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Supply Chain Visibility in Consumer Markets Control Tower Advantage March 2013 Bob Heaney

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Page 1: Supply Chain Visibility in Consumer Markets - GT Nexusmktforms.gtnexus.com/rs/gtnexus/images/GTNexus-Aberdeen-SCV-PP.… · Supply Chain Visibility in Consumer Markets . Control Tower

Supply Chain Visibility in Consumer Markets

Control Tower Advantage

March 2013

Bob Heaney

Page 2: Supply Chain Visibility in Consumer Markets - GT Nexusmktforms.gtnexus.com/rs/gtnexus/images/GTNexus-Aberdeen-SCV-PP.… · Supply Chain Visibility in Consumer Markets . Control Tower

This document is the result of primary research performed by Aberdeen Group. Aberdeen Group's methodologies provide for objective fact-based research and represent the best analysis available at the time of publication. Unless otherwise noted, the entire contents of this publication are copyrighted by Aberdeen Group, Inc. and may not be reproduced, distributed, archived, or transmitted in any form or by any means without prior written consent by Aberdeen Group, Inc.

March 2013

Supply Chain Visibility in Consumer Markets: Control Tower Advantage

In Aberdeen’s recent Supply Chain Visibility survey (Supply Chain Visibility Excellence: Mastering Complexity and Landed Costs, March 2012), 127 survey respondents indicated the rising complexity and globalization of operations (45%) as their top business pressure (Figure 1). Further, the second highest pressure among all respondents was the need to improve supply chain operational speed and accuracy (40%). These pressures are compounded in the fast-moving consumer markets where the emergence of new sales channels like online, mobile, and call center have further complicated the supply chain.

The research indicates that omni- and cross-channel logistics processes (defined in sidebar) are increasing in complexity and importance. Reacting to this complexity, consumer market companies have reinforced attempts to strengthen visibility and collaborative execution across their extended supply chains. Aberdeen’s Chief Supply Chain Officer survey of 191 enterprises (updated November 2012) denotes that leading consumer markets are 3.2-times more likely than all other companies to focus on cross-channel logistics (in-bound and out-bound) needs by coordinating product flow across all channels.

This Analyst Insight highlights the 39 companies (from the 127 overall) within the consumer market sector. These companies address the need for effective logistics through timely response to demand regardless of the logistics channel dictated by the customer's specific request. The goal for leading retailers and suppliers is to work cohesively to ensure that products reach the right place at the right time to produce a seamless experience. This must happen with visible, integrated operations and elevated levels of collaboration across all channels. In short, today's supply chain management professional is tasked with moving products further and faster than ever before through various channels while striving to decrease logistics costs and increase profitability.

Business Pressures — Need for Speed As mentioned above, the pressures of increased complexity and heightened demand for speed have supply chain professionals looking for answers. A deeper look reveals supply chain velocity, whether operational speed or timeliness of shipment information, is the top (combined) pressure. Velocity is a critical matter for the fast-moving supply chains within consumer markets. Case in point, the items sold by many of these companies have a short shelf life either due to high usage (i.e. toiletries or cleaning products) or perishability (i.e. dairy, meat, or vegetables). For example, "The total shelf

Analyst Insight

Aberdeen’s Insights provide the analyst's perspective on the research as drawn from an aggregated view of research surveys, interviews, and data analysis.

Definitions

Aberdeen defines omni-channel logistics as the art of producing, selling, and fulfilling customer needs for products or services in more than one sales channel such as stores, online, call center, catalog, wholesale, and mobile. We define multi-channel logistics as a combination of two or more of these channels.

Cross-channel logistics is defined as the art of producing, selling, and fulfilling customer needs for a product or service in more than one sales or logistics channel. Cross-channel logistics is facilitated in the control tower approach defined as a set of integrated processes and technologies that support a seamless flow of product from source to end consumer, regardless of each of the various purchase, return, and exchange preferences.

Consumer Markets comprise retail, food and beverage, consumer packaged goods, and consumer electronics verticals.

