Companies are looking closely at their supply chains once again. And one thing they’ve discovered is that, when they employ supply-side experts, they receive a much clearer picture, says Mary Huntington.
Chris Webster, who runs Cap Gemini’s supply-chain practice in the UK, believes there are two reasons for the recent increased focus on supply chains: one is the latest IT, where supply-chain planning tools have reached a new degree of maturity, and the other, of course, is e-commerce.
“E-commerce is causing people to fundamentally re-think their proposition to the market and how they structure the supply chain around it,” Webster says. He cites the advent of home shopping as one example of this. “You must have the ability to know that you have the item a customer wants and are able to distribute it within the timescale promised. If you fail to do so your standing will be damaged.”
Recent surveys suggest that as many as two-thirds of potential online purchases fall by the wayside because of poor service. John Perry, managing director of Leicester-based Supply Chain Solutions (a division of The Cert Group), says: “The customer relationship is essential. Companies are setting up the mechanism to provide the initial communication with the customer, but what is missing in a lot of instances is the capability to fulfil the demand.”As a result, it comes as little surprise to find that supply-chain consultancies are doing a lot of work in this area. Says Webster: “The single biggest reason for calls from clients over the past six months has been e-business. People know that they need to adjust their strategy.”
John Lockton, managing director of Logistics Consulting Partners, agrees. “Businesses such as Dixons and Littlewoods are saying how does the new technology change the business we should be doing, the way we operate with customers and suppliers and more practical things like trucks and sheds?” Looking at the business as a whole is important in supply chain, he says, because IT is an enabler not a panacea. “A lot of businesses turn to IT solutions too quickly, before working out what supply chain really means to them. The key point is the flow of information from your supplier, through yourself and to customers. That can only be done by putting in new information systems with new ways of sharing information and displaying it at different points along the supply chain.”
Lockton says that one example of this approach is Tesco, which is using IT and the Internet to show suppliers completely new information about what is being consumed within its distribution centres and stores, and what they need, in a way which would never have been imagined even two years ago.Lockton also sees enterprise resource planning (ERP) as an enabler rather than a solution. “Many people think ERP is a way to revolutionise supply chain rather than thinking back about what they want to do first, and then seeing how ERP can help,” he says. “It is essential to develop a view of how the business needs to operate to satisfy customers at the lowest cost, and then see what solutions are required.”
Webster identifies a wave of realisation in the business community that logistics and supply-chain management is an expert role in its own right. As a result, many companies are investing in expertise or using an expert partner, he says. “The e-business revolution is causing a move to what might be called the virtual organisation, a combination of organisations in close partnership working together, with shared risk and reward, to deliver end value to the customer.” Cap Gemini, he says, typically works with partners such as Manugistics, i2, Oracle, SAP and Baan, plus new vendors such as Descartes. “It is impossible to know everything and keep that knowledge current on your own,” Webster says.
Similarly, as part of The Cert Group, Supply Chain Solutions collaborates with other divisions that specialise in physical warehousing and logistics, promotions, distribution and e-commerce. “We work from the strategy side and look at what the business is trying to do as a whole. We don’t look at the supply chain until we understand the business,” says Perry.
Increasingly, Perry believes, clients are looking for consultants prepared to go right through from strategy to detailed implementation and take responsibility for the outcome. He also sees a market among SMEs for a service his division has begun to offer in the last year: total supply-chain management. “We manage the whole process for an importer of beers and ciders, from importation, through warehousing, delivery and inventory management,” he says. This approach, he believes, enables the client to focus on its core business: sales and marketing. Meanwhile, Supply Chain Solutions uses third parties to provide the actual logistics – and its revenue depends on the results and the efficiency with which it operates.
The growth in the supply-chain market as a whole, both traditional and on the e-business side of things, means that there is an increasing demand for staff. Cap Gemini’s Webster says that he is looking for people with direct industry experience who can go head-to-head with chief executives in their chosen fields and have a discussion about what supply chain means in market verticals such as automotive or high-tech.
“The pace of change is such that clients do not want a generic consulting approach,” he adds. “We are also looking to recruit people with practical experience of e-business and there is definitely a shortage of skills in those areas. It is a very, very tight market.”
Case studyIn 1996, Herts-based Logistics Consulting Partners undertook a supply-chain audit for BA Catering, which is responsible for the supply of all non-food amenities, such as crockery, blankets, wine and food trolleys, to aircraft. Its annual expenditure runs at around £85m.
Simon Ratcliffe, BA’s then head of supply-chain systems, says that a Boeing 747 carries more than 40,000 items in the cabin, so coordinating inventory availability through local bases and contract caterers is a great challenge. “We were miles adrift of best practice,” he says. “Clear evidence of a need to address the performance of the business came from some very high-profile service failures, whereby equipment, such as headsets or blankets, was not available.” According to Phil Collinge, associate partner with LCP, the audit highlighted a number of problems. “BA’s culture meant that customer service was met irrespective of cost,” he says. “The 160 kitchens worldwide had carte blanche to call off materials. And the systems pulling inventory out of the central warehouse at Heathrow were purely manual – it was medieval.’
Another problem, says Ratcliffe, was that lead times could be lengthy because BA Catering had an arrangement with BA Cargo whereby the goods went free unless it sold the space elsewhere – in which case they had to wait. As a consequence of this uncertain supply, caterers held a tremendous amount of stock.
The subsequent 18-month project set up new freight arrangements to guarantee lead times. It also focused on changing the cultural balance between service and cost. Operational execution software System Ess, from Industri Matematik, was bolted together with Manugistics planning software and an extranet solution, Connex, which linked BA with its suppliers.
“The most difficult aspect,” says Collinge, “was the people thing: changing ways of working, and their objectives and targets.”
The project has delivered all the business case benefits, however. Says Collinge: “Within the first year BA saved just short of £9m.”
Mary Huntington is a freelance journalist.
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