With today's longer, more complex supply chains and compressed schedules, progressive manufacturers are once again looking to supply chain management (SCM) tools to cut costs, increase efficiency and enhance customer service. Tactics to meet these goals include improving data accuracy and timeliness, simplifying integration of SCM tools with systems within and outside the four walls, enhancing supply chain security and optimizing the movement of goods while cutting, or at least controlling, logistics costs and inventory. Perhaps most important is the need to increase flexibility to enable proactive responses as dynamic situations change.
In response to this wish list, traditional SCM application providers are broadening product offerings and integration capabilities. Not only are the lines between once finite supply chain planning, execution and collaboration applications being erased, but providers of other systems like enterprise resource planning (ERP) and advanced planning are aggressively adding and enhancing supply chain functionality. To prevent inroads from ERP vendors, "SCM suppliers are ... increasing their vertical industry focus and domain expertise and ... offering new services with a much heavier consulting component," according to a report from ARC Advisory Group.
Whatever the source of the tools, supply chain improvements are delivering better visibility, reporting and diagnostics as well as interoperability with other systems in-house as well as at supply chain partners.
"We're working toward a seamless supply chain with event-based messaging," reports Jeff Kissling, chief technology officer and senior vice president at Manugistics Group Inc. (Rockville, MD), a major player in the supply chain management space. "Everything becomes event-based. Traditional applications become the input/output to a new generation [of software]."
With its WebWORKS architecture, Manugistics can provide a common look and feel as well as security across all applications. "Our applications are able to respond to internal events as well as to events generated by third-party applications," explains Kissling. "This is one way to create common views across the supply chain as well as create views into other people's data."
With demand for flexibility, interoperability and real-time or near real-time data delivery converging, manufacturers are increasing investments in SCM applications. AMR Research estimates that, after several years in the doldrums, the market for supply chain planning, collaboration and execution software in 2004 to be $5.5 billion, up 5% from 2003's $5.2 billion.
Going forward, ARC Advisory Group forecasts a 7.4% compounded annual average growth rate for the next five years. This will push the SCM market to $7.4 billion in 2008.
The renewed attention on SCM stems from efforts to cut costs, boost bottom lines and improve customer service without increasing inventory. A survey by Aberdeen indicates supply chain disruptions represent a significant expense ranging from hundreds of thousands to tens of millions of dollars annually for many manufacturers.
In an effort to control disruptions, much of the action in SCM relates to event management or what is sometimes called visibility or track and trace. "Factors such as increased outsourcing, supplier collaboration and the pursuit of perfect demand information have spurred the need for applications that provide better management visibility across the enterprise," says a report from AMR.
"Event management solutions have become much more focused on specific processes with supporting decision support, workflows and even analytics," writes Steve Banker, service director, supply chain management, ARC Advisory Group, in a recent study on the logistics visibility and control market.
Viewlocity (Atlanta), for example, focuses on inter-enterprise business process management in version 4.3 of its flagship supply chain visibility and event management software. New functionality includes dynamic modeling and management of order and fulfillment processes beyond the four walls, advanced transportation network management that balances cost with delivery timing, enhanced data management and streamlined system operation. "The ability to visualize order status and fulfillment activities allows business users to quickly comprehend the impact of supply chain disruptions on delivery dates, costs and other dependent processes and activities," says Michael Sherman, chief technology officer at Viewlocity.
For small to mid-size manufacturers with disparate supply chains, Timogen Systems (Mountain View, CA) has revamped its visibility tool to move beyond event management to optimization. Rather than simply generating alerts, the Timogen Decision Manager suite of products, which includes supply, demand and vendor managed inventory modules, provides recommendations about how to handle the exceptions.
Taking a slightly different tack, ClearOrbit (Austin, TX) provides track, trace and control components, which work as extensions of existing ERP systems and eliminate the data synchronization and integration issues posed by separate applications. Modules include outbound order fulfillment and shipping, inbound replenishment and receiving, monitoring of virtual material flow and contract manufacturing and managing in-house manufacturing and inventory. Radio frequency identification (RFID) capability can be similarly provided via three integrated products: Compliance Label Manager, RFID Tracker and Collaborative Print Manager.
RFID has received an enormous amount of attention in the past few months, and the technology definitely has the potential to capture some, if not all, of the data needed to improve visibility. However, although we'll see growing usage during 2005 as manufacturers begin delivering tagged goods to customers, it should be noted that many analysts and technology vendors believe ramp-up will be relatively slow. In fact, technology hurdles are expected to prevent RFID from having a big impact on multi-partner supply chains until about 2007.
Another supply chain tool generating interest is risk management. One company that offers this type of assistance on the sourcing side is Vivecon Corp. (Mountain View, CA), a Stanford University spin-off founded in 2000. Its products, which target the automotive, consumer packaged goods and high-tech industries, use financial engineering techniques such as options theory and stochastic optimization to assess and monitor demand variability for tooling and materials.
