Supply chain makeover
Published: April 26, 2006
By Peter Haapaniemi
You have come to the realization that your supply chain is no longer meeting your business needs. Transforming it should start with an understanding of processes, and an evolutionary plan for moving forward.
In Summary:
| • | Make sure to involve leaders from across your organization, as well as customers, when assessing your supply chain processes for improvements. |
| • | Consider using a maturity model to help guide your way through a supply chain makeover. |
| • | Advanced supply chain systems must have a flexible Web-based architecture and the ability to proactively manage events, logistics and demand; and must include collaboration tools and support for mobile devices. |
Meeting the needs of today's customers requires sophisticated supply chain management (SCM) processes that let companies streamline processes and get products and services to customers in the right place at the right time.
"It may have been enough in the past to compete on a great product," says Beth Enslow, senior vice president of enterprise research at the Boston, Massachusetts-based Aberdeen Group research firm. "But now you have to be able to compete on the supply chain processes around that product."
Managing your supply chain effectively can make or break your business, particularly since supply chains are growing ever more complex with the trend toward globalization and the increased outsourcing of many processes, bringing a variety of far-flung suppliers and distributors into the mix. (For more information on supply chain evolution, see "Supply chain takes center stage.")
As a result, features like real-time demand planning, advanced logistics management and event management are critical components of today's supply chain. Can your systems and processes do the job?
If not, you're not alone. Traditionally, many SCM systems have been too expensive and complex for midsize businesses to acquire and maintain. But evolving technology—from analytics and sophisticated planning tools to integration software and the Internet—is bringing a range of cost-effective, flexible tools within their reach.
How efficient is your supply chain?
Before talking to an information technology (IT) vendor, conduct a thorough assessment of your supply chain, looking for opportunities to cut time out of cycles, create more flexible processes and collaborate more closely with business partners. Gordon Opland, managing director of the business and financial consulting firm RSM McGladrey in Des Moines, Iowa, recommends pulling together a cross-functional team that includes representatives from IT, finance, operations and distribution.
It is also important to include customers. "You want to understand your customers' requirements and their vision," Opland says. For example, are customers interested in low-cost, on-time delivery performance or integration with their production line? Understanding customer priorities will help you identify gaps and opportunities for improvement in your supply chain processes.
Above all, plans need to take a holistic view of the supply chain management landscape. Too often, says Opland, companies take a piecemeal approach: "They invest in a system, and then a few months or a year later they are back again looking for another solution." Why? Because they did not make the time to take a comprehensive look at their processes.
Road map for supply chain transformation
That does not mean you need to tackle the whole gamut of supply chain processes at once. It simply means creating a comprehensive framework that you can fill in over time.
To help create that framework, companies can use an SCM maturity model that helps align processes and IT strategy, says Alexander Renz, lead RFID (radio frequency identification) program manager with Microsoft in Vedbaek, Denmark. With a model like the one Renz describes below, companies can plot an evolutionary approach to transforming the supply chain through four fundamental stages:
| • | Stage 1: Integrated business. This stage typically involves integrating internal processes, and implementing enterprise resource planning (ERP) systems that include basic supply chain management functionality, Web portals for information sharing, and integration software to link front- and back-office processes and heterogeneous systems. "It means having an adaptive foundation, consistent data and visibility across your end-to-end processes, and making processes consistent and repeatable," Renz says. |
| • | Stage 2: Optimization. Here, you can support better decision making with tools that help highlight supply chain inefficiencies. This typically involves implementing software for manufacturing resource planning, distribution requirements planning, replenishment planning and business intelligence tools such as Microsoft SQL Server and SQL Business Intelligence reporting services. |
| • | Stage 3: Collaboration. This stage entails extending processes to supply chain partners using networking and collaboration technologies such as Web portals and shared workspaces (like Microsoft SharePoint or Microsoft Groove). Such tools allow for the real-time, accurate exchange of information about demand and supply, and the ability to quickly feed electronic orders into back-office and operational systems to shorten cycle times. |
| • | Stage 4: Real-world awareness. Mobile applications, handheld devices, bar coding, global positioning systems (GPS) and RFID can all help companies obtain precise information about the movement of goods through the supply chain. Mobile and wireless tools can also automate the monitoring of supply chain processes—which helps cut time from order capture to fulfillment. |
The mobile and wireless stage of this model may sound too progressive for many small and midsize businesses, but they are in fact quite feasible. For example, Renz has worked with a midsize company that provides refrigerated testing materials to hospitals. "They have installed RFID-enabled freezer units at their customer sites," he says. "When someone wants to use their product, they take out what they need. The individual items carry RFID tags, so the system relays that withdrawal data to Microsoft BizTalk Server, which generates a purchase order for the item." That data is also used to drive replenishment through Microsoft Dynamics systems in branch offices, which refill the freezers via parcel post.
"It's a whole new business model for them," says Renz. "They can optimize the inventory in the freezer, minimize transportation costs and analyze the data to understand demand patterns."
Indeed, the rapid advance and cost-effectiveness of SCM technologies are opening up a range of possibilities for midsize businesses. "The big ‘aha' here is that you can put together a nice portfolio of affordable systems across your supply chain, without breaking the bank," says Enslow. Most important, experts agree, is to plan ahead and look at the big picture.
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In exploring potential supply chain management technologies, information technology (IT) professionals need to keep some basic rules of thumb in mind, experts say. These include: | • | Enhance visibility. Systems that integrate information from across the supply chain and connect people inside and outside the company can give companies a clearer view of demand and supply. This visibility will make it easier for you to manage inventory and move quickly to meet customer needs. | | • | Look for flexibility. "That plays to the smaller companies' strengths," says Beth Enslow of the Aberdeen Group. IT managers should look for applications that staff can easily reconfigure, and that incorporate solid workflow capabilities that adapt to changing business needs, she advises. On the infrastructure level, Web-based and service-oriented architectures can deliver flexibility and reduce the maintenance burden on your IT employees. | | • | Implement packaged software. Today's packaged SCM applications can provide ready-made functionality for the majority of processes while allowing for enough customization to meet a company's specific needs. Packages also accelerate implementation. As a rule, Enslow says, companies should expect to implement systems over three to six months and see a return on their investment in less than a year. | | • | Consider analytics and business intelligence tools. Such tools enable companies to manage supply chain performance and analyze trends to uncover problems, such as recurring late deliveries or warehouse bottlenecks. Do not forget about reporting capabilities that can help you meet the information needs of customers and government agencies in terms of product safety, security of shipments and compliance with government regulations. |
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Peter Haapaniemi is a freelance writer based in Farmington, Michigan. He has covered a variety of business, management and technology issues for a more than a decade.
