e-forum debate part 4: supply chain

In June this year, MCS held its second e-forum debate at Brands Hatch in Kent. The subject was supply chain technology. The event itself was run in association with the DTI and CBI, and was sponsored by vendors Rockwell, Oracle and e-know.net. 21 people gathered round the debating table: consultants, vendors, users from process and discrete manufacturers and members of the analyst community. The objective: to discuss how far manufacturers should go with supply chain technology, the key issues involved, the pitfalls to avoid, the likely business benefits, and best advice from those that have already done it. The first feature from the debate (MCS’ July/August 2001 issue, page 36) included manufacturing agility, available to promise (ATP), streamlining supply chain business processes, and mass customisation issues. Here, we look at three more crucial topics: supply chain optimisation, collaborative demand planning and outsourcing. First then is optimisation. According to vendors, this type of software will give you complete visibility throughout the supply chain, automating many of the tasks and decisions that manufacturers normally have to make each day. The result, they claim, is optimum stock at each level of the supply chain and identification of manufacturing capacity shortfalls. Alerts can also be used here to ensure optimum levels are adhered to, given the unpredictability of customer demand. The key is making sure that whatever happens at the customer end of the chain quickly triggers events and action down the line, through the manufacturer’s business to suppliers and distributors, and vice versa. One complete supply chain moving in perfect harmony with the customer’s heartbeat – no delays, no wastage and optimised resources. Time is a turn-off But isn’t this just a pipe dream for many of us? Gus Desbarats, md of Total Alloy Product Design, warned: “A big problem is they [optimisation systems] require so much information to be inputted. The time investment here is a big distortion factor and a big turn off. Firms with very complex problems may find it cost effective to actually invest in something like that, but I would say that cuts out 95-98% of industry. Certainly, in the straight line manufacturing industries that I work with, relying on it, believing it, trusting it, feeling it’s worth while. I just don’t see it.” Sobering words. But David Tudor, Oracle’s high-tech market leader, argued that companies are successfully using optimisation software today. He warned of two pitfalls: “First, users’ confidence in the information that’s coming out of the system can be a problem, letting it all happen automatically. Plus accuracy of data … You’ve got to be absolutely confident in your data and in your processes.” And he continued: “Cisco does these things today though. When an order goes into Cisco, the system automatically determines whether the order stays in Cisco or goes straight to a sub contractor, without anybody internally making that decision.” True enough, but what about the downside. Cisco had to place forward contracts with its suppliers, which (quite understandably) only wanted to make orders that were firm. Thus Cisco had to place firm orders and buy the material itself. When the market took a downturn it had to write off billions of dollars of stock! John Tripp of the Goldratt Institute said users have to be careful not to optimise the wrong things: “We’ve got some basic manufacturing assumptions to address first. Companies that talk about keeping their resources all busy have got things fundamentally wrong, yet this forms the basis of their optimisation model.” His point is that manufacturing managers have to re-think their attitudes. As Eli Goldratt’s Theory of Constraints (TOC) argues, managers shouldn’t be concerned with keeping machines and labour busy 100% of the time, but should synchronise the flow of work through the shop floor with the bottleneck machinee or processes, in tune with customer demand. So it’s about a change of management and shop floor culture as well as new technology here. And both these take time. Integration with other business systems is also crucial. Sage Enterprise’s md, Steve Bailey said: “One of the problems I find is that optimisation can create a silo mentality. There’s some very good optimisation products out on the market, but unless that’s actually tied in with the rest of the business, which is very dynamic, you’re actually optimising against it all.” Stratabridge’s Andy Coldrick challenged the need for optimisation software at all: “One of the things the human brain is really good at is actually re-programming itself to ask different questions in different situations that hadn’t been anticipated. Optimisation products do not do that.” And there may also be a trade-off between good decision-making and the speed of the software. “We need to focus on the exceptions, on the critical points,” said Steve Melton, Scottish Courage’s logistics director. I’ve got some bitter experiences of using optimisation [software] where the data requirements and the speed was such that, by the time numbers are crunched, you’re life had moved on because of the natural variability of the system, so we never used it, and people chucked it away. So that tends to drive me to say ‘keep it simple’.” So on to collaborative demand planning and forecasting. Are manufacturers working closely with their suppliers to accurately predict future demand for their products? And if they’re not, what are the barriers holding them back? Simon Bragg, analyst at ARC, commented: “The problem with a lot of forecasts, they tend to be put together by the sales person. By the time you’ve collated all those forecasts from sales they’re probably months out of date. So the way forecasting is done doesn’t help in many industries.” And the word ‘trust’ kept coming up. Coldrick commented: “Collaboration is actually about trust and something fundamental between two people. The word forecasting is a guess. So how can those to words co-exist? It’s a joint values and behaviour issue about trust. Then I think you can establish tools. But to actually put it up here as the latest technique, ‘here’s collaborative demand forecasting, and you put that into the process’, then ultimately it fails, and it fails very, very badly.” And everybody agreed that markets are now becoming more about supply chain versus supply chain rather than manufacturer versus manufacturer. If trust is not there, collaborative planning becomes nothing more than ‘co-operative coercion’. Enter the manufacturers. Scottish Courage’s Melton said: “I don’t think it’s just about the will to collaborate, it’s the practical constraints.” He said IT is not the barrier, and that it’s really more about, “where you have a relationship with another company, you can extract more value by focusing on the forecasting process itself.” The type of manufacturer you are also dictates whether you’re likely to use joint forecasting technology. Sarah Cobb, business systems director for injection moulding firm Moss Plastic Parts, said: “A business like ours that is totally commodity based, our largest customer is less than half a percent of our turnover, so it doesn’t work for us. We have no relationship with the vast majority of our customers, and one day they may go somewhere else because someone else can supply the product they want on the day at a better price with better availability.” So making collaborative planning work depends on a whole bunch of things like trust, type of industry and your alignment and incentives. IT does not appear to be the barrier here, it’s more about solving the historical, cultural and people issues first. Indeed, perhaps the reason many web trading exchanges have failed to date is because many suppliers in the lower tiers of the supply chain are asking themselves, ‘What’s in it for me?’ It’s got to be mutually beneficial for all players in the chain or it will fail. Last on the supply chain agenda was outsourcing. Should companies be considering outsourcing in order to fulfil customer demand, and could using an application service provider (ASP) be a route to cheaper IT? The problem at the moment seems to centre around cost. ARC’s Bragg explained: “Hardly any ASPs are making money, which is kind of a concern. And why ASPs exist is also worth looking at. They exist because a company doesn’t have the will, or doesn’t have the skills or ability internally to manage an application. Or it’s because an ASP wants to go down market in terms of being able to make it’s software available to smaller users who otherwise couldn’t afford to buy it … The ASP model should work, but the way it’s been implemented has made it extremely expensive for users and quite uncompetitive.” Lance Doughty, automotive systems director of consultancy firm Cap Gemini, commented: “There’s potential in trading exchanges, getting around the issue of trust. Somebody has to run the software, and if you don’t trust the people who’ve set up the exchange then you’ve got a problem. If you bring in a trusted third party to handle the data, the honest broker, then there’s a potential role. But again, how many are actually trading in that way successfully at present?” Most users around the room agreed that concentrating on your core competency and outsourcing the rest are good practice, but most are still undecided when it comes to the subject of ASPs. But one last message to manufacturers from Cobb: “You have to be prepared to become more service orientated these days. We’ve got to stop getting sentimental about the fact ‘we’re manufacturing companies, therefore we’re only going to sell what we make’. That’s why we’re striving to become a one-stop shop for our customers.”