The missing link

As manager of the Canadian RFID Centre in Markham, Ont. Ray Paskauskas doesn’t just like to talk about the benefits of Radio Frequency Identification technology to the supply chain, he likes to show them.

Located at one of IBM’s development facilities in Markham, Ont., the centre is, among other things, testing RFID’s role in the grocery business, and how well tags peform in extreme temperatures.

If successful, Paskauskas will be removing, in his words, “one more black hole” in the technology’s widespread acceptance. (In addition to performing under adverse conditions, the cost of each RFID chip, and interconnection of various RFID systems standards are other obstacles.).

It’s an article of faith for most companies in manufacturing, retail and distribution that, without firm control over their supply chains, they’d be out of business in a hurry Once a key competitive differentiator, supply chain management technologies have become the prerequisite for doing business at all.

Fine-tuning is the more obvious step, and there are some clear advantages to thinking about logistics and inventory management as areas for improvement. “We are seeing quite a bit of that in the interest in RFID (radio frequency identification),” says Shai Verma, IBM Canada’s RFID practice leader. “The companies that can expect a competitive advantage from this are the ones who can see how to integrate RFID in their process.”

In fact, the big pitch for RFID is that, with the right tools and fine-tuning, it provides theoretically unlimited transparency into the inventory and logistics process. Verma makes a strong case for how that can enable more effective and more competitive business practices. Yet, in doing that, he concedes that “RFID is a disruptive technology, it’s not plug and play. It requires a lot of process change.”

Consequently, although RFID promises great competitive benefits – and Verma believes that, like the integrated supply chain itself, it won’t be long until it’s just the way everyone does business – it might not be the advantage companies are looking for just now. That is, unless one of the big retailers who have jumped on the RFID bandwagon make it one.

RFID is still far from prime-time, but there’s a lot to be said for being prepared for the inevitable before your competitors. “Do you have a big customer who tells you that, if you do RFID, you’ll be differentiated?” Verma asks. “Then there’s your competitive advantage.”

Bad Boy furniture, for example, has focused on the last mile of the supply chain, from the store to the consumer, to hone a particularly cutting competitive edge. By automating delivery scheduling and tracking, the Toronto-based furniture and appliance retailer has been able to reduce its delivery window – the time when a customer has to wait around for the delivery truck – to three hours And president and CEO Murray McMichael says he expects to get it down to as little as one hour very soon.

“It’s huge,” he says. “Right now, we’re the only ones in the industry who are using this system. The biggest customer complaint we used to get was ‘where is my deliver? I’ve been waiting all day!’ We don’t hear that anymore.” And a customer who doesn’t have to give up his or her whole work day to wait for a dishwasher is a customer who’ll spread the word about your company’s customer service.

Bad Boy manages its last-mile supply chain is using Toronto-based logistics services provider Cube Route’s retail distribution services. Cube Route tracks and monitors deliveries in real-time, whether they’re on the retailer’s own trucks or using a third-party logistics provider, using field data capture and, if desired, GPS tracking. The data is then presented to Bad Boy through web applications that offer the company detailed visibility and allow it to plan and fine-tune its routing.

“The routing is done in real-time, allowing you to see which vehicles are on the road so you can optimize your routes and schedules,” says Cube Route CEO Alex Walker. “A lot of retailers like Bad Boy are looking to the home delivery end of the supply chain to be the key differentiator. There has always been a lot of technology at other parts of the supply chain, but the last mile has been overlooked. We’re finding, on the contrary, that this is one area where you can apply technology to get results.”

The real advantage however, according to McMichael, is that, by maintaining virtually constant visibility into the delivery process, Bad Boy can seriously pursue even finer refinements of its system. “We know exactly where our trucks are, and that’s keyed into a map,” he says. “We know how long each service stop is, and how long it takes to get from one place to the next. By fine-tuning each vehicle and each driver, there’s no reason why we can’t get our delivery window down to one hour.”

While there are no killer apps in supply chain management, using the existing supply chain more creatively can be the key determining factor in both customer attraction and retention. “In an industry where the main thing that separates you from a competitor is customer service, then you have to find ways to improve your service,” says Dennis Vance, an analyst with IDC Canada. “If you say ‘we’ll deliver your new fridge or bedroom suite in a one-hour window’ when your competitors are saying that it’ll take between one and five hours, then you have a powerful differentiator.”

The bottom line, Vance says, is to know what your product or service is, and use your supply chain to deliver it as efficiently and as completely as possible. “It’s not what SAP or Oracle can do,” he says, “but how creative you can be with your business.” That’s perhaps sound business sense, but Vance says that creativity is not always something that companies associate with the internal processes.

On the other hand, IBM itself has begin to see its own supply chain as the one place where the company, recently divested of the personal computer business that once defined it, can continue to evolve and grow. No longer focused particularly on products, IBM had to re-imagine its supply chain to encompass its whole business process.

“In our world, the supply chain is the end-to-end integration of our processes from suppliers to customers,” says Arvinder Surdhar, IBM’s integrated supply chain director of global logistics. “It’s the engine of growth, and any company that see the supply chain as something separate from what they do will be at a disadvantage.”

IBM has created an inventory of everything within the company, and optimized – Surdhar likes to say “orchestrated” – the movement of everything with as little waste as possible. Waste, whether it’s unsold inventory or unfilled sales, is the biggest enemy of the bottom line but last year, supply chain efficiencies saved IBM some $7 billion. “It’s definitely a competitive weapon,” Surdhar says. “In 2004, we had the lowest inventory we’ve seen in thirty years and the lowest level of unfilled orders in our history.”

At the end of the day, Surdhar observes, the supply chain is, in fact, the key differentiator for any company. “You just have to know what you’re supplying, and get that to market as efficiently as possible.”

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