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E-Business & Logistics

Network Logistics: Creating Collaboration

by Jason Read

Logistics is no longer just about trucks, warehouses and stand-alone software applications. Gone are the days when enterprise logistics operations functioned in silos, oblivious to the tremendous opportunity that lies just beneath the surface in the supply chain. The new logistics is about collaboration – the sharing of critical and timely data on the movement of goods as they flow from raw material all the way to the end user. It’s based on open communication between networks of trading partners, and it’s powered by information technology.

E-commerce has precipitated the move from traditional internally-focused logistics models to the new logistics model, built on network-based collaboration. As procurement of materials for B2B commerce moves to the Internet, models for fulfillment – or e-fulfillment – must be developed to support that surging volume of Web-based trade.

The global e-commerce boom is putting tremendous stress on today’s e-fulfillment infrastructures. Traders are realizing they must forge closer partnerships to better manage logistics and supply chain management. In “Logistics @ Internet Speed: The Impact of e-commerce on Logistics”, Cap Gemini Ernst & Young and the University of Tennessee posit six specific drivers of world class logistics excellence: connectivity, collaboration, execution, optimization, visibility, and speed. These six drivers will define the winners in Internet logistics and are characteristic of organizations that will gain competitive advantage through logistics, according to the joint research report on trends and issues in logistics and transportation conducted earlier this year.

The visibility of every product, action and partner in the supply chain takes logistics management to new heights. If you can see it, you can better manage it. Supply chain visibility is the cornerstone of collaboration, allowing trading partners to leverage logistics purchasing activities and maximize logistics asset utilization through delivery resource optimization.

The Global Logistics Network was built on the principles of the new collaborative logistics and supply chain management. Its foundation is Internet-based logistics technology. But its potential lies in the network-based relationships that will exist tomorrow between supply chain partners around the world.

What is the Global Logistics Network? The Global Logistics Network is a “network of networks,” a federated community of trading partners linked by Descartes’ information infrastructure. The network is built, and is growing. Today, transactions over the network facilitate trade for companies in China, Korea, Australia, throughout Europe and across North America. As it expands to every corner of the globe and across a multitude of industries and enterprises, the logistics services over the network become richer. And as new participants connect to the federated community, they drive improved network services that enable end-to-end supply chain optimization.

By connecting to one network for all their global logistics needs, shippers, carriers, third-party logistics providers, e-marketplaces and vertical exchanges gain visibility to all the products, partners and activities in their supply chain. The result is an open federated ecosystem of trading partner communities that share a common goal: competitive advantage through logistics excellence.

Today, 25,000 participants on the Global Logistics Network are processing millions of transactions each month. But the network is just beginning to gain momentum. When you look at other network-based systems like the telephone or the Internet, there comes a point in time when a critical mass of users is built, and powerful network effects begin to emerge.

In the Internet Age, companies must exhibit strategic agility. In other words, they need flexibility to adapt to changing market dynamics, evolving customer needs and new channels of competition. It’s most recently referred to as adaptive control – or the ability to adapt your company’s processes to seamlessly manage unplanned events.

Nowhere is adaptive control more important than in the logistics process – because it’s in logistics where most of the unexpected events occur. Companies are striving for: tighter control of inventory in their supply chains, improved ability to dynamically respond to changing customer delivery requirements in the supply chain, and better integration with suppliers to efficiently adapt to fluctuating demand data.

An adaptive control system for logistics management is essential to compete in the global competitive environment. The Global Logistics Network provides the building blocks for such a system, including: a network of trading partners, the optimal approach to relationship and data management; a single point of connection to all participants on the network and in their supply chain; a common data platform to facilitate the seamless sharing of data among trading partners; real-time response capabilities to adapt to unplanned events in the supply chain.

The community of trading partners and intermediaries connected to the Global Logistics Network, and the real-time global visibility and optimization tools available over the network, enable companies to build and run an adaptive control system for logistics management.

