LMI

Logistics Technology 2010

Implications for DoD

LG904T1

December 2000

Linda A. Novak

Gregory P. Drazek Gregg L. Stimatze

The views, opinions, and findings contained in this report are those of LMI and should not be construed as an

official agency position, policy, or decision, unless so designated by other official documentation.

Logistics Management Institute

2000 Corporate Ridge

McLean, Virginia 22102-7805

Section 5 Year 2010 Supply Chain Business Practices

A. Discussion

Regardless of the IT architectures that are employed by the year 2010; or the applicationlevel transport protocols (such as HTTP, FTP, etc.); or the basic message constructs (such as XML headers and MIME types)- the need for underlying business process integration and system documentation of the rules governing that process integration will remain constant. The

underlying business processes themselves will likely be transformed and will be radically different from those that dominate industries today.

As massive bandwidth and the multi-media Internet transform the way whole industries conduct business, a fundamentally new set of business/ transaction processes and embedded system process-descriptions/electronic business rules to support those processes will have to be developed. RosettaNet calls these process descriptions \"choreographies\".

\"A simple choreography might be where a message is sent to a server and a response is received. These two messages together form the choreography of the transaction.

The complexity rapidly increases as the choreographies that must be supported increase. The

choreographies are often business sector-or application-specific so that only the people who know them well are the business process experts in that application and industry. We see choreographies all the time in information gathering on the Web. More sophisticated transaction choreographies need to be supported, such as those used in Internet credit card purchase transactions, including, for example, issuing the request to buy, verifying the credit card, and confirming the purchase. The shipping facilities are contacted and the product shipped. However, the transaction is not completed until all of the above steps have been completed, perhaps over an extended period of time. One of the most complex choreographies comes from the travel industry, where a single transaction may be composed of airline, car rental, hotel, and other bookings that occur across multiple industries and organizations. 23

When we try to imagine the supply chain business processes and transaction choreographies of the year 2010, we must base the foundation of our scenarios on today's events and trends. Currently, our definition of real time supply chain processes largely describes a patchwork quilt of technology pieces and programs. This is demonstrated in the figure below (Figure 8), which portrays how companies are cobbling together selfservice customer-order portals; ERP systems across internal processes; middleware links to disparate trading partner systems; collaborative planning/forecasting systems to aggregate supply chain community inventory/materials positions and requirements; and purchasing/auction portals to meet those aggregate requirements.

23 Drummond, Rik. XML: The Only Chance for A Worldwide Standard\

Section 5 Year 2010 Supply Chain Business Practices

A. Discussion

Regardless of the IT architectures that are employed by the year 2010; or the applicationlevel transport protocols (such as HTTP, FTP, etc.); or the basic message constructs (such as XML headers and MIME types)- the need for underlying business process integration and system documentation of the rules governing that process integration will remain constant. The underlying business processes

themselves will likely be transformed and will be radically different from those that dominate industries today.

As massive bandwidth and the multi-media Internet transform the way whole industries conduct business, a fundamentally new set of business/ transaction processes and embedded system

process-descriptions/electronic business rules to support those processes will have to be developed. RosettaNet calls these process descriptions \"choreographies\".

\"A simple choreography might be where a message is sent to a server and a response is received. These two messages together form the choreography of the transaction.

The complexity rapidly increases as the choreographies that must be supported increase. The

choreographies are often business sector-or application-specific so that only the people who know them well are the business process experts in that application and industry. We see choreographies all the time in information gathering on the Web. More sophisticated transaction choreographies need to be supported, such as those used in Internet credit card purchase transactions, including, for example, issuing the request to buy, verifying the credit card, and confirming the purchase. The shipping

facilities are contacted and the product shipped. However, the transaction is not completed until all of the above steps have been completed, perhaps over an extended period of time. One of the most

complex choreographies comes from the travel industry, where a single transaction may be composed of airline, car rental, hotel, and other bookings that occur across multiple industries and organizations.23

When we try to imagine the supply chain business processes and transaction choreographies of the year 2010, we must base the foundation of our scenarios on today's events and trends. Currently, our

definition of real time supply chain processes largely describes a patchwork quilt of technology pieces and programs. This is demonstrated in the figure below (Figure 8), which portrays how companies are cobbling together selfservice customer-order portals; ERP systems across internal processes;

middleware links to disparate trading partner systems; collaborative planning/forecasting systems to aggregate supply chain community inventory/materials positions and requirements; and purchasing/auction portals to meet those aggregate requirements.