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© 2013 Aberdeen Group. Telephone: 617 854 5200 www.aberdeen.com Fax: 617 723 7897

life of fluid milk is about 14 days. In fact, the milk that is on the shelf today was in a cow about two to three days ago," said Lee Falk, Vice President, Distribution & Logistics, Dean Foods, at the 2012 Aberdeen Supply Chain Summit.

Figure 1: Top Business Pressures

Source: Aberdeen Group, March 2013

The need for speed is obvious, but the actual pressure around increased supply chain speed is the need to increase the accuracy of demand forecasting and inventory. Since consumer markets depend on volume to turn a profit, shelf availability is paramount. Without accurate demand sensing and/or an accurate view of total inventory (amount by channel and location), it is almost impossible to integrate logistics to put the right product in the right place at the right time.

Strategic Actions — Internal and External Visibility and Collaboration The above pressures push consumer-market companies toward strategies to increase internal communication and bolster supplier integration. According to Figure 2, 72% of consumer market survey respondents listed improving internal cross-departmental visibility and integration as their top strategic action compared to only 58% of All Others. Internal communication is often overlooked as a means of improving supply chain performance.

In a recent interview with on this topic, Angel L. Mendez, Senior Vice President of Cisco Transformation at Cisco Systems pointed out that, in many ways, supply chain problems often result from poor communication. According to a recent article on the Cisco website, Building a Collaboration Architecture for a Global Supply Chain, “The problems that companies with large global supply chains face today are human problems — delays and inefficiencies around person-to-person communications."

21%

27%

40%

45%

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

The business mandate to reduce supplychain execution costs

Increased demand for accuracy andtimeliness of shipment event

information

Need to improve supply chainoperational speed and / or accuracy

Growing global operations / complexity

Percent of Respodents n=127

"A more responsive retail supply chain is required to improve customer service levels — it is the foundation to fulfilling the mandate of 'right product at the right place at the right time.'"

~ Stephanie Ranada, Manager of Supply Chain and Logistics,

Tropical Retail Company

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© 2013 Aberdeen Group. Telephone: 617 854 5200 www.aberdeen.com Fax: 617 723 7897

With the focus consumer market companies must have on supply chain velocity (as mentioned above), it is little wonder that consumer market companies are 35% more likely to have improving internal visibility and integration as their top business strategy.

Figure 2: Top Business Strategy

Source: Aberdeen Group, March 2013

Similar to the initiative to improve internal visibility and integration, consumer markets also focus on external supply chain factors affecting visibility and collaborative execution. Figure 2 indicates consumer market companies are 46% more likely than non-consumer market companies to list increasing B2B connectivity and/or visibility as one of their top strategies. Again, we see an effort among consumer market companies to increase their supply chain speed and efficiency by increasing internal and external (supplier-side) collaboration and integration. In fact, in a recent Aberdeen report, B2B Collaboration: No Longer Optional, the top actions taken to improve B2B integration and collaboration were:

• Process integration with partners — 52% of consumer market companies listed integration of partner-facing collaboration processes with internal business processes compared to just 36% of non-consumer market companies.

• Inventory reduction — 50% of consumer market companies listed reducing inventories through better visibility of inbound deliveries and upstream inventories compared to just 23% of non-consumer market companies.

In the next section, we will discuss how consumer market companies differ from their counterparts in terms of capabilities with a particular focus on omni-channel effectiveness and cross-channel logistics.

26%

48%

58%

38%

56%

72%

0% 15% 30% 45% 60% 75%

Increase B2B connectivity /visibility into supplier-side

processes

Streamline processes foreasier monitoring, enhanced

usability, or efficiency

Improve internal cross-departmental visibility and

integration

Percent of Repsondents n=127

Consumer MarketsNo Consumer Markets

"Currently, our biggest challenge is integration with our suppliers and trading partners. We are using a legacy purchasing and order management system which is labor-intensive and non-collaborative from an execution standpoint. We must improve our data integration, order visibility, inventory flow, and route execution."

