Natural Selection in a New “Nowhere to Run, Nowhere to Hide” World

This piece is dedicated to Verna Miller, mother of my beloved wife of 22 years, who passed away December 28, 2012.

I find myself today at the Eagle’s Nest. For those of you who don’t know me well, the Eagle’s Nest is my home on the cliffs of Wisconsin. It’s where I have done all my business writings over my career. In 1992, I finished my definitional work on federated networks for benchmarking partners there. From 1995 to 1997, I wrote the 3 “V”s of supply chain and all my Gartner work there. And, in 2004, the Descartes strategic plan and its “one learning team” culture framework which guides the company to this day was written at the Eagle’s Nest. For the last 20 years plus years, it’s where I have gone to think and write.

Today, I find myself remembering my mother-in-law. For me, I am not one to feel so sad about what has been lost, but rather I try and remember how lucky I was to have the time that I had with someone. I sit here remembering something that she said to me twenty years ago when I was penning my first Gartner scenario and was agonizing over the question, “How will logistics technologies impact corporate competitiveness?” She said, “Art, what I like about you is that if you see a problem that you can’t figure out, you’ll never stop thinking about it until you have an answer. I’m not worried about you and your new job at Gartner. You’ll figure it out and you won’t stop until you do.”

Now, for those that have mother-in-laws, I think we all can appreciate when you find that rare moment when you realize that you’re endeared by your mother-in-law.

So today twenty years later, powered by her thoughts and memories, I find myself asking the same question as in the past, “How will logistics technologies impact corporate competitiveness?” And I realize that she was right - I was just fine in my career and, most of all, I’ve never stopped thinking about how to answer this question.

Article Synopsis: The Next Big Thing in Supply Chain and SaaS - The Rise of the “Entrusts”

This article defines a new business model which advances the author’s 22 year history of theorizing and forecasting the computing models of federating networks. This work is an update to his initial 1992 writings on federated logistics 1992 enabled by a National Institute of Standards and Technology (NIST) grant for Benchmarking Partners. The initial work was subsequently updated in a series of papers from 1995 to 1997 for the Gartner group and, again, in 2008 for the Council of Supply Chain Management Professionals. This article picks up where his last writing left off by suggesting that both business relationships and IT systems will see an end to “permanence” as we know it today and that this will lead to the emergence of a new business model dubbed “Entrusts”.

Acceleration is impacting business. The pace at which good and services commoditize is accelerating. The business transparency that can be gleaned from “big data” is accelerating. The rate of technological change is accelerating. Things are getting faster.

With things changing so quickly, it doesn’t make sense to have relationships or technology that can’t keep up. Business relationships and their supporting systems will see a striking end to their fixed, long-term nature or “permanence” as it has been known in the past. Businesses will protect their margins by demanding relationships that guarantee outcomes or insure against failure. A new breed of company will rise to meet this demand in various communities. These companies will be characterized by continuous investment in systems that network communities and authenticated community participation with credentials, leading to creation of “trust federations” or what is dubbed "Entrusts".

This article will also briefly describe 4 businesses (Nulogy, e2Open, SPS Commerce and Descartes) and their characteristics as Entrusts.

The Next Big Thing in Supply Chains and “SaaS” - THE “ENTRUST”

Natural Selection in a New “Nowhere to Run, Nowhere to Hide” World

We’ve entered a new era. This era is an “always on and always connected” and “nowhere to run and nowhere to hide” environment. This "big data” environment is creating a factorial increase in transparency (costs, prices, performance etc.) that is redefining the permanence of business relationships and supporting system requirements. In the new world, very little will last forever (or should be planned to last forever) and the best strategies will be based on the agility to configure and reconfigure partnerships within supply chains (suppliers, customers and logistics service providers). The key will be not to establish relationships, but to flexibly maintain them in a way that guarantees outcomes and insures against failure. The new “permanence” might be best described as doing lots of temporary and/or different things for long periods of time with the same people, as opposed to the old “permanence” of doing the same thing with the same people all the time.

