Monday, May 21, 2007

Transcript of BriefingsDirect Podcast on UPS's Solutions for Supply Chain Visibility

Edited transcript of BriefingsDirect[TM/SM] podcast with Dana Gardner, recorded April 17, 2007.

Listen to the podcast here. Sponsor: UPS.

Dana Gardner: Hi, this is Dana Gardner, principal analyst at Interarbor Solutions, and you're listening to BriefingsDirect. Today, a sponsored podcast discussion about visibility into supply chains and distribution networks. It’s about effective information-sharing across the spectrum of transportation options and during the distribution of goods.

"Do you know where your stuff is?" is the big question and, most importantly, "Do your customers know where their stuff is?"

Helping us to sort through this important area for ecommerce and for small- and medium-sized businesses (SMBs) and their retail operations, we have an expert in the area of supply chain management. We are joined today by Jim Rice, director of the Integrated Supply Chain Management Program at MIT. Thanks for joining us, Jim.

Jim Rice: My pleasure.

Gardner: We also have Stephanie Callaway, director of customer technology marketing at UPS in Atlanta. Hello, Stephanie.

Stephanie Callaway: Hello, Dana.

Gardner: We also have users and practitioners of this emerging art. Frank Deen is the shipping manager at Rackmount Solutions in Garland, Texas. Hello, Frank.

Frank Deen: Hello, Dana.

Gardner: And lastly, joining us from Saline, Michigan is John Schaffer, president of TrueWave, the distributor and creator of the Wadia line of high-end audio products. Thanks for joining us, John.

John Schaffer: Glad to be here, Dana.

Gardner: As I mentioned, this visibility issue is a part of the information revolution and the knowledge economy, whereby at some point either folks who are end-users buying goods or folks in the distribution channel are looking for reductions in cost, efficiency improvements, and reduced time to distribution -- all of which can substantially reduce the total cost of an overall production and distribution activity.

I want to go first to Jim Rice. Jim, help us understand the state of the art here today. What are we talking about in terms of business drivers and technology drivers in this search for higher efficiency and distribution?

Rice: Thanks, Dana. Let me start by talking about the business drivers. If we were to ask companies and leaders what their concern was, they would be talking about a number of things. They'd be talking about continuity -- business continuity. We saw that destructions like Hurricane Katrina and 9/11 caused a lot of companies to start recognizing that their supply chains are genuinely at risk.

A lot of vulnerabilities were always there, but weren’t very apparent or evident. So, there's a fair amount of recognition about this vulnerability. Right now, there is some work going on in that some companies are planning to make their supply chains more resilient and trying to actively manage risks.

Similarly, companies are aware of security as an issue, although many are talking about it, but aren't taking much action. In part, that's because it’s very difficult to show a return on investment from security investments. The trick question is, "What happens when supply chain security investment is successful?" Of course, the answer is "nothing," because it prevents something from happening.

The companies are concerned with optimal supply chain design, and this takes in the aspect of outsourcing. How much outsourcing do we use? How much of that do we even think of putting offshore, trying to reduce cycle time, cost, and uncertainty in the system? That will ultimately enable them to be much more responsive to spikes and drops in demand.

Companies continue to squeeze their supply chain to lean it out, and make it more efficient and more effective. There are a lot of drivers in the industry right now that affect the price of sundry industries differently.

Gardner: We want to have this clarity in the best of times and also in the worst of times. Is this essentially a data integration and availability exercise? What are the core issues to enable folks to get the information they need about supply-chain activities?

Rice: It’s not just about data, but certainly data is a central and a critical issue.

A lot of it comes down to having relationships with customers and suppliers. They would be open and free to share the information that ultimately will help both organizations to make better decisions, reduce uncertainty in the system, and take out some of the cost and uncertainty. That makes the system potentially much more efficient.

Gardner: I suppose this has to do with levels of trust. There are interdependencies -- "You help me, and I help you" -- in terms of making the customer at the end of the process happy. How has that gone? Has there been trust? Have people recognized a quid pro quo and have they been willing to share?

