Supply chain management is the combination of art and science that goes
into improving the way your company finds the raw components it needs to
make a product or service, manufactures that product or service and
delivers it to customers. The following are five basic components for
supply chain management.
Supply chain management software is possibly the most fractured
group of software applications on the planet. Each of the five major
supply chain steps previously outlined composes dozens of specific tasks,
many of which have their own specific software. There are some large
vendors that have attempted to assemble many of these different chunks of
software together under a single roof, but no one has a complete package.
Integrating the different software pieces together can be a nightmare.
Perhaps the best way to think about supply chain software is to separate
it into software that helps you plan the supply chain and software that
helps you execute the supply chain steps themselves.
Supply chain planning (SCP) software uses fancy math algorithms to help
you improve the flow and efficiency of the supply chain and reduce
inventory. SCP is entirely dependent upon information for its accuracy. If
you're a manufacturer of consumer packaged goods for example, don't expect
your planning applications to be very accurate if you can't feed them
accurate, up-to-date information about customer orders from your retail
customers, sales data from your retailer customers' stores, manufacturing
capacity and delivery capability. There are planning applications
available for all five of the major supply chain steps previously listed.
Arguably the most valuable (and complex and prone to error) is demand
planning, which determines how much product you will make to satisfy your
different customers' demands.
Supply chain execution (SCE) software is intended to automate the
different steps of the supply chain. This could be as simple as
electronically routing orders from your manufacturing plants to your
suppliers for the stuff you need to make your products.
Do I need to have ERP software before I install
supply chain software?
This is a very controversial subject. You
may need ERP if you plan to install SCP applications because they are
reliant upon the kind of information that is stored in the most quantity
inside ERP software. Theoretically you could assemble the information you
need to feed the SCP applications from legacy systems (for most companies
this means Excel spreadsheets spread out all over the place), but it can
be nightmarish to try to get that information flowing on a fast, reliable
basis from all the areas of the company. ERP is the battering ram that
integrates all that information together in a single application, and SCP
applications benefit from having a single major source to go to for
up-to-date information. Most CIOs who have tried to install SCP
applications say they are glad they did ERP first. They call the ERP
projects "putting your information house in order." Of course, ERP is
expensive and difficult, so you may want to explore ways to feed your SCP
applications the information they need without doing ERP first.
SCE applications are less dependent upon gathering information from
around the company, so they tend to be independent of the ERP decision.
But chances are, you'll need to have the SCE applications communicate with
ERP in some fashion. It's important to pay attention to SCE software's
ability to integrate with the Internet and with ERP or SCP applications
because the Internet will drive demand for integrated information. For
example, if you want to build a private website for communicating with
your customers and suppliers, you will want to pull information from SCE,
SCP and ERP applications together to present updated information about
orders, payments, manufacturing status and delivery.
What is the goal of installing supply chain
management software?
Before the Internet came along, the
aspirations of supply chain software devotees were limited to improving
their ability to predict demand from customers and make their own supply
chains run more smoothly. But the cheap, ubiquitous nature of the
Internet, along with its simple, universally accepted communication
standards have thrown things wide open. Now, theoretically anyway, you can
connect your supply chain with the supply chains of your suppliers and
customers together in a single vast network that optimizes costs and
opportunities for everyone involved. This was the reason for the B2B
explosion; the idea that everyone you do business with could be connected
together into one big happy, cooperative family.
Of course, the reality behind this vision is that it will take years to
come to fruition. But considering that B2B has only been around for a few
years, some industries have already made great progress, most notably
consumer-packaged goods (the companies that make products that go to
supermarkets and drug stores), high technology and autos.
When you ask the people on the front lines in these industries what
they hope to gain from their supply chain efforts in the near term, they
will all respond with a single word: visibility. The supply chain in most
industries is like a big card game. The players don't want to show their
cards because they don't trust anyone else with the information. But if
they showed their hands they could all benefit. Suppliers wouldn't have to
guess how much raw materials to order, and manufacturers wouldn't have to
order more than they need from suppliers to make sure they have enough on
hand if demand for their products unexpectedly goes up. And retailers
would have fewer empty shelves if they shared the information they had
about sales of a manufacturer's product in all their stores with the
manufacturer. The Internet makes showing your hand to others possible, but
centuries of distrust and lack of coordination within industries make it
difficult.
Let's look at consumer packaged goods as an example
of collaboration. If there are two companies that have made supply chain a
household word, they are Wal-Mart and Procter & Gamble. Before these
two companies started collaborating back in the '80s, retailers shared
very little information with manufacturers. But then the two giants built
a software system that hooked P&G up to Wal-Mart's distribution
centers. When P&G's products run low at the distribution centers, the
system sends an automatic alert to P&G to ship more products. In some
cases, the system goes all the way to the individual Wal-Mart store. It
lets P&G monitor the shelves through real-time satellite link-ups that
send messages to the factory whenever a P&G item swoops past a scanner
at the register.
With this kind of minute-to-minute information, P&G knows when to
make, ship and display more products at the Wal-Mart stores. No need to
keep products piled up in warehouses awaiting Wal-Mart's call. Invoicing
and payments happen automatically too. The system saves P&G so much in
time, reduced inventory and lower order-processing costs that it can
afford to give Wal-Mart "low, everyday prices" without putting itself out
of business.
