Supply chain sugar pills
The obsessive focus on ERP is dead. The centre of attention in IT is now the most pragmatic component of the e-business craze, supply chain automation.
Enterprises everywhere are talking, planning, trialling, implementing, or already reaping the benefits of this new magic pill. It's another mother lode for IT professionals and consultants. There will be many fruitful years extending and replacing existing systems to deliver the goods.
The anticipated result of supply chain automation is a continuous real time picture of a company's supply situation and the real time ability to respond to enquiries, orders, and exceptional circumstances. Suppliers gain a view into their customer's real-time product demand, demand planning, and exception capability. They can plan more accurately to meet requirements and it is visible to the customer when they can't. Dramatically less or nil inventory is required and the cost of transactions plummets as wastage evaporates. The "perfect" economy beckons.
Essentially supply chain automation involves comprehensive integration of internal systems and the creation of extensive and detailed electronic links across the Internet between an enterprise and its suppliers. It includes connecting enquiries and orders directly to supplier inventory, sharing design data, demand planning, marketing, and logistics. It includes all forms of inter-business communication that can more efficiently be handled electronically and managed automatically.
There is overlap, but this differs in emphasis from e-procurement. E-procurement refers to the enterprise-wide automation of general procurement processes, buying items like furniture and office suppliers, through a Web interface. With e-procurement the emphasis is on lowering the costs of the transaction by automation and by standardising and rationalising purchasing processes.
Supply chain automation, on the other hand, is about integrating the major internal systems and building much deeper relationships with suppliers who are critical to an enterprise's product or service creation.
Another area of confusion is the public online marketplace. In many cases these are owned independently or owned by industry-wide partners, and are simply the flip side of e-procurement systems. Where the purchase of a product is more complicated, critical to a company's business, and the relationships more valued, public marketplaces are struggling to justify playing middlemen and taking a cut. If, on the other hand, the marketplace is, or becomes, owned by a dominant buyer then other enterprises will be wary of joining. It then becomes more like a classic case of one company's supply chain automation. As such it is an opportunity for comprehensive integration between the buyer and its suppliers.
Unlock the gains
The key to unlocking supply chain gains is, purely and simply, optimisation. This should come as no surprise to IT practitioners as it's another way of saying "efficiency", and that's what IT does best.
In the past, individual divisions within an enterprise used IT to optimise their own operations. Now it's being understood at the highest levels of enterprises everywhere that with the latest software, and sufficient grunty hardware, the entire business process within the enterprise can be optimised. Even better, using the Web it can be done for the entire supply chain.
"It is this realisation that is shaking up industries," says Owen Keates, principal consultant Mi Services group and an executive committee member of the Supply Chain Council, an open membership global not-for-profit trade association for companies interested in supply chain management.
"Clever programs optimise what you are going to make and when you're going to make it. This is optimising the bottom line."
These clever programs include advanced planning systems, customer relationship management (CRM) and supply chain optimisation. Further, transportation optimisation software is optimising how you're going to ship it, with the management of that spreading to include GPS tracking of your goods.
It's not just the software and automation that's driving interest in supply chain automation. The automation, and optimisation are just a part of the practicalities of supply chain management, which looks for improvements, using computing or other methods, across each process that a material or service goes through from supplier to customer.
As SAP Business Development manager for supply chain management, and SCC A/NZ executive member Richard Gerner puts it, "To a supply chain manager e-business is one of the technologies that might be applied to best in class operation. Computerisation might be some of what's best in class. And what's best in class might be different for each environment. In one EDI might be best in class. In another it might not be relevant. It's all to do with what's appropriate for each supply chain."
There can be huge variability depending on such factors as the industry type and size of the company.
It is this overall picture that the Supply Chain Council, whose Australian/New Zealand arm has been in existence for one year, addresses. The council has 800 companies worldwide including Proctor and Gamble, Lockheed, Compaq, and Bayer. Local members include Carter Holt Harvey, NZ Dairy Board, Pacific Dunlop and Dow Corning.
The SCC has a model than be used to measure five dimensions of the performance of a company's supply chain. This can then be benchmarked against other enterprise data or used as a base for measuring improvements against.
According to Keates, SCC figures show that best in class companies, that are going down the path of automating their supply chains, are achieving 50per cent savings in their total supply chain management costs.
To put it another way "When it comes to the benefits of good supply chain management, which would include some degree of automation, best in class supply chain management companies are saving about 6per cent of their revenues more than average performers," says Gerner.
In a recently reported example Toyota said that through using supply chain automation the car manufacturer expects to cut transport costs by 25 per cent and reduce inventory by 50per cent. Dealers will access a portal where they will be able to download sales and other company information. This is expected to cut $3 million in report printing and distribution cost. Suppliers will be able to look at Toyota's parts inventories and automatically replenish them.
The system, slated to go live in 2002, will also allow dealers to instantly locate the exact car model a customer has ordered - whether it's in a warehouse, on a truck or in a factory - and deliver it as soon as possible.