~ Director, Supply Chain Distribution, BC Liquors ($2.1

Billion Beverage Retailer in Canada)

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© 2013 Aberdeen Group. Telephone: 617 854 5200 www.aberdeen.com Fax: 617 723 7897

Omni-Channel Requirements and Control Tower Capabilities Cross-channel retailing involves a combination of brick-and-mortar locations, web, catalog, and mobile and vendor-direct drop-ship programs. It requires integrated visibility, as customers no longer accept the website of a retailer or consumer packaged goods supplier / distributor to be different from brick and mortar store operations when it comes to product availability and the delivery process. Comparing the consumer market companies to All Others reveals that consumer markets companies are more advanced in integrating inbound-to-outbound shipments, visibility, and multi-tier product fulfillment across logistics channels. Within consumer markets we find:

• 82% — Importing (receiving from other countries) — 1.28-times

• 79% — Shipping to or through a traditional distribution center (DC) — 1.55-times

• 63% — Shipping direct-to-consumer or direct-to-store

• 61% — Shipping via a break-bulk facility (i.e. cross dock, transload, direct DC bypass) — 2.26-times

• 48% — Shipping through 3PL or e-fulfillment provider — 1.02-times

• 24% — Shipping through a free port, free port zone, or transition point for customs

Omni-channel logistics is today's new normal as new logistic formats and cross-channel integrations grow for companies in the consumer market segments and across the board. From the list above we see globalization (82% dealing with imported product) and alternative logistics flows (63% by passing the DC with direct to consumer or direct to store) are 1.2 to 2.3 – times as likely to be adopted within the consumer market. With 82% of products coming from overseas it is not surprising that bypassing the DC by shipping to the market through a break-bulk facility (cited by 61%), has grown substantially. This means companies in the consumer market are 2.26-times as likely as All Others (where only 24% use break-bulk facilities) to utilize this alternative logistic channel.

The high levels of adoption illustrate that omni-channel logistics has arrived and is a required foundational capability for an effective and competitive supply chain. One key concept evolving in both process and technology is the Collaborative Control Tower. This strategy ensures all players are involved in a collaborative, unified manner to make certain that products reach the right place at the right time, whether it is the retailer's store, a flow-thru DC, a direct-to-consumer online DC, or a traditional DC.

Table 1 examines several areas where the consumer market has adopted advanced capabilities to address omni-channel logistics challenges.

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© 2013 Aberdeen Group. Telephone: 617 854 5200 www.aberdeen.com Fax: 617 723 7897

Table 1: Capabilities and Advantages for Consumer Markets

Data Summary Consumer

Markets Non

Consumer Markets

Online visibility into inbound in-transit shipment status

65% 59%

Online visibility into outbound in-transit shipment status

66% 64%

The ability to find (within a reasonable time) and access INBOUND supply chain data needed for decision making

56% 52%

The ability to find (within a reasonable time) and access OUTBOUND supply chain data needed for decision making

59% 57%

Centralized supply chain management organization

84% 67%

Cross-functional supply chain metrics

71% 62%

Online trading partner collaboration and enablement

55% 44%

Source: Aberdeen Group, March 2013

Cross-channel logistics requires visibility. But visibility must be acted upon near-real time to impact in-flight shipments. The number of parties and status events is extensive and includes inbound and outbound shipment events which span 1) product sourcing from overseas, 2) traditional DC and nontraditional logistic formats, and 3) the eventual delivery to the end consumer. For the consumer markets anywhere from 65% of companies have this visibility today whereas for non-consumer markets the number is as low as 59% (Table 1). To address increased visibility with enhanced collaborative technology is the focus of the Collaborative Control Tower. This capability can drive significant advantages when it comes to inventory allocations and reallocations to support formats such as DC bypass from inbound to outbound. Beyond visibility there is the capability to respond to the visibility you have within a reasonable timeframe. Here again consumer-market companies lead the way — where up to 59% can claim near real-time decision-making capability.

