A bumpy ride

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Magazine Article, Source : The Manufacturer
Zone : IT in manufacturing
Published : October 2005

Big supply chain software implementations were supposed to be a cure-all a few years ago but does that still hold true in a much changed global environment? Malcolm Wheatley finds out

Tamworth-based Swish Building Products is one of the UK’s leading manufacturers of PVC-u cladding, pioneering a number of designs which have since gone on to become industry standards. But – as with any supplier to construction projects – the delivery of Swish’s products to construction sites had become a headache.

Not only does the direct distribution of construction materials to building sites need to take into account very strict delivery schedules, but sites can also impose conditions on the size, weight and type of vehicle that can be despatched to them. And even before the recent rise in fuel costs, Swish had become uncomfortably aware of the imperative of ensuring that its fleet operated as efficiently as possible, utilising the most efficient routes, and making the best use of the capacity of each vehicle.

Software systems exist to perform load planning calculations, of course. Swish actually used one – but was dissatisfied with aspects of its performance, explains the company’s ERP manager, Warren Squire. Yet overall the company was firmly convinced of the merits of ‘best-of-breed’ supply chain and manufacturing software: a finite scheduling packaging, Preactor, that was also used by the company delivered powerful efficiencies when it came to planning Swish’s 24 plastic extrusion lines.

The solution to the problem, it transpired, lay not in the merits or otherwise of best-of-breed supply chain software, but in the businesses’ enterprise system. Swish was arguably outgrowing the Fourth Shift system that was in use, and needed to switch to a more powerful system – and one that would also let it more effectively take advantage of ‘add on’ vehicle routing and scheduling software.

The replacement enterprise system in question: Microsoft’s Navision, implemented in November 2004. “The move to Navision not only enabled us to run the core business very well, but the system’s ‘openness’ – it uses a SQL ‘back end’ – enables us to add-on best-of-breed functionality very effectively,” says Squire. Preactor, for example, continued to be the finite scheduling package of choice – but this time, integrated even more closely with Microsoft Navision, boosting its ease of use and effectiveness.

Best of all, perhaps, Swish could now make real progress with its load planning issues, opting for a load planning system called LogiX from DPS International. “It’s a very flexible system, and as it’s map-based you can easily see the various delivery drops on a map,” says Squire. “The coloured on-screen icons are easy to interpret, and you don’t need to be a ‘power user’ to make use of the system.”

Again, tight integration with Navision was critical. The bulk of the information used by the DPS system comes from the information stored in the ‘ship to’ address contained in Navision, explains Squire – available delivery times, such as mornings only, whether or not an articulated vehicle is permitted, and so on.

And the impact on the business from the combined functionality of Navision, LogiX and Preactor is undeniable. “Overdue orders have come down dramatically, and vehicle utilisation has increased by 20 per cent,” says Squire. “We can plan the factory better, and we can distribute the product better. All the reports and information that we need are available in real-time.”

Roll back the clock a few years, and such testimonials to the power of supply chain software were supposed by now to be the norm. The hype attending companies such as i2 and Manugistics, for example, was almost deafening in the run up to the millennium. Hundreds of ‘me too’ software companies perished in the subsequent hi-tech collapse – although i2 and Manugistics are still trading, albeit having traversed some choppy waters.

Yet while it would be a mistake to regard i2 and Manugistics’ travails as emblematic of a fundamental flaw in the ability of supply chain software to deliver real value, the world has undeniably moved on. Today’s landscape is not the same as yesterday’s – but still offers some interesting prospects.

One challenge is that the nature of business itself has changed. As David Kraemer, global VP for manufacturing and hi-tech business of supply chain execution and EDI data exchange company GXS points out, globalisation has altered the supply chain paradigm. Previously, this paradigm had been about shrinking lead times, cutting inventories, and using techniques such as just-in-time (JIT) to enable manufacturers to prosper with supply chain pipelines a fraction of their former size.

Yet the cost differential between UK manufacturing and manufacturing in countries such as China, points out Kraemer, has led companies to cheerfully buy in whole container-loads of parts at a time, where once they would have sought a UK supplier to dribble parts into the production lines as and when required. For the latter, you need clever software and slick integration between the enterprise and supply chain systems of customer and supplier. For the China option, all that is required is a large enough cheque book.

And the direction of business integration has changed, points out Lorenzo Martinelli, vice-president of supply chain software company E2open. The expectation a few years ago was that internal integration was where the big gains lay. Design, marketing, purchasing, manufacturing and accounting enterprise applications all communicating seamlessly. From the supply chain perspective, the thrust lay in better planning – on the (big) assumption that suppliers would comply with the plan.

Instead, it is the power of external integration that has proved to be a more durable prospect. “Internal integration is still important, but it’s a smaller part of the overall prize,” argues Martinelli. Instead of customers merely planning, and hoping, the thrust is on real-time collaborative planning between customers and suppliers, basing schedules on what is genuinely achievable, rather than hoped-for.

Nor is supply chain software being used solely to transmit demand information. Back at the turn of the millennium, many observers expected that the future of procurement lay in online marketplaces: either the multi-vendor portals accessed through supply chain vendors such as Ariba, CommerceOne and VerticalNet; or alternatively the much-touted industry-specific marketplaces such as the automotive components marketplace Covisint – which Ford, DaimlerChrysler and General Motors co-founded and indeed at one point briefly flirted with floating on the stock exchange.

