Softworld for the Supply Chain - Supplying competitive edge

In today’s demanding market, the supply chain is a competitive weapon that can make all the difference between a firm’s survival and its demise.

And firms have been keen to invest time, effort and money in technology to speed up and improve the movement of goods and information along their own supply chain.

And software and systems manufacturers have not been slow to jump on the bandwagon, competing with one another to sell the top 500 firms the latest “leading edge” technology.

A study by Benchmark, commissioned by management training and consulting firm Oliver Wight, confirms this trend: in the UK, firms invested #3.2bn in IT in 1997. In the US, the IT spend was between 70 per cent and 80 per cent of all investment in manufacturing. But do the technologies and the Enterprise Resource Planning (ERP) systems measure up?

Firms are focusing on giving customers what they want when they want it. So what firms need are supply chains that offer rapid response, cost savings and improved resource utilisation. And ERP providers are making a concerted effort to provide flexible systems that can match demand at short notice.

In the ’80s the modus operandi was push up quality and reduce the number of products. In the ’60s and ’70s firms used a multiple supplier/cost reduction model. In the ’90s the buzz word is time; and that time needs to be taken out of the supply chain to make cost savings. But this is getting more and more difficult with the increased complexity of global supply chains. It means ensuring that products are sent simultaneously via truck, rail and plane across three continents to arrive at various destinations just-in-time.

“Supply chain systems will only be successful if you can transfer information back and forth rapidly, and you need IT infrastructure and architecture to make supply chains successful,”says Hugh Aitken, managing director at Sun Microsystems.

The current trend is that firms across all industries are buying the latest Enterprise Resource Planning (ERP) systems and software and installing it in all their business units to provide what consultants and IT specialists call “commonality” of information.

But Aitken believes that dealing with the volatile movements of the supply chain, customer demands and the differing market approaches requires more integrated systems.

The Sun approach is about designing scalability through partnership.

The firm has set up a pilot system in partnership with Oracle, which links to the Internet. It allows users to publish their own information and access vendor information – either party can access data and so reduce the time element required.

“If we can get that system going, it will open doors to allow suppliers and customers to share and change supply chain information in real-time over the Internet,” says Aitken. “If time is out of the equation and if firms then keep test reduction down and quality up, they will have saved money.”

Aitken believes that the Sun/Oracle partnership model is the way of the future because it is based on the premise that information is the backbone to the supply chain and revolves around disseminating that information; the model is designed so that any new Oracle software developments can easily be added.

“Supply chain integration is all about information and people don’t understand that information is a product,” he says.

But according to Simon Pollard, director of business development, corporate product and industry marketing at software house Baan, it is not as simple as that. It is the complexity of the supply chain that is the issue, particularly balancing the technology, the people, and being able to manage complexity and innovation seamlessly.

“The emerging trend is network collaboration on a business level and at a technical level, where you have trading partners focusing on one common plan,” says Pollard.

He believes that because supply chains now cross national, industry, business and cultural boundaries, firms using ERP systems need to ensure that each business unit has the right information and that it is packaged in the right way so that it cannot be misunderstood when it is sent out to five or more different countries.

Managing the complexity of the supply chain in the ’90s can be a formidable task, particularly when the emphasis on taking time out of the equation means that firms will have to reduce their inventories.

“The complexity of managing the supply chain will increase by 30 per cent each year, and then it won’t be acceptable for firms to build in buffer stocks to protect the firm from volatility in the supply chain.

Inventories will decrease by 10 per cent thus increasing complexity,” says Pieter Van dem Broeke, senior consultant at supply chain consultancy i2.

Van dem Broeke points out that the current ERP systems’ providers cannot match firms’ supply chain optimisation requirements today. He says that the systems are just not fast enough and do not function on the number of levels that are required to juggle market demands, information, time and inventory.

“You need to have a daily change-over cycle to lower stocks. If you produce stock every two weeks, you will have to produce it all in one go. But you don’t maximise profits by putting up stocks,” he says. “The ERP systems don’t improve the supply chain in terms of change-over and building from stocks.”

In the future firms will change from ERP packages to advanced planning and scheduling systems like 2i’s Rhythm solution, which interface with the Internet and seamlessly map out supply and demand from the market, from the manufacturer to the individual customer and provide a daily supply, distribution and costs plan (the front functions) against time. At the same time it also matches this with the firm’s longer term strategy.

“The planning funnel says that if you have longer term plans, you have more variables and you have more opportunity to make decisions – the Rhythm is our total solution,” says Van dem Broeke. “There will be an unprecedented need for professional knowledge in supply and demand optimisation but, because it is a niche offering, only a few professionals understand what supply chain optimisation is all about.”

He adds that the top five European ERP vendors, SAP, Oracle, Baan, SSA and G D Edwards, already have partnerships with supply chain planning vendors in place.

While ERP systems have become more customer focused, firms are are still not getting the full benefits of the systems.

But even now firms are jumping on the bandwagon, whether it is necessarily beneficial for their business or not. And big business, like consultancy, believes it needs to improve information processes and products and keep customers interested.

According to Chris Turner, director of Oliver Wight Europe, Middle East and Africa, and Guiseppe Bacco, international sales director at Max International, technology alone cannot improve the efficiency of the supply chain, nor will it improve bottom-line profits.

Turner believes that firms have missed the point and forgotten to involve their people in the chain management process.

“Most people within organisations have trained within their functional work. People working in manufacturing may be good at their job but if they don’t understand where the information is going and how they fit into that piece of the chain, the whole chain breaks down,” says Turner.

“IT as a solution is like the Emperor’s new clothes.”

He advocates that firms educate their people in why they have to work in an integrated way with other business partners, rather than just train them in how to do it.

“Our survey showed that class A firms which had worked on educational training are getting better customer service, stakeholders are getting good returns, and high productivity is reducing working capital,” he says.

In the future he believes that more firms will change to this way of thinking. Besides this, if all firms have the latest SAP ERP system, then competitive edge can only be gained through the competency of their people.

“There are a lot of people out there who have been taken in by the SAPs of this world, a lot of people who are following blindly, like sheep,” says Max International’s Bacco, who has written a white paper called ERP: Time for a Rethink.

He points out that what most firms need is an orders and planning system because it deals with front-end level decisions like order taking and planning, rather an ERP, which implies that firms have multiple plants in multiple countries. He believes that if firms want to get the best out of ERP, decision making has to be taken away from the competing businesses and centralised – at that level you can juggle the costs.

“Many decisions have to be constantly reanalysed and many companies don’t do that – they are not capable of doing that. Most firms use ERP to have commonality of cost structure and reporting, which is a bit of overkill, so most don’t get the benefits,” Bacco says. “While the majority of the top 100 firms subscribe to ERP, less than 15 per cent have implemented ERP systems because they find it too difficult or inflexible and only use one component. It requires investment in the business redesign and so much training that the cost is not justified.”