Logistics represents a perfect case for exploring how a collaborative approach to complex sourcing can deliver better outcomes for all parties and ultimately improve supply chain performance.

In this 3-part series, we will:

• look at the typical logistics sourcing model, and what it costs companies today

• define what’s required to take a more collaborative approach and the benefits

• speak to current and future technology innovation that accelerates the time-to-value of collaboration

What Logistics Sourcing Looks Like Today

In most cases today, logistics sourcing can best be described as a “winner-take-all” model. I believe that the “fuel cost crisis” of 2008 served as a brief wake-up call to suppliers and customers alike that something had to give. After all, consider what happens when shippers and carriers take an adversarial approach to contracts:

• Shippers discard or weaken important relationships, putting service levels at risk

• Parties neglect agreed upon contract terms, credibility is lost, making it increasingly difficult to negotiate effectively

• Shippers drive carriers toward unsustainably low rates, finding themselves unable to cover loads when capacity tightens back up

There are signs that market leaders have heeded the warning and taken steps to put an end to costly trade-offs and created solutions that benefit both parties. Together with suppliers, these companies have thrown out the old hard-ball rules where the only end game is lowest cost. Instead:

• Carriers honor volume and load acceptance commitments to preserve customer relationships even if it means forgoing opportunistic volumes elsewhere.

• Shippers honor the principals of contracts and preserve the relationships even if some volume re-optimization is required to correct for the dynamism of the collective market.

• When the market has excess capacity, shippers and carriers work to realign relationships to gain efficiencies.

Embracing a more collaborative approach as illustrated below, shippers and carriers achieve greater network efficiency: higher equipment utilization, reduced waste (fuel and dwell), and fewer empty miles, all adding up to significant – and sustainable – cost

Paul Martyn

Want to learn more about how BravoSolution can help your organization source collaboratively? Check out BravoSolution’s collaborative sourcing tool here.

While most food safety reforms focus on the protection and prevention of contamination, traceability systems are critical to quickly identifying product origins for removal from the supply chain. According to the CDC, an estimated 76 million Americans get sick from food borne illness each year, more than 300,000 are hospitalized and about 5,000 die. With such high numbers, growers and retailers alike need to be aware of how invaluable track and trace technologies are.

As the market leader in RFID and thermal printers, Zebra Technologies’ broad experience in supply chain management and building unique RFID and barcode solutions across a variety of industries has illustrated the importance of providing traceability – especially within the food industry. The below video with David Senerchia , Director of Business Development of Zebra Technologies, highlights the importance of food traceability throughout the supply chain:

With more label and scan points throughout a dairy, produce or food growers operation and shipping, products can be more accurately traced throughout the supply chain. This provides an extra layer of protection should a food-borne illness occur – allowing growers to quickly review their records to determine if the faulty product came from any of their farms and then alert their partners.

This can save businesses time, money and reputation. As produce growers/shippers look to obtain Produce Traceability Initiative compliance, they can look to Zebra as a reliable product partner to provide practical, mobile and desktop printing solutions to ensure multiple label and scan points to track the life of the product from farm to fork.

Economic thinkers have focused on growth theory, transaction costs, game theory, property rights, deregulation and the nature of the firm. At least six Nobel Prizes have been awarded to economists that tell us fundamental truths about outsourcing.

Business is a Math Problem

Ronald Coase shed light on a concept known as transaction cost analysis.

He advocated that it was not enough to include only production and transportation costs as the main costs of doing business; businesses needed to also consider the cost of entering into and executing contracts as well. This boils down to a mathematical exercise, and his breakthrough thinking was even given a mathematical name, the Coase Theorem.

It seems obvious now but Coase’s inclusion of contracting and contracting costs into the mix of a firm’s organizational structure and accounting resulted in a Nobel Prize in Economics in 1991 and created the conditions for outsourcing to become a normal, major part of a firm’s strategy.

Lesson #1: When outsourcing, think about the TOTAL COST – not just the price/budget of the work that is being outsourced. Making decisions solely on the price and scope of work and not on the total costs result in a myopic and inaccurate view.

Playing Nice is Good for Everyone

In the movie A Beautiful Mind the mathematician John F. Nash, as played by Russell Crowe, has a revelatory moment in a campus watering hole as he and his mates ponder the best ways to produce optimum results as they consider how to approach a beautiful blonde and her friends.

