SUPPLY CHAIN MANAGEMENT - Hi-tech links in the chain.

Supply-chain management has undergone some rigorous changes in the past few years and keeping up with the financial and strategic demands of IT has not been easy. Furthermore, the advent of electronic data interchange (EDI) and the expected growth in e-commerce will push the demands on route-to-market technology still further. To keep up with their competitors, manufacturers and retailers will want to keep pace with each other by increasing the speed and efficiency of their delivery mechanisms. This has to be good news for supply-chain technology vendors. According to a report from AMR Research, the supply-chain management market will experience a 50% compound annual growth rate over the next five years. This will put the value of the market at around $13.6bn by 2002. The implementation of enterprise resource planning (ERP) systems is a key factor in this growth. AMR claims that the ERP applications market is the fastest growing and most influential sector in the software industry. The sector is expected to increase in value by $10bn over the next three years. Peter Evans and Denis O’Sullivan from IBM’s Global Services Supply Chain Marketing Initiative team talk about the need to reinforce communications skills, and the sharing of information using packages that are interoperable. “Just by mapping the supply chain and getting people to talk to each other, we could reduce the supply chain by 20%,” says Evans. They also refer to the need to reduce the complexity of system integration by implementing “architectured” package systems to and from the transaction system back-bone. Systems also have to be flexible and companies should already be developing electronic business opportunities. Some businesses are finding that the efficiencies flowing from an electronic supply chain are already apparent. Tony Dungan, supply-chain development manager at Wickes Building Supplies, is a major user of business-to-business e-commerce and claims that all of his suppliers are e-commerce enabled. This has forced the company to re-engineer its business processes across all departments, including finance, forecasting, database management and query resolution. And the company is now implementing an extranet to provide a framework for the development of its business-to-business e-commerce effort. Dungan stresses the need to define and prioritise business processes to enable an initial decision on e-commerce. He also notes that EDI and the extranet are complementary, and emphasises the use of e-commerce to focus the supply chain on the consumer and drive down its costs. With 897 shops, 15 factories and a global workforce of 14,000, Clarks International is no small cobbler. It had pre-tax profits of £35m last year, and is the country’s largest shoe maker and retailer, so it is naturally very keen to retain its number one position by keeping on top of its supply chain. Clarks’ major headache is that footwear retailing suffers from low stock turnover. Stock-holding accounts for virtually half the rented space in the average British footwear retailer, and Clarks wants to free-up that space to display more products and so increase sales. It also wants to retain and increase its customer base, so it needs to keep customers in the shops by always having stock arriving on time to keep the shelves full. The company brought in consultancy CSC to build a conceptual and performance model of its supply chain. After identifying weak links in the chain, the company looked around for a management solution that would help solve its problems. It opted for i2’s Rhythm package, which Clarks says enables it to phase products out of the company’s inventory near the end of their lifecycle. In addition, it allows the company to compare each factory’s production costs and schedules, enabling it to find its most effective channel for delivering orders. Service levels and sales forecasts were also fed into Rhythm and the system was asked to come up with the right inventory levels. The system is still being rolled out and is expected to be completed this month, although full integration is not expected to be completed until 2001. Each installation of the product is being put on a Sun Unix server and accessed via Windows NT desktops. “Tightening up the supply chain is one of the main routes to improving profit,” says Mike Pottinger, Clarks’ project manager for the system. “If you are a retailer with your own brand, then your stock management team needs to be worried about where products are coming from and where and when they will arrive. Retailers need to work closely with suppliers to make the best use of the production capacity available, and i2 is helping us to achieve that.” Another example of a company that is revamping its supply chain is J Sainsbury. Director of logistics John Rowe says that his remit has been to integrate the formerly separate units of distribution, trading and retail in pursuit of better back-office functionality. “Sainsbury’s is aiming for just-in-time supply, which means a continuous flow of products as and when outlets need them,” says Rowe. After he had embraced the Efficient Consumer Response (ECR) initiative and improved communications with suppliers, he found that supply-chain information, such as stock and sales data, could still be improved. Rowe then had to look at other IT solutions to enable effective communications between Sainsbury and its suppliers, so they could collaborate better. Rowe chose EQOS Collaborator from EQOS Systems. A bespoke Web-based solution that is based on Microsoft technologies, EQOS Collaborator enables companies to automate and simplify the exchange of information between them without losing collaborative functionality. Because it can be hosted on a range of servers, and because information can be integrated into legacy databases, EQOS allows suppliers to upload and download information directly onto the system. Nestle is one Sainsbury supplier that has agreed to help trial the system. “It will deliver some very tangible benefits, such as improved communications, leading to better on-shelf stock availability, and therefore to more cost-effective promotions,” says Tom McGuffog, planning and logistics manager at Nestle UK. The trial has enabled Rowe to realise that in some cases suppliers have different expectations of planned dates of promotions or codes of products. Some of the differences are big and cause spikes in the supply chain. But EQOS enabled Rowe to identify the problem and return to the suppliers to agree correct dates and codes. Additional benefits, Rowe noticed, included the quick sharing of product information and knowledge, particularly with regard to regional product advertising and meeting customer demand following a campaign. “Now that several of our suppliers have started to use the system there seems to be an increasing thirst for data which can improve decision making,” says Rowe. “The good news is that it means customers will get the specific product they need.” COMMUNICATION IS THE KEY The key emphasis for the supply-chain industry is not based around one particular product or technology. True, e-commerce will have huge knock-on effects in inventory management, but there are other factors, and even e-commerce is difficult to pin down. EDI has already started to shake-up the movement of data through the supply chain and ERP has, and will continue to provide, the back-bone for sound supply-chain management. However, the key message appears to be about communication and integration. The Internet will also have a role to play, not just in retailing, but in supply-chain communications between retailer, distributor, warehouse and manufacturer or supplier. While e-commerce will help tighten the supply-chain belt, it will not be the driving force for change just yet. In retailing, for example, e-commerce is just one sales route and will not replace the shop front on the high street. The emphasis is on bringing all the various facets of the supply chain together simultaneously. It is all very well having wireless terminals for stock taking, but they need to communicate with the warehouse, which needs in turn to communicate with suppliers, which then need to communicate with their distributors and so on. Communication is the key link, and the Internet is proving to be the key communication enabler. Integrating existing supply-chain management systems into intranets or, even better, extranets (which is effectively a company intranet that external suppliers can access), will be a key development. This is the kind of communication tool that will act as the glue, sticking all the various other supply-chain technologies together. The key question companies need to ask themselves is where they are in that supply chain and how well they are communicating with fellow members of the their chain gang – be they suppliers or customers.