Rice: Yes. I go back to that quote by Ronald Reagan: “Trust, but verify.” There’s certainly some inherent trust that exists between individual parties, and there maybe some trust that exists over the long term between organizations, but ultimately the trust is backed up by systems or processes that enable regular engagement coordination. They are backed up by contractual agreements, or at least agreements in principle, whereby one party is going to make the other party whole in the event of some disruption or some eventuality that they hadn’t planned for.

Gardner: Before we go to UPS to learn about some of the things they are doing, what should we expect in the future? Is this a mature and fully baked technology and business approach, or are there more efficiency, visibility, and innovation to come?

Rice: I think we are just on the cusp of lots of great potential. I can’t tell you whether the potential will be realized tomorrow, next year, or in five years, but I think we are getting really close. Probably as far back as 10 or 15 years ago, you had some pundits who were saying, "Oh, in the future our systems will be fully integrated and completely synchronized." It hasn’t happened yet to a large extent. There are isolated instances. Some individual companies have demonstrated the capability of being synchronized, organized, and coordinated.

Some of these capabilities are becoming more readily available for large companies, and hopefully in the near term, to small- and medium-sized enterprises. The challenges aren't simple, but I think there are some tools and processes emerging that are going to make this much more possible in the future, and therefore get us a little closer to that Nirvana of the synchronized supply chain.

Gardner: Thanks. Let’s go to Stephanie Callaway at UPS. Stephanie, you’ve heard about the need and desire for looking for data and visibility in the best of times and the worst of times. UPS sits in a very advantageous position between all these players. Tell us a little bit about what’s been going on for the last several years to try to improve on this activity?

Callaway: Okay, Dana, thanks for having me. UPS started with tracking on the Web in the early '90s and since then we have evolved our portfolio to include a broad set of visibility solutions that address the very diverse needs of our customers.

Today, we support tracking in 63 countries, and that serves the basic visibility needs of our shippers, receivers, importers, and exporters -- both residential and commercial. Our emphasis today is on more than our traditional U.S. small package business. That's available outside of the U.S., but we also provide visibility through tracking to our UPS Freight, Air, and Ocean Freight Services.

Gardner: Jim mentioned about this trust issue for verification? Have you been playing a larger role in trying to broker these relationships or get people to shake hands and agree on visibility?

Callaway: From the perspective of our relationship with our customers, we provide full visibility of shipment status from the time they tender their package to us to the time it is delivered to their customer. We have other visibility solutions, such as Quantum View, that provide proactive information, even when the package encounters trouble along the way. Whether it’s a weather delay or an incorrect address, we can provide that information proactively to our customers, so that they can provide that information to their customers and improve customer satisfaction.

Gardner: So, you are the picks and shovels, and your customers are out there mining these relationships. Tell us a little bit about small- to medium-sized businesses in particular. Is this a high-growth area for your goods and services? Where in the whole business spectrum are these things being used the most? Then, secondarily, where do you think the larger uptake is in the future?

Callaway: Customers of all sizes take advantage of our visibility portfolio. I mentioned tracking on the Web. Even with tracking, some of our customers prefer to integrate that information into their own Web sites. We have XML tools that customers of any size who have an IT organization can take advantage of to integrate information about package status into their Web sites.

We also have this suite of Quantum View solutions that can be used by customers of all sizes. Typically, smaller customers who don’t have large information technology (IT) functions or large IT budgets would take advantage of our ready-to-go solutions, like Quantum View Notify, which is an email notification. Customers can select that at the time of shipping, and proactively notify their own customers about important shipping events, such as exceptions and deliveries. That helps them save time and increase customer satisfaction by reducing the number of calls that they receive.

We also have Quantum View Manage, which is a visibility dashboard that customers of all sizes can use to see where their packages are in transit. That would be any packages they are shipping out, any that are coming into them, or any that they’ve paid for, along with some special capabilities to help importers with compliance.

