Growing demand variability and product complexity are forcing many manufacturers to rethink their supply chain strategies. Although inventory optimization software has been around for many years, the business landscape is hardly the same as when the technology debuted.
Among the reasons for considering a change in incumbent supply chain software, the most obvious is a need to buffer against external factors, such as rising fuel costs and commodities prices. Also, ever-changing customer demand, sustainability commitments, and other internal pressures are driving manufacturers to more sophisticated global planning. And with a widespread trend toward demand- versus product-driven supply chains, manufacturers are re-evaluating their networks more frequently, requiring increased agility.
"In the last year or so, companies have come to the realization that they need to inject the concept of risk or variability when they're making supply chain topology decisions," says Nadeem Syed, group vice president for advanced planning products at Oracle.
To address these changes, manufacturers are increasingly seeking end-to-end supply chain applications that are standardized across the entire enterprise and encompass demand, supply, transportation, and even manufacturing.
LSI Corp., a provider of semiconductors that recently transitioned to a completely outsourced manufacturing model with a highly distributed supply chain, is in the process of standardizing its ERP system following a merger. The company has selected a supply chain platform from E2open Inc., which it will use to consolidate demand forecasts and orders to produce unified instructions for multi-sourced jobs.
"The system will allow us to help our trading partners maximize their setups and minimize their inventories," says LSI Vice President Don Alvine. "Clearly, visibility and flexibility are important to be able to take our demand signal out all the way to the manufacturing base."
Because of the squeeze companies are feeling from the high cost of fuel, in particular, the transportation piece of the supply network puzzle has taken center stage. Many manufacturers are reconsidering outsourcing decisions they made in the recent past, when the price of fuel was not a major concern. "If what used to cost them $2,000 to ship a container now costs $8,000, companies are rethinking how much they're sourcing from overseas versus what they're either building or buying more locally," says Fred Lizza, chief executive of Optiant, a provider of inventory planning and optimization software.
Hidden Costs
Regardless of the vertical industry served, vendors of supply chain technology report similar feedback from customers forced to rethink outsourcing scenarios that no longer make good fiscal sense. "The original goal of outsourcing was to minimize the cost of manufacturing, but there are lots of hidden costs in a global supply network," says Richard Howells, director of global solutions marketing for supply chain products at SAP.
With the shift in the transportation equation, the importance of positioning inventory in the right place at the right time is greater than ever, experts say. "The ability to track and use different logistics costs in calculating your best inventory mix is getting to be more important," says Lee Wilwerding, director of services at supply chain software provider i2 Technologies.