Cisco Systems, which makes equipment to hook up to the Internet, is
also famous for its supply chain collaboration. Cisco has a network of
component suppliers, distributors and contract manufacturers that are
linked through Cisco's extranet to form a virtual, just-in-time supply
chain. When a customer orders a typical Cisco product-for example, a
router that directs Internet traffic over a company network-through
Cisco's website, the order triggers a flurry of messages to contract
manufacturers of printed circuit board assemblies. Distributors,
meanwhile, are alerted to supply the generic components of the router,
such as a power supply. Cisco's contract manufacturers, some of whom make
subassemblies like the router chassis and others who assemble the finished
product, already know what's coming down the order pipe because they've
logged on to Cisco's extranet and linked in to Cisco's own manufacturing
execution systems.
Soon after the contract manufacturers reach into Cisco's extranet, the
extranet starts poking around the contractor's assembly line to make sure
everything is kosher. Factory assemblers slap a bar code on the router,
scan it and plug in cables that simulate those of a typical corporate
network. One of those cables is a fire hose for Cisco's automated testing
software. It looks up the bar code, matches it to a customer's order and
then probes the nascent router to see if it has all the ports and memory
that the customer wanted. If everything checks out-and only then-Cisco's
software releases the customer name and shipping information so that the
subcontractor can get it off the shop floor.
And there you have it. No warehouses, no inventory, no paper invoices,
just a very nosy software program that monitors Cisco's supply chain
automatically, in real-time, everywhere, simultaneously. The chain runs
itself until there's a problem, in which case the system alerts some poor
human to get off his duff and fix something. Supply chain software junkies
call this "management by exception." You don't need to do anything unless
there is something wrong.
If there's a weakness to these collaborative systems, it's that they
haven't been tested in tough times-until recently. Cisco's network was
designed to handle the company's huge growth. Distributed decision making
is great if the decisions have mostly to do with making and selling more
things. But Cisco and its network were caught completely off guard by the
recent tumble in the economy. It took awhile to turn all the spigots off
in its complex network when demand for its products plummeted and Cisco
and its supply chain partners got stuck with a lot of excess inventory-as
did most other big manufacturers in high technology. Cisco was forced to
take a hard look at its supply chain planning capability. SCP software is
much better at managing growth than it is at monitoring a decline and
correcting it.
What are the roadblocks to installing
supply chain software?
Gaining trust from your suppliers and
partners Supply chain automation is uniquely difficult because its complexity
extends beyond your company's walls. Your people will need to change the
way they work and so will the people from each supplier that you add to
your network. Only the largest and most powerful manufacturers can force
such radical changes down suppliers' throats. Most companies have to sell
outsiders on the system. Moreover, your goals in installing the system may
be threatening to those suppliers, to say the least. For example,
Wal-Mart's collaboration with P&G meant that P&G would assume more
responsibility for inventory management, something retailers have
traditionally done on their own. Wal-Mart had the clout to demand this
from P&G, but it also gave P&G something in return-better
information about Wal-Mart's product demand, which helped P&G
manufacture its products more efficiently. To get your supply chain
partners to agree to collaborate with you, you have to be willing to
compromise and help them achieve their own goals.
Internal resistance to change.
If selling supply chain systems is difficult on the outside, it isn't
much easier inside. Operations people are accustomed to dealing with phone
calls, faxes and hunches scrawled on paper, and will most likely want to
keep it that way. If you can't convince people that using the software
will be worth their time, they will easily find ways to work around it.
You cannot disconnect the telephones and fax machines just because you
have supply chain software in place.
Many mistakes at first.
There is a diabolical twist to the quest for
supply chain software acceptance among your employees. New supply chain
systems process data as they are programmed to do, but the technology
cannot absorb a company's history and processes in the first few months
after an implementation. Forecasters and planners need to understand that
the first bits of information they get from a system might need some
tweaking. If they are not warned about the system's initial naiveté, they
will think it is useless. In one case, just before a large automotive
industry supplier installed a new supply chain forecasting application to
predict demand for a product, an automaker put in an order for an
unusually large number of units. The system responded by predicting huge
demand for the product based largely on one unusual order. Blindly
following the system's numbers could have led to inaccurate orders for
materials being sent to suppliers within the chain. The company caught the
problem but only after a demand forecaster threw out the system's numbers
and used his own.
That created another problem: Forecasters stopped trusting the system
and worked strictly with their own data. The supplier had to fine-tune the
system itself, then work on reestablishing employees' confidence. Once
employees understood that they would be merging their expertise with the
system's increasing accuracy, they began to accept and use the new
technology.
Many B2B exchanges say they offer
supply chain software. Should I use their software or install my own?
Public (many-to-many) B2B exchanges and private (you to everyone else
in your supply chain) exchanges began with grand promises of auctions and
procurement savings for members, but few suppliers were tempted. Since
then, most of these websites have morphed into becoming online hosts for
supply chain software. For small companies that can't afford to buy the
software on their own, the public exchanges will probably be their source.
But for now many of the offerings are immature and aren't getting much
use. Companies that can afford to are building their own private
connections with their trading partners online rather than going through
public exchanges. But even these companies will eventually use the public
exchanges when they can. Building and maintaining software just isn't a
great deal if there's someone out there willing to do it for you.
The ambitious public exchanges, with their independence and neutrality,
hold out the hope of attracting more buyers and suppliers together in one
place, but the level of specificity of a public exchange's supply chain
software will probably never reach the depth that a company could build
with a select few suppliers in a private exchange. So most decision makers
are saying they will use public exchanges for the generic supply chain
connections they make, and build their own for the really strategic deep,
supply chain relationships they have.