Gardner: Without going too far into the weeds on application development and integration, Web services and APIs, and that sort of thing, it sounds like you’ve got a spectrum of approaches for those who aren't interested in getting into too much of the technology, perhaps using the email alerts approach. I imagine you also will allow for those who do have application developers at their disposal to bring in the visibility benefits, and mash-up your tracking, information, and data services right into their portals for self-help and for customers to track what’s going on with their retail purchases. Is that right?

Callaway: Exactly. As I was saying earlier, we believe we have to address a broad set of diverse customer needs. I mentioned the online tools for tracking, but we also have Quantum View Data, which lets data about package status information flow proactively from UPS to customers. They can integrate that however they see fit into their own internal applications, whether it’s for their own use within their customer-service department, or whether they want to proactively share that with their customers.

Gardner: I suppose as a customer or a partner, you’re elevating yourselves to an information-sharing value, not just the logistical and transportation value?

Callaway: That’s true, and our customers expect that of us.

Gardner: Okay, let’s talk to some customers. Let’s go to Frank Deen at Rackmount Solutions. First, Frank, tell us a little bit about Rackmount, the history of the company and what you do.

Deen: Dana, we started out about five years ago as strictly an Internet company. We sell racks for IT solutions, file servers, and different types of peripheral equipment that goes into IT rooms. We ship those all around the country. Our business has grown to the point where we have a warehouse here and stock quite a number of the items ourselves, but because of the magnitude of the type of things we sell, we ship from probably a dozen locations around the country, depending upon what the item is.

If the quantity someone is purchasing makes it impossible for us to ship it from here, we have to have it drop shipped. That, in itself, has been a challenge, because our shipments are going from so many different locations. We are usually selling to people who come in over the Internet or call us direct, so everything we have does get shipped out. Being able to track and know where our packages are is very, very important to us.

Gardner: So, you have been managing fast growth. People have been building out data centers and modernizing their infrastructure for their IT departments. You’ve also been dealing with complexity in terms of the number of points that you are distributing from and the number of points that you are trying to get your things to. Specifically, what sorts of visibility services have you been using to manage this high growth and complexity?

Deen: Initially, when we started doing this, because we were shipping from so many locations, even though it was being shipped on our account, we would have to contact each one of those shipping points, each warehouse, each manufacturer to get tracking numbers to send to our customers. Of course, now we are able to have that information sent directly to the customer when the product ships. They get an email with that information.

Plus, on Quantum View, we are able to pull up a report every day that shows everything that has been shipped out on our account, whether from our local warehouse or any of those other locations. We're able to have that tracking number and see the exact progress of that package -- when it was picked up, where it’s at currently, when it’s expected to be delivered, and the address that it’s expected to be delivered to. When a customer calls and asks a question about it, we are able to go to that and immediately give them an answer that provides a comfort level that we are keeping track of their merchandise that they are waiting to get.

Gardner: So, using some of the UPS services, you're giving your call-center folks visibility. When they've got hopping-mad customers saying, "Where are my goods? I've got to build out this data center. I need these racks," you’ve given visibility to your call center, but do you take it to the next step? Do you have a Web site where these people can track their own goods? How does that work, when you face too much cost and too much traffic into your call center?

Deen: That really hasn’t been a problem for us. The fact that they have the information themselves, the tracking numbers, all customers can go in and do the tracking and look at it themselves. That has reduced the amount of calls that come into us, because people are able to see that.

The other issue is that with Quantum View, we are able to find out quite often if there is a problem with the outgoing package, and whether it’s been delayed for some reason. We get that information before the customer calls and complains about it. The call center will be proactive in dealing with the customer, and letting him know that we are out there serving his needs. That’s very big, because sometimes in the past, we didn’t know if there was a problem until the customer called, asking "Hey, where’s my package? It should have been here already." Being proactive helps us provide better customer service.

