Optimising supply chain performance

Posted on 16 Feb 2009 by The Manufacturer

Choosing and applying the most appropriate software to optimise supply chain management performance is a big issue for manufacturers — the software is powerful, complex and costly. Globalisation has put this issue higher up the agenda. The Manufacturer asks Andrew Kinder of software developer Infor how software can improve global supply chain management efficiencies

What are the biggest themes that manufacturers in international supply chains focus on where software can help improve supply chain management (SCM) and logistics efficiencies?
The biggest theme at the moment is simply the world’s economies. No region is unaffected by the events of the past 12 months and cost cutting has become imperative.

Historically, the primary motivators for investment in supply chain solutions has oscillated between improvement in meeting customer mandates and operational cost reductions, depending on whether the outlook is for expansion and growth or cost containment. It is not hard to imagine that the pendulum has swung back to cost control as the number one motivator for supply chain focus.

In the past 12 months, two other topics have dominated conversations with supply chain managers. Firstly, managing risk in the supply chain. Risk comes in many forms and there was no shortage of examples in 2008: fluctuations in energy and commodity prices; global scarcity of critical materials; supply quality issues — the latter, if substandard, with devastating impact on brands — companies have to be careful about who they sub-contract their work to and continue to scrutinise quality. The biggest of these topics has been managing global supply chains, with organisations of all sizes managing their operations and facing more competition from low cost economies in Europe and Asia. This requires a different perspective on supply chain technologies with greater emphasis on demand and supply management, network design, dynamic sourcing, supplier collaboration and increased visibility across the entire supply chain.

Secondly, a major topic is sustainability and how manufacturers are adapting to operate in an increasingly carbon-constrained world. While the economy has stolen the headlines back from sustainability, the underlying pressures that make carbon emission reduction a business imperative remain. Globally, governments are winding up the pressure on manufacturers to cut their carbon emissions, converting ‘guidelines’ into legally binding targets and introducing legislation that makes reporting and greenhouse gas (GHG) reductions mandatory. Australia was the first to make a stance. It is likely the UK will be next with the passing of the Climate Control Act in November 2008 paving the way for further actions.

Even with today’s gloomy outlook, around 50% of companies of all sizes are planning to increase their IT investments, according to the EEF. Less than 10% are planning to decrease them, which speaks volumes for the importance attached to IT investments in the supply chain.

Four of the top six areas for IT investment in UK manufacturing are all connected with better management of the supply chain; planning operations; analytics and reporting; supply chain logistics; and demand forecasting.

How have software companies specifically addressed these themes, with examples and cost savings if available.
When a company’s supply chain consisted of a single plant and manageable numbers of customers and suppliers, the capabilities of standard ERP systems were enough to meet requirements. With global supply chains, obtaining that same visibility, flexibility and speed of reaction to demand or supply changes needs different technologies.

There are more products passing through more countries and more partners, and registered on more systems, than ever before. Supply chains are more properly described as “supply networks” rather than “supply chains”, with each node of the network playing just as important a role in getting product into the hands of the consumer at the right time.

Technologies that allow manufacturers to get a grip on their supply network include:

• Demand planning and forecasting — now brings a total picture of global demand for all your products and uses this to set inventory and manufacturing targets

• Inventory optimisation — balancing how much inventory and where it should be stored to satisfy orders without excessive investment in stock

• Advanced planning and optimisation — which allows you to plan a multi-site manufacturing and distribution network and ensure that customer orders are filled from the optimum warehouse and sourced from just the right manufacturing facility to minimise overall operational costs

• Supplier collaboration — which uses web based technologies to instantly communicate orders to suppliers. Also tracks and provides the global visibility of incoming deliveries and expected arrival dates when product is shipped across the world

There are other technologies such as event management and alerting capabilities which instantly detect problems anywhere in your supply chain on any system and escalate the problem to the appropriate person to take action. Such technologies are your ‘eyes and ears’ on the supply chain where there is so much detail it might otherwise take days or weeks to spot the problem.

Infor customers report very substantial savings across their supply chain. On a macro scale, the evidence from the EEF, the manufacturers association, in their November 2008 report, ‘Manufacturing IT — Boosting Productivity by Managing Performance’, showed that manufacturers which invested in IT demonstrated better performance in on-time deliveries, finished good stocks, raw material stocks and wastage — key measures of supply chain health.

UK manufacturing: What logistics and supply chain (L&SC) efficiency issues are particularly relevant to British SME manufacturers? How has your software identified these needs and applied them?
Manufacturers of all sizes compete today in a global economy and the focus for UK manufacturers has been improving productivity to compete effectively with European, US and Asian manufacturers.