Nash’s moment of inspiration and clarity was that Adam Smith’s principle that the “best result comes from everyone in a group doing what’s best for themselves” was incomplete and needed revision: The best result comes from everyone in a group doing what’s best for themselves … and the group.

Nash’s pursuit and proof of that conclusion led to the Nash Equilibrium. He demonstrated that companies that work together will discover that the sum of the parts improve when combined effectively than if they work at cross-purposes.

Nash received a Nobel Prize in 1994, spurred an entire branch of economics now known as Game Theory, or Behavioral Economics.

Game theorists have been studying the economics of playing non-zero sum games (aka win-win) games for more than 50 years to show that playing nice is indeed good for you. Since Nash’s Nobel Prize – there have been seven more Nobel Prizes awarded to Game Theorists.

Lesson #2: Game theory development was crucial to the concept of reaching win-win solutions and outcomes in outsourcing contracts. It is just as important today.

Brains Trump Brawn

More than 50 years ago Robert Solow showed that technology was the real driver of economic growth.

Solow’s growth model premise, first presented in a 1956 article, was that without “technological progress” growth rates for capital, labor and total production would all be about the same. In fact, he found that about four-fifths of the growth in U.S. output per worker was attributable to technological progress. In short, brains matter more than brawn if you want to spur economic growth. Solow won the Nobel Prize in 1987.

Lesson #3: Most outsourcing agreements are transaction-based, meaning that a service provider gets paid for each activity – whether it’s a rear-end in a seat to answer a call, two hands for packaging, or fingers for filing. This approach focuses on brawn, not brains. If economic growth is achieved through “technical change” then companies that outsource should focus their efforts around paying suppliers for their innovative brainpower and not their brawn.

Not Playing Nice Can Really, Really Cost You

Oliver E. Williamson, professor emeritus of business, economics and law at the University of California, Berkeley, is taking transaction cost analysis to a new level that he calls ‘transaction cost economics’ (TCE).

He applied TCE directly to outsourcing and the supply chain in an April 2008 article in the Journal of Supply Chain Management (“Outsourcing: Transaction Cost Economics and Supply Chain Management“). Williamson warned about potential “maladaptations” in the contract process that can develop if companies don’t think cooperatively about “unanticipated disturbances” in order to preserve contract continuity.
His analysis of the three styles of contracting — muscular, benign and credible — is particularly insightful. He says, “Muscular buyers not only use their suppliers, but they often ‘use up’ their suppliers and discard them. The muscular approach to outsourcing of goods and services is myopic and inefficient.”

Oliver Williamson shared the 2009 Nobel Prize with Elinor Ostrom, who received recognition for her work on how user associations can effectively manage common property.

Lesson #4: Companies should think cooperatively – because switching costs of vendors is very expensive. If the basic strategy is to “bid and transition” you are probably losing at the TCE game. And for all those companies that have pitbull procurement professionals still on their staff – it is not only old school it’s “myopic and inefficient.” If you aren’t convinced of this by game theory, Williamson’s work is a tipping point on why not playing nice can really, really cost you.

Outsourcing is here is to stay

Thanks to the big thinkers, outsourcing is now an intrinsic part of the business landscape. It has been popularized in recent years by the New York Times columnist Thomas Friedman.

Friedman’s big bestseller, The World is Flat: A Brief History of the Twenty-First Century stresses the importance of technology and outsourcing as major elements of the global economic structure.

The book describes 10 “flatteners” that have leveled the global playing field. The rise of outsourcing and related activities such as off-shoring and supply chain networks figures prominently on his list. The ease of offshoring today – if done correctly! – allows a company to locate manufacturing and other processes to a foreign locale to take advantage of less-costly labor and operations.

So yes, outsourcing is here to stay and the world is getting flatter all the time. But there is a better way that takes outsourcing an important step beyond management guru Peter Drucker’s famous advice in 2004: “Do what you do best, and outsource the rest.”

That step is: Do it right, do it collaboratively – because simply deciding to outsource is just the beginning; failure to follow the economic teachings related to outsourcing will not maximize results.

For a primer on how to do outsourcing right, pick up a copy of Vested Outsourcing: Five Rules that will Transform Outsourcing.