My feeling is that there is a lot of competition out there for what we do. There's a lot of competition for every business out there. Customer service makes the difference whether that customer is going to come back to see you or not, because there’s only so much difference in price that businesses can generally give. When we can do these things to show customer that we care about when they get their product and that we are going to be right there with them all the way through, until they’ve got it and it’s being used by them, that makes them want to come back to us.

Gardner: I want to check in with Jim Rice. Is there anything you heard from Frank Deen that illustrates some of the trends that we talked about, or perhaps some of them we didn’t? It seems that customer service and the trust element is pretty prominent.

Rice: I was biting my tongue here, because I wanted to ask Frank a bunch of questions. I think the example illustrates, in great part, dealing with uncertainty. Because Frank now has pretty good understanding where his materials are, he’s able to make commitments to his customers that will then allow them to be more sure of when they can expect to get their materials. That means they can take out a lot of uncertainty in their planning process.

The question I have -- and maybe it’s for another time -- but when someone has less uncertainty in their supply chain, does it make it possible then to take inventory out of the system, because inventory is basically there as a buffer to deal with uncertainties?

Maybe Frank has chosen to keep his inventory levels the same and ensure higher customer-service levels, or possibly he has reduced inventory based on the ability to have a much higher level of certainty. I think it’s a really good example, and I think it illustrates something that I didn’t mention -- the importance of maintaining high service for your customers to maintain those customers.

Gardner: How about it Frank? Have you been able to whittle down your inventory as a result, and is there some cost savings there for you?

Deen: Jim’s right in the fact that we have a comfort level, so when we need a product for a customer, we can have it directly drop-shipped to that customer and know that it’s going to get there. That means we don’t have to keep a large amount of each kind of item. We keep enough for when someone calls and wants one, two, or three of something, but when they need 20 of it we don’t have to be worried, because we know that we can go right to our supplier and have that drop-shipped and serve that customer’s need. We know it’s going to happen.

Gardner: I have a sneaking suspicion that customer satisfaction is important to John Schaffer, as well. John, tell us about TrueWave and the Wadia products. Then let’s get into how this ability to satisfy customers throughout the transportation phase of a purchase works.

Schaffer: Sure, Dana, you hit the nail on the head there. Customer service is everything to us, as well. One of the great things about the tools that UPS has provided for companies like ours is the ability to offer a higher level of customer service through the visibility that Frank was discussing.

TrueWave manufactures a product under the Wadia brand, basically high-end consumer electronics, and specifically what most people would think of as CD players and high-end stereo equipment. We have the enviable position of a brand that is very well received throughout the world. Our challenge with shipping and satisfying our customers has to do with not just the United States, but satisfying countries overseas, working with distributors throughout Asia and Europe, and North America as well.

Our challenges are a little bit different. What UPS has been able to provide for us has really given us advantages. Previously, we would work with freight forwarders quite often. They are pretty good at handling the customs side of things, but the visibility was very poor, and we would have significant delays in getting packages from point A to point B. What we have enjoyed in our relationship with UPS is the ability to have the packages transported across borders seamlessly, and have visibility throughout the process.

Gardner: So, you’ve been able to enter and then satisfy markets that you probably wouldn’t have been able to get to?

Schaffer: No, we could get to the markets, but we couldn’t do in a way that allowed our customers to have visibility into the process. There’s a lot of uncertainty when you are shipping internationally. When you have visibility into the process from point A to point B, it really changes the dynamic quite a bit. One of the tools that Stephanie was discussing, Quantum View Manage, allows us to see if there are problems along the way. Then we can communicate with our customers in such a way that we can set the proper expectations.

Communication is the secret to customer success, and visibility into all aspects of the supply chain has really changed the way that we’ve operated our business. I think for the better. Our customers are very satisfied with how we are able to offer them now a clear expectation of what they’ll get and when they’ll get it, thanks, in large part, to the tools that UPS has been able to develop and offer to us. As a small company, that’s really valuable.

Gardner: I suppose the whole notion of customer satisfaction also involves exception management, or even returns, if someone decides that it wasn’t exactly the right fit for them. Does this visibility and these tools help you in terms of managing, "I’d like another one right away," or "This one didn’t work out for me." This is working in reverse -- getting stuff from the customer back to you.

