SAP for Logistics Service Provider Managing

7/24/2019 SAP for Logistics Service Provider Managing

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SAP for Travel & Logistics Services

LOGISTICS SERVICE PROVIDERS:

MANAGING IT MATURITY

ACHIEVE PROFITABLE GROWTH WITH ASINGLE BUSINESS PROCESS PLATFORM


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CONTENT

4 Introduction

6 How LSPs Have Reached theIT Tipping Point

8 How the IT Performance Gap

Impacts LSPs Pursuit ofProfitable Growth

10 How a Single BusinessProcess Platform ProvidesLSPs an Opportunity

11 BNSF to Roll Out SAP Software

12 SAP Solutions Available forLogistics Service Providers

12 Designed for the LSP Operation12 Spotlight on SAP Transportation

Management13 Spotlight on SAP NetWeaverMaster Data Management

13 Based on SAP NetWeaver13 Spotlight on Enterprise SOA

14 Conclusion


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The quote above, from a CIO interviewedin late 2006, reveals an important trendin the logistics service provider (LSP)

industry today C-level executives andboard members are having seriousdiscussions about information technology.The reason is simple their existingIT infrastructure (proprietary, outdated,and nonscalable) is a key inhibitor toachieving profitable growth,the numberone strategic initiative for most LSPs.

On the revenue side of the profitabilityequation, LSPs are seeking growth by:Providing clients with a more holistic

value proposition for business

process outsourcingExpanding into new vertical industries

and geographic regionsServing the needs of small and midsize

companies, a virtually untapped seg-ment of the outsourced logistics market

To reduce costs, LSPs are focusingon improving the productivity and utili-zation of their people, assets, and otherresources. And theyre looking forways to bring new clients on board

more quickly and with less effort.

What many LSPs are discovering,however, is that their existing IT infra-structure, typically consisting of proprie-tary applications built on outdatedarchitectures, cannot support theserevenue and cost objectives. Aging

infrastructure also hinders their abilityto respond quickly and effectively tocustomer requests for process changes,information, and new services. Its not

surprising, therefore, that most customersare dissatisfied with the IT capabilitiesof their logistics service providers.

A number of factors have contributedto the current state of IT in the LSPindustry. Mergers and acquisitions, forexample, have left many LSPs with a

patchwork of heterogeneous applicationsthat dont integrate very well, are difficultto reconfigure, and are costly to main-tain. The evolution of the softwareindustry is another contributing factor.Until relatively recently, most softwarevendors did not include LSP-specificfunctionality in their applications, whichwere primarily developed for manufac-turers and retailers. As a result, manyLSPs were forced to develop andmaintain their own applications.

There are many signs, however, thatthe LSP industry has reached the ITtipping point. Over the past 18 months,for example, ARC Advisory Group hasreceived many inquiries from serviceproviders looking for advice and assis-

tance as they update their IT strategyand prioritize their investments. ARCsmarket research also shows that LSPsare moving away from proprietary appli-

cations and investing in third-partysolutions. For example, sales of trans-portation management systems (TMSs)to logistics service providers reachedUS$171 million in 2006, an increaseof almost 13% from the previous year,significantly outpacing sales to manu-facturers and retailers. By 2010 ARC

forecasts that LSPs will spend over$900 million in enterprise and supplychain management (SCM) software,including TMS, warehouse managementsystems (WMSs), global trade manage-ment (GTM), enterprise resourceplanning (ERP), and customer relation-ship management (CRM). Figure 1illustrates this increase in spending.

INTRODUCTION

Its like maintenance for a truck. You dont have to change the oil

or replace the tires, but after 100,000 miles, that truck will start to

have problems and break down. Its the same thing with IT. You

dont have to invest in technology, but at some point, its going to

break down and you wont be able to run the business.Adrian Gonzalez, Director, Logistics Executive Council, ARC Advisory Group

The existing IT infra-structure of most LSPsis a key inhibitor to

achieving profitablegrowth,the numberone strategic initiativefor the industry.


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This forecast assumes that softwarevendors will increase their commitment

to the LSP industry by (among otherthings) adding industry-specific func-tionality to their solutions. SAP is agreat example of this trend in action.The latest version of the SAP Trans-portation Management application,for instance, was designed from theground up with the needs of the LSPindustry in mind, incorporating freightforwarding and other transportationoperations capabilities. SAP also launchedan industry value network for the traveland transportation industries, a medi-

um for ongoing collaboration and inno-vation between SAP and participatingcompanies, including LSPs andsoftware partners.