Instead of relying on traditional point forecasts, the Vivecon Supply Chain Risk Management Solutions create ranges and options that account for uncertainty so manufacturers can make planning and sourcing decisions proactively. The result is a reduction in total sourcing costs of up to 6% due to an increased ability to adapt to changing conditions, improved service at equivalent or lower inventory levels and alignment of marketing, planning and procurement functions. The hosted or licensed solutions, which use Web services to connect to any database, complement and extend existing ERP and planning applications.
Closer Integration
Since one of the keys to reducing costs is to reduce inventory, considerable resources are being devoted to this effort. However, to maintain or improve fill rates at significantly lower levels of inventory requires a better way to connect manufacturing with the supply chain. "As inventory dries up, manufacturing becomes the response buffer for the supply chain," explains Sudipta Bhattacharya, vice president of manufacturing at SAP (Walldorf, Germany). Pushing the point of fulfillment back to manufacturing requires both faster planning as well as faster execution. "This leaves very little room for error," notes Bhattacharya.
By providing interoperability among shop floor, enterprise and supply chain applications, SAP's new adaptive manufacturing strategy offers the tight integration needed between manufacturing and supply chain.
Interoperability reduces integration expenses, lowers the total cost of ownership and makes it easier to move data back and forth, according to experts. It also removes latency in the system, enabling delivery of information in near real time.
To simplify the linkages between applications, SAP has been driving the adoption of the S95 Enterprise-Control System Integration standard, developed by ISA -- the Instrumentation, Systems and Automation Society (Research Triangle Park, NC). It also has established a partner program to make it easier for shop floor application providers to adapt SAP NetWeaver, SAP's version of a service-oriented architecture, and build interoperable applications. Another SAP tactic to empower manufacturers is the development of dashboards customized to the information needs of specific managers. Pulling data from SAP and other applications within and outside the four walls and presenting it in a format tailored to the job enables decision makers to act more proactively while enhancing productivity.
Fijitsu subsidiary Glovia International (El Segundo, CA), a supplier of ERP systems for engineer-to-order and high-volume manufacturers, also has beefed up its supply chain capabilities with its latest release, glovia.com 7.
Designed for multinational manufacturers with multiple production facilities, glovia.com 7 offers enhanced operational visibility and responsiveness as well as compressed planning times and streamlined processes.
Oil States Industries (Arlington, TX), a manufacturer and developer of technologically advanced products, services and integrated solutions for the oil and gas industry, is migrating to the new version. The company plans to upgrade its nine domestic facilities later this year and may do a similar rollout at its six international locations once the domestic implementation is complete. "We decided to migrate because it was discovered that certain functionality, including greater supply chain management capabilities, service management and project and planning control, is more effectively managed by glovia.com 7," states Gary Roberson, vice president of finance for Oil States Industries, which has been using Glovia software for several years.
Logistics
Farsighted manufacturers also are watching the logistics segment of the supply chain. Not only have offshore sourcing/selling and outsourcing resulted in longer, more complex supply chains, but capacity is tightening and demand is exceeding supply in certain areas. In addition, labor and fuel costs are rising.
"Contingency planning, simulation analysis and organization agility are vital to moving goods and services in the 2005 to 2007 period without substantial cost increases and huge service delays in congested lanes (such as ocean shipments into Long Beach with road transit to eastern U.S. markets)," notes an AMR report about an October 2004 conference sponsored by the Council of Logistics Management (now known as the Council for Supply Chain Management Professionals).
Security
With terrorism a real threat and counterfeiting and diversion incidents increasing, interest in shipment security will continue to gain momentum. Investment in security has become essential because the breach of a single shipping container potentially could cost a manufacturer $1 trillion, according to estimates in "Prospering in the Secure Economy," a report published in September 2004 by Deloitte Touche Tohmatsu.
In addition to reducing costs, enhanced security can increase revenue, lower risk and protect brands. "If customers lose faith or trust in a company, it can threaten the very survival of the organization," warns Greg Pellegrino, Deloitte's global public sector industry leader and a senior advisor to the study.
"The managements of global business organizations are now squarely on the front line when it comes to protecting their supply chain, their data, their brand and their very existence," according to Jerry Leamon, Deloitte global managing partner for Clients & Markets.
The supply chain remains an area ripe with low-hanging fruit. Upgrading SCM can yield a rapid return on investment for virtually all manufacturers due to the opportunities it offers for cutting cycle times and inventory levels. Other potential benefits include more proactive handling of disruptions involving customer shipments or incoming materials, the availability of more timely and complete data from sources within and outside the organization and a closer integration with trading partners.