Schaffer: Oh, yeah. It does help us when packages have to come in for service, an upgrade, an exchange, or for whatever reason. It allows us to again control the situation and set the proper expectations for our customers.

It’s very helpful for us in planning for things. For example, if we have a product coming in for an update, now we can track the product back to us, have an understanding of when that will hit our dock, prepare the service department, make sure that our inventory of the parts that are needed to updated are available, and just really control the whole process in a better way. It’s really created a great benefit.

Similarly, with incoming components for manufacturing, sometimes we’ll have a supplier send products to us cash-on-delivery (COD). If we have visibility into the shipping process, we can have finance prepare the payment in advance, so that we are efficient in how we manage the process at the dock. That’s been really valuable.

The new Quantum View tools -- Quantum View Notify -- has allowed our customers to have a good understanding of when their product has shipped and how it's proceeding to their destination. Then, the Quantum View Manage has helped us quite bit with giving us visibility into both outgoing and incoming parts and products. It has really benefited us, and we are happy that, to have been able to partner with UPS and take advantage of such powerful tools.

Gardner: Let’s bounce that again off of Jim Rice, the expert. It sounds like when you’re receiving goods and you can plan for payments and schedules and manage your own manufacturing processes, that's another opportunity to reduce risk, improve efficiency, and cut your total cost.

Rice: What we just heard from John is another example of how getting additional visibility into the system gives the company a lot of power. It gives them the power to decide whether to increase the amount of service they are going to provide. They can provide products and materials on a shorter cycle time and possibly take cost out of the system, because there is much less uncertainty. In the pervious example, when Frank Deen was talking about being able to ship direct with the knowledge of where the materials were, this just allows the company to say, "All right, here’s where we need to put our capital."

Now, the confidence that they have, knowing that they are going to have this information that tells them where their products are, is very powerful for the company. It gives the companies lot of tools and lot of power to say, "Here is how we are going to chart our own destiny, and we are going to squeeze some efficiencies out of that. We are going to reduce the uncertainty and the cycle time." This is good news.

As I suggested in the beginning, companies are trying to reduce the uncertainty. They are looking for ways to take cost out of the system, and these are pretty good examples of that. I want to underscore that this is not easy. It’s hard work, and it takes working very closely with customer and supplier and really leveraging whatever systems and processes you have, so that you have a robust solution. It sounds like they’ve been able to create that.

Gardner: Even relatively smaller companies without a whole lot of resources?

Rice: That’s the beauty of some of the technologies. It doesn’t necessarily require a huge fixed-cost. That’s where this big advantage is now, as we see in many companies, outsourcing some of the capabilities, because of the firms who are providing outsourcing services. In this particular case, UPS has made huge investments to develop these very competent and capable systems that, for a piece price, individuals and small- and medium-sized enterprises can take advantage of.

Gardner: Let’s go back to Stephanie Callaway. Stephanie, how do companies get started with this? We heard that it requires a lot of work. How do companies get started to enjoy some of these benefits?

Callaway: On www.ups.com, if anyone is interested in more information on Quantum View, they can search for Quantum View. There's an online demo that describes the various Quantum View products and their benefits to help customers recognize their own business process pain points and identify the solution that will work best for them.

We also have a sales force, so customers who have an account executive can speak with their account executive about their specific business process pain points to be registered for something like Quantum View Manage or Quantum View Data. The things that are more sophisticated, such as the online tools that I mentioned for tracking, are available on our Website, and customers just need to login and register to access those tools.

Gardner: Jim mentioned earlier that we are perhaps just scratching the surface on what’s going to be possible. I’d like to throw this out to the entire group. If you have a wish list, if you like to see some things down the pike a little bit, what would they be? Where can we go next with this? How about one of our users John Schaffer or Frank Deen? What’s on your wish list for the next stage?