Its clear from the research, as wellas from the survey results highlightedin this report, that CEOs at logisticsservice providers must become betterversed in IT and its strategic value. IfCEOs continue to believe that investingin IT is no different than buying another

truck or building a new warehouse,theyre not positioning their companies

for long-term success.

Logistics service providers need toconsider many factors when developingtheir IT strategy and investment plan,including their existing infrastructure andresources, the business processes andinformation requirements of their cus-tomers, and trends in software technol-ogy, such as enterprise service-orientedarchitecture (enterprise SOA). LSPsshould also think beyond TMS and WMSand take a more holistic approach to their

IT requirements, including master datamanagement and customer relationshipmanagement. Finally, LSPs need to selecttechnology partners that are aligned withtheir long-term strategy, show a com-mitment to the industry, are financiallystable, and can provide global support.

Are LSPs at the IT tipping point? Asin the truck metaphor, many LSPs arepast due for an IT maintenance check.The real question is: Will they continue

to drive their existing infrastructure untilthe breaking point, or will they make

the necessary investments today tosuccessfully traverse the long roadahead, wherever it may lead?

2005

2010

Source: ARC Advisory Group Market Worldwide Studies

0 150 300 450 600 750 900 1,050

US$ Millions

7.2% compound

annual growth rate

Dollars are total license, services, mainte-nance, and recurring (on-demand) revenuesfrom LSP customers recognized by soft-

ware vendors in given calendar year forTMS, WMS, GTM, visibility, ERP, and

CRMsolutions.

Figure 1: Forecasted Growth in LSP Spending on Enterprise and SCM Software

ARC Advisory Groupsmarket research showsthat LSPs are movingaway from proprietaryapplications and investing

in third-party solutions.By 2010 ARC forecaststhat LSPs will spendover US$900 millionin enterprise and sup-ply chain managementsoftware.


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To further parse the concept of theIT tipping point, SAP commissionedan independent survey of 232 logisticsservice providers in June 2007. Therespondents included key participantsin the logistics and transportation indus-

try truckload and less-than-truckload(LTL) carriers, third-party logisticsproviders, railroads, intermodal carriers,parcel/small package providers, ware-housing and distribution providers,freight forwarders, ocean carriers,and other transportation providers.

The results of the survey identifiedthree primary realities that ultimatelyimpact whether an LSP will successfullytraverse the long road ahead or find

its ability to succeed grinding to a halt:Profitable revenue growth is a topstrategic initiative.

Current IT infrastructures are not upto the task of achieving this growth.

LSPs need a single business processplatform to support key businessprocesses and future growth.

When asked about strategic initiatives,the SAP survey respondents sent backa strong message. With response ratesof 75% and 71% respectively, profit-

able growth and revenue growth werecited as the top strategic initiatives, asshown in Figure 2. It is also interestingto note that these same firms citedusing IT as a strategic differentiatornecessary to achieving this growth andranked it as the third most importantstrategic priority for LSPs.

Also emphasizing the key role of IT inrealizing corporate objectives, an over-whelming 94% of survey respondentscited IT as either important or criticalto growing the business. Almost 50%of respondents recognized that theircurrent IT systems are inadequate toachieve profitable growth. As a result,many LSPs are expected to make

significant investments to replace orupgrade their IT systems within thenext two years.

Validating these sentiments, CapgeminiLLC conducted the 12th annual third-party logistics study in conjunction withthe Georgia Institute of Technology in

2007. This research confirms a persis-tent challenge for third-party logisticsproviders and the LSP industry as awhole. It finds that while more than 90%of respondents recognize IT capabilityas a necessary dimension of success,only 42% of respondents report beingsatisfied with their ability to delivertechnology-based services. The result

is a significant IT performance gap, asshown in Figure 3.

HOW LSPs HAVE REACHED THE

IT TIPPING POINT

22%

26%

38%

71%

75%

0% 10% 20% 30% 40% 50% 60% 70% 80%

Percentage Response

Figure 2: Top Strategic Initiatives for LSPs

Emphasis on profitable growth

What are your top three strategic initiatives?

