Pulling potatoes for the supply chain?24 August 2000
The Internet levels the competitive playing field, argue some IT vendors: small suppliers once out of the EDI running can join the fray. But there¡¦s much more to competing through faster supply chains than just wiring yourself up, as John Dwyer discovers
At the height of just-in-time (JIT) mania a dozen or so years ago, enthused consultants talked as though technology and logistics could abolish supply chain lags and leads altogether. So as you browsed crisp-bag labels in your local supermarket, some poor individual in a far-off field plucked a potato from a rain-lashed trench, put it back, picked it up again... If you can't do this with crisps - requirements: potato, packet; slice and cook potato; put results in packet - there's very little hope of doing it with anything more complex.
But there are those who think you can move towards it if you get rid of clutter. Like forecasts. Microsoft's European ERP (enterprise resource planning) and supply chain expert, Nick Horslen, says: "Inventories build because sales people produce forecasts, marketing produces forecasts, and production, purchasing people and suppliers all produce forecasts - and none of them really know what the true demand is."
Too many producers are supply-driven: "Companies think about what they make and what price they make it at, and how they can push it out to customers in the hope that customers buy it."
And if forecasting doesn't get you then electronic data interchange (EDI) will. EDI is expensive, imposed and has in-built delays. The value added network (VAN) it runs on aggregates all the EDI messages and processes them in batches overnight for delivery - by fax or to PC terminals - next day. By the time the receiving organisation processes the orders another day has gone by.
It gets worse, says ERP software vendor QAD's president Pam Lopker: "As long as you're building to forecast I think EDI at [the tier one] level is appropriate. [But] from the tier one down to tiers two, three and four, things begin to fall apart. Because now the tier ones need to aggregate what components they need and, if they do weekly EDI, and then the tier two does weekly EDI, and the tier three does weekly EDI, the poor guy down there at the bottom [making] a bracket could be making obsolete items for four to six weeks, depending on EDI cycles, before somebody tells him 'Hey we've changed that design'."
And it could be even worse. Vin Murria is UK managing director of e-commerce and ERP software firm Kewill Systems, which has installed EDI-based systems for tier-one firms and end-customer companies like Sainsbury's, Marks and Spencer, Debenhams, Black & Decker, Walmart and Sony. She comments: "EDI has worked for 20% of the corporate tier ones' supplier base. Sainsbury's reckoned that the other 80% of the suppliers that they dealt with, who accounted for 20 per cent of their total business, generated 70,000 invoice transactions a month, and Sainsbury's had over a hundred people in their business dealing with those."
As Murria sees it, Internet-based e-commerce is going to attack and reduce those costs, and she isn't alone. Says Horslen: "Internet enablement means that this reality can start to happen," to small as well as to large companies. "The Internet is available for everyone, no matter what their size."
Also typical is ERP vendor SSI¡¦s claim that, "Internet procurement, on-line catalogues for purchasing, private supplier portals, all are available, and deliverable now. This is not future promises: the products are available."
"Already customer orders are being linked to manufacturers' supply and delivery systems," says Rod Blackwell, Microsoft's industries marketing manager for manufacturing industry in Europe. Last September, Ford announced CarPoint, which will allow US car-buyers to specify exactly what car they want and to order their configuration on-line. Blackwell says CarPoint marks a shift towards a more direct, value-adding relationship with the car-buyer: "Downstream, it changes the way manufacturers procure materials and components from suppliers, who will increasingly be expected to share knowledge and to collaborate in forward planning. Smart companies will take this on board."
No doubt, with so much depending on them, the lower-tier manufacturers are hungry for IT tools that will help them. Says David Lloyd, consultant at IT management consultancy Druid: "Finance is not the issue, with potentially huge [returns on investment] for supply chain improvement, even the most conservative FD would sanction the changes."
Steve Vaughan of ERP firm Symix UK, contends that, "the challenges of supply optimisation are mainly technology based", but that an advanced planning and scheduling system (APS) will pay for itself so quickly that "financial worries will only be shortlived."