The Network Effect: Metcalfe’s Law

Why is the network the most effective means of managing logistics and the supply chain? Because it’s all about information sharing, and the more trading partners a company has engaged for the electronic transmission of this data, the easier it is to identify opportunities and inefficiencies. It’s the network effect.

The term “network effect” was coined by Robert Metcalfe, founder of 3Com Corporation. Also known as Metcalfe’s Law, the network effect states that the usefulness of a network “increases in proportion to the square of the number of users.” For example, if a business network comprises four companies, the value of the network increases proportionate to the value of 16 companies on the network. To put it another way: a network of four companies has a potential for six connections, a network of five companies has the potential for 10 connections, and a network of six companies has the potential for 15 connections, and so on. To apply this math to the Global Logistics Network and its estimated 25,000 total participants, the number of possible network connections between participants is 312 million.

The telephone is a good example of a network-based model that increases in value with every user. The device itself is of little value unless there is a critical mass of users. It becomes slightly more valuable if you and a relative have one, even more valuable if the whole city has one, and extremely valuable if the whole world uses the telephone. Now consider the Internet. With each year since the mid-’90s the number of users has grown exponentially, and the network’s power now permeates every aspect of our lives – in business and at leisure. It doesn’t matter what sort of communication network it is – telephones, computers, fax machines or people – a network exponentially increases the potential value for each member whenever you add a new member.

As Robert Metcalfe wrote in a November 1995 article in ComputerScope: “Networks can achieve a kind of critical mass and go BOOM!” As the Global Logistics Network expands with each new participant and their trading partners, that critical mass is imminent.

Network Participants

Participants on the Global Logistics Network include all the parties involved in the supply chain: major enterprises (shippers of goods and their customers), freight forwarders, customs brokers, transportation providers, third-party logistics providers, transportation e-marketplaces and other logistics intermediaries.

Due to the sheer number of parties involved in the supply chain, the information pipeline has traditionally been very long and disjointed. The Internet now offers a solution for efficient information sharing via a public infrastructure available to all companies. Now that the major IT challenge has essentially been overcome with the Internet, partners in the supply chain are now seeking an opportunity for relationship building.

The Global Logistics Network provides both the IT backbone and the network of participants required for optimal logistics management.

Network Effects and Benefits

As a network of networks, the Global Logistics Network’s value lies in the connectivity and collaboration among the participants. According to Metcalfe’s Law discussed above, the value of any network grows exponentially with each additional participant.

Supply chain management is all about collaboration. True benefits emerge only when trading partners overcome cultural barriers inherent in “extending the enterprise” and share critical data about supply, demand and shipment status. The Global Logistics Network provides the framework for this next generation of supply chain management. The following benefits are the natural result of trading partner collaboration over the Global Logistics Network.

These network effects include: lower transportation costs through real-time supply/demand balancing and volume aggregation; enable co-mingling and merge in transit to lower logistics costs and improve customer satisfaction; improve capacity utilization across global, intermodal networks; increase fulfillment speed and reliability to end customers via collaborative logistics activities; give participants a single point of connection to all other community members; accelerate the building of new fulfillment marketplaces and exchanges.

Descartes’ Role

Descartes’ role is to enable the Global Logistics Network. Descartes doesn’t own it – the company simply enables transactions over the network. Companies create their own supply chain communities and fuse them to the Global Logistics Network in the interest of optimal supply chain collaboration. Descartes provides the framework – based on its E-Frame application integration and connectivity infrastructure – upon which this extended network of supply chain parties share information and leverage opportunities.

Descartes is also developing a host of supply chain application services to be made available over the Global Logistics Network. These network-based services will be available to all participants and include solutions for transportation management, routing/scheduling, delivery optimization, wireless enabled mobile applications and other supply chain execution services. Participants on the Global Logistics Network are charged on a per transaction basis for these Web-hosted applications.