Intelligent Logistics or Just Good Old Common Sense?
What does the word ‘Intelligent’ suggest when used in conjunction with Logistics? It connotes “smart,” foresight-driven, sensory, responsive, and adaptive Logistics.
How can one equip Logistics to have foresight, be able to sense changes, respond to those changes and be adaptive to changes in the environment? These are hot topics in the Supply chain and Logistics world today. This article does not profess to address all components of creating ‘Intelligent Logistics’. However, it provides an introduction to the logisticians of the current thoughts and trends in the arena and opens avenues for enthusiasts to explore further.
The Four Pillars of Intelligent Logistics
Embedding “intelligence” into Logistics processes and systems involve building four robust pillars of Integrated planning and execution, Visibility, Collaboration and Analytics.
Intelligence in Planning and Execution
The foresight and responsiveness are essentials at all levels of the logistics – strategic planning, tactical planning, operational planning as well as execution. It is equally important to build strong linkages between planning and execution processes and systems to embed “smartness” into Logistics.
The strategic planning addresses such issues as network design in terms of plant, warehouse, partner facility locations and capacity planning based on the customer demand, supplier positions, transportation and other fulfillment costs. The periodicity may range from six months to five years. By its very name, strategic planning is supposed to be intelligent. However, in reality most strategic planning exercises neither embed foresight, nor create responsive networks. In the dynamic world of constantly escalating oil-prices (and hence fuel and transportation costs) and increasing demand-side and supply-side pressures, network planning needs to be almost continual; and create an adaptive network that can quickly respond to market changes.
Tactical planning addresses how best to use the existing facilities and assets for optimal customer service at least cost. It also includes ‘what-if’ sensitivity analysis and simulation techniques to sense the effects of delta changes in demand, supply, or network and helps respond better to changes.
Operational planning generates realistic inventory and shipment plans either based on constrained-optimization or heuristics. Historically, most operational planning engines have been batch-oriented. Then the transactional systems execute the plans generated by the batch engines. However, in the real world, orders keep changing, carriers reject tenders, inventory is not found in the warehouse due to discrepancies, or equipment breaks down on the road and so on. The uncertainties in the Logistics network are increasing both on the demand side and the supply side. On the demand side, orders would change more dynamically based on the real customer demand. On the supply side, Logistics networks are also lengthening with global supply chains.
A key ingredient of “smart” Logistics is to have a tightly integrated planning and execution. Batch-oriented optimization and transaction-oriented execution must be give way to ‘real-time optimization’ and ‘responsive execution’ with a closed loop feedback linking planning and execution.
Visibility refers to true understanding of the customer demand, real-time track and trace of inventory at item level, and track and trace of shipments as well as alerting when events deviate from expectations. This visibility into orders (demand), inventory and shipments (supply) help sense the changes in demand and supply in near real-time and respond quickly to these changes. This will help reduce safety stocks and hence costs, improve customer service and make the Logistics network more adaptive. They will also help execute such best practices as cross-docking, in transit inventory merging, and delayed allocation strategies.
The key tools of visibility are:
- Track and trace within the enterprise through event monitoring engines
- Track and trace across partner network by receiving partner messages through EDI, XML or Web.
- Integration Hubs manage connections among heterogeneous systems located in multiple enterprises.
- Exception Detection and Alerting compares status messages with predefined metrics and workflows, sending alerts when pre-defined tolerances are violated.
Intra-enterprise and inter-enterprise Collaboration is closely related to visibility. It also extends beyond visibility into multiple levels of Collaboration, particularly for inter-enterprise collaborations.
At the lowest level of Transaction Automation, inter-enterprise Collaboration involves data and document exchange through EDI or Web. They will help automate no of otherwise manual transactions reducing the administrative costs, errors etc. Coupled with track and trace functions, these can help introduce some intelligence into the network by monitoring events and generating alerts.
At the next level of Collaboration, demand, inventory, schedules etc are shared, enabling better planning. This can help make all the parties “smarter” through better decision making.
True Collaboration involves re-engineered business processes across the partner network with closed loop planning and execution.
The integration of systems, processes and people across the network creates high velocity network that is lean, agile and adaptable to respond quickly to the changes in the environment. The cost of this true collaboration is falling dramatically with the advent of new web-based tools.
Retail and Consumer goods industries undertook a number of initiatives like CPFR (Collaborative Planning, Forecasting and Replenishment), QR (Quick Response), ECR (Efficient Consumer Response), CRP (Continuous Replenishment Programs), VMI (Vendor Managed Inventory), CMI (Co-Managed Inventory) etc in the last ten years or so to leverage inter-enterprise collaboration for creating responsive networks.
Metrics are critical to an Intelligent Logistics Network. Real-time capturing of logistics metrics enables a performance-driven, responsive logistics network. 360 degree score cards, logistics dashboards, performance reporting, and ad hoc queries are some of the tools in this category. Six Sigma methodologies are also increasingly used in the supply chain and logistics domain creating goal oriented, performance driven, intelligent networks.
Near real-time analytical tools that provide incisive service and cost metrics help intelligent decision making. Analytics combined with six sigma methodologies also enable root cause analyses to address the core issues. Last month’s feature article talked about ‘Information Factory’. The logistics information factory provides an excellent infrastructure to enable Logistics analytics.
Injecting intelligence at all levels of the Logistics network has never been more critical than in today’s Demand-driven, Globalized supply networks. Affordable tools are available today for making the logistics networks “smarter” through Collaboration, Visibility and Analytics. There are still challenges in tightly integrating the planning and execution processes in a closed-loop, but that is clearly the direction for the Logistics industry.
Michael Stolarczyk is currently Senior Director, of Business Development for Exel in their Westerville, Ohio General Office for the Americas. He is also on the Board of Advisors for West Virginia Universitys School of Business.
Michael’s Blog: http://blogonlog.blogspot.com