Stripping out inventory and time

Talk to anyone who’s done it and you’ll find that an absolutely key e-supply chain requirement is synchronising your manufacturing processes with your business processes – and indeed with those of the others in your various supply chains. What does that mean? Simon Bragg, senior manufacturing enterprise (ERP) IT consultant at independent analyst ARC puts it neatly: “For too long manufacturing has been dominated by a batch and queue mentality, which has trashed supply chain performance.” So what’s the alternative new way? e-synchronisation is about getting complete supply chains (or networks) integrated so that all participants are simultaneously (or as fast as makes a difference) made aware of new demand and/or new opportunities. Web technologies – whether that’s as simple as email or as sophisticated as electronic system-to-system communications with in-built electronic workflow – connect the trading partners in real time so that each can do its bit always now, rather than later – even entirely automatically. The claimed benefits are slashed inventory, lead times and transaction costs, reduced rescheduling, as well as hugely improved responsiveness, agility and customer service – all because of instantaneous visibility across the supply chain. And remember, as the trend towards smaller, more frequent orders continues, supply chain synchronisation helps again – reducing your dependence on forecasting. Internally, it means you can match the demand profile more closely and move closer to sustainable make-to-order. Sounds worthwhile? There’s no doubt it’s early days yet. Ken Young, principal research fellow at the University of Warwick’s international manufacturing centre says: “While there’s a lot of work going on at the university here in e-synchronisation, it’s very much early days. Most of the work today will be in the electronics component supply part of PC manufacture.” And you think of Cisco, Dell, Microsoft and IBM in the electronics and high tech sectors. But it’s not just happening there: look at the automotive sector, for example. TI Automotive Systems in Telford and Lear Components in Genk, Holland are proving supply chain fulfilment software vendor Wesupply’s impressive system. They’re using it for reconciliation and synchronisation across their supply chains – covering everything from real time demand management to call-off, delivery and receipt management, as well as self-bill invoicing and supplier performance monitoring – all from a shared web application and database. And it’s acting as a universal EDI clearing house as well, providing appropriate formats for all the supply chain users involved. This is the kind of facility several of the big manufacturing boys are looking at now – and in some sectors (like fast moving consumer goods (FMCG) and retail) the smaller ones too. Looks like it’s only a matter of time before virtually all of mid-market manufacturing is involved – or paying the price by losing out to its competition. As Andy Makeham, managing director of new ERP software firm K3 (which now owns the former Kewill ERP suites) observes, for most “all the efficiencies that can be gained from targeting the insides of the factory have now been gained. So by the law of diminishing returns any more effort expended in that direction would not yield a great deal. The gains are now to be had by targeting how manufacturers trade with their suppliers and customers.” And in a nutshell, that’s the point: we’re into a new world of getting competitive advantage. Not so long ago, K3, Accenture (formerly Andersen Consulting), Oracle, e-supply chain software developer i2 Technologies, Sun Microsystems and others did a world-wide road show with a practical demo of how this might work – under the banner ‘e-synchronised extended supply chain’. At the time, analyst Forrester summed it up as ‘the dream’. But although in its infancy, dream it is not. Nick Ford, i2’s vice president business development, says, “We’re working with 15 major companies in Europe, and 20 more globally. These are manufacturers in the hi-tech, industrial, oil and gas, and pharmaceuticals markets, plus a retail organisation. Synchronisation is all about transforming these businesses.” To him, it includes supplier relationship management (SRM), integrated with all previous supply chain management (SCM), and with the customer relationship management (CRM) side: a seamless flow of information, vertically and horizontally. “We’re talking 10s of millions of dollars of investment for 100s of millions of dollars in value. The returns on investment times in each of the three areas of SRM, SCM and CRM are short – about four to six months. There’s the opportunity to make the supply chain virtual in terms of information, the software and the cataloguing capability, which integrates with anything,” says Ford. And he adds: “We’re on the edge of something special.” But it’s no good having the best e-enabled supply chain if the relationships between the collaborators are not right. The cultural and physical aspects must be equivalent to the technological developments. “There has to be the right vision at the top, on the CEO’s agenda,” says Ford. “It must be driven from the top, have the right partners and the right culture throughout.” That’s certainly reminiscent of the lessons learned from early web sales site developments. Adrian McNay, managing director of mid-market eERP IT company Symix points to a US customer of his, an early adopter of e-commerce. “The company realised this would be another channel to market. It mounted its web site and sure enough saw a 30% increase in demand. The reality? No-one had thought to tell the rest of the company – the bricks-and-mortar part – of the extra orders, and it couldn’t cope. Customer service nose-dived. What then is success?” And he observes, “The supply chain must be involved at all stages: integration and synchronisation are vital.” Supply chain optimisation consultancy Scio (an alliance of Cap Gemini Ernst & Young with logistics solutions provider TDG) says that for e-synchronisation to be effective, everything, including different methods of production, needs to be looked at. David Hindson, Scio’s marketing director, says that packaging suppliers, for example, will have to be more responsive and flexible, and that also means considering their labour provision. “Implementing an e-synchronisation strategy isn’t about plugging something in – it’s about changing the way you work with suppliers, manufacturers, retailers and so on. You could call it an e-way of life.” Sounds like a lot of hard work. But Dave Manning, director of international business improvement consultancy Oliver White, insists that the benefits make it worthwhile. “The idea of synchronisation and collaborative planning is to ensure that visibility of the supply chain is represented throughout the whole chain, from consumer back through to raw material. Better planning is possible [because] there’s visibility. e-technology allows all this in a much easier and more responsive