23

Drummond, Rik, \"XML: The Only Chance for A Worldwide Standard\

Figure 8. The End-to-End Real Time Supply Chain

The End-To-End Real Time Supply Chain

Total Supply Chain Visualization

Collaborative Planning/Forecasting

Supplier Customer Exchange Enterprise C Enterprise B Enterprise A Order Self-

Portal ERP System ERP System ERP System Service Portal

Distributed Asset

Pool

Fixed & Mobile Inventory,

Fleet, Etc.

An order placed through the Customer Order Portal activates a series of order fulfillment activities. Real time inventory fluctuations across the Supply Chain are recorded in the collaborative planning layer, and re

orders of necessary supplies, parts, and components are automatically submitted to multiple possible suppliers through the Supplier Exchange.

A key constraint to e-supply chain technology diffusion is the mindset of managers asked to implement these extended enterprise boundary-blurring initiatives. The challenges are unprecedented, including maintaining leadership and \"network cohesion\" across multiple distributed actors in a global electronic supply chain. To succeed in the deployment of the e-supply chain, e-supply chain managers must be equipped with the ability to lead process re-design groups across traditional organizational boundaries and have the skills to develop incentive/ reward structures that maintain productivity across organizational boundaries. Other important skills and traits that will be required of future e-supply leaders include:

• An orientation towards transactions instead of transformation

• Enable efficient information flow instead controlling information

• Create knowledge teams that are formed and disbanded around real time business needs

• Ability to process, understand, and use a massive volume information faster than ever before

Until today, very few organizations have succeeded in seamlessly integrating all these technology pieces for quantum leaps in business process. The ones that have succeeded are reaping big competitive rewards and offer us a window into netcentric business

processes of the year 2010 supply chain. We shall discuss some of these vanguard organizations and the important insights they provide us into the future

B. Federal Express

Today, Fedex is a leading model of simultaneous processing across an extended supply chain. Federal Express employs real time data transmission to assist in routing and tracking packages. Information recorded by portable bar-code scanners is transmitted to a central database and can be made available to all employees and customers, not just managers in traditional

decision-making roles. The FedExcorporate communications network is one of the world's most sophisticated and most reliable, each day processing nearly 400,000 customer-service calls and tracking the location, pickup time, and delivery time of 2.5 million packages.

Federal Express is as much an information firm as a transportation company. Federal Express's business model is now dedicated to:

• increase transaction speed (single transaction triggers multiple enterprise actions)

• connect systems and customers, globally

• reduce costs (shifting processing burden to customers)

• improve information control (available to employees, customers, and between customers)

• provide solutions beyond the immediate business case (through re-engineering the supply chain, and alliance strategies)

The best example of how this is playing out today is the example of Fedex's alliance with Proflowers.com, an internet company that runs a portal for ordering fresh flowers. When

Proflowers receives a web order, the Proflower webserver simultaneously records the transaction and messages FEDEX. Based on this message, FEDEX generates both a shipping label (that is returned to the Proflower webserver and downloaded to the grower) and a request to its fleet to pick up the order at the grower's site. When the pickup occurs, the Fedex shipping label with all the requisite customer information is already on the carton of flowers to be shipped.

In essence, Fedex and Proflowers.com are using a single shared trigger event, a custome. order on the web, to generate multiple supply chain transactions. This is a completely new paradigm of supply chain, a webbed model (rather than a sequential model based on serial handoffs) to attain quantum leaps in time savings and administrative processing costs.

