AN EXECUTIVE'S GUIDE TO SUPPLY CHAIN MANAGEMENT SOFTWARE SYSTEMS
Supply Chain Management is still an evolving discipline. In many ways, software technology is driving the evolution with advancements such as integrated planning, using RFID for auto-identification or GPS for tracking shipments. Globalization and competition are also driving innovative new practices. Environmental issues, government regulations and cultural differences are further placing new constraints on the supply chain. Individual planning and execution strategies need to be comprehensive and flexible in order to recognize new opportunities and adjust as SCM best practices evolve.
SCM partner contracts (joint ventures, partnerships and outsourcing partners) and the investment in facilities, equipment and software are multi-year commitments. When selecting SCM partners (especially when their operations are overseas), it is important to identify and track hidden costs. Examples of hidden cost include quality control, longer lead times, higher safety stock levels, risk of writing off obsolete inventory, additional logistical cost, fluctuation in exchange rates, and new regulatory fees.
Executive thought leaders are seriously reviewing the outsourcing of non-mission critical activities that require a large capital investment in facilities and equipment, or when a contractor can provide a better service and/or at a lower cost. Being actively involved with an enterprise SCM software vendor allows for a greater opportunity to influence their enhancements, upgrades and future releases. Being involved includes participating in committees, joining user groups and attending conferences. The customer value proposition is not going to change year to year. SCM can contribute by aligning the supply chain to the value proposition, whether it is fast, low cost and predictable, custom solutions, or steady and dependable.
To keep the supply chain synchronized with the rest of the organization, the annual SCM plans should be directly aligned with the business goals and objectives, including planned growth, planned events, new business initiatives and financial projections.
At an operational level, coordinating with sales & marketing on their annual plans, reviewing agreements with suppliers, assessing supplier capacity, and an internal review can provide a better sense of what is required to keep supplies aligned with demand.
Annual planning is a good time to challenge old assumptions, especially high cost areas, such as a facilities, labor, equipment, and transportation. Relationships are dynamic and constantly changing; this can be a good time to evaluate methods for measuring trading partner value. Another area to re-examine is management practices and how effective they contribute to the business goals. Another measurement is how well you compare with SCM best practices in your industry. This is the time to explore new technologies and plan for new initiatives.
Supply Chain Management strategies and SCM software solutions can facilitate a single version of the truth for planning and forecasting, an increase in return from valued customers, the collaboration with key stakeholders and the unencumbered flow of products and information.
PLANNING AND FORECASTING
SCM plans and forecasts should be done at a central planning department with the information systems capable of integrating, consolidating, modeling and analyzing plans and their variables. The challenge for centralized planning is serving conflicting priorities and having the resources to meet the needs of different departments. Good SCM software systems should support recasting plans and forecast by different groupings, and have the reporting tools to format and distribute the recast plans.
Segmenting customers by profit, margin or volume helps determine the customers providing the most value. For example, high volume customers are needed, even though they are less profitable, so that you can maintain economy of scale. This allows for higher profits with smaller customers. Research can focus on high volume customers and smaller high margin customers. Using marketing research methods or Six Sigma’s “House of Quality”, you can start to align your SCM with the values of your customers that drive the highest return.
Another example of managing valued customers is retailers selling one product at a loss to increase traffic towards high margin products. For this to be profitable, the appropriate research should be done on which items will bring in which types of customers, the high margin items those customers will buy on impulse, and the corresponding financial impact.
Suppliers can realize significant financial gains if they improve the accuracy of their sales forecast and reduce over/under production of their goods. The supplier can pass on part of the savings in the form of reduced prices. With a joint forecasting effort, forecasts improve. And with an agreement in place tying discounts to forecast accuracy, both parties improve their accuracy and bottom line.
FLOW OF GOODS AND INFORMATION
Systems and procedures that provide an unencumbered flow of information and products are critical, because of organizational needs to shorten lead times, reduce cost and lower inventory levels. In addition to good IT systems that maintain robust data and visibility, a structure is needed for critical processes that cross department boundaries and integrate with trading partners.
Logistical Execution Strategies
To optimize the execution of the S&OP plans, systems and processes need to coordinate resource requirements, schedule activities and monitor performance. Logistics systems should provide feedback to the operational planning process including the status of outstanding orders and goods in-transit.
Suppliers are not going to put forth the effort into reducing transportation cost when they see little benefit. If the supplier is coordinating and billing you for transportation, you can reduce your cost by taking control of transportation. If transportation cost is built into their pricing, prices will need to be re-negotiated without transportation. With the help of TMS software, transportation cost can be significantly reduced with routing and load optimization.
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