Shippers seek to better link transportation and compliance with their sourcing processes.
Sourcing is one of those catch-all phrases that can mean different things to different people, especially when it comes to transportation, logistics, and compliance.
Does it refer to the sourcing of services, like transportation from a carrier, or management capabilities from a third party logistics provider? Does it refer to the technology that a software company provides? Or does it apply to more tangible things, like raw materials, parts, or finished goods?
When it comes to those tangible elements, sourcing has traditionally been walled off from transportation and compliance. Those are functions that are the responsibility of the purchasing department, or the merchandising department. Transportation and compliance practitioners are typically the ones tasked with reacting to decisions on sourcing.
But are we at a point where that’s changing? Where shippers see the sourcing of raw materials and finished goods on foreign shores as part of the same process as transporting those goods and ensuring the regulatory compliance of those goods?
Perhaps, given recent developments in the software market. In early March, the global trade management solutions provider Amber Road acquired ecVision, a cloud-based supplier management and collaboration software company.
That deal follows the 2013 merger of the cloud-based visibility platform GT Nexus and procure-to-pay solutions provider TradeCard.
GT Nexus and Amber Road typically have different points of entry for customers—GT Nexus attracts massive retailers and manufacturers with complex transportation networks, while Amber Road has historically been best known for its robust trade compliance solutions (though it has international transportation management and visibility tools of its own).
But both have added deeper capabilities when it comes to reaching back into shippers’ supply chains at source. The GT Nexus-TradeCard merger was aimed squarely at aligning logistics with sourcing.
“Sourcing and strategic sourcing suites cover four big areas,” said Will McNeill, research director at the analyst Gartner. “Global trade overlaps with one of those four—the procure-to-pay process. GT Nexus and Amber Road are starting to act like supplier portals, which is a tool you use in the procurement process. They’re starting to cut into the market share of traditional supplier portals. These networks tend to be cloud-based which comes with this network of suppliers. What GT Nexus had was a procure-to-pay solution, but it was lightweight. TradeCard’s expanded base of suppliers amplified their solutions.”
That was emphasized in a September 2014 Gartner research note, in which the analyst specifically cited the entrance of GT Nexus as a threat to traditionally separate supplier portals.
“Enterprise-centric supplier portals of all types are losing some market share,” the note said. “They face increasing competition with many-to-many cloud alternatives such as supply chain information hubs and procurement networks.”
Moving forward Gartner said it expects the usage of supplier portals to concentrate around cloud-based hubs.
“Vendors like GT Nexus are building market share with supply information hubs,” the September Gartner note added. “The issue with portals of all types is that the enterprise solutions they front-end generally fail to deliver modern features such as mobile device support and community (big data) analytics. Moreover, the hub and network alternatives allow customers to plug into an established trading community rather than build and maintain their own.”
Amber Road’s purchase of ecVision could tap into the potentially broader world of total lifecycle management, primarily because of Amber Road’s compliance capabilities.
“For (the GT Nexus-TradeCard) merger to fulfill its promise, the two companies must address several technological and operational challenges,” Gartner wrote about that merger in a January 2013 research note. “First and foremost, they still lack a global trade compliance capability, the third major pillar of GTM.”
These forays into sourcing represent an effort by software companies to help their customers merge more functions into fewer systems, particularly data-driven functions like supply chain visibility. Visibility requires systems to take information from many parties (mostly external, but also internal) and display it in a single, actionable view.
“Sourcing and logistics solutions had been separate,” said Gary Barraco, vice president of industry development at Amber Road (he held the same position with ecVision prior to the acquisition). “[ecVision] had logistics solutions, but we never had the depth of TradeCard or GT Nexus or Amber Road.”
Barraco said the merger will allow users of both sets of solutions to take the information generated at the advance shipping notification and carton-level by ecVision “and throw that over the fence to Amber Road. We’re dividing the line at the purchase order.”