This era of pace was predicted by many. We’re seeing rapid commoditization of services with the collision of computing power increases (Moore’s law), network strength and proliferation (Metcalfe’s law) and business evolution towards profitable specialization (Darwin’s law).

As a consequence of this new era, product life cycles and shelf lives are shortening – quickly. In today’s world, almost any product or service can be ‘gotten’ from anywhere by anyone. And, if you wait six months to a year, you can find it done better or cheaper by someone else. Just because you have it or can get it isn’t good enough anymore - so can everyone else. Having the product or service isn’t enough – you need to distinguish yourself by being able to guarantee the outcome (or insure against failure) from using the product or service. If you can’t, you’ll be passed over for someone who will and your margins will suffer over time.

Technology Outlook – Obsolesence of the Permanent Enterprise Platform and Evolution to Heterogeneous, Distributed Systems

From a raw technological infrastructure standpoint, many of the systems created in the last decade will become extremely obsolete over the next decade. They are much like a cassette tape player or VCR tape is to today’s methods of music and video distribution (please see Wikipedia for those who aren’t following me ‘talking about my generation’). The systems won’t go away, but they will not offer businesses competitiveness either. Why? Because these systems purchased in the last decade were purchased as “permanent platforms” that ignore the rapid ‘acceleration’ of technology and networks. Once they’re driven off the lot, they won’t be worth a bid on a locker at a storage war show.

To remain competitive, companies will need to continuously buy (or lease) new technologies that let them keep pace with this acceleration. Specifically, competitiveness will require businesses to be able to harness presence on networks, leverage ubiquitous wireless communications and the mass proliferation of distributed intelligent devices, and extend these legacy systems and platforms. The notion of replacement cycles for technologies will need to become replaced by continuous investment cycles.

What businesses need to invest will also need to change. The architecture of heterogeneous, distributed technology systems that businesses will need are very different than the pre-2011 enterprise platforms. Thinking simply, an architect of houses (your enterprise) follows different design principles than someone who architects multi-tenant apartments or office buildings (an inter-enterprise collaborative, network solution). Thinks like common areas and shared community services are much more understood by architects of buildings or apartments. This thinking is what makes enterprise systems and inter-enterprise systems different – so different that you can clearly distinguish between an apartment and a single-tenant house on your street. Even the first generation of single-instance, multi-tenant systems built from 2005-2010 (really just hosted software, not network solutions) have been made obsolete by the more nimble heterogeneous, distributed architectures that enable multiple instance federation and social network participation.

Logistics – New Superspecialists Eroding What You Thought Was Permanent

On the structural logistics service providers side, we’re now seeing the real impact of Darwin’s law as the logistics industry continues to evolve and specialize post de-regulation. For many years, the logistics system operated with a structure of “Whales” (multi-modal, end-to-end asset-owning logistics providers such as Deutsche Post and UPS), “Sharks” (specialized, best-of-breed in a particular mode, such as nationwide domestic truck carriers) and “Peddlerfish” (non-asset owning provider in a particular space/mode). But, the system evolved and we saw a smarter-than-normal Peddlerfish emerge that I consider a “Dolphin” … a very intelligent and likeable broader logistics specialist (a 4PL, like Menlo). And as Darwin predicted, the ecosystem continues to evolve. We’re now seeing a new member I will call a “Needlefish” … this smaller fish does one thing really well and has sharp teeth. One Needlefish doesn’t eat much food, but a school of them can easily pick away at aspects of the ecosystems. We’re seeing Needlefish that are lane specific, commodity specific or super-specialized in a market/geography (such as an oilfield in Canada or fresh seafood or flowers). Needlefish will erode areas of business that the traditional Whales, Sharks, Peddlerfish and Dolphins HAD always thought of as their own permanent feeding areas.