Research provided by the EFF shows that UK manufacturing productivity has performed well — improving 18% since 2003 — but that there are still gaps between the UK and international competitors in the US, Germany and France.

Manufacturers have been improving productivity through efficiency improvements across the supply chain and manufacturers have invested heavily in IT to become more competitive. Even with today’s gloomy outlook, around 50% of companies of all sizes are planning to increase their IT investments, according to the EEF. Less than 10% are planning to decrease them, which speaks volumes for the importance attached to IT investments in the supply chain.

A tougher economic outlook will unquestionably drive manufacturers to look more forensically at their supply chains, seek operational cost reduction, improved service and faster innovation, which means investments in planning, scheduling and even asset maintenance programs.

However, innovation performance is often seen by manufacturers as the key to future success, so investments in collaborative product life-cycle management solutions that accelerate time-to-market are also rated highly by manufacturers.

Supply chain visibility: How does L&SC management software help interface with parties in the supply chain? How do people at each location (and third party contractors) see key information simultaneously, and track real-time changes to inventory? Is this an important area of development?
Supply chain visibility is a key requirement to support today’s global supply chain.

There are several aspects to this. Visibility of supply can be gained through portals that allow multiple parties to add supply information and eliminate the ‘black holes’ that otherwise exist when product moves from one node to another along the supply network.

New technologies, such as service-oriented architectures, make this easier to deploy as do the emergence of more open standards for data translation and communication.

Some trading partners — logistics and transport providers — will provide global track and trace information as a published service, which can be pulled into portals to maintain visibility and provide more accurate due date deliveries. Satellite navigation and RFID are also playing their part in keeping tabs on inventory and its movement.

Visibility is one element, next you have do something with it. Advanced planning and optimisation systems are required to orchestrate the movement of product.

For example, if 10t of product A is in London and 5t of the same product is in Amsterdam, from which location would you satisfy a customer order for 2t in Paris? The answer depends on several factors; the lead time to delivery; the relative cost of transport; what other demands are on stock in those locations; whether the customer order includes other products — product B,C,D — which could be consolidated onto the order, etc.

Visibility is an essential component of global supply chain management but it needs intelligence in the decision support solution to make the best of it.

Highlight one product relevant to SCM for manufacturers that has either had a recent new version launch, or is very popular with customers. In brief what are the key improvements, or why is it proving popular?
There have been two recent new releases that support global supply chain management.

The first, Infor SCM Network Design, helps organisations model their global supply chains and identify the locations, capacities and sourcing options for product that flows through their network. It is highly graphical and supply chain managers can visibly see all their customer demand points, warehouses, manufacturing locations and supplier locations and the movements between them.

In the latest release, Infor included the ability to factor in carbon emissions into the model, so that manufacturers could get an immediate view of their modifiable carbon footprint, and use this data with other parameters such as cost and capacity to model the affect of for example, a 30% reduction in GHG emissions.

The real value of the solution is in the ‘what-if’ modelling which allows manufacturers to assess and model the risk in their supply chains and evaluate alternative strategies to mitigate these. Last year, when energy and fuel prices spiked, manufacturers were re-evaluating their sourcing strategies with the prospect of, what then, was a $200 per barrel prediction. Looking forward, manufacturers can also use this to assess the impact of a proposed green taxation on total cost make-up and whether this would influence their sourcing strategy.

A second complimentary product is Infor SCM Advanced Planner. This can take the results of the supply chain network from the network modeller — or just establish your own network as it is today — and then identify the lowest cost solution to meeting customer order demand from all the millions of permutations of delivering from one warehouse or another, or making in one site or another.

Also very graphical, the latest solution also uses 64 bit technologies to handle the additional complexities of managing global supply chains.

Cost: This software is powerful, sophisticated and expensive. Has your company developed any finance initiatives that help UK SMEs with limited IT investment budgets to buy the software, or build up the full product in a modular way?

Investments in supply chain solutions are always return-on-investment (ROI) driven and given their potential to reduce operational costs and protect margin, are perceived as having strong value.

However, all capital investments are more closely scrutinised and Infor has offered choice to our customers in several ways, from financing options to offering different licensing options for some of our products, including hosted and software-as-a-service.

Many of our solutions are also offered in “business edition” versions, which allow customers to match their requirements to smaller scale solutions with the option to extend to “enterprise” versions in the future if their needs change. Many of our solutions can also be deployed quickly using our Fast Start programme, which aims to get customers up and running quickly, so that they can start to gain the value from their investment in as short a time as possible.