The supply chain of today is a complex creature, comprised of a bevy of suppliers, customers, and third-party service providers from numerous industries. There is a significant amount of interdependency among multiple firms spread across multiple points on the globe.

Manufacturers face risks, most of which are outside of their control, when dealing with their supply chains. Among them:

•    The growing globalization of the supply chain through outsourcing.

•    Additional regulatory compliance imposed by government entities, further complicating international trade.

•    Increased levels of economic uncertainty, creating additional variables in supply and demand.

•    Shorter product lifecycles and rapid rates of technology change, which increase inventory obsolescence.

•    Increasingly demanding customers that create additional time-to-market pressures by requiring better on-time delivery, order fill rates, and overall service level efficiencies.

•    Supply-side capacity constraints, making it more difficult to meet demand requirements.

•    Natural disasters, which can create chaos in a global supply chain.

As supply chains continue to become leaner and more integrated, the more likely it is that uncertainties, dynamics, and accidents in one link will adversely affect other links downstream.

“A supply chain cannot be an inhibitor,” says David Landau, vice president of product management for Manhattan Associates Inc. “If a supply chain becomes a constraint on a company, preventing it from growing, that is a big problem. A supply chain has to be an enabler.”

For the supply chain to be an enabler, manufacturers need to have as much end-to-end visibility as possible-from the sourcing of raw materials to the product reaching its final destination.

There have been technological attempts to connect links in the supply chain, most notably electronic data interchange (EDI). Manufacturers can also choose between best of breed or fully integrated software.

Best of breed means using a specific software program or package for each specific application or requirement. To share information between the applications, the information is either printed from one package and manually input into the next, or the package is linked either by the vendor or a third-party middleware package.

Fully integrated software is a package with a number of integrated modules that cover a range of functions and requirements. Usually, a number of databases are automatically linked by key fields, such as the part number or customer name. In the manufacturing industry, the primary fully integrated software is enterprise resource planning (ERP).

The problem is manufacturers, and their suppliers, customers, and third-party partners all have disparate systems covering both best of breed and fully integrated software, which means they can’t talk to each other.

So, full visibility remains elusive.

“Everyone wants better visibility throughout their supply chains,” says David Cahn, vice president of corporate product strategy for CDC Software. “But, the level of integration across supply chains to get that visibility is getting harder.”

Yet, the need to have real-time data about every link in a supply chain has never been more critical to manufacturers.

“Manufacturers have been trying to get to an integrated end-to-end suite for years,” says David Johnston, senior vice president of manufacturing and wholesale distribution for JDA Software. “The hurdle has always been how to take a good demand inventory plan and translate it into a feasible production plan.”

Manufacturers still reluctant

Climbing over that supply chain hurdle remains a problem. Many manufacturers still employ paper-based or legacy batch systems, with their silos of information. These systems require employees to manually input critical information multiple times. It’s slow and is prone to errors.

Rodney Winger, senior director of product marketing for manufacturing, supply chain and mobile applications for Epicor, describes a recent opportunity with a $260 million manufacturer/distributor that operates its supply chain off of spreadsheets, a database, and keystroke entering. The company has more than 200 field delivery employees based in 14 regional districts.

Implementing a supply chain management software solution could lead to a four- to five-time improvement in supply chain efficiency just by eliminating the order entry system, says Winger, whose company’s supply chain management software offering, Epicor 9, includes modules for inventory management, advanced warehousing capabilities, and advanced-level forecasting. The estimated savings for this one area of the chain is in the millions-of-dollars range in bottom line costs.

Other manufacturers have tried adopting the latest state-of-the-art supply chain management software system. They spend tens of millions of dollars on software, implementation, and consultants.

When the system goes live, manufacturers have been disappointed as the results come up somewhat short of what was promised. Part of the problem is the solution doesn’t live up to the marketing brochure. Part of the problem is the culture of a company that doesn’t embrace, and indeed, fears change.

At this point, after investing so much capital and sweat, manufacturers hunker down. “There is a large investment in supply chain technology,” says Greg Kefer, director of corporate marketing for GT Nexus. “If you spend millions on a global supply chain management system, then struggle to get it working, you’re not going to give up on the system. You’re locked in.”

Several good options

Manufacturing executives know the pay off if they could implement a supply chain management product that provides high visibility. “They know there will be opportunities for huge cost savings and service level improvements if they can get their supply chains to that level,” Johnston says.

Companies like JDA Software offer an integrated supply chain management suite that stretches throughout the chain to the end user, from demand level to inventory strategy optimization. A transportation solution with integrated inbound and outbound capabilities lies on the same platform. The company recently rolled out a SaaS (software-as-a-service) model, a pay-as-you-go service solution. It also offers S&OP (sales and operations planning) software for long-term planning. JDA Software also recently announced its intention to acquire i2 Technologies Inc., which is expected to further strengthen its position in the supply chain software market.

There are also ERP-based solutions, such as from CDC Software, designed for small and medium enterprises involved in process manufacturing in highly regulated industries, such as chemical, life sciences, and food and beverage.

Others, like Manhattan Associates, focus their supply chain software once the finished goods come off the manufacturing line, shipping those goods in the most cost-effective manner, while meeting the service requirements of the customer. The software can also help manufacturers manage distribution and warehousing facilities.

Manufacturers have a number of options from which to choose. While the options are many, there is one overriding demand that manufacturers are insisting on when as they assess the various solutions: A way to drive costs out of the supply chain by improving productivity and labor efficiencies. “The want inventory out of the supply chain, which takes money out of the chain,” Johnston points out.

It stems from a new philosophy that C-level executives are attaching to the supply chain-a more strategic view, which is the core function of JDA’s S&OP solution when integrated with supply chain management software.

