Skipping steps; Streamlined logistics cut e-biz costs

As leading e-businesses look beyond e-procurement to the low-hanging fruit that will drive operating costs down, inventory and logistics appear to be their biggest targets.

Goods as disparate as Cisco routers and Safeway yogurt, for example, are being rerouted more efficiently by an order-management and fulfillment technology called merge-in-transit, which promises to reduce the cost of getting products to customers.

"In-transit merge is one of many logistics programs where a third party can add value to a product between its origin and its ultimate destination," said Roger Morely, assistant vice president of product development at Transentric, a wholly owned subsidiary of Union Pacific Corp. in St. Louis.

Federal Express Corp., in a design and deploy partnership with Cisco System Inc., is piloting a merge-in-transit program that, if successful, will change how Cisco delivers its products.

With the growth of its business, Cisco has been faced with the reality of having to build and manage an ever-increasing number of regional warehouses.

Instead, the merge-in-transit program allows Cisco to match the location of the final customer with the location of the nearest FedEx depot where suppliers ship their parts of the router. The ultimate goal is to have FedEx hold all the components until the customer order is complete. Ideally, Cisco would eliminate its stocked inventory of product parts.

"Look at how much of the total operating expenses of a company is inventory management and holding inventory, and if this is 3 [percent], 4 [percent] or 5 percent of your business, if merge-in-transit replaces that totally -- and that is the goal -- you would be cutting out that portion of the cost structure. There are real percentage points of total cost here," said Thomas Schmitt, senior vice president of worldwide e-solutions at FedEx in Memphis, Tenn.

What has not existed was the software that could orchestrate all the different stages involved in delivering a single finished order to a company, according to Schmitt. FedEx, with Cisco and a number of other high-tech companies, is developing and now testing that software, which is in beta.

"You need to signal to a supplier when they have to ship and what service to use. If suppliers are at different locations relative to the end ship [destination], you need to tell people to launch their particular piece at different times. It takes a great deal of supply-chain planning and nothing was available," Schmitt said. The working name of the product is e-Merge; it is still in trials.

"Suppliers must be directed to ship the good to a consolidation or merge point where the order is held until all components of the order are gathered for final shipment to the customer," said Chris J. Newton, senior analyst of supply-chain strategies at AMR Research Inc. in Boston.

Promoting this concept to the companies he advises is Charles Poirier, a partner in the supply-chain solutions group at Computer Sciences Corp., in Lake Forest, Illinois.

"The biggest problem is to trust one another. Cisco is sharing information on all their end-customers and trusting their product to FedEx. But actually they have no choice if they want to cut cycle times and cost."

GroceryWorks.com, whose investors include the supermarket giant Safeway, is also using a form of merge-in-transit, according to Richard Sherman, senior vice president of EXE Technologies in Dallas. EXE Technologies' Exceed software suite allows a company to meet demand by using its entire network inventory instead of the inventory in a single facility, which can greatly reduce the amount of safety, or buffer, inventory a company stockpiles.

"If yogurt is about to expire at the warehouse, they may ship it to another warehouse that is running low on yogurt, letting the product move to where it is needed," Sherman said.

Merge-in-transit is part of a bigger logistics effort to bring total visibility to the supply chain. According to experts software management products must know where things are in the supply chain and see where things are out of balance.

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