31 August 1998 00:00 [Source: ICB Americas]By Dan Scheraga
Supply chain management solutions are enjoying an increasingly important role in the agendas of executives and information technology professionals seeking to maximize their companies' efficiency. Supply chain solutions can bring unforeseen improvements so dramatic that experts warn that companies that lag behind are likely to play an unhappy game of catch-up later.
Supply chain management encompasses a range of electronic solutions designed to bring optimum efficiency across the entire supply chain of an organization, sometimes even including customers and suppliers.
"Many people make the mistake of thinking supply chain management only exists within the four walls of a factory," says Steve Musser, vice-president of process industry marketing at the supply chain solution provider Manugistics Inc. "The software tools can be used to focus in on that level, but really the potential of supply chain management extends much further."
Mr. Musser explains that supply chain management is comprised primarily of four components:
Ñ Demand planning: Unlike traditional forecasting, which usually relies upon historical demand, demand planning draws from a broader base of information, including causal factors, brand management and the moves of competitors, thus delivering projections with greater accuracy.
Ñ Manufacturing planning and scheduling: This element is focused upon the optimization of resources within the plant. The solution takes product need and resource availability into account and helps managers render schedules that use all machinery and labor to the greatest advantage.
Ñ Supply planning: A stage that extends past both ends of the manufacturing process, supply planning software manages the flow of raw materials into the plant and the supply of finished product to customers.
Ñ Transportation management: An extension of supply planning, transportation management software is programmed to calculate and implement the most cost-effective schedules and methods of delivering finished product to the customer.
These four components are transcended by two upper-tier elements:
Ñ Supply chain network optimization: This function entails the gathering of data from all other supply chain management components and processing them into a format that assists executives in making operational decisions.
Ñ Collaboration: This software extends outside the enterprise and into the information infrastructures of vendors and customers to maintain a constant flow of data for keeping supply and demand in balance.
Although the human element is still required in managing the supply chain, supply chain solutions provide a powerful optimization tool and automate many tasks for greater efficiency.
"Many of the cost savings supply chain solutions can discover, a human being can discover for himself with a calculator, given an unlimited amount of time," Mr. Musser says. "Supply chain management puts the power of a computer behind the realization of maximum cost savings on a day-to-day basis. You can count on discovering and solving plenty of inefficiencies that would not have been noticed by even a very observant human eye."
The impact of supply chain management looks as good in the ledgers as it does in the concept. One success story Mr. Musser cites is Warner Lambert Company, which raised its order-fill rate to 99 percent and reduced its supply chain costs by $2.2 million within a year of implementing Manugistics' supply chain software, realizing a threefold return on its investment. Rohm and Haas Company also achieved impressive results with a similar package, lifting its on-time shipment rate from 85 percent to 96 percent and slashing inventory by 33 percent within nine months of implementation.
As supply chain management garners greater attention from industry, ERP vendors are ramping up their efforts to expand into this area. Process industry ERP leader SAP AG is among the latest to enter the fray, having debuted a suite of real-time supply chain applications this past spring (CMR, 3/30/98, pg. 15).
Chemical firms looking for a single IT solution provider will most likely go to SAP for their supply chain software, but this is not necessarily the strongest decision, Mr. Musser says.
"If I'm an ERP vendor trying to sell supply chain software to one of my customers, I can make a compelling argument by promising to bring all that company's IT solutions under one roof. However, greater effectiveness can be had with a broader, more deeply integrated solution, and that often comes with best-of-breed software selection across the separate components of supply chain management."
Best-of-breed, Mr. Musser says, is the future of supply chain management, and all major providers including Manugistics, SAP, Aspen Technology Inc., Logility, Numetrix and i2 Technologies are developing their supply chain applications for compatibility with each other's software.
Such compatibility will be essential to take supply chain management to the next level, collaboration. A number of chemical firms have already implemented the collaboration level, having adopted solutions which allow them to access the supply chain infrastructures of their supply chain partners, and vice versa, so that they may cooperate to maximize the efficiency of operations between the two companies.
Mr. Musser offers one scenario: "If one company provides another company with feedstock and the buyer decides to take a turnaround at its plant in several months, the buyer's supply chain management software can inform the vendor's system right away of the impending change in demand, enabling the vendor to immediately begin to reallocate its resources so that it doesn't manufacture product for nonexistent demand."
A bonus of supply chain applications is that a company need not wait until ERP implementation is complete before implementing supply chain solutions. Although supply chain applications can mine data from ERP, they can also access data from other elements of a firm's IT infrastructure.
Often there is an advantage to implementing a supply chain solution before ERP, because supply chain solutions commonly deliver swifter benefits, Mr. Musser says. Terra Nitrogen is one company taking this approach. The company will install R/3 following its implementation of Manugistics' Manugistics5 forecasting and distribution tools and integrate them with Manugistics Integrator for R/3.
One proponent of giving implementation priority to supply chain management solutions over ERP is Beth Enslow, a partner with Gartner Group. "Many enterprises considering an enterprise resource planning (ERP) implementation and a supply chain planning project think of them as two parts of a single serial process: First put in the ERP system and then tackle the planning project. Enterprises that take this serial approach are leaving money on the table. In most cases, enterprises should start on supply chain planning projects immediately if they want to achieve the quick, incremental value that supply chain management can deliver."
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