We’ve come a long way thanks to thought leaders such as Coase, Nash, Solow and Williamson. The outsourcing phenomenon is really just getting started. It is poised to achieve new levels of sophistication and efficiency, especially if it becomes a collaborative, win-win exercise that benefits everyone.

Kate Vitasek

References/Links:

Robert M. Solow Prize Lecture, December 8, 1987
http://nobelprize.org/nobel_prizes/economics/laureates/1987/solow-lecture.html

Ronald H. Coase Prize Lecture, Dec. 9, 1991:

http://nobelprize.org/nobel_prizes/economics/laureates/1991/coase-lecture.html

1994 Nobel Prize Laureates: Nash, Selten, Harsanyi
http://nobelprize.org/nobel_prizes/economics/laureates/1994/press.html

2009 Nobel Prize Laureates: Williamson, Ostrom
http://nobelprize.org/nobel_prizes/economics/laureates/2009/press.html

Oliver Williamson:
Prize Lecture (video) – http://nobelprize.org/nobel_prizes/economics/laureates/2009/williamson-lecture.html
Slides: http://nobelprize.org/nobel_prizes/economics/laureates/2009/williamson-lecture-slides.pdf“Outsourcing: Transaction Cost Economics and Supply Chain Management,” Journal of Supply Chain Management, Volume 44, Issue 2 (p 5-16)
http://www3.interscience.wiley.com/cgi-bin/fulltext/119422182/PDFSTART?CRETRY=1&SRETRY=0

Thomas L. Friedman, The World is Flat: A Brief History of the Twenty-First Century 2005 ISBN 0-374-29288-4

Vested Outsourcing: http://www.vestedoutsourcing.com/
eBook: http://www.VestedOutsourcing.com/pdfs/Vested_Outsourcing_eBook.pdf

University of Tennessee Center for Executive Education http://www.thecenter.utk.edu

Supply Chain Visions: www.scvisions.com

Bar scene from “A Beautiful Mind”: http://www.youtube.com/watch?v=l0ywiYboCLk

I am also telling my age when I share that Supply Chain Management (SCM) has consumed the last 20 years of my life. Did you know that SCM is less than half the age of Barbie? It is a relatively a new area of study, but one that is growing in importance. As it changes, it is important to retool, and embrace new concepts. As an analyst tracking the evolution of supply chain management, one of the fascinating aspects to me is the rate of change.

Which leads me to vocabulary. I know, a lot of us hate it; but consider that new words open the door to new concepts.

As we move through 2010, there are seven new words that I think are noteworthy and plan to add to my research agenda.

» Digital Consumer: The use of digital media–social networks,blogs, B2C mobility, e-commerce strategies, guided shopping– to shape demand and influence customer buying patterns. Based on recent IBM research of 32,000 consumers in six countries, 22% of the world’s population, or 1.5 billion people, are online. It will reach 2.2 billion consumers by 2013. Today, 63% if adults research purchased through social networks and 47% of the time online reading influences buying patterns. Teenagers send over 2700 texts per month and retail segments are blurring. In a similar fashion, consumer products and retail value networks are blurring. Communication in emerging economies is through mobile phones. Today, in China, mobile devices reach 56% of consumers. The digital consumer is about presence and connectivity. 62% of Gen Y stated that they would be willing to use texting to buy an item. 78% of consumers (primarily baby boomers) are willing to co-create (to share comments on assortment, store layouts, and service requirements) with retailers and consumer branded companies. With this kind of impact, how can we not have digital consumer strategies for 2010?

» Gravitas: When you reach gravitas, you achieve seriousness in conduct and speech. When the practices of supply chain evolved, early adopters yearned for board-level presence. The Great Recession of 2008 drove this transformation. In my travels in Europe in October, I met with five companies. Four of the five had just announced a NEW director-level position on the board. Organizations are maturing, but the practice and processes still need to mature to achieve gravitas at the board level. They are just not taken seriously enough. To evolve, supply chain management will coalesce with macroeconomics and strategy and risk management practices to become the fabric of go-to-market strategies. This is the primary thrust of my research agenda this year. And, maybe my new book. Doesn’t your supply chain need more gravitas?

