InformationWeek

hat's the antidote to a slowing economy? For manufacturers, suppliers, and retailers, it's real-time control over incoming materials and outgoing products, resulting in faster, more efficient supply chains, fewer missed shipments, and more happy customers. Real-time logistics systems are beginning to make just-in-time inventory management really hum.

Systemax Inc., a Port Washington, N.Y., computer maker that sells products under the brand names TigerDirect and Midwest Micro, has been feeling the effects of an industrywide downturn in sales. It's counting on real-time logistics technology to make it more competitive. The company, which saw sales for the quarter ending March 31 decrease 10% to $406 million, is on the verge of deploying Optum Inc.'s TradeStream software for warehouse, inventory, and real-time logistics management to a fourth production facility; the last two of its six plants should be live on the software in a few months.

Before Systemax implemented TradeStream, employees had to comb through reams of data for information about the location and status of in-transit shipments, including problems such as truck breakdowns, and then work the phones and faxes. With the Optum software, alerts about such events are automatic, and decision-support tools help managers decide how to handle problems. "We were looking for a system that knew where our inventory was, how it got there, and how to get it to the customer," says CIO Murray Bower.

Since deploying the software in three facilities, Systemax has been able to consolidate employees in the inbound and outbound logistics groups at one of its subsidiaries into a single, smaller team. At one plant, the company now ships nearly all orders the same day it receives them, up from 36% same-day shipments last year. "My only regret is that we didn't get all six plants up and running at the same time," Bower says.

Optum last week enhanced its logistics suite to manage even-more-complex problems. An application called Move produces a different schedule for each supplier in a project so they can all finish their components and ship them to a manufacturer at the same time. Manufacturers can also synchronize outbound shipments to various locations on different schedules.

According to a recent Forrester Research survey of 47 retailers, three-quarters say the quality of logistics operations is a factor in competition; and 43% believe they distinguish themselves through their delivery services. "Clients are telling us that logistics execution is a key area for them," says Meta Group analyst Dwight Klappich. "They've taken supply-chain execution as far as it can go, and they see better managing of logistics as a way to save money."

The Spiegel Group last week inked a deal with Global Logistics Technologies Inc. to manage inbound freight for Spiegel and its 530 Eddie Bauer retail stores. David Ready, VP of transportation for the retailer's distribution fulfillment services arm, says the software will let managers make adjustments in real time when shipments are late. The system will be deployed in August.

AMR Research expects the real-time logistics products and services market to grow from $560 million last year to $2.1 billion in 2005. Hoping to grab a bigger piece of that, Vastera Inc. last week debuted TradeSphere Logistics and TradeSphere Event Manager to provide information and give notification of problems on in-transit global shipments as they move among exporters, freight forwarders, carriers, and government agencies. UPS e-Logistics, a subsidiary of package-delivery company United Parcel Service Inc., two weeks ago expanded its hosted logistics service to let businesses compare stock against orders to determine delivery dates. UPS also began offering outsourcing services for warehousing, inbound and outbound transportation, and customer call-center operations.

"The economy is down and companies are tightening their belts," says Tim Zach, marketing director for UPS e-Logistics. "Why would a company want to manage its own delivery network?"

Fairchild Semiconductor International Inc. doesn't. The South Port, Maine, chip vendor uses FedEx Corp. subsidiary FedEx Supply Chain Solutions Services Inc. to integrate its business and shipping systems with FedEx's logistics and global compliance software. In response to customers' just-in-time inventory plans, Fairchild has added real-time logistics services to track and trace orders and cut the time it takes to ship components internationally from 15 days to as few as two. Once shipping documents are printed in the country of origin, FedEx pre-clears the shipment through customs at its destination.

"We outsourced logistics and wound up being able to outsource everything from customs to delivery," says Bob Scribner, senior manager of global logistics. Fairchild's revenue has declined this year, but Scribner says the logistics services help it remain a valued partner to tech vendors that are trying to keep a handle on their own inventory costs.

Hercules Inc. reported in May that it lost $10 million for the quarter ended March 31. The Wilmington, Del., company cited higher freight costs as one factor in the loss, and getting all its costs in line is a priority. Keith Benn, logistics manager for the Aqualon division of the $3 billion specialty chemicals provider, says software from Aspen Technology Inc. is already having an impact on his division. Since last year, the company has been using real-time logistics products for inbound shipments, resulting in an 18% reduction in inventory costs and a 16% reduction of transportation and warehousing costs. Aqualon expects to save another 7.5% in inventory costs and 10% in transportation costs this year.

Smaller companies aren't as likely to realize such benefits because their volumes don't give them the same clout to negotiate the best shipping rates. That's where logistics E-marketplaces come in. Integres, an online exchange unveiled last week by Global Logistics, American Airlines, Roadway Express, Unisys, United Airlines, and UTi Worldwide, will offer small companies strategic real-time logistics services. President and CEO Jim Hartigan says the accumulated volume of many small shippers using Integres will give them the power of large companies to negotiate prices.

Of course, there are challenges. Real-time logistics software isn't easy to implement, warns Meta's Klappich. The software must be integrated with a company's back-office operations and those of transportation carriers and trading partners. And AMR Research analyst Chris Newton says some carriers refuse to provide real-time updates because being behind at some point in the schedule doesn't mean the delivery will be late. "They can make up for lost time, but if they're [seen as] behind at some point, it's a black mark against them," he says.

But a number of carriers are using logistics systems internally. In mid-May, Central Freight Lines, a less-than-truckload transport provider with 85 terminals serving the Southwest and West Coast, signed on to use the strategic route-and network-planning technology offered as an online service by Logistics.com. Logistics.com, a transportation exchange on which shippers can match their loads with truck, rail, air, and ocean freighter carriers' available capacity, manages contractual arrangements between both parties and handles spot-market transactions.

Stevens Transport Inc., a carrier in Dallas, is using Logistics.com to locate and contract with customers and post real-time updates and problems with shipments. These days, says director of quality assurance Matt Welding, even retailers are operating on a lean inventory to save money. One of its customers, Wal-Mart Stores Inc., wants real-time updates on shipments several times a day to help it decide when to schedule people to unload trucks.

Stevens benefits from the services in other ways. It gets hourly updates of diesel prices along the most fuel-efficient routes and sends drivers real-time data on the least-expensive spots to get fuel. Welding estimates the company will save $550 in fuel costs this year for each of the 1,400 trucks it operates.

"Carriers are in the information business," but some haven't realized it yet, says Paul Tagliamonte, manager of corporate logistics and transportation at Bose Corp., a maker of audio systems in Framingham, Mass., which uses FedEx subsidiary Viking Freight Inc.'s real-time logistics tools to let customers track deliveries over the Internet and via EDI. The carrier manages parts and materials from many areas in Asia, consolidates them into a few freighters, and delivers them to manufacturing plants by trailer. "If you delay a trailer by a day it will probably affect the production plan," Tagliamonte says.

That's unacceptable. "Products that used to be stable in production for long periods of time have become perishable," he says. "Companies can't afford to have warehouses full of inventory that goes obsolete."--with Alorie Gilbert