Revenue growth

Using IT as a strategic differentiator

Brand management

Global readiness


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Lets take a moment to look at eachof these themes in detail. As we do so,it will become apparent that LSPs are

indeed at an IT tipping point, as ARCasserts. It is also clear that to stay onthe right path the path to growth andsuccess LSPs need to adopt a single,adaptive, and holistic business processplatform to meet their needs.

1. The State of Logistics Outsourcing, 2007 Third-Party Logistics: Results and Findings of the 12th Annual Study.Capgemini LLC,Georgia Institute of Technology, DHL International GmbH, and SAP AG, 2007.

42%

92%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Percentage Response

Figure 3: IT Expectation/Performance Gap1

Necessity of IT

IT Expectation/Performance Gap

Satisfaction with IT Performance Gap


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HOW THE IT PERFORMANCE GAP IMPACTS

LSPs PURSUIT OF PROFITABLE GROWTH

Several factors contribute to the IT per-formance gap. First, the LSP softwaremarket has traditionally deployed best-of-breed point solutions or developedin-house applications designed to ad-dress specific IT or business process

needs. This is often done without firstdefining the cross-functional businessprocesses critical to the LSPs successand then mapping them to the requisiteenterprise systems architecture thatcan enable these processes. Withoutan overarching plan, IT costs escalate,change is difficult, and business flexibilitydiminishes. LSPs end up investingdisproportionately in IT integrationand maintenance activities rather thanimproving their core business operations.

Ultimately, this leads to the complex,heterogeneous operating model depictedin Figure 4.

Second, merger and acquisition activityhas compounded the IT performancegap by increasing the patchwork ofpoint solutions and legacy systemsbeing supported. This disparate andmismatched set of systems requiresLSPs to invest heavily in IT resourcesfocused on low-value integration activitiesrather than enabling business innovation.

This, in turn, restricts the ability ofLSPs to serve clients and drives upoperational costs. In an increasinglycompetitive, global, and complexoperating environment, LSPs need toconcentrate more of their efforts onensuring that they can readily adapt tochanging market conditions, optimizetheir internal operations, and workeffectively and efficiently with theircustomers and business partners.Only a flexible, integrated, and properly

architected solution will allow LSPs

to focus on improving business pro-cesses rather than on IT plumbing.A single business process platform canprovide the inter- and intraenterprisevisibility required to achieve corporateand operational goals.

The challenges for companies sufferingunder this IT performance gap andthe inefficient systems causing the gap

are numerous. LSPs provide a variety

of services to their customers, fromWeb-enabled communications andtransportation management to visibilitytools (such as tracking, tracing, andevent management) and customerorder management, as illustrated inFigure 5. However, most often theseprocesses have been automatedindependently, resulting in a tangledweb of disconnected solutions.

A routine task such as customer

Billing

CustomerRelations

Mgmt.

Customers

TransportationMgmt.

IT Landscape

DataWarehouse/Analytics

Finance

HumanResources

WarehouseMgmt.

Figure 4: IT Landscape of Homegrown and Best-of-Breed Systems with Multiple Interfaces


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The gap between the IT infrastructurethat LSPs need to support efficientprocesses and what they actually useundermines their strategies for growth.The lack of IT integration cloudsbusinesswide visibility and makes it

difficult to support global clients andtheir requests for cross-border services.Service-level commitments are jeopar-dized, and manual processes introducecostly errors. With IT capabilities thatsimply cannot meet changing businessrequirements, LSPs have definitely arrivedat a costly and complex IT tipping point.

adapting to new business realities verydifficult. For example, if an LSP wishesto implement a new mileage-based fuelsurcharge, it must identify where thisprocess touches each independentapplication, make the required coding

changes in each application, test thechanges in each application, and, finally,test the process change across all of theapplications. This is not only prohibitivelyexpensive, but it is a time-consuming,low-value activity that severely impedesthe ability of the LSP to innovate orimplement regulatory changes.

onboarding which requires CRM,order management, billing, and ware-house management applications towork together becomes an inefficient,time-consuming endeavor requiringinputting and double-checking data in

multiple systems. The more difficultit is to onboard a new customer, themore likely it is that the goals of profitand revenue growth become mutuallyexclusive.