» Ontology: Increasingly, companies are finding that supply chains lack well-defined behaviors and that one-to-one data mapping and rules don’t do the trick. As a result, the logic of the first generation of supply chain solutions falls short. In computer science, an ontology is a formal representation of a set of concepts within a domain and the relationships between concepts. An ontology provides a shared vocabulary to model a domain and contains information about the objects, concepts and relationships of that domain. In the mid-1970s. researchers in the field of artificial intelligence began to use the term ontology to refer to both a theory of a modeled world and a component of knowledge systems. Key elements in ontologies are attributes, relationships, restrictions, rules, axioms and events. This allows the modeling of relationships and drive more intelligent rules and events. In 2010, look for a new set of solutions based upon supply chain management rules-based ontologies to appear. They will fill the supply chain black hole within the enterprise, form the foundation for collaborative relationships and drive new answers for master data management.

» Stochastic Optimization: This type of optimization incorporates probabilistic or random elements either in the problem data set itself or in the algorithm itself through random parameter values. This is in contrast to the deterministic–where data is assumed exact and constant– approaches that are traditionally used as the basis of Supply Chain Planning (SCP).

» Sentiment Analysis: These technologies apply rules-based ontologies to mine unstructured text on the Internet. The technologies allow the user to understand the sentiment of users–expressed in blogs, ratings and comments, and social media– to understand the true voice of customers. This type of data is useful to gauge the success of new product launch, the effectiveness of competitive products, and the change in customer sentiment. In 2010, the use of sentiment analysis will be especially valuable to high tech electronics companies to understand the acceptance of customers to product features (e.g. battery life on a digital camera or wine commentaries in blogs) on a more real-time basis. It also makes global sensing — all customers by customer attribute and geography attributes– more readily available to drive product portfolio rationalization.

» Supply Chain Black Hole: In organizational enterprise architectures, there is a black hole between traditional Enterprise Resource Planning (ERP) and supply chain application of Supply Chain Planning (SCP or APS) and Supply Chain Execution (SCE). The fixed integration of the early solutions, just does not allow enough flexibility to drive a flexible, agile response or alignment to deliver a profitable order. In 2010, we will start to see the evolution of new solutions to fill this black hole. They will come from best-of-breed providers from non-manufacturing industries– military, financial and insurance technologies– to re-architect back-office applications from the outside-in. (For more on this topic, reference my early blog post.)

» Trickle-up Innovation: Traditionally, product development and innovation processes have launched products first in modern trade and then adopted the products to evolving markets. This is changing. Increasingly, supply chains are shifting to launch new products FIRST in evolving economies and then expand the concepts to modern trade. This shift increases the need for build anywhere, design anywhere practices will be a boon for the virtualization and collaborative workflow capabilities of Product Life-cycle Management (PLM) technologies.

So, while I am sure that these are words that Barbie will never know or care about, for us serious about supply chain management, these terms represent exciting new concepts. So join me in drinking a toast to Barbie. After all, with all of those shoes and accessories, you will have to agree that she was the MASTER of profitable supply chain SKU proliferation.

And, keep your eyes and ears open for evolving opportunities. What words do you think are important for 2010? Let me know by sharing your comments below.

Until then the supply chain shaman is off to uncover new technologies to help you drive supply chain leadership.

Drop me a line. What are the words that you are adding to your supply chain vocabulary in 2010?

Please join me as I plot this course on my blog at www.supplychainshaman.com.

Lora Cecere

As per the contract 4S Visilog will be rolled out initially with integration to 4S eTrans at multiple locations of Alba Wheels. This contract has been executed through Four Soft USA Inc a subsidiary of Four Soft Limited, India.

Alba Wheels Up® International, Inc. established in 1949 is one of the premier Customhouse broker, International leading Freight Forwarder and a key Logistics player in the US. For the past 55 years Alba wheels has been providing extensive services to its customers which has greatly strengthened their presence in the US.

4S eCustoms is the first integrated global solution for Customs compliance integrating multiple country customs brokerage into one framework. It is expected to revolutionize the way global companies do business as customs brokers in multiple countries and bring major productivity gains on a standardized platform.

However regional players can still opt for only one module like US customs. With the addition of US imports 4S will be the largest licensed software provider for Customs compliance with a significant percentage of world transactions being processed through 4S systems.

