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January 14, 2005

Integrated Inbound Logistics

By Ranjit Notani

Integrated Inbound Logistics is a new methodology to significantly improve and optimize inbound logistics.

This article describes a new methodology called Integrated Inbound Logistics to address these inefficiencies. The new methodology has the following characteristics:

  • Comprehensive inbound visibility
  • Integrated dock door scheduling and yard management
  • Continuous (re)prioritization of inbound orders and shipments
  • Coordination and collaboration among the key players (buyers, vendors, warehouse managers, transportation managers and carriers)
  • Capacity-constrained inbound replenishment
  • Optimal inbound inventory leveling, based on demand and warehouse capacity
  • Support for real-time cross docking

Today’s Inbound Logistics Process

Today, buyers drive the inbound logistics process by creating orders. They may do this manually or they may use a replenishment system. In either case, they have no easy way to understand capacity constraints at the warehouse. Consequently, buyers often place orders that cannot be fulfilled on time.

This unconstrained buying and lack of visibility frequently leads to stock-outs at the warehouse and ultimately stock-outs at stores.

Because a buyer ’s performance is often measured by stock-outs, buyers may either bring inventory in earlier than needed or increase inventory levels in the warehouse to protect themselves from a stock-out. This leads to excess inventory and full warehouse capacity.

While the transportation department should also be concerned with inventory levels and stock-outs, they have little incentive to consider these factors. Transportation departments are typically measured on backhaul revenue, and therefore focus on maximizing fleet utilization and backhauls. Many companies do not have enough visibility to manage or measure what is happening in the transportation department.

Ad hoc prioritization of inbound orders and shipments

With the current approach to writing orders, it is often left to the warehouse manager to prioritize inbound orders and shipments. Unfortunately, the warehouse manager is typically not equipped to make this decision effectively.

One common approach to prioritization is “first-come, first-served” allocation of scarce capacity. Needless to say, a first-come, first-served prioritization can cause critical orders to be delayed with ill effects throughout the supply chain.

The new hours of service rules also force warehouse managers and receiving managers to prioritize the live unloads or suffer detention charges. This can have adverse effects on inventory, stock-outs and fill rates on outbound orders.

Capacity reservation systems such as appointment scheduling systems and yard management systems are needed to effectively reserve scarce capacity and give decision makers real-time visibility into capacity constraints. These systems need to be tightly integrated with the warehouse capacity constraints and labor constraints, with the goal of level-loading the warehouse.

Scheduling to accommodate volatility and shifting priorities

Even if buyers had visibility into capacity constraints at the warehouse at the time of writing the order, this priority is not necessarily valid at the time of scheduling. This is especially true in situations of high demand volatility, such as promotional sales. Once again, this causes truly critical orders to be delayed at the expense of less critical orders.

Supply is also highly volatile in today’s inbound supply chain. Causes range from production constraints at the vendor, to logistics constraints at ports (for imported goods). Supply volatility causes delays in orders and shipments. Often, the various parties have neither visibility into supply issues nor the means to deal with them.

Even as supply volatility, demand volatility and shifting priorities necessitate changes, rescheduling inbound orders and shipments is a daunting task. It involves multiple people including buyers, carriers, vendors, warehouse managers and transportation managers. Today it is a manual process involving multiple systems. As such, it takes a long time and presents many opportunities for errors.

Cross docking – the missed opportunity

Most warehouse management and order management systems are not capable of handling a spontaneous cross docking opportunity. For example, a company may have inventory in the yard that would fulfill an outbound order. Most warehouse management systems need to fully receive the entire truckload or PO before the information can be fed to the order management system for allocation onto outbound orders. The limitations of these separate systems lead to missed opportunities to prevent excess inventory and stock-outs by simply using existing inventory more intelligently.

Integrated Inbound Logistics

Integrated Inbound Logistics is a new methodology that coordinates and optimizes the inbound logistics process. It is characterized by comprehensive inbound visibility, integrated dock door scheduling and yard management, continuous reprioritization of inbound orders and shipments, and coordination and collaboration among key players.

Comprehensive inbound visibility

Comprehensive inbound visibility means visibility into:

  • The state and location of every order and shipment
  • Inventory positions throughout the inbound supply chain
  • Capacity constraints at the warehouse (dock door constraints, yard constraints etc.) and at upstream facilities such as ports
  • Projected arrival times
  • Backhaul revenue vs. inventory vs. stock-out potential

Comprehensive visibility allows decision makers such as buyers, warehouse managers and carriers to have real-time visibility into all aspects of the inbound supply chain. Visibility into capacity constraints allows buyers and replenishment systems to consider those capacity constraints when writing orders.

Integrated dock door scheduling and yard management

Visibility into dock door constraints, warehouse constraints and yard constraints is a critical aspect of Integrated Inbound Logistics. Rapid rescheduling of dock door and yard appointments allows companies to react to shifting demand and supply patterns. Rescheduling these appointments is complex multi-party collaboration and requires integrated dock door and yard management systems.

Continuous (re)prioritization of inbound orders
and shipments

Because of high demand volatility and (to a lesser extent) supply volatility, priorities of inbound orders and shipments are highly dynamic. Furthermore, in capacity-constrained situations, it is important to schedule the highest-priority orders and shipments first, rather than defaulting to a first-come, first-served approach.
For this reason, the continuous prioritization and reprioritization of inbound orders and shipments is a critical component of Integrated Inbound Logistics. This continuous prioritization requires real-time matching of demand and supply, in order to determine real-time priorities.

Coordination and collaboration among key players

Integrated Inbound Logistics requires coordination and collaboration among multiple key players. These include buyers, warehouse managers, carriers, vendors and transportation managers. Often the simple act of rescheduling requires an “ok” from multiple parties. Thus Integrated Inbound Logistics must facilitate rapid collaboration among parties in order to drive collaborative decisions.

Conclusion

Integrated Inbound Logistics is a new methodology to significantly improve and optimize inbound logistics. It moves companies from an inbound process that is non-integrated, unconstrained, first-come first-served with static prioritization; to one that is integrated, fully constrained and dynamically prioritized.

When identifying or developing an Integrated Inbound Logistics solution, companies should look for the following components:

A base transaction platform for order management, shipment management, yard management and dock door scheduling

  • Comprehensive visibility into the entire inbound logistics process
  • Fully constrained replenishment
  • Visibility into multiple types of capacity constraints at the warehouse
  • Multi-party collaboration around orders, shipments and appointments
  • A dynamic re-prioritization engine

Related Reading

Integrated inbound logistics

About the Author

Ranjit Notani is chief technology officer at One Network Enterprises. He has over 10 years of experience conceptualizing and architecting enterprise solutions, and holds numerous patents. He was previously founder and CTO of Transcend Systems. Before that he was a Fellow at i2 Technologies, where he held various key architecture positions and led the Supply Chain Collaboration suite. He has also worked on Computer-Aided Design (CAD) and manufacturing solutions at Structural Dynamics Research. Notani holds a Master of Science from Purdue University and a Bachelor of Technology from the Indian Institute of Technology, Bombay.