Heavy machinery manufacturer Caterpillar plans to let customers order and configure heavy machinery and other products via the Web. It hopes to squeeze out $100 million in costs in the first year. This is on a revenue base of $19.7 billion (last year's figure). The total savings could accrue to "$US1 billion out of our cost base in the next few years," a spokesperson says.
Another part of Caterpillar's plan includes the high-speed sharing of key sales and business data between the product design department and suppliers. There will also be a private online marketplace aimed at creating a real-time build-to-order assembly-line process. The company says it has already cut processing times in its Performance Engine Products Division by 38 per cent.
Cooperate to optimise
While optimisation is the key to the fruits of supply chain automation, when extending beyond the enterprise then collaboration is the key to achieving that optimisation. An enterprise and its suppliers will cut postage costs, but wont optimise anything by just making a connection and sending transactions up and down the line.
"A company needs to take the demand forecasting and the supply coordination, and pull it all together into a planning process," says Keates, "It's the process of planning and collaboration."
It's all about sharing information and making it visible. "The more information you have the less inventory you need to carry," he says. If you can accurately forecast demand you can get closer to that perfect economy.
Procter and Gamble CIO Steve David put forward this example recently: "To realise the vision of a fully integrated and efficient supply chain, we need to have data visibility across all of the supply-chain partners. So when a consumer buys a roll of paper towels, the forest products company knows immediately it needs to cut another tree to send to the pulp maker who supplies P&G so that we can make another roll of towels to send to the retailer."
When it's stated simplistically like that it sounds like the supply of a roll of paper towels happens in a linear "chain", and so it does to the extent that the product moves as a whole product. Prior to its creation points the "chain" branches out into a tree structure building right back to the raw materials stage.
It needs to be remembered too that each product within an enterprise has its own supply chain. This multi-chain-plus-more structure is most visible in the manufacturing industry but parallels do exist in all industries, including service industries, and including those that purely process information.
One of the oft-stated goals of supply chain automation is "total visibility" such that the status of every component and sub-component can be identified in real time.
Ambitious companies are pushing for maximum depth in the supply tree through industry-wide initiatives and standards. The more they can see and interact electronically with their supply tree the greater potential for optimisation gains and the earlier the indication of supply problems.
To the customer it opens up substantial gains in customer service, says Gerner. "If I'm a consumer and I want to buy a computer I get on the Internet and place my order for a computer. They say I've got nine days. How do they come up with it? Is it the standard policy or some calculations behind the scenes? Once I've ordered it I want to know where it is up to? Have they made it yet? Has it gone to a warehouse? Can we go back and look at a factory and see when you could make it? It's about having more knowledge," he says.
However the cost of complete visibility can be prohibitive in time and money. Tom Knutilla, director of supply-chain technologies at Miami-based Ryder System, which hosts supply-chain operations for companies, says only those companies whose business demands such flexibility are going to pay the price for end-to-end visibility.
"When a company is looking at a supply chain it doesn't have to go all the way back to the earth," says Gerner, "A company will go back as far, and forward as far, as it feels it can have a relationship or influence.
For most enterprises the real need is to prioritise the areas that will give the best return. "You don't want to swamp everyone with information overload. The technology exists to give everything, however you're looking for what is going to give you the competitive advantage," says Keates.
"What needs to be visible is that which will satisfy the competitive strategy of that provider," says Gerner.
Richard Wood is editor of Computerworld, email firstname.lastname@example.org.
This is the first of a three part series on supply chain management which will appear in he December/January print edition of Information Age
|Codecs||Description||Sampling Rate (Khz)||Bitrate (Kbps)||MOS|
|G.711||Pulse Code Modulation (PCM)||8||64||3.65|
|G.722||7 kHz sub channels||16||64||3.6|
|G.722.1||Coding for low frame loss systems||16||24/32||n/a|
|G.723.1||Dual rate speech coder||8||5.3/6.3||3.8|
|G.726||Adaptive Differential Pulse Code Modulation (ADPCM)||8||16/24/32/40||4.3|
|G.729||Conjugate-Structure Algebraic-Code-Excited Linear-Prediction (CS-ACELP)||8||8||4.02|
|GSM||Global System for Mobile communications||8||13||2.5|
|iLBC||internet Low Bitrate Codec||8||13.3||3.7|
|Speex||Multivairable rate, with Narrow and Wide band operation||8/16/32||2.15-24.6 (Narrow Band), 4-44.2 (Wide Band)||n/a|
|This table list the well known codecs used to compress/decompress human speech
signals. The sampling rate determines the range of sound frequencies that are sampled; the bit rate determines the quality of the sound reproduced by the codec, where a higher bit rate allows for better sound quality to be transmitted, bearing in mind a high bit rate will utilise more bandwidth of the Internet connection. The Mean Opinion Score (MOS) is a numerical measure (a rating out of 5) of the quality of human speech at the receiving end of a telephone connection.
Source: Symbio Networks