“A large portion of a manufacturer’s costs, including production, distribution, inventory, and logistics, is managed through their supply chains,” Johnston points out. “The focus of S&OP from both a process and technology perspective is to give manufacturing executives control to make operational and investment decisions in a manner that ensures they are driving toward their strategic business plans and commitments.”

Business plans often, and usually, change because of numerous internal and external factors. Manufacturers need supply chain management software to be adaptive to the changes.

“Manufacturers know they are going to adjust their processes,” says Chris Goldsmith, director of product strategy for HighJump Software, which has a manufacturing execution software solution that bridges the gap between the shop floor and warehouse, providing inbound and outbound visibility. “They want the software to facilitate that adjustment.”

Visibility is essential

When those business plans change, it is vital that all links in the supply chain-backward to the sources of raw material and forward to end users-know what changes are coming.

“The challenge boils down to connecting partners,” GT Nexus’ Kefer says. “It’s not a software problem, it’s a data problem.”

Traditional software is not designed for inter-company commerce, he notes. A translator is needed because different software and even different versions of the same software often cannot talk to each other.

“This is where the concept of an Internet-based shared network comes in,” Kefer points out. “What you do is put a central platform in the middle, which serves as the integration hub and the data translator.”

This is the basis of GT Nexus’ platform, which provides the global infrastructure, applications and managed IT services to power the supply chains of multiple Global 1000 companies. The company provides trade and logistics software as a service, over the Web, on a pay-as-you-go basis. All customers and their supply chain partners share a single platform.

“The fact that it is shared by different companies also means the cost of maintaining and running it is amortized across a vast community,” Kefer says.

GT Nexus bases its solution on the premise that the software market, as it is known today, will not exist within the decade. Kefer believes that the supply chain is on the cusp of “disruptive technology,” which will change the way technology is delivered and how it is used. The market is moving toward a rental model. “The power in technology will shift from seller to buyer,” he says.

Kefer maintains that this evolution in technology will get manufacturers as close as possible to the Holy Grail of full, end-to-end supply chain visibility.

High efficiencies impact the bottom line

Presently, manufacturers can only dream of visibility in the 95 percent-plus range of their supply chains. In fact, many would settle for visibility in the 80 percent to 85 percent range. Currently, it’s not uncommon for manufacturers have visibility in the 50 percent range.

Improving visibility throughout the supply chain is a critical piece to manufacturers’ longstanding quest to improve their margins and the bottom line.

The number one cost in the supply chain is the working capital tied up in inventory, raw materials, and work in process. That capital is frozen until the inventory is shipped to the end user. Supply chain management software can help optimize inventory levels.

“With supply chain software solutions, a manufacturer has more visibility to where the inventory is at all points in the supply chain,” HighJump’s Goldsmith says. “That means you will have more working capital freed up to dedicate to other parts of the business.”

Inventory optimization is critical if a supplier is tied to a manufacturer that employs just-in-time (JIT) inventory practices.

A JIT supplier for an automotive company, for example, has its warehouse in proximity to the manufacturer’s receiving docks. Parts and components are shipped in a fairly predictable manner.

However, if the supplier is out of stock when the manufacturer calls, it could force an assembly line shutdown and lead to large, punitive fines. For that reason, JIT suppliers always overstock their warehouses with extra inventory to serve as a buffer against unplanned disruptions. However, that’s cost-prohibitive to the supplier.

Supply chain visibility can reduce that inventory stock because the supplier would know how much stock are in the warehouse and how much raw materials are in transit. Savings would even be greater if the supplier sourced its raw materials from overseas, because the overwhelming percentage of those materials are airfreighted to ensure timely delivery at the plant.

“Because they have no visibility and control over the supply chain, they can’t trust the data and can’t risk the possibility of out-of-stocks,” Kefer says.

But if there was visibility with highly reliable data, a supplier could put a higher percentage of its parts and components on an ocean freighter, which is measurably less expensive than airfreight.

“You would easily pay for the cost of a supply chain system if you took two air charters a year out of your logistics costs,” Kefer explains. “If you can take 20 percent of your supply chain off air and onto ocean freight, it would be a huge cost savings.”

As supply chains continue to evolve in their complexity, the need for increased visibility will become even more important for manufacturers and their partners.

A supply chain might consist of multi-channel distributors. The manufacturer ships to the end user, which might be selling in-store, on the Web, or through call centers. How the end users fulfill, replenish, and stock locations is very fluid. At the same time, because of the hybrid nature of the modern supply chain, a company can find itself as a customer, supplier, and distributor.

“The level of network becomes more complex,” CDC Software’s Cahn says. “The need to maintain that supply chain through JIT deliveries and service-level agreements is paramount. It impacts where a manufacturer stores inventory levels.”

Simultaneously, there is a growing need for compliance in the supply chain. “The same time a manufacturer is executing and doing business, it has to report,” Cahn stresses. “Those requirements keep growing. Track and trace is becoming mandatory, both backward and forward. Manufacturers are looking for tools that will make this easier and more efficient. There has to be more aggressive global visibility.”

Software can help manufacturers be more aware of the activities inside their supply chains, giving them the ability to react quicker to any issue that might arise and take corrective action if needed. Supply chain software can help manufacturers pinpoint a problem to a specific batch or lot and determine the location.

“A manufacturer can be proactive, rather than reactive,” Goldsmith points out. “There is real-time resolution as opposed to a root-cause analysis after the fact.”

Supply chain management software will afford manufacturers the opportunity to better manage their inventory levels and increase the level of customer service by providing a high level of visibility. They can reduce their overall costs without sacrificing any service or inventory policies in place. That’s an objective all manufacturers share. wt



Ken Krizner is a freelance writer based in Cleveland, Ohio, where he writes often on economic development and technology issues.