Optimizing supply chains on the fly

As the supply-chain management market continues to heat up, enterprises are beginning to move beyond simple applications for balancing supply and demand to technology that quickly analyzes the impact of various decisions to help boost product margins and lower costs.

Companies increasingly are turning to optimization technology to offer suggestions in real time for problems such as shipment delays or inventory fluctuations.

SynQuest Inc. last week announced two large enterprise deals for its supply-chain collaboration software that embeds optimization technology. In addition, JD Edwards & Co. announced last week that it would be providing real-time optimization software in WorldSoftware, its collaboration solution for the IBM Corp. AS/400 community.

Enterprises are moving rapidly to tap the optimization piece of supply-chain management because ERP (enterprise resource planning) and e-procurement systems have made it easier for companies to extract the business process data needed to feed optimization technology, said Jill Jenkins, an analyst at Current Analysis.

"Companies used to do advanced planning on a quarterly basis," Jenkins said. "Now they want to do it on a daily basis. It's being able to reoptimize today's data for tomorrow."

Hayward Industries, which makes parts for swimming pools, is projecting that SynQuest's supply-chain management software will eliminate US$10 million to $20 million of inventory costs during the next 18 months.

The company will use the optimization technology to study options for its current practice of shipping products manufactured on the East Coast to distribution centers on the West Coast, and vice versa, said David Caldwell, vice president of logistics at Hayward.

"With the optimizer, we expect to be able to know what it's costing us and whether it's profitable to do that," Caldwell said. "Should we be making product X in plant Y?"

In addition, optimization will allow the company to increase customer satisfaction by making it able to promise deliveries in real time after using the optimizer to query inventory and shipping potential, Caldwell said.

"We can pull data out of our legacy ERP system ... and load that data right into the SynQuest system as opposed to writing software scripts or writing rules," Caldwell said. "It doesn't require us to hire some guru for operations research."

Edward Sitarski, vice president of advanced planning at JD Edwards, said optimization technology would alert a planner if inventory falls below a certain level and would provide options for dealing with the problem.

"It can look at the 50 million-odd constraints ... and give me some suggestions," Starsky said. "If a big priority customer is going to be affected, I can configure the system so lower-priority customers will get bumped."

Chris Houck, director of solutions marketing at i2 Technologies, said that whereas many companies may be jumping on the "optimization bandwagon" his company has an advantage because it has leveraged the best practices across multiple industries to account for the distinct differences among vertical partners in optimizing possible scenarios.

Despite the potential of optimization technology, Current Analysis' Jenkins said vendors may be challenged to integrate the enormous amount of data generated by back-end enterprise systems into advanced planning software.

Hosting the supply chain

Webplan is poised to launch a Web-based hosted solution designed to allow manufacturers to ease into supply-chain management without the costs or other resources needed to operate software in-house.

In April Webplan will announce availability of eSupplyChain.Net, a supply-chain management service with layered offerings for a monthly fee, said President and CEO Michael Ker.

The service, which is targeted at manufacturers with revenue below $250 million, allows users to start with simple forecast and demand visibility for $5,000 and ratchets up to real-time, two-way collaboration between buyers and trading partners for $15,000 per month.

"[The service] allows all trading partners ... to have visibility and to collaborate on new orders, new supplies, and new schedules," Ker said. "There's no need for the product support [or] for product training. They don't need to re-engineer their business processes. This levels the playing field for the 90 percent of the market that has never been able to afford or support a complex supply-chain implementation."

The service will be attractive to enterprises with multiple divisions and those whose suppliers need access to aggregated demand, Ker said. Honeywell Aerospace will be using the service to provide suppliers with an aggregated view of its demand. Currently, those suppliers must tap 14 Web sites to get the data, Ker said.

Eventually, some customers may upgrade to webplan's supply-chain optimization solution, allowing them to access production data and collaborate with suppliers and partners using only a browser, Ker added.

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