Perhaps. Lopker says most companies spend 10 to 20% of their turnover on non-productive activities - entering sales orders, purchase orders, receivables, collections, payables. "Today if you decide to buy something you place a purchase order. That's received and they enter it as a sales order. Then it may be divided up and the purchase order is sent downstream to other manufacturers who then enter purchase orders. Each one of those purchase order-sales order combinations costs about $200 to $220. The idea is to get rid of all those boundaries of purchase orders and sales orders, payments and receivables [and] to be completely driven by a single person up front: the consumer."
But no supply chain is simple, with or without the 'net. To manufacturing business improvement consultancy Oliver Wight executive Richard Watkins, manufacturing's need to source more and more outside the UK - in Taiwan, Poland the like - makes any supply chain more complex. "In theory you've got these wonderful supply chain management systems that will help you handle that [but] it becomes very difficult to handle it when you've got to cross countries, cross boundaries and cross cultures to find out exactly what's going on."
Chris Webster, head of integrated supply chain management at consultancy and implementor Cap Gemini says: "You could count on the fingers of three or four hands the global organisations that have implemented global supply chain planning or demand management systems."
Watkins agrees: "Where you start to move to China or the Czech Republic [the outcome] depends on the quality of the people you've then got handling those kind of relationships, your agents and so on. It's cultural, and it's difficult to get there. Partnerships are not really valid unless they¡¦re built on reliable data and reliable information. And that's where I think companies begin to struggle, because the fundamentals are still not right in most companies."
Even the car industry has surprising weaknesses. Webster says the car-makers haven't mastered even simple things like knowing where all the stock is: "If you haven't got that then you really are struggling."
Says Andrew Johnson, head of manufacturing and logistics at consultancy Compass Management Consulting: "Obviously the major software vendors would like you to use their expensive solutions which are necessary in some cases. But often simpler solutions can be found to reduce the cycle times."
QAD's Lopker is convinced that the replenishment model holds the most promise: "From [tier one down], you want to send replenishment signals down the supply chain that are real time as opposed to periodic. And I believe that, just like the grocery store shelf, many of the tier two, tier three, tier four suppliers will own the inventory until it's consumed - and they'll be responsible for stocking the inventory at a given site. We already see that happening with [generic-type] stock such as fasteners."
Druid's Lloyd adds: "Generally the sophisticated IT tools are more than up to the job. In fact most companies are only using a small amount of the functionality of these systems. Time should not be wasted putting in complex systems when existing systems are not being exploited to full potential."
He warns: "If the supply chain data integrity is no good even the most sophisticated system will fail. Normally the data issues come from people not doing things correctly, not booking in stock, incorrect BoMs (Bills of Materials) and so on. This manifests itself in surplus stock in the supply chain."
Web technology is not enough. Stan Chadwick, who manages automotive tier one supplier Delphi's industry-leading plant supplying to Vauxhall at Ellesmere Port, says one of the secrets of supply chain success is "having a schedule from the customer that is reasonably firm". So are, "a very co-operative, well trained workforce", and good quality products. "The plant has only got one or two of that part number in a particular batch, and they don't have any spares line-side."
Swedish ERP software supplier Intentia's Andrew Dalziel says the technology is there to deliver efficient supply chains, "but we need a change in people¡¦s thinking." They need to share information further up and down the supply chain "rather than just the traditional one step up, one step down". They need to be "better on the physical side, at actually delivering materials, because [e-business] is creating new expectations with the speed of greater transfer."
Enterprise systems giant SAP UK's business development manager Paul Eggleton, who has vast experience of the manufacturing market, says: "Many companies are looking at this and suddenly realising it's great to be able to talk to their customers [but] they still have to ship to those customers. They still have to bill to those customers."
"Being able to move at the speed of light at the front end and then having a fly-blown distribution centre somewhere in the East Midlands running on manual or un-integrated technology just doesn't stack up [with] meeting demands across the supply chain."
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