Locating a business has become complex as the global marketplace grows and managers feel pressure to improve the supply chain with demands to reduce inventory, move goods faster, and spend less.
"The downturn has forced companies, regardless of size, to take a hard look at reducing costs and improving their cash position," says Stavros Stefanis, principal, Supply Chain and Operations Leader at KPMG. "Operating cost is a significant influencer of business performance, and supply chain management is the cornerstone discipline for cost improvements."
In response to the recession, "companies progressed from initial headcount rationalization efforts to more complex cost-reduction initiatives," Stefanis says. They reconsidered operating models, made products simpler in light of post-downturn expansion plans, and took a tactical view of the need to evolve the supply chain while reducing costs. This new view incorporated technology.
Technology as a Building Block
According to Stefanis, technology is an important building block in supply chain decision-making, and creates operational efficiency. "Recent advances in supply chain systems have enabled companies to reduce supply chain general and administrative costs through tool automation that allows organizations to manage supply and demand and product complexity more effectively."
Industrial firms seek to improve supply chain management with technology. But traditional enterprise management tools pose challenges.
"Traditional ERP systems like SAP and Oracle do not provide the necessary planning capabilities required to manage the service supply chain," says Tim Andreae, senior vice president of marketing for MCA Solutions. "In order for manufacturers to effectively take advantage of best-of-breed solutions, it's important that they are easy to use and deploy."
Using standard and certified adapters such as SAP simplifies integration. Businesses must streamline new technology implementation through such services as IT resources dwindle. On-demand, Software-as-a-Service programs allow for easy deployment without straining IT resources.
Choose the right software wisely, says Paul Myerson, managing partner of Logistics Planning Associates. "It depends on what specific software and functional requirements you're looking for," he says. "In some cases, if you do your homework, the software may need little if any customization, or it can be done outside of the software. In other cases, if you have very specific functional requirements, you may not be able to use the software as is. There are some solutions which are targeted for specific industries."
Getting an organization to embrace technology and implement it can be a challenge. Scott Miner, vice president of supply chain services for Fortna, calls it "fossilization." It occurs when supply chain practitioners are set in their operations and mindsets, which have succeeded in the past and are appropriate for a certain volume, product mix, competitive landscape, and time.
"This state of the supply chain is difficult to overcome and should not be ignored during a technology change initiative," Miner says. "Technology changes require that the people and processes in the organization re-learn and change in order to run the supply chain of the future."
Many companies ignore the operations transition phase. But it is critical not only for changing systems, but adjusting employees to a new process. Re-education is challenging, but the rewards of improved operations can motivate employees to make the new technology work.
"Global sourcing is ineffective without a linked-up supply chain," says John Vaughan, director of industry solutions at Patni Computer Systems. "How many times do you want to guess and get your shipments wrong and miss by an entire continent? Access to real-time demand with an accurate supply chain model showing transits, modes, markets, and production capacity is only possible with technology integration."
Access to timely information drives growth without ballooning costs. Vaughan says technology must aid innovation, product development, global sourcing, product quality, regulatory compliance, customer service, and logistics and transportation. Technology orchestrates a complex supply change that would be nearly impossible to manage otherwise. "Technology has become one of the best collaborators in the supply chain," he says. "Without it, your customers, factories, suppliers, carriers, 3PLs, 4PLs, sales force, accounting, you name it, can only hope for results and lose the ability to make a difference today. Technology is the glue that holds things together. It is the platform for all collaboration, negotiation, transaction, and customer service."
The Technology Dividend
Buying the glue and getting it to stick can be expensive. Managers must watch closely the return-on-investment (ROI) of supply chain technology.
"Any investment in software, including service supply chain software, should be justified with a measureable return on investment," Andreae says. "Returns are driven by significant reductions in inventory, as well as increased service levels which result in more revenue and reduced costs."
Implementation can take as little as two months, with returns within four months of purchase. ROI can be estimated before implementation by analyzing customer data, thus reducing risk. And Software-as-a-Service can ensure rapid payback. "From a process perspective, change management is critical so that users can define their organization and planning processes in a way that maximizes the potential of the technology investment," Andreae says.
But payback doesn't come overnight. It takes months and years to understand, and often comes when larger strategic goals are achieved. "Most software implementations take over a year to complete and disrupt a company's people and processes," says Chris Allan, chief strategy officer for Quantum Retail. "Software that can instead be implemented in an agile way, giving users early access to the software while it is integrated, will have the best opportunity for user adoption and will allow them to hit the ground running more quickly."
In the retail industry, every program should have a definitive return on investment. "The retailer must understand what it is they are looking to achieve in implementing the software and then measure, measure, measure to ensure that they are getting what they paid for," Allan says. "This goal might be in throughput, top line sales, bottom line, availability, waste, fill rate, et cetera, but it must be stated, baselined, and measured, with the methodology agreed by both sides ahead of time."
Getting Real About Technology
There are numerous misconceptions about selecting and using supply chain management software. It's important for managers to not fall prey to them.
"It's not just about the software you choose, it's how you implement it," says Dan Kinzler, principal with Deloitte's Strategy and Operations practice. "A common misconception in the marketplace is that the specific software chosen is the most important decision. Although that selection decision is very important, the configuration and implementation of the software is the real key to supporting business processes and interactions with end users to drive the targeted benefits."
Whether supply chain managers try to implement a complex configuration or basic, piece software, "either extreme will result in sub-optimal results, as the end user quickly resorts back to process workarounds and shadow technologies such as Excel," Kinzler says. "Pragmatic, business-case-driven configuration and implementation may sound simple, but the effort put into ensuring a certain solution addresses a unique company's needs takes time and resources."
Supply chain managers often find trouble in this phase. Trying to make a technology solution fit a specific need creates complications, a common mistake when selecting and implementing supply chain technology.
"The biggest mistake is to customize the software to match your process," says Amit Sen, director of business development for Patni Computers. "Most likely your internal processes are very out of date, and to alter the software instead of modernizing your business process is the single biggest mistake managers make. Supply chain and logistics managers are notoriously tactical in their approach. They tend to take an incremental approach, which a lot of times falls far short of delivering the desired impact."
As the number of suppliers has grown and locations shift, strong planning and management is crucial.
"Five years ago, the majority of suppliers and supply chain outsourcers seemed to be in China. A few years later, Central and Eastern Europe took the forefront. Today it's all about Brazil, and looking forward, we're seeing a lot of in-bound business for U.S. suppliers thanks to changes made by the Obama administration," says Darin Buelow, principal in Strategy & Operations for Deloitte. "Companies are investing in better demand and supply planning capabilities and technologies to run a more complicated and more fragmented supply chain more seamlessly."
While most of the money is in the supply chain, pressure also resides there. It takes time to adjust to changing demands. Businesses must still strive to reduce costs, but must be flexible as well.
"Logistics plays a significant role in providing the flexibility in meeting the customer needs, but it is the final margin squeeze in the race for profitability," Vaughan says. "It is the biggest white space of inefficient activity, and also the largest variable cost in the supply chain. Tame logistics and you tame the beast."