In today's manufacturing environment, supply chain practitioners are managing more items through more complex supply chains with fewer people, shorter lead times, and lower inventory levels. At the same time, transportation costs are rising and cycle times are increasing as manufacturers move production offshore to focus on core competencies in product development and marketing.
With longer supply chains and a smaller protective buffer due to condensed lead times and lower inventory levels, today's version of supply chain agility involves managing by exception and proactively responding to changing conditions, both routine and cataclysmic. An agile supply chain provides timely warnings about potential problems and helps control costs without reducing service levels. It also helps manufacturers ratchet up competitiveness.
With all the business processes it affects, a supply chain can strongly influence whether the ink on the bottom line is black or red. As this realization sinks in, manufacturers are making optimization a primary goal. In fact, AMR Research's "Supply Chain Management Spending Report, 2005-2006" postulates that supply chain solution purchases increasingly are viewed as an enabler for reengineering of critical business processes rather than a technology investment.
In pursuit of this goal, many manufacturers are turning to supply chain execution (SCE) software. Choices include best-of-breed solutions and modules that reside within enterprise resource planning systems. Use of both options is growing. ARC Advisory Group, which classifies warehouse management systems (WMS), transportation management systems, collaborative production management applications, and other real-time supply chain applications as SCE solutions, estimates that the market was $4.2 billion in 2005 and forecasts a 9.2% compounded annual growth rate for the next five years to boost it to $6.6 billion by 2010.
Much of the software in this space is relatively mature. This maturity brings with it lower prices and simpler implementation, making deployment particularly attractive for smaller businesses. In fact, an ARC study that focused specifically on the worldwide WMS market indicates that businesses with annual revenues of less than $250 million are the fastest growing segment of WMS purchasers, and finds significant action among companies with yearly sales of less than $100 million.
Gleaning Quality Information
SCE applications enable supply chain agility through four elements, say Debra Hofman and Lora Cecere, analysts for AMR and authors of the report "Supply Chain Chaos and the Need for Agility": speed of response to changes in demand; ease of response; predictability, or consistency, of response; and quality products and order fulfillment.
"An agile supply chain links daily activities to corporate goals and objectives," explains Karin Bursa, vice president of marketing at Logility, Inc. (Atlanta, GA), a provider of supply chain solutions. "It then monitors these goals on a day-to-day or hour-by-hour basis from a global perspective." Finally, it provides alerts to potential disruptions in production, shipments, or demand due to internal factors such as machine downtime or external influences like a competitive threat or weather-related transportation disruption. "It's not just the quality of the information, but also the frequency of it" that is important, Bursa notes.
Logility's application suite, for example, includes 100 prepackaged alerts that can be tailored to specific businesses and channels. So, instead of having to browse through 500 items, a demand planner can receive a list flagging those that are at a critical threshold.
RedPrairie (Waukesha, WI) offers SCE tools with alerts that can be configured based on any prompt, according to Tom Konzenski, vice president of product marketing -- distribution solutions. "Anything with a date and time can form the basis of an alert," he explains.
The configurability built into today's supply chain tools is the real enabler of agility. "Data alone is not enough," notes John Clark, manager of marketing at Provia Software (Grand Rapids, MI). Configurability allows users to organize the system so that it provides actionable information, and also makes it possible to personalize tools for different workers without a lot of customization effort by IT. "Everyone uses the same standard product," he explains, but information is presented based on the worker and the task at hand; e.g., dashboards for executives and picking instructions for warehouse workers.
Configurability also helps address changing requirements. For example, if a new customer requires the product to be labeled in a unique way, the software can adjust the workflow accordingly and have the function operational in a few hours rather than weeks or months.
In this way, supply chain management tools can mitigate the pressures of managing a demand-driven business. "It's important to understand that not all demand is created equal," Bursa says. "Some customers take priority over others." The visibility afforded by these tools can lead to better management of those varying priorities. And when a company can isolate influences that affect demand, its ability to respond quickly is greatly enhanced.
Future Tools
To move supply chain management to the next level, SCE solutions providers are adding or enhancing performance management and optimization tools. For enterprises in which embedded business rules can present potential solutions, automated solutions are increasingly available.
Logility, for instance, is building in performance management capabilities -- typically the number one reason manufacturers upgrade systems, according to Bursa. In fact, she says, "Aberdeen Research indicates performance management can help lower inventory costs by 15% to 20% and reduce expediting requirements by 50% or more."
"It's not enough to receive an alert," she explains. "We want to accelerate resolution of the issue." This means linking manufacturing planning, transportation planning, and demand planning to provide the information needed to evaluate the options available to solve a problem.
One company already relying on performance management is A.O. Smith Water Products Co. (Ashland City, TN). In a phased effort, the 69-year-old manufacturer of water heaters and related components first focused on demand planning and is now moving on to supply and transportation management.
"Customers' expectations are increasing. Management's expectations are increasing," explains James G. Hutzel, CPIM, director, logistics and distribution at A.O. Smith.
"The next step is optimizing," says Clark of Provia. "With optimization solutions, supervisors and managers can determine what action is most efficient," he explains. In addition, manufacturers can balance numerous factors such as labor, shipping costs, inventory, and customer requirements. For example, to meet a spike in demand, it might be more efficient to spread order fulfillment over more than one day and expedite shipping on some orders rather than paying overtime to ship everything the same day via standard service.
"Optimal doesn't always mean fastest," Clark notes.
Provia recently added optimization and labor management modules to its ViaWare software. The next step will be to offer service-oriented architecture solutions so information is more accessible both within and outside the four walls.
RedPrairie development efforts also are focused on optimization, particularly as it relates to inventory. With real-time knowledge of where inventory is at any given moment, the system can identify the best warehouse to fill an order. Moving forward, this capability can be extended so that fulfillment of large purchase orders can be distributed across multiple sites.
Also on the horizon is the ability to gauge available-to-promise inventory to ensure that levels will be sufficient to meet imminent ship dates. "This optimization functionality provides reasonable value to customers via lower inventory levels, decreased freight costs, and improved order fulfillment metrics," says RedPrairie's Konzenski.
And that, as manufacturers well know, can make a world of difference -- on the production line and on the bottom line.