that was divided into smaller shipments and transported to different locations. Product diversity, order diversity, and customer expectations have increased and it has led to new methods of management and the software and hardware that can handle it.

Tom Reber is a senior technical consultant for Varsity. He's worked with System i servers since the AS/400 days and still likes to call the box the Four Hundred. He's at home working with Varsity's 100 percent System i installed base of customers.

In most of the installations, Reber sees the customers are "pretty current with the hardware," and that "processing speeds on the Four Hundred are so fast that performance is not an issue."

Most companies run Varsity software on the same box as their ERP, and those that have WMS systems run those on the same box, too. The software is pretty lightweight. "Our software is all call programs and parameters that are being passed back and forth between programs," Reber says. "All the functions are accessible with a simple call. The user can drill down on a screen and get information like shipping costs, tracking info, order info, bill-to information."

In System i shops, the advantage is in the integration. Remaining platform centric is a popular choice.

"The rise in small package shipping led carriers like UPS and Fed Ex to supply their own PC-based shipping stations," Karpie says. "Integrating these into the enterprise systems became problematic in terms of support, performance, and the limits on the amount of complex processing that could be done on an integrated basis."

When pieces of the ERP, warehouse management, or transportation management systems run on multiple platforms, Reber says, "there are issues related to timing, communication, networks, and redundancies in the multi-system approach."

He illustrates his point by the example of a user doing order entry and making an inquiry on a package that's shipped. If the customer service person is on an AS/400 and the shipping system is on a Windows PC, that person can't get the information he needs because the shipping data resides on the PC. It's going to require some programming to get that done, he notes. That programming will require a different skill set compared to the one platform approach, and the response time is going to be slower.

"When you are on the Four Hundred and you want info that resides on a PC, the best you can do is the raw data. You still need to build the screens to display the data," Reber says.

Beyond that, Reber points out the management is far simpler on one system as opposed to a server farm. His example here pertains to TMS software updates that are necessary due to changes that the carriers require. "Our developers build those changes into our product, and most can update one time on the central server. The server farm situation is far different, far more time consuming."

The System i shops in this niche enjoy a number of advantages that still make the standardized on one platform strategy a sound investment. There are plenty of integration evangelists in the choir, and integrating front end with back end on a single platform still has its advantages for reasons relating to enterprise-wide strategies being superior to department-exclusive strategies. Better integration, and smarter integration, leads to running a business leaner and meaner.

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