While these notions have been replaced by a more sober understanding of the realities of industrial procurement, the mechanics of sourcing remain a problem – particularly in respect of custom-built manufactured items unique to a particular manufacturer. “Generally, a manufacturer will struggle to assess the capabilities of more than a handful of potential suppliers when considering sourcing a new part or component,” says Adrian Griffiths, sales and marketing director of Swindon-based sourcing specialist Vendigital. A sample size of just three or four ‘usual suspects’ is fairly typical, he suggests.

With Vendigital, which creates private marketplaces constructed for the bidding on specific items, the mechanics of evaluating the offerings of several hundred potential suppliers is perfectly possible – a fact attested to by Neil Robinson, European vice-president of supply chain operations at Bristol-based Vetco Gray, a manufacturer of drilling and pipeline products for the oil industry.

“Conventional e-auction procurement software wasn’t the right answer for us,” he says. “We met up with Vendigital and realised that they understood mechanical engineering, and weren’t simply focused on large volumes of readily sourced standard materials.” Since the company’s inception in 1999, adds Vendigital’s Griffiths, £1 billion of sourced items have flowed through the company’s marketplaces, at an average saving of 23 per cent.

And sourcing isn’t the only example. At the other end of the ‘purchase-to-pay’ transaction chain, a number of manufacturers are finding that substantial gains can be made from electronically linking their supplier communities to their back-end ERP systems.

The £600 million UK operation of American tissue product manufacturer Georgia-Pacific, for example, which employs 1400 people in Britain, has substantially improved the productivity of its invoice and payment processing operations through a web-based portal developed by Manchester-based integration specialists Wax Digital. Suppliers can trade electronically with Georgia-Pacific without the need for specialist software, invoicing directly into the company’s SAP system. The result? Not only has there been a significant reduction in re-keying errors and document queries, reports Ian Senior, Georgia-Pacific’s customer and supply account manager, but there has also been a significant reduction in administrative overhead.

“A manual, error-prone process has been transformed into a robust electronic process that can be rapidly deployed across suppliers,” he notes. And nor is deployment ending there: after a successful British implementation, the same technology is now about to be rolled out across Georgia-Pacific’s core American operations, too.

Even the analysis of test results has become a feature of supply chain functionality. Californian company SigmaQuest reckons that “OEMs are losing control, thanks to outsourcing,” according to its chief executive Nader Fathi – and real-time visibility and access to test data is one of the first casualties of that loss of control. Contract manufacturers are provided with the parameters for the pass/fail tests that they apply to the products that they produce – but the full results of functional and system tests are lost.

SigmaQuest – whose customers include manufacturers such as Honeywell, orthopaedic product company Stryker Corporation and headset device manufacturer Plantronics – allows this information, as well as the results from product returns, to send back to the product design engineers and other experts “as these are the people who understand them best, and who are best positioned to comprehend the problems, and provide the required fix,” says Fathi.

Yet it would be a mistake to think that such relatively new functionality was overshadowing what might be considered supply chain software’s original remit. i2, in particular, continues to generate strong revenues from its core supply chain planning and demand planning product lines.

Helsinki, Finland-headquartered paper manufacturer UPM, for example, uses supply chain software from i2 to maximise the efficient utilisation of its 54 giant paper machines spread across 22 paper mills worldwide. While frankly acknowledging the hype that existed around the millennium – “Some of our expectations were too high, and the speed of implementation wasn’t as fast as we had hoped,” says Harri Vesa, head of demand and supply planning at the company – UPM is broadly happy with its i2 software, now used by 1100 UPM employees around the world.

“We can plan far more quickly that we used to be able to do,” says Vesa. “Instead of producing a rigid, unconstrained plan on an annual basis, we can now plan every night, or every week, as we wish – and have those plans take into account the real-life constraints in the business. The global visibility onto the free production capacity that we have at a point in time enables sales and production to maintain a productive ongoing dialogue.” A formal ROI has been calculated – and is positive – but company rules prohibit him from disclosing it, he adds.

Yet whatever the aspect of the supply chain being considered, an echo from the very earliest days of computing continues to resound: GIGO, or ‘garbage in, garbage out’. “Manufacturers really need to understand the importance of data quality,” says David Karlin, managing director of the mid-market division of enterprise software vendor Sage. “People have assumed that you can take a broken set of manual processes, apply a computer system, and that somehow the right answers would emerge.”

Ironically, then, one of the most important considerations when contemplating the implementation of supply chain software may not be directly related to the merits of particular supply chain solutions, but data cleansing solutions instead. Which poses a dilemma of its own, points out Pierre Mitchell, head of the e-procurement practice at business process benchmarking company The Hackett Group. Not only must manufacturers work out the financial justification for the supply chain solution that they propose – but they must first fund a data cleaning exercise that offers in itself no intrinsic ROI at all.

Yet the gains from the two, when combined, can be significant. When streamlining its $1.3 billion procurement operation, rail manufacturer Bombardier Transportation first implemented a data cleaning solution from Trillium Software. Procurement savings of three to five per cent annually are claimed as a conservative estimate of Bombardier’s ability to negotiate more favourable contracts based on the resulting enterprise-wide understanding of supplier relationships. One supplier, thought to have a $4 to $5 million relationship with the group, actually did $135 million of business with Bombardier.

The company was also able to reduce inventory by eliminating rarely used and obsolete parts. The results rippled through the supply chain: better inventory management increased on-time deliveries and shortened repair times. “We can now track globally where parts are with the push of a button,” says Dr. Claudio Gruler, project integration manager at Bombardier.

The lesson is clear. Despite a bumpy start, supply chain software can offer a genuine return. Not always in the ways imagined a few years back, and not necessarily from the anticipated starting point – but a very real return nonetheless.

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