Salvatore Stile II, CEO & President, Alba Wheels Up International Inc., commented,” We reviewed number of software systems in the Industry before we chose Four Soft. Four Soft solutions are definitely a great fit to our current and future demands as we plan for a dynamic and rapid growth in the Freight forwarding and Customs Brokerage Industry. We are also confident that Four Soft has right depth and mix of experience across the industry.” He further added,” we believe that these implementations will not only help us integrate our global business operations but also provide better visibility and enhanced services to our customers.”

Rajshekhar Roy, CEO, Four Soft Limited, said,” We are greatly delighted and appreciate Alba making a decision to chose Four Soft. Our experience and success of delivering major projects in the US will not only ensure a smooth implementation for Alba, but also deliver rapid returns on their initial investment. Furthermore Four Soft’s solutions will enable Alba to streamline communications with their trading partners, introducing significant resource efficiencies but more importantly, giving them greater visibility to their supply chain. We also have a strong customs framework for India, Canada and Europe. On completion of US Customs we will have potential coverage of 65% of the global trade.”

Tim Sensenig, EVP – Global Business Development & Sales, said, “We are pleased to welcome Alba on board with its world class reputation and diversified portfolio of its offerings.Four Soft systems have always been on the forefront of providing world class products to our global customers. We are confident that Alba Wheels will experience the benefits of our suite of products which will help them in optimizing their business operations globally.”

4S VisiLog is Four Soft’s collaborative web portal for Order Management and Visibility. Built on J2EE platform with a native browser interface, 4S VisiLog is an Order Management System, linking your business partners & associates as well as service providers & customers. Designed to provide real time, end to end, visibility of the entire value chain with event management & work flow automation and alerts & Track and Trace functions, 4S VisiLog is your command and control centre for global operations.

4S eTrans is Four Soft’s web centric Freight Management System capable of handling Air, Sea, Road and multi modal transport management services. Built on J2EE platform with a native browser interface, 4S eTrans is designed to provide the modern day logistics operators with operational and financial control over their day to day, order to cash process of the domestic and international freight movements. Equipped with an integrated freight accounting module and interface capabilities with external accounting systems, 4S eTrans provides a scalable and flexible Freight Management solution.

4S eCustoms is an anytime, anywhere global customs compliance solution, with plug and play modules for different countries, designed to work in a multicultural, multilingual environment, as one package with interface capabilities with all Four Soft enterprise products and other standard ERP applications. 4S eCustoms exemplifies 4S’s value chain integration proposition, with seamless integration possibilities with multiple ERP applications. With native browser access and a generic third party interface, 4S eCustoms is a highly interactive and cost effective solution for the International Freight Forwarding and Customs Brokerage community.

About Four Soft Limited

Four Soft is a public listed and CMMI level 3 certified company which provides innovative software solutions, IT consultancy and BPO services exclusively for the logistics and supply-chain management market place. Four Soft systems help its customers move more than 20% of the Global Freight volumes. As on today, 17 of the top 25 freight forwarders in the world use Four Soft solutions. It is the market leader in the Logistics & Transportation segment with a large international client base including the majority of the top logistics & transportation companies in the world. With regional offices strategically located worldwide, it supports customers including DHL, Schenker, Agility, UTI and Geodis Wilson. Additional information about Four Soft is available at www.four-soft.com .

Four Soft offers a full suite of web-native products across the logistics supply chain. This includes 4S eTrans® for freight forwarding and logistics, 4S eLog® for extended warehouse management, 4S Visilog® & 4S VisiLog plus® for track & trace, visibility and supply-chain management, 4S eCustoms® for customs brokerage, 4S iShipping® for shipping line execution, 4S eConnect® for business-to-business connectivity and 4S Infotips for informed decision making.

For more information please contact:
Praveen Gavuji
Four Soft Limited
Mobile: +91 9948099688
Tel: +91 40 66873034
Email: praveen.g@four-soft.com

1. Do You Take Advantage of Opportunities Others Miss?

Many companies continue to miss market and technology shifts that their rivals exploit. If you’re in this camp, you’re going to fall behind your competitors as they adopt better practices, better technologies, better suppliers, and better transportation options. For example, this means that you should have adopted real spend analysis and strategic sourcing decision optimization by now, as these are the only two sourcing technologies proven to repeatedly deliver double digit savings time and time again (at an average of 11% for spend analysis and 12% for decision optimization).