Rise of the Network Federators: The Entrust

As addressed above, to stay competitive, businesses will need to continually invest in heterogeneous, distributed technologies. Businesses involved in logistics need to recognize they are competing and partnering with a constantly changing ecosystem of increased specialization. Tomorrow’s successful logistics-sensitive business needs to stop focusing on forging tools to hunt and gather, and instead look to relationships and technologies that can guarantee a constant food supply. I believe we’re seeing the birthing of new type of company – the “Entrust” – that will help businesses guarantee outcomes (and insure against failures) by maintaining the most competitive environment for process management and systems enabling best-in-class communication, collaboration and compliance.

An Entrust is a process-enabler, not just a technology or logistics service provider. An Entrust is trusted by a community to facilitate consistent, predictable transactions. An Entrust is a federator, bringing together other member enterprises and networks to streamline a process. An Entrust authenticates and issues credentials to participants to ensure there are no “catfish” or fake girlfriends in the ecosystem. An Entrust insulates its members from the continuous investments needed in the new era to modernize, harmonize and effectively harness new waves of technologies. An Entrust provides shared service environments for a community of players with varied technology capabilities. An Entrust provides broad access to a community to allow members to rapidly assemble, disassemble and reassemble its supply chain relationships with speed and grace. An Entrust will distinguish itself on consistency, predictability and fairness to a community. An Entrust will guarantee delivery of expected service and provide warranties in respect of failures.

Entrusts will start in highly-specialized communities and subcommunities, such as high-tech component manufacturers and suppliers, food distribution, CPG/copacker food production or freight forwarders/airline cargo. At its simplest level, an Entrust will be a trusted party that enables people of common interests to participate in a defined process of registration, authentication, encryption the issuance of credentials, standardized business process execution, certification and exception enforcement. Each Entrust will be like a Needlefish – it will be highly-specialized and have sharp teeth that take bites out of the traditional information technology enterprise systems industry.

Not everyone can, or will be able to, be an Entrust. Many existing businesses will lack the technological infrastructure or community trust to be successful or accepted as an Entrust. Entrusts will be powered by a commitment to newly-architected real-time distributed operating systems that facilitate the security, scalability, reliability and collaboration required in community-based distributed computing. The operating system will be designed to standardize transactions that automate multiparty processes across the community – both in the physical logistics supply chain sense and the technical business process management sense. We need only look at history to identify this as a fact rather than a hypothesis – just look at the Transaction Processing Facility (TPF) that was necessary for the success of the Sabre Entrust used in the airline community.

Needlefish are Already Swimming, Sharks are in the water – 4 Examples

As mentioned earlier, winners in this new era will be business models that network together, harnessing technologies to cleanly and elegantly assemble and disassemble themselves and their business processes/relationships with speed and grace. Winners will satisfy the need to continuously invest and reinvest in technologies by trusting Entrusts to unify its business partner networks.

As I look out at the market, I see 4 particular examples of developing Entrusts:

Needlefish

Nulogy - “Nulogy is an Entrust that integrates the community of CPG brand manufacturers with contract packagers (co-packers) and manufacturers. Nulogy co-packer community members provide CPG brand manufacturers the necessary real-time supply-chain visibility, traceability and transparency to process its transactions, allowing CPG brand manufacturers to have consistent guaranteed outcomes across their supplier network. Co-packers get the sophistication required to serve the CPG brand manufacturers, as well as business automation and direct access to reputable CPG clients using standardized “certified” business processes. The standardized and integrated business flow ensures best-practices are employed and guarantees the outcomes for the co-packer and CPG community, where all parties mutually benefit from the trusting relationship, with Nulogy as the enabler. Their federation increases efficiencies and visibility within the extended supply-chain of some of the largest CPG brands, while increasing their speed to market of personalized products.