The use of point solutions and applica-tions developed in-house also makes

Figure 5: Technologies That LSPs Currently Offer Customers

57%

54%

49%

46%

42%

32%

27%

23%

21%

19%

17%

17%

11%

0% 10% 20% 30% 40% 50% 60%

Percentage Response

Supplier relationship management (such as procurement, payables)

Visibility tools (such as tracking/tracing, event management)

Web-enabled communications (third-party logistics user)

Which of the following technologies do you currently offer customers?

Host-based transportation services

Customer order management

Transportation management (planning)

Radio-frequency identification (RFID) and asset tracking

Customer relationship management

Transportation management (execution)

Collaboration tools (such as inventory levels, production schedules)

Warehouse/distribution center management

Other

Supply chain planning (such as forecasting, inventory planning)


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warehouse management, customs,and ocean freight levels. Event manage-ment doesnt reside within one pointsystem, however, but must be flexiblymanaged across multiple applicationsand supply chains. With a single busi-

ness process platform based on enter-prise SOA, the LSP integrates eventmanagement with logistics to manageevents seamlessly.

What LSPs need, as illustrated in Figure 7,is a single business process platformthat supports core transportation

The good news is that LSPs are alreadytuned in to the solution to their IT perfor-mance gap. According to SAPs surveyresults, many LSPs have identified theirneed for a single business processplatform that can support their wide

range of business functions. Surveyrespondents felt that many customer-facing business processes could benefitfrom an integrated technology platform,specifically noting their need for inte-grated customer service, sales andoperations planning, accounts receiv-ables/accounts payable, and order

management processes, as illustratedin Figure 6.

Technology based on an enterpriseSOA can provide the kinds of integra-tion and flexibility LSPs need to grow.

For example, almost every LSP wres-tles with complex event managementthat involves multiple customers acrossmultiple supply chains. When a ship-ment moves from vendor A to vendorB, an LSP must be able to capture,analyze, and react to events as theyhappen at the order management,

HOW A SINGLE BUSINESS PROCESS PLATFORM

PROVIDES LSPs AN OPPORTUNITY

Figure 6: Business Processes That Would Benefit Most from an Integrated IT Platform

55%

50%

35%

28%

20%

19%

13%

11%

11%

9%

3%

0% 10% 20% 30% 40% 50% 60%

Percentage Response

Repair/returns management

Order management

Customer service

Which of the following business processes would benefit mostfrom an integrated technology platform?

None of the above

Inventory management

Sales and operations planning

Other

Supply and demand planning

Accounts receivable/accounts payable processes

Compliance (such as Sarbanes-Oxley and customs)

International trade logistics


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single business process platform couldoffer IT-enabled customer services.These might include real-time statusupdates, accurate and easy billing,key performance indicators (KPIs)evaluating services rendered, and auto-

mated contracting and procurementprocesses.

management, customer management,and back-office applications. With asingle business process platform, LSPscan support critical business processeson a single platform within the fourwalls of the company while extending

core functionality and new services tocustomers. For example, an LSP with a

BNSF to Roll Out SAP Software

In September 2007 SAP announcedthat BNSF Railway Company, oneof the largest rail operators and

transporters in North America, willtransform its internal managementsystem by implementing the SAPBusiness Suite family of businessapplications. The SAP software rolloutwill establish a single businessprocess platform that interconnectsBNSFs financial, compliance, payroll,and human capital operations. Thisenterprise landscape will improvetransaction visibility, enable real-timeprocessing of invoices, and enhance

management control.

BNSF selected SAP Business Suiteto bring a more integrated and seam-less approach to internal processes.Virtually all of the companys back-office systems will be replaced, andthe integrated system will be a strate-gic platform for the company, saysPaul Bischler, vice president andcontroller at BNSF.

BNSF is a shining example to other

freight transporters, says RodneyStrata, industry principal for transpor-tation and logistics at SAP. IT revi-talization is needed today to preparefor the sweeping business changesthat lie ahead for the railwayindustry.

Customers

IT Landscape

HumanResources

Figure 7: A Single Business Process Platform

SinglePlatform

DataWarehouse/Analytics

Billing

CustomerRelations

Mgmt.

TransportationMgmt.

Finance

WarehouseMgmt.