2. Are Your Hydraulics Oiled and Flowing Smoothly?

As per the HBR article, organizational hydraulics are the mechanisms that senior executives use to translate corporate objectives into aligned action by individuals across the organization. If there are too many initiatives, priorities, or conflicting goals, then the hydraulics get overburdened and break down. Limit your goals to 2 or 3 and initiatives to the top 4 or 5 opportunities and excel in the execution of those initiatives most likely to deliver the desired results. For example, if your sourcing team is limited, do a spend analysis and identify the top 5 categories with the greatest savings opportunities and those are your priorities for the quarter. Everything else can wait. It’s better to save 10% off of 100M than 20% off of 10M.

3. Does Your Organization Reward Excellence?

Or does it reward mediocrity and call it teamwork? Organizations should not only reward individuals who do what they say the will and meet, or exceed, their (stretch) goals with outsized bonuses, but remove compensation caps. If your top sales person or top buyer ends up taking home more than the CEO, that’s a good thing! It generally means that he sold (tens of) millions worth of product or services or she saved (tens of) millions of dollars for the organization. And if you’ve hired a smart CEO, and given her a piece of the company, she’ll be grinning from ear to ear as the value of her stock soars as a good CEO is in it for the long term.

4. Are Your Core Values Aligned to Success?

Or are they a joke? If your organization looks up to a bullcrap mission statement like “we synergize our processes to bring value to our customers”, then your values are probably a joke. But, on the other hand, if you focus on achievement, ownership, teamwork, creativity, and integrity … then you’ve got the framework for building a truly world class supply chain organization.

5. Are You Talking About the Right Things?

Or focussing on irrelevant minutia because you don’t have the guts to take on the elephant in the room that is the real impediment to your progress. If you spend your days looking for the next fire to put out instead of addressing how you’re going to weather the market storm that’s brewing, you’re talking about the wrong things and will be battered badly when the storm hits. Optimality in the supply chain is fleeting — even if you’re lucky enough to obtain it, it will quickly fade. The organization must always be on the lookout for the next process or technology that will increase efficiency and stability.

6. Are Your Warriors Still Fighting?

Or have your Vikings become farmers? If your team spends their time tweaking the last initiative until they’ve eeked out every last fraction of a percent of the perceived savings opportunity instead of diving into new opportunities as soon as they’ve extracted 80% of the potential value of the current opportunity, then your team has transitioned into a community of farmers content to live a peaceful and stable life. From an organizational viewpoint, this is bad since fields can be wiped out by a single flood and the only way to sustain success is to keep going after the next big opportunity. Furthermore, since it will generally take four times as much work to eek out the last 10% to 20% of savings, it’s just not a good investment of your team’s time. Follow the 80/20 rule if you want to maintain success.

7. Are Your People Self-Sufficient?

Or does everything come to a stand still every time you spend a few extra minutes in the lavatory? As the article says, senior executives who dash from crisis to crisis are a sign of organizational weakness, not leadership strength. If your team is truly strong, they will be able to function without your leadership and solve crisis on their own. You should be able to disappear for a month without any adverse effects to the organization. A good leader focusses on building the team, providing them with the support they need, and preparing them for future advancement — she doesn’t solve their problems for them. She gives them the training and support they need to solve their own problems

Link to Sourcing Innovation post

IDGA’s Military Logistics Summit 2010 will present updated DoD mission priorities and cutting edge information to support major deployment, re-deployment, and distribution operations. The event will bring together thought-leaders and decision-makers in logistics, sustainment, and readiness operations to discuss the latest implementation strategies and program initiatives to ensure the flexibility and preparedness of our military’s future.

“Over the years, the Military Logistics Summit has become the leading event for senior-level defense logistics professionals,” said Thomas Engleman, the event’s producer. “This year, we’re introducing an ‘Ask the Expert’ feature, where a logistics expert will be on-hand specifically to answer questions. We try to do something new every year, while keeping the same quality and standards people have come to expect.”

Specific summit topics that will be covered include:

* Changing regional priorities affecting all aspects of the defense transportation network,
* Enhancing combat unit readiness through more effective supply chain management and optimization processes
* Executing performance-based lifestyle product support for more efficient and cost-effective sustainment.