The last three items in Table 1 demonstrate some of the organizational and collaborative execution capabilities companies in the consumer market segment possess. For instance they are 1.25-times as likely as All Others to centralize the supply chain management organization (84% vs. 67%). They also do a better job at providing trading partner enablement and collaboration and integrating cross-functional supply chain metrics (where they are 1.14 to 1.25-times as likely as All Others to have these capabilities).

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© 2013 Aberdeen Group. Telephone: 617 854 5200 www.aberdeen.com Fax: 617 723 7897

Without visibility, responsive decision-making, and collaborative execution (the three key processes of a control tower”) it is not possible to execute cross-channel logistics effectively in today's global supply chain. In the next section we will look to some of the technological advantages that further separate performance in the omni-channel supply chain.

Technological Enablers in Omni-Channel Supply Chains Today's multi-channel, multi-party supply chain requires frequent access to inbound and outbound supply chain data, granular levels of visibility, increased decision-making support, and collaborative technology to integrate product and information flows. This is facilitated by the following control tower technology and automation features.

Figure 3: Control Tower Execution Adoption — Consumer Markets

Source: Aberdeen Group, March 2013

As the adoption levels of new logistics formats and cross channel capabilities have advanced so have the collaborative technology solutions that companies have deployed under a control tower platform. For these solutions as well, the consumer market lead the way in adoption (Figure 3). For instance, when we examine the capabilities of granular visibility into warehouse operations (65% of consumer markets), escalating and tracking capabilities across inbound or outbound flows (50% to 62% range), and pre-labeling of cartons for DC bypass (43%), we find that companies in the

33%

46%

56%

50%

50%

53%

62%

43%

48%

50%

55%

58%

62%

65%

0% 20% 40% 60% 80%

Technology to transmit / pre-label, tenderand scan cartons for DC-bypass - 1.30x

Big Data BI tools for critical aspects of SCanalysis - 1.04x

Event management (i.e., tracking andescalation capabilities)

Logistics / channel inventory collaborationwith customers (outbound) - 1.10x

Visibility system with dynamic collaboartiveelectronic messaging - 1.16x

Event tracking (i.e., tracking and escalationcapabilities) - 1.17x

Visibility into warehouse managementsystem (WMS) - 1.05x

Percent of Respondents, n = 127

Consumer

All Others

“Our business spikes are enormous specifically during the heavy tire selling season in the winter months. The spike could be from 20,000 units to 60,000 units in a matter of days. The main challenge for us is to mobilize and leverage our distribution center capacity and handling capabilities to maximize timely deliveries. The main issue is to balance demand and supply with the costs involved — from the suppliers to the DCs and then ensure deliveries to the stores as tires and parts are not easy commodities to handle.”

~Rick O’Connor, Director, Supply Chain, VIP Parts and

Tires

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© 2013 Aberdeen Group. Telephone: 617 854 5200 www.aberdeen.com Fax: 617 723 7897

consumer markets are more likely to automate. Figure 3 illustrates that companies in consumer markets are anywhere from 1.04- to 1.3-times as likely to have each specific collaborative technology in place compared to their peers.

Leading companies take a global control tower approach based on collaborative technology that facilitates visibility and control across the full supply demand network. The goal is to ensure all players are involved in a unified manner to make certain that products reach the right place at the right time, whether it is the retailer's store, or flowthru DC, a direct-to-consumer online DC, or a traditional DC. The retail sector traditionally has lagged in terms of supply chain execution; however some new trends dramatically change this situation, namely:

• Emergence of direct import models from global destinations (up to 82% in this study)

• Rising transportation costs resulting in a pressure towards margins for retailers

• Rise in customers demanding improved customer service and new sales and logistics delivery models

• Dramatically reduced product life cycles due to rise in global competition

It should be noted that many of the new logistics formats, such as a direct-to-consumer online DC, require significant re-engineering of the traditional DC from a volume and material handling standpoint. In the next section we will examine the technological transformation of UPS to bring cloud-based visibility and control tower capability to the extended supply chain.

