InformationWeek
Defining The Business Value Of Technology
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January 22, 2001 |
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Ship It!
Because of its ability to link people around the world, the Internet is causing a global logistics transformation. Moving goods and dealing with customs and tariffs is still hard, but software automation and supply-chain suites are starting to help the process.
By Jeff Sweat
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s if convincing Europeans to buy wines from the New World wasn't challenging enough, WineSmart.com Inc. has the even tougher task of shipping those bottles of wine as quickly as overnight across international borders. When the Mastrecht, Netherlands, online company started out in 1999 with the idea of selling wines from the Americas, it faced two challenges: getting the wine to Europe, then filling orders and moving product from country to country within Europe. "We knew we had to have logistics in place to make this a true EU business," says WineSmart CEO Curt Howell.Now that the "global village" is no longer a McLuhanesque abstraction, meeting the challenges of a worldwide business environment is more daunting than ever, and one of the toughest parts is global logistics. The hardest aspects of circumnavigating the business world fall into two categories: how to get an order from one place on the globe to another, and how to negotiate the Byzantine bylaws of trade and customs regulations. Vendors of IT products and services are attempting to address both challenges.
Conventional supply-chain vendors such as i2 Technologies Inc. and Manugistics Group Inc. offer logistics and transportation applications integrated with their back-office products so companies can tie together multiple business processes, from product development to delivery, in a single enterprise system. A host of transportation-and logistics-services vendors such as Arzoon, Celerax, Descartes Systems, Global Logistics Technologies (G-Log), and Nistivo focus on the physical movement of goods from one place to another. Vendors such as ClearCross, Exporta, NextLinx, and Vastera offer software and services that combine human knowledge and expert systems to help companies comply with customs laws and tax duties.
That technology, along with a growing number of online exchanges specializing in logistics, may help companies handle the physical aspects of far-flung business and exploit the potential of the global economy.
The Internet, of course, is fueling a lot of that momentum. For example, the Internet's ubiquity and ease of use made it possible for Circle International Group to electronically connect its logistics system with a Web-based electronic data interchange system at a textiles plant in India, says Cynthia Stoddard, CIO of Circle International Group, a 100-year-old trade broker in San Francisco. The system replaced a manually intensive process that required plant employees to type and mail invoices and advance shipping notices.
The company, which was recently acquired by Eagle Global Logistics Inc. in Houston, built many of the Web applications its customers use itself. But to add more-complex automated logistics processes, it recently partnered with Capstan Systems Inc., a San Francisco company that provides global logistics technology. Central to Capstan's offering is a business-to-business network that connects buyers, suppliers, and logistics services providers.
Capstan isn't the only company building such a network. The number of online logistics exchanges and marketplaces is growing rapidly. AMR Research counts 200 logistics exchanges for virtually every industry and every transportation need.
ShipChem.com, a joint venture by Eastman Chemical Co. and G-Log, aims to help participants in the chemical and plastics industry better manage transportation and logistics operations. ShipChem's network of shipping providers makes sure that goods move as quickly as possible. Because the
B-to-B exchange provides visibility into multiple systems, participants will know if a chemical container missed a boat because of a holdup in customs. Early notification means a shipper can load the goods onto a truck and get them to another ship so the delivery still arrives on time, says Barry Dale, ShipChem's president and chief operating officer.
Logistics exchanges also give companies greater choice. Typically, businesses are limited to just a few shipping options, which keeps the price of shipments high and decreases the flexibility necessary to get a product to a customer on time. Gifts in Kind International, which transports corporate donations such as computers to cities in Europe, Asia, and South America, is using an exchange operated by RightFreight Inc. Gifts in Kind, a nonprofit organization with limited resources, has to save money wherever it can. "We've saved 10% to 15% on the cost of transportation over the other carriers we would have used if we hadn't had access to RightFreight," says Peter Asimakopoulos, chief operating officer of the Alexandria, Va., organization.
Along with competitive pricing, RightFreight helps Gifts in Kind find carriers that specialize in geographic areas the nonprofit organization needs to reach, which means Gifts in Kind doesn't have to manage a stable of long-term logistics providers. "A few years ago, you needed to cultivate trust and harmony with individual carriers," Asimakopoulos says. "Now, exchanges take the relationship and turn it into just another bunch of electrons."
Still, some analysts say the exchange model may not be well-suited for logistics. Traditional logistics contracts generally involve multiple shipments, and companies negotiate lower rates during busy seasons, such as Christmas. Online auctions for low bids on one-time shipments, typical in exchanges, will represent only 15% of the transportation and logistics market, says AMR analyst John Fontanella.
That's why vendors such as RightFreight and ShipChem tout their technology and services and downplay the exchange aspect of their business. That's good news for customers, Fontanella says, because it means those vendors are adding sophisticated logistics-management functionality to their more basic exchange features.
One of the business initiatives most responsible for creating the global village is E-commerce. However, few E-commerce companies have the resources to build their own global logistics frameworks. For smaller goods, carriers such as DHL Expressways, Federal Express, and United Parcel Service have strong international operations. FedEx and UPS, in particular, are moving beyond carrying packages to become full-service logistics providers (see story, p. 46).
WineSmart defied conventional E-commerce wisdom and built its own warehouse in the Netherlands where it keeps wines on hand to more quickly fill orders. "If we were going to provide a pan-European service and meet customer expectation for delivery within three to five days, we decided we'd have to hold inventory," CEO Howell says. The warehouse lets WineSmart fulfill orders as quickly as overnight, compared with competing European wine sites, which often take one to four weeks, the company says.
A big part of WineSmart's speedier delivery is an inventory system, built by London consulting firm 1eEurope, that's integrated with the Web site and automatically generates fulfillment orders the day they come in. WineSmart uses UPS for order fulfillment, and WineSmart's site is linked with the UPS logistics system so customers can track orders en route.
The relationship with UPS has led to a novel approach to E-retail fulfillment. WineSmart customers who can't wait at home for deliveries can pick up their wine at a local Texaco gas station. UPS approached WineSmart about a pan-European cooperative effort it had been discussing with Texaco, which has a wide European presence. WineSmart has been testing the system for about 60 days in Belgium, the Netherlands, and Luxembourg, and will roll it out across Europe later this year.
The European Union is supposed to have made cross-border shipments simpler, but Howell says each member country still has its own import policies. Value-added taxes and excise taxes also vary. WineSmart uses trade consultants to make sure it complies with each country's customs laws, and it will work with 1eEurope to extend its logistics and inventory system as an extranet so wine suppliers around the world will have access to guidelines regarding their countries' export and import customs. And while most importers don't figure out value-added and excise taxes until orders have been delivered, WineSmart lets customers know right up front what they will have to pay. "A lot of customs officials were impressed at the level of integrity we had by telling customers in advance," says Andrew Ballantine, WineSmart's director of logistics.
Illustration by Oreste Zevola
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