The speaker roster includes:

* LTG Mitchell Stevenson, USA, Deputy Chief of Staff for Logistics, G4, US Army
* LTG James Pillsbury, USA, Deputy Commanding General, US Army Materiel Command.
* VADM William Burke, USN, Deputy Chief of Naval Operations for Fleet Readiness and Logistics, N4, US Navy
* MG Randolph Strong, USA, Commanding General, CECOM LCMC, US Army
* An entire speaker list can be found on the event’s website.

For more information on speaking, exhibiting or attending IDGA’s Military Logistics Summit, please visit http://www.MilitaryLogisticsSummit.com or contact Erin Gilbert at ErinGilbert@idga.org.

The Institute for Defense & Government Advancement (IDGA) is a non-partisan information-based organization dedicated to the promotion of innovative ideas in public service and defense. IDGA brings together communities comprised of military, government, vendors and academia for education, networking and advancing the communities in which it serves. For more information, please visit http://www.idga.org.

Over the last several years there has been a marked increase in the use of Commercial-Off-The-Shelf (COTS) components in configuring new weapon systems. This initiative has been driven by Commanders in-theater requiring the rapid fielding of new weapon systems to fight a new type of enemy.

The traditional approach of sourcing components that are Developmental Items has been recognized by Program Manager (PM) Offices as being much too lengthy to meet the urgent needs for most new weapon systems; our Special Forces commands have been the most aggressive in using COTS based weapon systems. COTS items have been identified as the solution to field a weapon system quickly and relatively inexpensively.

System integration efforts are typically higher for COTS based systems compared to those of Development Item based systems, but due to the materially lower unit costs of COTS items, the overall weapon system is often an attractive value proposition to the PM Office.

Note that there is also a macro-issue that is driving greater use of COTS items; the commercial market dwarfs that of the defense community and contractors have been more and more “forced” to look for COTS solutions for their customers. In 1980 US defense costs were approximately 10 percent of GDP.

By 2000 it had dropped to about 3.2 percent and now is at about 3.8 percent due to our current conflict in Southwest Asia. It is estimated that in five years, due to the reduction in the current conflict and a continually growing economy, defense expenditures may fall below 3.2 percent. From all indications, COTS items will come to dominate most US defense weapon system acquisition programs.

The majority of PM Offices, working closely with contractors, have been very effective in providing field commanders with COTS based solutions. The PM’s track record in being efficient in dealing with the upgrading of COTS products, as well as in dealing with the product support of a system, has been at a lower level of performance compared to that of acquiring the system.

Joint PM Offices have been the most challenged in dealing with these shortcomings. The Congressional passage of the Weapon System Acquisition Reform Act (WSARA) of 2009 is direct result of attempting to address these cost overrun issues.

Note that as a result of an abundance of supplemental funds to pay for system acquisition, as well as for paying for a good part of the product support processes employed during the early years of a fielded system, most PM Offices have had little pushback from leadership regarding the often unfavorable variance from planned Total Ownership Cost (TOC); a good fitness report for an O5/O6 is still being primarily driven by the effectiveness of fielding a new weapon system.

As supplemental funds begin to decrease in the next one to three years, due to many reasons, many of the acquisition/product support business models crafted by the PM Offices will begin to be severely challenged due to a reduction in the amount of funds that a PM Office is able to utilize to deal with “problems;” system availability levels will decrease and product support costs will increase. Unfortunately, the PM who had crafted the business model for the COTS based system will have long been gone, leaving the current PM and Product Support Manager/ILS Lead in the PM Office to cope with multiple challenges.

Vice Admiral Mark Edwards, Deputy of Naval Operations for Communications Networks (N6) in April 2008 stated below his opinion regarding the promise of COTS technology and the reality of the acquisition and product support processes.

“Millennium sailors were born with laptops in their hands…but when we get them into the Fleet, the disconnect between what they were promised and what they find will be profoundly disappointing–a veritable bait-and-switch scheme. They will discover that our “leading-edge-off-the-shelf” and “state-of-the-art” technology is at best ancient….

The two-way communication bandwidth of a single BlackBerry is three times greater than the bandwidth of the entire Arleigh Burke destroyer. Looked at another way, the Navy’s most modern in-service multi-mission warship has only five percent of the bandwidth we have in our home Internet connection…. By the time it gets to the people who need it, it is already out of date.

The important point that the Admiral was making is that our men and women in uniform are often technology savvy for COTS items; it is what they use as consumers on a day-to-day basis. Think PC, think router, think cellular phone and think GPS. Young adults, the majority of military personnel, have been conditioned as consumers to replace their technology every one to two years.

