Vertical integration.

A few weeks ago I was delivering a speech at an industry show when an attendee walked up to me and handed me a card. It read, Logistics Management Group, and then the kicker, "producing special events, meetings, conventions and expositions." It's apparent that everyone, in and out of the distribution and transportation arena is now touting their logistics expertise.

Problem is we all think we are using logistics planning, but, in actuality, most companies are simply implementing computer-based mapping and routing programs that tell you where to put your warehouses or route your trucks.

How different would your business be, or better yet, how much more profitable would it be if you could streamline the flow of product from the manufacturer to the client; reduce order cycle time and delivery time that can improve customer service and reduce your costs?

How different would your business be if you could tap into order status information 24 hours a day, seven days a week? Would knowing your cost per case and cost of service for any delivery change the way you operate? You bet!

Sophisticated clients are already demanding this kind of information and companies such as URS who can successfully combine system solutions with logistics are the ones supplying it. It definitely goes beyond logistics as most of us know it.

URS calls it "vertical integration", a process which delivers information enabling the client to not only react to the market, but more importantly, anticipate changes. The textbook definition: vertical integration is the cross functional alignment of value-added activities that drive the physical movement of raw materials and finished goods from the point of purchase to the point of consumption.

Putting definitions aside, vertical integration is a more complete and complex approach to logistics. It is where our industry is heading. It addresses a long list of logistics hurdles including the distribution network design, site location, customer assignment, profitability analysis, mode selection, routing, scheduling and shipment planning.

The URS model that we use to start the vertical integration process requires that five basic business assumptions be in place. These assumptions, mutually agreed upon by customer and URS, are as follows:

1. Customer Requirements: Can you clearly define the channels of distribution? Do you fully understand this customer's market values and category management?

2. Strategic Plan: What is the direction of senior management? How is their market strategy tied to company growth, to assets, to product niche, to market penetration and/or dominance?

3. Functioning capabilities: What systems are in place? What kind of staffing is available? What is the physical support structure? Is there flexibility in manufacturing schedules?

4. Organizational strength: How would you describe the customer's corporate culture:? Its value systems?

5. Diagnostic & reporting capabilities: What systems are in place? Is reciprocal maintenance possible? Can the customer tie into an EDI network?

Once this preparatory work is completed the customer must assign a cross-functional team typically representing marketing, sales, warehousing, transportation, and other departments to the vertical integration process.

The URS model requires the assignment of nine specific tasks to members of the cross-functional team. The tasks are:

1. Map the current process: Develop a flow chart, indicate concept definition, scope and depth of the project.

2. Complete a functional requirement specification document

3. Develop a tracking and management work in process document

4. Parallel the customer's environment to test for accuracy in both the financial and operational areas

5. Set up reciprocal maintenance with feedback mechanisms that track progress and execute upgrades

6. Report results against objectives

7. Measure and improve continuously using industry benchmarking

8. Conduct periodic review meetings with the entire team

9. Document program activity and capture results, the actual process, short falls, upgrades and lessons learned.

These tasks should supply real answers to the key question: "How do I bridge the strategic plan to the operational mode of managing the freight consolidation process?"

The next step is the functional process which involves process flow mapping and the application of decision support software. The mapping covers current channels of distribution, market segments, classes of trade, velocity of order cycle and inventory replenishment.

The decision support software we recommend is the CAPS Toolkit. In fact, URS has developed its own customized version of CAPS. The software allows network analysis and optimization including adjustment of routes for seasonal values, balancing of routes, and assigning delivery days. It also performs warehouse assignment and service evaluation.

URS has used its vertical integration process with outstanding results, providing a lot of detail that normally gets forgotten or bypassed in the search for solutions. It's this meticulous analysis of data that URS uses to identify a customer's strategic gap.

The URS vertical integration process gives its customers an accurate and complete picture of their current supply chain management. With this information, URS helps its customers establish a "future" vision - where they want to be and more importantly, how to get there using best practices. This is the future for the distribution industry and the future is now.