“We also have a supplier management module, so brands and retailers can onboard suppliers and look at the capabilities of those suppliers,” he said. “Then you can look at the Amber Road knowledge about free trade agreements or any restricted suppliers. Then on ecVision, you can visually map your supply chain. Here are my finished goods suppliers, now where’s my raw materials suppliers? The goal is to shorten the product lifecycle so that inventory is now only held on replenishment. We’re going to shorten the product lifecycle, and design based on what’s going to sell.”
McNeill said aside from the complementary potential of the two companies, ecVision could provide Amber Road with an almost separate line of business.
“Amber Road is acquiring a base of users, so I could almost see it like a distinct use,” he said. “Compliance analysts using Amber Road aren’t going to use ecVision. But at the corporate-level, those customers might have a conversation about whether they should use ecVision.”
Compliance-Sourcing Link. Beth Peterson, president of the global trade consultant BPE Global, said the potential of linking sourcing and compliance is exciting.
“Adding a sourcing and product development solution to a GTM provider does a couple of great things,” she said of the acquisition. “It allows the trade compliance team to access new products and product modifications a lot earlier in the process, so they can classify products and qualify them for FTAs. This helps tremendously with product costing and forecasting.”
But Peterson said this is the leading edge of these kinds of process integrations.
“I haven’t seen a soul who expected that functionality from a GTM vendor,” she said. “The people who buy GTM solutions (trade, legal, and compliance) are very different than the people who buy sourcing and product development solutions (marketing, development and engineering). From an integration perspective, most of the GTM vendors can receive bill of material-level detail so that they can do the FTA analysis, qualification and certification. I really don’t think the industry is looking for an end-to-end solution.”
Peterson suggested that part of Amber Road’s rationale behind the acquisition was a motivation to grow after going public in 2014.
“The big issue for the GTM vendors is differentiating themselves from the rest of the vendors,” she said.
ecVision is not, of course, the only solutions provider in the supplier management space. McNeill mentioned a handful of others supplier management companies, including TradeStone, ClearTrack, Lumatrak, and MPObjects. Other platform-as-a-service supplier portals include Covisint and Exostar, while there are also portals that come packaged with enterprise resource planning systems from Oracle, SAP, Lawson, and CGI.
On the pure strategic sourcing side, there’s Zycus, BravoSolution, SciQuest, and SAP (through its acquisition of Ariba a few years ago), among many others.
“Strategic sourcing application suites are used primarily by companies with $800 million or more in annual revenue,” Gartner said in a February 2015 report. “At current suite prices, organizations of this size generally have enough spending to realize a return on investment.”
Another vendor in the supplier management space, CBX Software, is a traditional competitor of ecVision. Hong Kong-based CBX has been around for nearly two decades providing similar solutions.
“The CBX platform is an application that automates the activities and provides transparency from initial product conception through to purchasing and quoting to sourcing, to committed order to quality control, until the product is packaged and booked with a forwarder or consolidator into a container,” said Eric Linxwiler, CBX’s vice president of business development for the Americas. “Typically companies run these processes today with emails and Excel. We provide a web-based tool to see all that information in one place in real-time.”
Linxwiler said technology is on the early wave of a trend which is bridging the gap between sourcing, compliance, and transportation.
“Typically compliance and logistics didn’t get involved in the reporting and requirements of products in motion until a lot of other upstream decisions were made,” he said. “It’s imperative that we get compliance and logistics involved early in the sourcing process before problems occur.”
The benefits are chiefly in transit time, Linxwiler said.
“Halfway through the process of a product being developed, a purchase order is being cut,” he said. “Our tool allows people to input the committed order into CBX providing visibility for all necessary parties, including the forwarder. When a shipper considers sourcing and supply chain software—whether it’s a unique portal, or part of a larger suite that includes transportation, finance or compliance tools—it’s important to think about systems connectivity.
