Inventory Report

Dec. 21, 2004
E-commerce is transforming the warehouse from the ugly duckling of distribution to a not-quite-glamorous, but certainly vital, hub of value-adding supply-chain activities.

The customer is king. We've all heard the saying a million times, and it's never been truer than now in the age of e-commerce. The customer -- be it a retailer, end consumer, or trading partner -- holds the power in the e-commerce world. In this customercentric arena, the warehouse and its role in the supply chain have fundamentally changed. Warehouses are evolving into demand centers, which form a strategic link between companies and their customers. The demand center (DC) is not just a place to store goods. Rather, it's a hub of value-added activity. And in the case of the customer-facing DC, it is also the last opportunity to get a customer's order right and meet expectations. DCs now perform functions that manufacturing plants traditionally handled, including light assembly, product configuration, custom packaging and labeling, and kitting. This task shifting is the direct result of companies' attempts to postpone the final configuration of a product until the last possible moment. This approach provides lower inventory carrying costs while increasing customer service. It allows firms to extend the customer-commit points as close to the customer as possible, improve flexibility of the supply chain, and increase the velocity at which inventory moves through the pipeline. Extending to the Web To meet escalating customer-service demands, companies look to state-of-the-art supply-chain execution systems for help. With the help of these applications, companies are evolving toward a Web-based supply-chain model. The efficiencies and responsiveness possible with this model offer new opportunities for enterprises to gain and retain customers. There are four stages of evolution for the Web-based supply chain, according to John Fontanella, an analyst with AMR Research. Most companies are in the first stage, Internet Presence Established, with a growing percentage moving to the second, Commerce is Initiated. The third stage, Demand Centered e-Business has trading partners moving toward collaborative execution. And the fourth stage, Demand Web Fulfillment, is a conceptualized view of how Web-based systems will work together across companies and enterprises. Here's how Fontanella defines each of the four stages. Stage 1: Internet Presence Established In Stage 1 Web development, a company establishes a presence on the Internet and sets up a one-way flow of product and service information to the customer. Value derives from informing the customer. Users can access order, inventory, or transportation status. Stage 2: Commerce is Initiated Buying and selling on the Web begins in the second stage. Customers can place orders directly on the vendor's/merchant's commerce server, configure them, authorize payment, and be notified of expected delivery dates. Supply-chain execution systems figure prominently in this process by providing inventory information, transportation routing and scheduling, and order management to the customer-facing applications. However, systems within the company are not integrated, and collaborative execution among trading partners is virtually nonexistent. Stage 3: Demand Centered E-Business In Stage 3 development, the enterprise acts as the demand center, coordinating and focusing the entire supply chain on serving the customer. An information backbone connects the community. The company has full visibility to supply-chain inventories, purchase-order status, transportation status, and alert and workflow processes. Flawless execution and collaboration among supply-chain partners are the hallmarks of the demand centered e-business. Stage 4: Demand Web Fulfillment The fourth stage -- the Demand Web -- exists only in concept at the moment, Fontanella says. Technology and business process change, however, are close to making this a reality. Demand Web fulfillment is completely event driven. Information and data flow two ways throughout the entire trading community. Systems automatically optimize for disruptions in supply and demand, with rules built to manage fulfillment and automation of business decisions between systems and enterprises. As companies evolve toward a Web fulfillment model, their supply chains become increasingly more complex. Just In Time, Quick Response, and other low-inventory/high-service initiatives force supply chains to be shorter, more flexible, more accurate, and more reactive. And, they have forever changed the profile of the order moving through the supply chain from full pallets to individual items. E-commerce has further altered how companies distribute goods by adding higher order volumes, fluctuating demand patterns, and higher customer-service expectations to the already difficult task of rapid response fulfillment, Fontanella says. To achieve a true customer focus, today's demand centers must be able to configure operations on a customer-specific basis, and quickly and economically perform value-added services. For example, a mass merchandiser's order fulfillment requirements are dramatically different from other business-to-business and home delivery customers, and yet frequently, these requirements must all be serviced by the same demand center. The need for flexibility in supply-chain execution requires highly adaptable execution applications. Software vendors are in the process of developing a new generation of supply-chain execution applications that respond to these changing needs. The new systems are scalable -- meaning they can quickly ramp up to handle high volume transaction levels. They are quick to implement -- 60 days as opposed to six months. And the leading vendors are investing heavily in developing truly Web-based applications -- with some offering the application as a service in a Web-hosted environment. Thus, companies wishing to evolve their business toward the Stage 4 model will have ready access to the execution tools needed to make that happen.
Lisa H. Harrington has been writing about supply-chain management issues for more than 20 years. She is a contributing editor to IndustryWeek and has served on the boards of the Warehousing Education & Research Council and the Council of Logistics Management. Harrington is also a senior fellow at the University of Maryland's Supply Chain Management Center. You may reach her at [email protected] or 410/819-6700.

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