Sharks

E2Open - E2open, Inc. develops, operates, and markets an integrated cloud-based platform for supply chain management. It provides cross-network analytics, multi-enterprise, business process management, and business-to-business (B2B) integration solutions for companies seeking visibility and control over their trading networks. The company’s E2open Business Network enables its customers to share product information, forecasts, inventory positions, sales orders, purchase orders, manufacturing work orders, quality and environmental data, shipments, invoices, and payments with their trading partners. Its products and services comprise E2open Collaboration Center that provides real-time dashboard visibility for various partners on the network into demand and supply changes; access to analytics to assess the operational and financial impact of changes; and offers decision support to preempt issues or resolve problems. The company also offers multi-enterprise software for demand processes, which allows enterprises to reduce the cost and complexity of order fulfillment for their products; multi-enterprise software for multi-tier processes that allows enterprises to manage the demand for materials, products, and finished goods; and multi-enterprise software for supply processes, which allows enterprises to fulfill their demand for material and products into their own manufacturing and distribution facilities. In addition, it provides E2 Cloud Connectivity, a multi-enterprise software for B2B integration allowing enterprises to integrate their internal applications and the applications of their trading partners.

SPS Commerce - SPS Commerce, Inc. provides on-demand supply chain management solutions worldwide. It offers integration, collaboration, connectivity, visibility, and data analytics over the Internet using a software-as-a-service model. SPS Commerce, Inc. provides its solutions through SPSCommerce.net, a hosted software suite that enables suppliers, retailers, distributors, and other customers to manage and fulfill orders. The company’s platform delivers various solutions to suppliers and retailers, including trading partner integration, trading partner enablement, trading partner intelligence, and various peripheral solutions. It also operates Retail Universe, a collaborative online Website that facilitates relationships and communications with members of the retail ecosystem. The company was formerly known as St. Paul Software, Inc. and changed its name to SPS Commerce, Inc. in May 2001. SPS Commerce, Inc. was incorporated in 1987 and is headquartered in Minneapolis, Minnesota. Descartes – Descartes, selected as one of Canada’s most admired companies in 2012, operates the largest federated network for logistics, comprising a community of influential shippers, logistics intermediaries and carriers across multiple modes and geographies. In addition, Descartes inks in various governmental authorities to the federation. By standardizing transactions on published message formats and the provisioning of composite applications as a shared service to its members, Descartes is entrusted by the community for cargo security filings around the world. The community also completes numerous business processes relating to logistics movement on this Entrust’s shared service environment such as commercial transactions, shipment rating, cargo booking, shipment tracking, fleet routing, proof of delivery, freight audit and forwarder and broker operational systems. Descartes’ federation consists of over 146,000 organizations using its cloud based services. Its network is also interconnected to over 26 other networks processing billions of message annually.

About the Author, Art Mesher A pioneer in the development of businesses that harness the integration of heterogeneous distributed systems and federation of business communities, Mesher was building technology to automate freight processes in the 1980s and helped grow logistics software company Vocam Systems, which went public and then sold to Pitney Bowes. Subsequently, Mesher was President of Advanced Logistics Research, where he helped companies develop and deploy emerging technology-based supply-chain strategies. He also launched the Integrated Logistics Strategies Services practice at Gartner Inc., a leading technology research and advisory firm, and built it into one of the premiere advisors to major global corporations. Now Mesher is the Chairman and CEO of Descartes Systems (NASDAQ: DSGX), where he has led the creation of the first on-demand logistics network that provides application and communication capabilities for truck, air, and ocean transportation. Mesher is also the Chairman of the Core Group, developers of the Core Recreational Complex and Elite Athlete Performance Centre in Kitchener, Waterloo.

Mesher is a regular keynote speaker at industry and academic events, and for his long standing contributions to the industry, was selected as the Council of Supply Chain Management Professional’s (CSCMP) 2008 Distinguished Service Award recipient. The Award is presented annually to an individual who has made significant contributions to the art and science of supply chain and logistics management. This award is considered by supply chain management professionals throughout the world as the highest honor bestowed upon an individual.

Written by Art Mesher

Former Chairman of the Board and Chief Executive Officer at Descartes