Building a Sustainable Supply Chain in an Instant Gratification World

April 15, 2008
Over of third of SaaS users report a return on investment within six months and 65% see ROI within a year.

Supply chain managers working in an ever more globalized, "I want it now" world too often opt for quick fixes over sustainable solutions to make operations more efficient. Rather than looking to trim costs here and there, their first order of business ought to be increasing visibility into company-wide supply chain expenses in order to find out where money is going, and adopt more lasting improvements. And because the typical company's supply chain covers multiple countries, carriers and modes of transportation, this task really requires a Software-as-a-Service (SaaS) solution to create a central repository for the total supply chain costs. The solution should be easily updated in real time.

SaaS is not the only approach, high or low-tech, to making supply chains more efficient, but it is a far superior one. Many companies, for example, have opted to trim costs by reducing the number of carriers with whom they work: a seemingly logical solution that can actually make the supply chain less nimble. Others have shifted manufacturing operations overseas to save money on materials, failing to measure how those upfront savings may be largely offset by higher transportation costs, import duties, taxes and carrying costs. And some still record many of their supply chain costs on paper, never integrating them into a central database.

The folly of all these approaches points to the mistakes that are inevitably made when the logistics team looks at one piece of the supply chain in isolation. As a solution that shows the big picture, SaaS is far more comprehensive than any other approach, and promises more lasting benefits.

"Despite heightened attention in recent years," a study from the Aberdeen Group concluded, "many companies still do not have timely visibility into the critical processes involved in global supply chain management." That study found that a small minority of companies that had managed to reduce their freight costs did so by using software to better analyze how they were spending their money.

SaaS offers a way for companies to easily store and integrate a lot of data from disparate sources in a single place, so they can access it when they need to expand their carrier networks, or make other adjustment to their shipping practices. With a SaaS system, a company can create an optimized, global transportation plan, and then transform it into an enforceable, company-wide policy against which all shipping decisions can be executed.

Using the SaaS approach, suppliers around the globe and around the clock can log onto your system with a secure ID and password. The system automatically identifies the appropriate carrier and service level for a specific shipment, then notifies the carrier and generates an email and a tracking number confirming the transaction.

SaaS provides a significant improvement over Transportation Management Systems, or TMS, an older approach to managing supply chain logistics which produces routing guides and optimized operating plans but is largely paper-based and very difficult to enforce. The automation provided by SaaS solutions makes it easier to follow consistently, over time.

SaaS can automate logistics activities across all carriers, and help you refine and update your practices in real time, rather than the two to three weeks it might take to implement a change with older enterprise software solutions. If a new corporate policy is adopted banning expensive late night priority shipments, this change can quickly be incorporated into the software. If a company decides to add new carriers or drop some existing ones, the software can be updated as soon as the change is made, and enforced around the world.

Because SaaS solutions are paid for by subscription, they enable companies to make a limited commitment rather than investing in complex and pricey enterprise solutions. And, because maintenance and upgrades are integral to SaaS, return on investment is faster. According to the Aberdeen Group, 35% of SaaS users report a return on investment within six months and 65% see ROI within a year.

Maxim Integrated Products, a global maker of integrated circuits, was one of many manufacturing companies that found itself struggling to maintain consistency in vendor quality and pricing when it decided to adopt a SaaS shipping and freight management solution. The company has more than 8,000 employees in the U.S., the Philippines and Thailand, and found that diverse geographic locations made it challenging to control shipping and distribution.

Maxim's goal was to establish centralized decision making and reduce overall shipping costs, while enforcing strict parameters on shipping methods and vendor selection. Upon switching to SaaS, it started to get results almost instantly. By the end of the first full quarter of implementing the SaaS solution, it had cut its shipping costs by more than 20%.

Manufacturers of all sizes striving to remain competitive in a global environment can now take advantage of these same logistics processes, to automate their shipping processing, identify the best rates from dozens of carriers, and enforce regulations to prevent costly abuses, such as those pesky unauthorized, late-night priority shipments.

Technology that can assemble such vast volumes of shipping data and offer companies the means to change their practices in real time is the key to maintaining a flexible and efficient supply chain that supports manufacturers and their customers over the long term.

For companies serious about running that proverbial tight ship, this software really is a must-have. Today's supply chains are so complex that supply chain managers who can't get the data they need easily, or analyze it meaningfully, will find it nearly impossible to consistently deliver measurable gains.

It's really quite simple: You can't improve something that you can't measure or benchmark in the first place.

David Fox is CEO of Agistix. Agistix's enterprise-class, global transportation solutions: Logistics Management Automation LMA bridges the gap between optimized transportation plans and day-to-day global logistics activities that occur with any number of carriers across all modes of transportation. LMA enables companies to gain visibility and control of all of their shipments through a carrier-neutral, web-based system, which leverages a rules-based workflow engine to manage internal and external company shipment processes.

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