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SAP SOLUTIONS AVAILABLE FOR

LOGISTICS SERVICE PROVIDERS

SAP software supports a single, enter-prise SOAenabled business processplatform for LSPs ready to addressthe IT performance gap. The SAP forTravel & Logistics Services solutionportfolio consists of integrated solutions

that couple a flexible enterprise SOAwith industry-specific functionality. Bymaking multiple applications behave asone, these solutions help LSPs reducethe cost of change, maintain key busi-ness processes, and easily adopt inno-vative cross-functional processes.A single business process platformalso allows LSPs to leverage currentinvestments in software, use legacysystems as needed, and harnesspartner logic and intellectual property

to strengthen their core solutions.

Designed for the LSP Operation

The SAP for Travel & Logistics Servicessolution portfolio includes segment-specific business process functionalityfor the third-party logistics, freightforwarding, rail, trucking, parcel, andcontainer shipping-line industries.The solutions include core operationalsoftware, such as LSP-specific trans-portation management and warehouse

management functionality. They alsoprovide ERP software for supply chainmanagement and LSP-tailored solutionsfor financials, customer relationshipmanagement, and HR.

SAP offers the most comprehensivesolutions available, providing world-classfunctionality for both core businessoperations and back-office functions.They are supported by SAPs 30+ yearsof experience with over 500 logistics

customers worldwide.

SAP Solution Map for LSPs

SAP solutions help LSPs close theIT performance gap. The solutionsempower LSPs to provide industry-specific best-practice services thatkeep them competitive and supportgrowth initiatives. With these flexibleSAP solutions, LSPs can rapidly adaptto support changing customer needsand drive innovation in key businessprocesses. In addition, SAP solutionswork across multiple clients and multiple

supply chains, allowing LSPs to flexibly

integrate with customers and partnersIT systems and share a commonsystem landscape and language.

Spotlight on SAP TransportationManagementUnderstanding the need for an innovativeapproach to transportation management,SAP with input from domain expertsand customers created a comprehen-sive transportation management appli-

cation from the ground up. Built on the

Business Process Functionality Provided in SAP Software

Sourcing Freight procurement

Operations Fulfillment operations

Transportation operations

Warehouse operationsService parts management

Client management Campaign management

Account and contract management

Lead and opportunity management

Compliance and returns management

Visibility and compliance Supply chain event management

Global trade services

Collaborative planning platform

Analytics Strategic enterprise management

Financial analytics

Operations analytics

Financials Financial supply chain managementFinancial accounting

Management accounting

Corporate governance

Human capital management Workforce process management

Corporate services Travel management

Environment, health, and safety compliance management

Incentive and commission management

Real estate management

Operations support Life-cycle data management

Quality management

Indirect procurement


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CONCLUSION

Many LSPs realize that their currentIT infrastructure often an assortmentof legacy and best-of-breed systems limits their ability to realize their strate-gic goals. LSPs are spending a signifi-cant amount of time and effort integrating

disconnected IT systems to meet eventhe minimum levels of customer service.Even as LSPs struggle to connectthese internal systems, they mustalso integrate with client and partnersystems.

To enable growth and to close theirIT performance gaps, LSPs need todevelop and execute a plan that leadsthem toward the promise of a singlebusiness process platform. The flexibility

of the SAP Business Suite family ofbusiness applications, combined withan enterprise SOA framework, providesLSPs with multiple starting points onthis journey. SAP and its communityof partners can help define this roadmap for LSPs and identify the areaswhere IT changes will drive the mostincremental business value. Fromthere LSPs can deploy new enterpriseSOAenabled applications in back-officemanagement, core operations, orcustomer management while leveraging

previous investments. They can thenuse the benefits as the springboard tofuture IT improvements. Overall, LSPscan dramatically improve their ability toprovide value-added services to clients,and their single business process plat-forms can grow as they do, supportingglobal clients with innovative anddifferentiating services.

To find out how the SAP for Travel &Logistics Services solution portfoliogives you complete visibility into allinternal business processes, providesyour customers with accurate andglobal supply chain movement data,

and supports your growth by closingyour IT performance gap, please visitus atwww.sap.com/usa/industries/travelandlogisticservices/index.epx.
http://www.sap.com/usa/industries/travelandlogisticservices/index.epxhttp://www.sap.com/usa/industries/travelandlogisticservices/index.epxhttp://www.sap.com/usa/industries/travelandlogisticservices/index.epxhttp://www.sap.com/usa/industries/travelandlogisticservices/index.epx


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SAP for Logistics Service Provider Managing