way, and has introduced ways of seeing what the requirements are. The supplier is now given visibility of what the manufacturer is going to make, inventory, BoM, and then told ‘you figure out what I want’. It gives you the ‘MRP process for me’, all facilitated by e-technology.” But he continues: “Much more emphasis is placed on accurate data for this to work, and there’s a screw-up potential here because data is often inaccurate.” “This is key,” says Wesupply CEO John Luscombe (founder of automotive enterprise IT specialist SSA Acclaim, now part of SSA), “it’s the information and the knowledge that matter.” And he cites TI and Lear again, where Wesupply continuously compares Tier 1 customer order requests, looking for exceptions and flagging alerts in real time – while also handling reconciliation and maintaining an accurate picture of the real world caught between the different corporate batch ERP systems along the supply chains. Indeed this kind of approach seems ideal for ‘closed environment’ supply chains like TI’s and Lear’s in which highly engineered components and deep relationships are involved. It’s worth noting the focus here is not exactly on trying to synchronise inter-company ERP data as such (as, for example, with original EDI), nor on optimisation above that, but instead on integrating the supply chain users’ own business processes and logic. Alan Duncan at process industries’ specialist software firm AspenTech, goes further, saying that it’s the detail of the information flow that matters. “The business benefits stem from the ability to extract accurate real-time data from your manufacturing processes themselves, and then to make maximum use of that information by communicating it within your own organisation and to the suppliers and customers – or net marketplaces – in your supply chain via the Internet.” Service above and beyond Given this depth of data, in a private digital marketplace (or in a one-to-one partnership), for example, regardless of whether the product is bulk commodity or specialist, the Internet offers an opportunity to provide service beyond the norm, and at an affordable price. The classic, widely adopted example is vendor-managed inventory (VMI) – where the vendor takes responsibility for (and sometimes retains ownership of) supply, maintaining and owning inventory at the customer until the point of consumption. “The daily supply process is simple,” says Duncan. “All that is required is a form of trigger to notify the supplier of a need to re-supply… With the Internet, and simple electronic inventory trigger points, it is easy to signal the depletion of stock and the need for replenishment.” But again, in order to facilitate VMI, both customer and supplier must collaborate to plan their businesses. So the parallels with e-supply chain synchronisation are there; the concept can work. But this, by comparison, is trivial, because e-synchronisation goes to the heart of how manufacturing woks – and makes very specific demands. As Duncan observes: “The Internet forces manufacturing processes to become much more agile and responsive. It will force them to move more to demand-led processes.” So what do we have to do? In a nutshell, success as a manufacturer in the Internet world will require solid business processes, backed by recognised and agreed business policies and rules – all supported by excellent and fast decision-making tools integrated to high quality information systems. Amy Hedick, senior consultant with industry analyst AMR Research, says, “Key words must be the Internet and XML, plus integration tools – to tie together disparate databases and applications. Supplier relationships will be maintained, but some habits will have to be broken – dealing with suppliers personally will have to be given up. And people/companies will have to be more trusting, particularly if we’re doing a lot more by process.” Ultimately, warns Peter Thorne, director of engineering IT consultancy Cambashi, “Companies have to balance ‘good for me’ and ‘good for my industry’ projects. Members of supply chains can improve their own short term positions by getting their suppliers to accept more onerous conditions, hold more stock, and take more risk. If they achieve this, they can offer the ‘savings’ to their customers. But these aren’t real savings; they are the equivalent of moving operating margins around between companies. One of the arguments for improving your supply chain business processes and IT is that if your systems are the weakest link in the chain, you will end up carrying more than your share of inventory costs and commercial risk.” Thorne argues that one piece of the jigsaw is advanced planning and scheduling systems where near real-time updating of customer demand (both forecast and actual) can trigger near real-time updating of forecasts and orders to suppliers. But when control systems people draw a diagram of an interconnected supply network, where all the ‘nodes’ – companies – have this capability, the immediate reaction is that this is unstable. Small changes at one node could result in major oscillations elsewhere. So, implementers of automated systems have to include limits which need human authorisation to exceed. Tim Waters, Bristol-based end-to-end e-business solutions provider e-Net Software’s head of e-business, comments, “The real benefits of an e-supply chain only materialise once the major players in the chain are linked using the software. Each link’s understanding of the ‘rules of engagement’ is vital to the overall success of the chain. After all, the weakest link in the chain will eventually break it. Spending time before rolling out to every supplier with a small number of key players is vital if the chain is to work properly.” Pilot e-business first This may seem obvious, but all too often the understanding of what the lead business actually wants to achieve is not communicated adequately to the rest. “Once the implementing business has discussed and agreed the rules with its suppliers/customers, the rollout can begin.” Waters suggests piloting with a blend of each type of trading partner – large and small suppliers with existing web connections, some without web connection, to understand their issues, and a supplier who may already be web-trading with another customer. “This will give the implementing business a deeper and wider understanding of the issues involved.” Another key area to watch is the interfaces to existing systems. “Businesses that have invested heavily in ERP usually wish to continue utilising that system,” says Waters. “The challenge is to interface just enough to allow the benefits of speed and ease of use that the Internet software brings, with the existing ERP system. Once again, the issue is to understand exactly what is to be achieved by all.” Everyone agrees that change-over to supply chain synchronisation will not be without pain. K3’s Makeham talks of pulling down organisational walls and changing long-held views. “Don’t bite off more than you can chew,” he quips. “How do you eat an elephant? One bite at a time.”