Thus, the management of information has become one of Fedex's core business assets. The ability to match physical and electronic transactions, to move assets under time definite requirements, and superb information control that is transparent to employees and customers are hallmarks of the new business model created by Federal Express.

For the next decade, Fedex has articulated a few major goals as an information company:

FedEx wants to provide \"e-care,\" an optimal experience for its customers. E-care will allow FedEx's customers to provide their own customers with excellent service. With FedEx's systems in place, firms should be able to provide their customers with customized products on a JIT basis, while maintaining minimal inventory.

FedEx wants to develop global information systems for use by customers. The systems will be integrated with customers' systems so that customers will not know where their systems end and FedEx's systems begin. FedEx must meet customers on their own terms, for example, by tracking shipments by customer order numbers. FedEx would like to develop an \"information superhub\". This will allow FedEx to use the information it collects and warehouses in an intelligent manner to foresee industry trends and to provide its customers with useful intelligence

C. SUN Microsystems

The case study on Sun Microsystems, Inc. looks into how net-centric systems will change the shape and culture of supply chain organizations of the future. Sun is the industry leader in scalable servers to power PC Networks and Web sites with $9.7 billion in revenue, 88% of which is hardware sales. This case focuses on how two of Sun's products, JAVA (a cross-platform programming language) and JINI (software tools that enable devices to plug into and

inter-operate via public networks) and similar products from competitors will affect the shape of the company of tomorrow.

In interviews, Sun listed the following three aspects of its business as its major netcentricity vision and initiatives:

Innovation: Sun spends 10.4% of sales on R&D vs. 4.5% at Compaq; its $400 per employee expenditure is highest in industry.

Demonstration: Sun Peak, a Web-centric infrastructure (servers and Java workstations) links 50,000 employees, suppliers, and distributors. Sun's last mainframe was unplugged in January 1999. The Sun Peak provides the foundation for future growth and flexibility to compete and serves as a demonstration of Sun's role in networking. It will help Sun transform itself to a net-centric way of doing business. The new type of networking will allow Sun to reduce its

planning and testing times and costs and move to a collaborative product innovation system based on rapid experimentation and correction off real market/customer data.

Out-Manage The Competition: Sun Peak infrastructure is being used to support a $250 million supply chain BPR project designed to cut S weeks out of 14 week product cycle times and 25%

of cost. This reengineering of the supply chain is vital, given the speed and volatility of the high tech marketplace.

The current management challenges Sun is grappling with are many. First, it must master better surge management techniques to cope with volatility in the marketplace, with 480% spikes in demand for a product in one year. The motto for this is: \"Better to be flexible than right.\" It cannot simply be better at forecasting; the Sun supply chain must be better at adapting to real time demands on a chain-wide basis. One way to do this is a via a shared extended enterprise-wide data network and more collaborative relationships across the chain that exploit this available real time data.

Another way to do this is to implement Jini -enabled supply chains that automatically adjust networked assets, machines, and inventories to real demand. Once plugged into a network, a Jini-enabled device, which has an address, can broadcast its capabilities to other devices in the network. With Jini-enabled devices, shared power, shared knowledge, equal access, expandability, and adaptability are possible. An important characteristic of Jini is its ability to work over existing networking software and protocols. So far, companies such as Canon, Epson, Ericsson, Mitsubishi, Quantum, Seagate, Sony, and Toshiba are onboard with Jini.

Internally, Sun is attempting to use Jini to implement a “Virtual Merge” functionality in the supply chain, or a real time synchronization of all components to arrive into production/distribution staging areas at same time.

Other current management challenges include implementing horizontal process owners/incentives and spiral promotion policies so that workforce development and deployment can keep pace with the netcentric technology infrastructure being developed.

A final challenge is development of a single HTML-based control paneV and displays for all supply chain data so process owners have comprehensive chain-wide visualization capabilities.

D. Cisco

Cisco Systems has tripled in market value just in the past year to surpass Microsoft and to become the world's most valuable company. This valuation reflects not only the quality of its router products; not only the dynamism of its core market with Internet traffic doubling every three months, but also its profound mastery of supply chain and ebusiness processes utilizing the Internet.