Case in Point — UPS Rolls out Cloud-Based Technology Closes the Loop on Inbound-to-Outbound Visibility In December 2012, UPS announced their new enterprise customer visibility solution. This new solution moves process and decisions support functionality from behind the company firewall to a cloud-based, multi-enterprise technology platform (UPS Introduces New Cloud-Based Visibility Platform).

UPS has included track and trace, and event status of inbound orders and shipments in its internal legacy systems for more than 20 years. They are well known for opening up real-time access (with their investments in the 1980s and since) for their online web-based outbound delivery scanning / tracking / confirmations network called UPSnet.

"UPSnet uses more than 500,000 miles of communications lines and a dedicated satellite to link more than 1,300 UPS distribution sites in more than 200 countries,” said Tom Boike, Vice President of Supplier Management. “If you have received a UPS tracking update, you know how outbound tracking works. You can think of our new solution, Order Watch, as a cloud-based extension of this capability to our customers, brokers,

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© 2013 Aberdeen Group. Telephone: 617 854 5200 www.aberdeen.com Fax: 617 723 7897

suppliers, and carrier partners for each customer's inbound rather than outbound network."

The new order management solution moves inbound order tracking and visibility to a collaborative third-party technology platform and decision support system. This highly configurable, multi-enterprise platform allows secured, cloud-based interconnectivity across each customer's supply-demand network, enabling in-depth visibility to the multi-enterprise extended supply chain.

"In the past, event tracking for inbound orders and shipments was largely limited to internal UPS staff on our in-house legacy systems,” Boike said. “Now customers, suppliers, third-party carriers and partners can just plug into the new cloud-based platform behind its multi-enterprise firewall. Each person in the extended supply chain can now go online to input status changes, monitor exceptions and transact business, according to their permissions and workflow. This allows customers to more efficiently collaborate with global suppliers and partners and better manage their inbound supply chains. By going to a multi-party online platform for inbound, we can now complete the loop and offer full traceability from inbound origin to outbound final delivery for both customers and partners," Boike went on to say.

Benefits of a Cloud-Based Solution The benefits to customers of closing the loop on inbound-to-outbound visibility include:

1. Increased customer/supplier control — Enhanced monitoring of vendor bookings against purchase order (PO) details increases inventory control, enabling intervention in early or late shipments or improper order quantities.

2. Facilitates single version of the truth — Connecting the entire supply chain community from ocean carriers to suppliers provides a direct online linkage to the host cloud network, reducing latency, inaccuracy and redundancy.

3. Move from EDI batching to online — This eliminates the need for electronic data interchange (EDI) file exchanges between each customer and supplier or carrier pair. Ocean carriers and suppliers already on the host cloud platform have immediate interconnectivity and access to UPS POs and shipments as soon as they enter the Order Watch system.

4. Enables Collaborative Execution — System-generated exception alerts, dashboards, and drilldowns help ensure vendor adherence to customer requirements and provide an online system for approvals, and facilitating PO and shipment-specific communication between vendor or carrier and customer.

5. Enables DC Bypass and speed to channel — By closing the loop on inbound-to-outbound visibility the company can enhance its

“Through scalable cloud-based supply chain management technologies such as UPS Order Watch, our new cloud-based solution powered by GTNexus, companies are not only able to streamline management of vendors, but also manage all of their inbound shipments via a single platform. This can provide opportunities to consolidate ocean freight shipments and improve container usage to realize cost savings. This is increasingly important as COOs are looking for ways to mitigate ocean transportation costs following the ocean carrier rate increases in 2013."

~ Tom Boike, Vice President of Supplier Management, UPS

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© 2013 Aberdeen Group. Telephone: 617 854 5200 www.aberdeen.com Fax: 617 723 7897

ability to rationalize and truly optimize the supply-demand network. A distribution center bypass location is now often up to 8,000 miles away. Any consumer- or customer-specific shipment that could be done in the U.S. or home country could move all the way upstream to the origin point and now closed-loop track and trace from inbound-to-outbound is integrated.