“Ninety-nine percent of our implementations with retailers and brands have to interface to myriad back office systems, like ERP, TMS, or [warehouse management systems],” Linxwiler said. “Generally, we’re replacing something that’s not systemized. It’s generally something they’ve cooked up internally. These custom-developed ‘systems’ are typically mapped to a specific business process which is always evolving, making it hard to support and scale.”
Linxwiler said what most shippers think of as systems are often just business processes using a bunch of disparate tools.
“Most retailers have existing solutions,” he said. “When you’re dealing with large retailer organizations, they have multiple departments who may each be invested in spot solutions. A lot of companies and vendors talk about wanting to have one end-to-end supply chain solution, but the reality, especially for a global enterprise, is that it’s difficult to implement a single system that satisfies the specific needs of all stakeholders and there are few IT vendors who can do everything well.”
Sourcing Control. The movement of logistics and compliance solutions providers into sourcing might well be representative of shippers wanting to exert more direct influence over their sourcing operations. Yes, broader suites provide an intriguing way for shippers to concentrate functions onto fewer platforms, but in general, software providers respond to demand from customers. And in this instance, retailers especially seem eager to control sourcing.
“Traditionally, retailers across the board have used third parties for all these activities,” Linxwiler said. “It’s been hands-off.”
Those third parties are usually sourcing agents or houses at origin—the most famous one in retailing likely being Hong Kong-based Li & Fung. These sourcing agents manage a network of suppliers at origin, and the retailer then only needed to develop a relationship with its agent and allow the agent to handle on-the-ground activities. Linxwiler said one development has changed the equation for retailers.
“Over the past few years retailers have seen the benefit of private-label products, such as significantly higher margins, and better control of product assortments,” he said. “Often companies don’t have the expertise or the tools to grow a business using this model, so they hire a third party. Then they realize that they can also eliminate the third party and further increase their margins by expanding their direct-buying offices in places like Hong Kong and Shanghai.”
He emphasized the role of automation and compliance as retailers develop this strategy.
“Process automation and compliance become critical, and they need systems to manage the information flow,” he said. “With social media and highly informed and demanding consumers, brand protection is a real concern and it’s even more critical to get compliance right—this is difficult to do that without a system.”
Amber Road’s Barraco has noticed a similar focus on more internal control of sourcing and its impact on margin.
“Li & Fung is a customer of ours,” he said. “But retailers don’t want to pay the margin to Li & Fung. The only way to bring that in-house is to automate as much as they can. Some brands still use agents for some of their license work, but they don’t have as much control.
“Watching a raw material supplier ship leather to the factory—if you start that early in the lifecycle, and have visibility and alert mechanisms, this is where it happens. It’s the only way to maintain control of this and have it be cost effective,” he said.
Product Lifecycle. The arena these developments verge squarely into is that of product lifecycle management. Systems in this area are typically chosen by the product design or merchandising department.
But instead of segregating the idea of developing and sourcing a product with transporting it compliantly, companies do see the benefit of linking these processes through automation. In most cases, it’s simply about having visibility—the same type of milestone-based and manage-by-exception visibility that transportation managers now expect from their carriers, 3PLs, and software providers.
That’s easier said than done, though. There’s a whole other landscape of PLM software providers, just as there is a supplier-portal landscape. Will complementary technologies effectively merge into platforms that truly link these previously disparate processes?
“That’s the goal of the marriage,” Barraco said. “We’re going to cross-functional teams. We hear it from customers all the time. We don’t want another platform—we’ve already got GTM, a WMS, an ERP.”
Barraco is cognizant of the hurdles to overcome, especially as ecVision has previously been focused on the fashion industry.
“Because of the vertical industry nature of sourcing, we’re trying to understand that now,” he said. “How do we carry our solutions for apparel into other verticals? Building a shoe, the specs are totally different than for food or a consumer-packaged good product. Sourcing tools have focused on a certain industry, so taking that agnostic view and then crossing over into logistics, which is an agnostic industry—it all goes in a box—that’s what we’re trying to do. To see where there’s commonalities in our industry.”
This article was published in the May 2015 issue of American Shipper.