Cisco has employed the Internet to reengineer processes across its whole span of operations and has become a global networked organization. Every step of its supply chain, from customer order self-service/ product configuration to supplier management, employs Internet-based processes. This has worked so well that Cisco's per employee revenue is almost three times that of

competitors such as Lucent. Cisco has reaped huge benefits from successfully and seamlessly integrating the fundamental technologies and components of the Internet on an enterprise-wide basis. This pervasiveness of Internet processes and associated benefits realized are shown below:

APPLICATION WIIAT HAPPENS? BENEE ITS Technical Customers submit support requests and find answers to Cisco has been able to grow its business and improve the

Self-Help frequently asked questions on the Cisco Web site. In quality of technical support while reducing support costs. With addition, they can download software updates and immediate access to a variety of support information and tools diagnostic tools, get help in an electronic forum, customers can choose what they need. Customer support

communicate electroncially with support staff and representatives can focus more time on the most challenging register to receive automatic notification of software problems. bugs and updates.

*ROI: By not having to hire and train engineers to provide technical support (including diagnostic tool s and an open forum where other customers respond to queries). Cisco

saves $75 million annually. Providing the same access for non- technical support saves $8 million. Electronic Customers can use a Web-based application to price, Cisco has been able to lower the overall cost of taking orders Commerce configure, validate, and order products. They can also and also reduce errors in product configuratin and ordering – Use it to get copies of invoices, review shipping thus reducing the expenses as well as the customer frustrations Schedules and receive notifications of shipments or associated with product returns caused by configuration errors.

changes. The application is linked to centralized Cisco customers report that their own purchasing

productivity has internal systems that share new product information and increased because they have 24-hour access to an easy-to

engineering change orders with various satellite use, self-service system. applications to coordinate the entire supply chain.

ROI: By automatically tapping errors at the configuration

stage. Cisco has reduced. from 15 percent to 2 percent, the

orders that require re- working. With the increased accuracy in

ordering, product delivery lead times have been reduced by 2-

5 days. And Cisco's sales personnel, now freed from most

order-related administrative tasks, can concentrate on

proactive account management. Software Software, including upgrades and beta versions of new Cisco saves the cost of software distribution. customers have

Distribution releases is available via Cisco's Web site. A feedback immediate access to new versions and upgrades. Cisco also

form encourages comments from users. gets valuable customer feedback on prereleased software..

*ROI: By distributing 90 percent of its software and

documentation electronically, Cisco saves $250 million

annually in printing and shipping costs. Expense Employees file expense reports electronically, using a Cisco reduces the cost of managing expense reports. Employee

Reporting Web-based application that is linked to internal finance satisfaction is higher because of the fast tumaround, and

and human resource systems, checks submissions employee productivity is higher because expense reporting

immediately, flagging policy violations and paying now takes less time. And, because fewer reports are late. Cisco

approved expenses within four days. Cisco pays can track expenses more closely. American Express directly, on the employees' behalf,

for AmEx charges assigned to the expense reports. *ROL: By using this Web-based system that requires only two

Only exceptions are handled outside the automatic system. auditors for 12,000 employees, Cisco saves the cost of the 10

additional people typically dedicated to auditing expense

reports in a company of its size. Supply-Chain Cisco's electronic commerce application Automatically Cisco has been able to increase responsiveness to customer

Management notifies a group of suppliers When incoming orders requests while lowering inventory costs and reducing product

deviate from forecasts. delivery lead times. Cisco has also been able to improve its

inventory tracking and to respond more quickly to component

shortages by transferring inventory between different suppliers.

*ROI: By increasing responsiveness to customers, Cisco has

been able to improve revenue capture by $100 million

annually. By integrating suppliers earlier in the ordering process,

the company ahs reduced lead times--from an average of 40

days to 7-21. Cisco's supply chain initiatives save over $70

million annually.