When members of our volunteer military see COTS technology, which they know is three to seven years-old, they can easily feel that they have been “betrayed” in not being provided with the latest and greatest technology to fight our enemies. As for Developmental Items, our soldiers have had none or very little experience as a consumer and cannot equate whether an item is in fact state-of-the-art.

Note that Al-Qaeda can cruise the internet for new COTS technology, place an order with a credit card and have it delivered via DHL to their country of choice within 48 hours. It is not hard to see why our Warfighters are confused as to understanding why our PM Offices cannot have similar flexibility.

Ron Giuntini

Note: A related webinar: Success with COTS Components: How to Estimate the Costs of COTS Items During the Product Support Stage of a Weapon System Lifecycle will be conducted by the author of this article Ron Giuntini, you will not want to miss his Success with COTS components webinar, taking place August 17th, 2010.

Taking that into consideration, the question in my mind is this: With renewed focus on growth, will the future bring higher customer satisfaction for shippers and greater financial returns for LSPs?

It seems to me that a lot of LSPs have grown more opportunistically than strategically – and it’s been a rocky road for many. With glimpses of growth opportunities now on the horizon, I hope the LSPs will step back, look at where they’ve been and where they want to go, and ask themselves these key questions:

1) Have we analyzed the market segmentation: by profitability, by customer or customer group, by service, and by geographic region?

2) Have we identified best opportunities for growth in terms of our capabilities, capacity, and talent?

3) Are we in tune with our customers’ needs, wants and future strategies?

The good news is that I am seeing some laser-focused companies that are systematically addressing their markets. They know exactly what they want to do and who they want to serve. They are investing in the people, processes and technologies required to meet and exceed customer expectations. They are willing to walk away from deals that don’t match their strategic focus, and they invest in the talent and tools to pursue the deals they want.

Investors looking at this space are interested in growth in non-asset services such as transportation management and truck brokerage. The midmarket is especially attractive now that cloud computing is delivering affordable technology solutions. At the same time, shippers, concerned about future capacity constraints, are citing a preference for owned assets. It will be interesting to see how this plays over time.

Regardless of which asset strategy is chosen, LSPs who count their customers, their carriers and/or their drivers among their most valued assets – and treat them accordingly – in my view, will be best able to deal with the uncertainties that lie ahead.

I am such a believer in customer advocacy, and the benefits that well planned and executed programs can deliver. In a recent interview with Eye for Transport, FedEx Supply Chain’s President & CEO discussed their Market Champion program in which FedEx officers around the world are assigned to specific markets where they regularly meet with customers to get their feedback.

This is a great way to keep a close pulse on the market, to test new service ideas, and to develop those all-important relationships. Good account plans come in many shapes and sizes, but the importance of the voice of the customer should not be overlooked. The same can be said for dealing with carriers or company drivers. Understanding the needs of these groups, and developing programs to address them, can pay back in spades.

While most LSPs seem to feel the worst is behind them, there is still cautious optimism about the future. LSPs will continue to be diligent about controlling costs and about hanging on to valued customers. Many exhibited great agility during the recession, reacting quickly to changing market conditions and coming up with fresh ideas such as new multi-modal offerings, better tools to help customers with supply chain visibility, and right-sizing facilities to cut fixed costs.

When we look back on 2010, I hope we will say that this is the year in which LSPs really got smart about their business and their customers.

We’ll learn that they had well-defined and well-executed strategies. They stopped chasing every RFQ that came along. They really understood their business, and they exited unprofitable relationships and invested in valuable ones.

Some entered new markets, and some exited markets. Some added services, some launched new services, and some made acquisitions.

The LSP industry really listened to the customers and was recognized for innovation. LSPs received the highest customers satisfaction scores since the industry began measuring them. And they achieved greater levels of profit than ever before.

Now wouldn’t that be nice?

Valerie Bonebrake

This will be accomplished by making SCN a hub for a true network of Supply Chain Bloggers and these are all listed below for your information and I will soon add connections to all of their posts on the SCN site as well as their own companies and blogs in case you wish to visit with them directly.

We are of course always looking for more supply chain practioners and thought leaders who also would also like to become contributors to the Supply Chain Network!

Cheers

@JeffAshcroft