Chain of Command

Even though the Demand Driven Supply Network is designed to eliminate the uncertainty inherent in customer demand signals, uncertainty will never be totally eliminated in the CPG supply chain. Obviously, this scenario poses the ultimate challenge to technology providers, especially in the supply chain services arena, whose mission is to help their clients grow and profit despite the stubborn obstacles of market and company uncertainties.

Given the uncertainty inherent in the CPG supply chain and the tumultuous state of the Transportation industry in general, transportation management software and service providers have built in flexibility to respond to events with uncertain outcomes, according to John Fontanella, the Yankee Group. G-Log pioneered the concept of shared transportation services, which allows central management of the function while executing cost and service effective solutions at the local level. Logility has enabled mid-sized CPG companies to monitor activities of its carriers as well as internal operations, and apply actual performance data when evaluating shipping alternatives. UPS Logistics Technology employs real-time wireless technologies to develop and communicate an optimal response to unexpected events in the order to delivery cycle. CH Robinson's freight matching and tracking services exposes shippers to new transportation sources, and provides the technology to support an opportunistic, and many times, short-lived relationship. "It's a fact of life that uncertainty will never be eliminated from the CPG supply chain," says Fontanella. "Transportation management vendors must equip clients with the tools to mitigate its effects."

The Impact of RFID
Certainly, RFID will ultimately add an additional layer of visibility to supply chain service offerings. Or will it? "Once you think of RFID as a form of process automation, you begin to understand the technology's potential but also the challenge facing software vendors to design software to take advantage of its capabilities," says Fontanella. In the short term, over the next three to four years, RFID will be used largely for some form of asset tracking. Adoption will be driven by mandates, and value derived will depend on where companies reside in the supply chain. "For the software application provider, almost nothing changes. Current workflows, heavily dependent on human interaction, stay the same," says Fontanella.

Fast forward to 2009, though, and a different picture appears. Mature technology and a well skilled workforce will enable companies to seek new ways to extract value from RFID. "The areas that will be explored will be those that human organizations, even with the aid of current technologies, do a very poor job of managing," says Fontanella. The top RFID priority for CPG firms, according to Fontanella, will be to increase revenue and share by better management of product replenishment to the store shelf. Within operations, RFID will be used to lower cost of labor, improve quality and allow for data collection at a level unthinkable today. Improvements will be the result of eliminating, not adding, people from the process, replacing the mistake prone human for nearly error proof technology. "It's hard to conceptualize what a supply chain enabled by the process automation that RFID could bring looks like, apart from improved visibility and easier identification methods," says Fontanella. "Most of the truly revolutionary uses will be developed through trial and error, and aimed at individual company problems. Looking further out, though, vendors had better plan for a total revamp of their product offerings to take advantage of the capabilities RFID will offer."

Walls Come Tumbling Down
The extension of business processes, along with relevant data, beyond the four walls of the enterprise is another trend being eyed by Yankee Group. In fact, the company has a name for the research it has completed in this area, which they are calling the Interdependent Commerce Network (Figure 1). "In a recent survey, we found that technology spending at the edge of the enterprise is growing much faster than the overall market," says Fontanella. "There is also consolidation in the software industry that demonstrates vendors are gearing up to meet the demand." As an example, Sterling Commerce recently bought Yantra Corporation. It plans to merge its integration platform with Yantra's distributed order and distribution management applications to provide a common, flexible workflow across an entire trading community.

The onset of the Interdependent Commerce Network should cause some interesting dynamics within the software community supporting the CPG industry, according to Fontanella. The large ERP vendors such as SAP, will be forced to clarify and expedite their efforts to provide integration strategies and tools. Best-of-breed vendors, long struggling to become strategically important in the eyes of the technology user, will welcome an open ERP platform. The benefit? The enterprise will be able to choose the most appropriate application without sacrificing the integration that once only the ERP vendor could provide.