"Companies are beginning to look to the cloud for opportunities to improve supply chain collaboration and reduce operational inefficiencies,” Boike added. “Through scalable cloud-based supply chain management technologies such as UPS Order Watch, our new solution, companies are not only able to streamline management of vendors, but also manage all of their inbound shipments via a single platform. This can provide opportunities to consolidate ocean freight shipments and improve container usage to realize cost savings. This is increasingly important as COOs are looking for ways to mitigate ocean transportation costs following the ocean carrier rate increases in 2013."

Recommended Strategic Actions and Steps Survey results and case study interviews show that the firms enjoying Best-in-Class supply chain performance differentiate themselves by:

• Supporting a strategic complement of new logistics formats and Collaborative Control Tower processes designed to synchronize planning and dynamic execution across the extended multi-party supply chain.

• Developing a centralized control tower platform for global multi-enterprise visibility and control with cloud-based connectivity.

• Transforming the internal / external partner reporting structures and roles to align with omni- and cross-channel process integration and coordination requirements under the control tower approach.

• Complementing control tower collaboration with performance dashboards and supporting agreements to elevate financial and operational performance management for suppliers, trading, partners, 3PLs, and others.

• Developing a daily track and monitor supply chain execution correction capability to support speed-to-market with adaptive logistics channel optimization tools for effective product flow and supply chain responsiveness.

• Balancing integration of upstream and downstream supply chain logistics planning and execution processes to meet the global omni-channel market demands while delivering improved supply chain agility.

For more information on this or other research topics, please visit www.aberdeen.com.

"Multi-channel provides a branded customer experience anytime anyplace anywhere. A brand can differentiate themselves and their services across multiple channels that can apply to any customer segment."

~IT Manager, Tier 1 Retailer, Europe

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Related Research

B2B Collaboration: No Longer Optional, May 2012 Transportation Procure to Pay: Spend Management Trends under Globalization; April 2012 Supply Chain Visibility Excellence: Mastering Complexity and Landed Costs; March 2012 Intermodal Optimization- Enhancing Last Mile Visibility and Execution; February 2012 Fulfillment Excellence and Dynamic Event Warehousing Come of Age; January 2012

Global Trade and Supply Chain Management: The Global Imperative; November 2011 2011 Transportation Contract, Tender and Spend Management; April 2011 Supply Chain Visibility: Fostering Security, Resiliency, and Efficiency; February 2011 International Transportation: Optimize Cost and Service in a Global Market; July 2010

Authors: Bob Heaney, Senior Analyst, Supply Chain Execution ([email protected])

For more than two decades, Aberdeen's research has been helping corporations worldwide become Best-in-Class. Having benchmarked the performance of more than 644,000 companies, Aberdeen is uniquely positioned to provide organizations with the facts that matter — the facts that enable companies to get ahead and drive results. That's why our research is relied on by more than 2.5 million readers in over 40 countries, 90% of the Fortune 1,000, and 93% of the Technology 500. As a Harte-Hanks Company, Aberdeen’s research provides insight and analysis to the Harte-Hanks community of local, regional, national and international marketing executives. Combined, we help our customers leverage the power of insight to deliver innovative multichannel marketing programs that drive business-changing results. For additional information, visit Aberdeen http://www.aberdeen.com or call (617) 854-5200, or to learn more about Harte-Hanks, call (800) 456-9748 or go to http://www.harte-hanks.com. This document is the result of primary research performed by Aberdeen Group. Aberdeen Group's methodologies provide for objective fact-based research and represent the best analysis available at the time of publication. Unless otherwise noted, the entire contents of this publication are copyrighted by Aberdeen Group, Inc. and may not be reproduced, distributed, archived, or transmitted in any form or by any means without prior written consent by Aberdeen Group, Inc. (2013a)