Schaffer: I think UPS has done a good job of anticipating the needs. In some cases, they have changed the way that we’ve thought about supply chain visibility and have really done a great job of leading the way there. One of the things that I think would be interesting -- and I know UPS has begun to explore this -- is in fostering relationships.

This goes back to the trust issue, but in fostering better business relationships with offshore manufacturers and suppliers, there’s a financial component that goes along with that, and UPS has set up some programs to address that. But, I think there are some additional programs that could be built to allow the issues that arise from language barriers, etc. to be broken down more. They could have financial control of the situation to go along with the control of the shipping, the movement of parts. I think that’s something that UPS has begun to explore but it’s something that we would like to see more of.

Gardner: How do you react to that Jim? Is that along your lines of what the next stages will be?

Rice: I think that the next stages are going to have lots of different pathways. What we’ve just heard from John is one example. We just don’t know what’s going to be coming, and this is one of the exciting things. We try to predict and expect these things, and we always get surprised. I think it’s through innovation in small- and medium-sized enterprise, because these are organizations that are not rich with resources, but they are very deep in innovative approaches to solutions. This is one good example, and there probably would be plenty of others.

Gardner: Are there any gee-whiz technologies still to come? We’ve heard about GPS and RFID chips. Are we going to take this a step further in terms of what the technology can provide?

Rice: I think that the gee-whiz technology that is often talked about -- and you just made a brief reference to it, Dana -- is RFID technology. In many ways, this has been oversold. It has great power in a limited number of instances and environments. Potentially, this has lots of broader application, but there is an awful lot of standardization development that needs to be done in order to make this more broadly and widely acceptable and usable.

The future is really bright, but it’s a little way off for that. The synchronized supply chain is going to come as a result of organizations working closely together using technologies like radio frequency or cobbling together a variety of different technologies. Whether it’s GPS or more sensors for security applications and containers, to software packages that allow deep analysis of rich data from RFID tags, it’s going to require a lot of hard work to pull these things together, but the potential I think is significant.

So, that’s why a lot of people continue to make investments in those areas. But I do think it’s a ways off, before the capability of those technologies to work network-wide comes to fruition.

Gardner: So, perhaps the future will have more data and more data points for us, and the ability to analyze it, but it’s the relationships and the efficiency and innovation of companies in the field that is where the biggest payoff is, at least the short term.

Rice: There’s going to be a tsunami of data that’s going to be available, and the challenge is going to be how we actually analyze all this and then do something with it. Even if you can’t do something with that data, current systems are not fully capable of responding in ways that you otherwise would like them to respond. But, by using technologies like the visibility systems we’ve been talking about today, as well as designing systems to be more resilient, it will increase the ability of supply chains and company supply chains to be more responsive. Then, when the tsunami of data does come and tells us, "Hey, here’s a forecast. We know it’s going to happen tomorrow," it will allow the company’s system to actually respond in time for tomorrow.

I remember talking with a manufacturer not long ago who sells to Wal-Mart. Their folks said, "Well, we get an 80 percent accurate forecast 10 days out from a shipping due date, but we can’t do anything with that because we need six weeks in advance to be able to respond to that." So, that's going to require some responsive systems in order to be able to utilize all that data.

Gardner: Well, great. I want to thank our panel. This has been an interesting discussion. I’ve certainly learned more about what’s possible and what’s going to be probable.

We have been talking with Jim Rice, director of the Integrated Supply Chain Management Program at MIT. Thanks Jim.

Also Stephanie Callaway, director of customer technology marketing at UPS. And Frank Deen, shipping manager of Rackmount Solutions, as well as John Schaffer, president of TrueWave/Wadia. Thanks again.

This is Dana Gardner, principal analyst at Interarbor Solutions. You have been listening to a sponsored BriefingsDirect podcast.

Listen to the podcast here.
Sponsor: UPS.

Transcript of Dana Gardner’s BriefingsDirect podcast on UPS's solutions for supply chain visibility. Copyright Interarbor Solutions, LLC, 2005-2007. All rights reserved.