This quarter’s Supply Chain Quarterly magazine features an article by Dr. Alan Kosansky and Ted Schaefer entitled Is standardized software eroding your competitive edge? The article addresses the pros and cons of standard enterprise software packages and discusses how generic applications may not accommodate the processes that leading company’s utilize to gain competitive advantage.
More than a decade has passed since businesses started using Enterprise Resource Planning (ERP) for managing data and transactions throughout the supply chain. Traditionally, ERP systems have provided transparency and insight into transaction-level data in the supply chain that support important business planning activities. Now, a new generation of applications is being developed to help fill the gaps between general business planning and business-specific, tactical and strategic decisions. These ERP-connected applications offer supply chain executives previously unavailable analysis and insights into the decisions that directly impact customer service, profitability and competitive advantage.
Supply Chains Differences
Supply chains are as different as the companies and people that run them. Some companies view their supply chain operations as a “utility” that is expected to function without any investment in intellectual capital. These organizations are content to rely on industry best practices in their supply chain operations and follow the leaders (or the features that are added by ERP software providers) in supply chain improvement. Other organizations see their supply chain operations as a strategic opportunity to develop a competitive advantage and increase market share. They know that with some small departures from the norm and a modest investment in intellectual capital, supply chains can provide enhanced performance to the business. These companies understand that there are opportunities for creative and unique ideas in the supply chain to improve company performance and achieve business strategy objectives.
Today, many C-level executives see their ERP systems as key enablers to company productivity, and for the most part, they are correct. Since ERP systems perform many valuable functions, there is a natural assumption that they can handle whatever business strategy the company adopts. However, new business ideas by definition run the risk of stressing the ERP system features beyond their ability to cope. Usually these failures are discovered only during the implementation of a new business strategy. So what happens when the ERP system fails to support the new business strategy in certain critical details? Those working in the trenches know this scenario all too well. But, what can be done to implement strategic supply chain initiatives when ERP is not equipped to handle business-specific initiatives?
Making the ERP Work
There are three possible approaches for implementing supply chain planning activities that offer a company a competitive advantage:
1. Figure out how to get the ERP system to do it. This approach works well if the company’s needs align well with current industry practices supported by ERP systems. Otherwise, companies may find themselves going down a path that consumes significant resources for a poor fit in the end. Companies that adhere to this path typically do so in part because there is a strong C-level edict in favor of simple, clean upgrades for the ERP system. Faced with this, the IT organization has enormous power to shape the nature of the supply chain operation to fit within the established ERP norms, and thus can act as a barrier for business innovation and supply chain improvement.
2.Modify the ERP system to provide new functionality. This is an approach often promoted by IT organizations committed to supporting the fewest number of tools. While this is an important cost management objective, it is important to understand the full cost to implement and support the system over the long term. What can be accomplished is often limited by the lack of flexibility in large ERP systems and IT organizations. Since ERP systems are mission-critical systems, the support and maintenance of the core functions are of paramount importance. This task, placed on a limited IT staff, leads to large backlogs of enhancement work and long queue times. And while IT departments are well-equipped to manage their primary assets, few if any IT departments have the requisite domain knowledge to cross over into supply chain optimization. Given long wait times, organizations will often choose the simplest approximation of the business change that can be ushered to the top of the queue. This approach can result in a quick-fix style of strategy implementation, rather than a priority-based feature development, and may leave the most important aspects of the initiative lingering in the queue.
3. Add an integrated solution to the ERP system that replaces one or more functions that are needed to achieve the business strategy. This could be from an out-of-the-box third-party provider, or for full competitive advantage, a targeted or custom supply chain application that integrates with the company’s ERP data. This approach has the benefit of including priority-based features that the current ERP system lacks, and the additional benefit of avoiding the ERP enhancement queue. The downside, however, is that it suffers from the stigma of being yet another application and not the ERP system itself. This usually presents a hurdle that requires a careful analysis to understand the total cost relative to the strategic benefit. While not all business changes will overcome this roadblock, there are good reasons to look at this approach. These include:
- Ensuring a tight fit between the business strategy and the tool execution
- Minimizing the cost, overhead, and extra setup and maintenance in un-needed functions from a shrink-wrapped general purpose tool
- Providing the marketplace with a specialized and unique operation of the supply chain for competitive advantage.
Example from the Field
A leading consumer electronics company with about $2bn in annual sales implemented an integrated solution to its ERP system to manage its order fulfillment process for competitive advantage. The company had recently modified its corporate strategy to increase retail sales through its “big box” customers (Walmart, Best Buy, Staples, etc.). However, key service level agreements were not being met for these customers due to lower than expected order fulfillment measures. A simple inventory analysis recommended large increases in the stock required at the warehouse, with some method of segregating inventory for each big-box customer so it could not be taken by orders from other customers.
In this case, one of the leading causes of low service for customers was that they ordered “just-in-time”. These JIT orders were not being given any priority over other customers’ orders with longer lead times. The company noted that these important customers may have provided accurate plan information, but that was not being used to assure them any better service. The analysis recommended that separate stocks of inventory be set up based on the big-box planning information, and that other customers not be allowed to take from those inventory locations. This would result in a large increase in overall stocks, but should achieve the desired increase in service levels.
One manager questioned this recommendation, wanting to know why the ERP system did not use the big-box planning information to appropriately manage the company’s service levels. She also questioned what could be done to avoid increasing her inventory risk and yet still achieve the business strategy. This is a question many managers face when their analysts say that to improve service you need to increase inventory levels. Often there are alternatives. This key manager’s insight set the path for her company to make a significant shift in their supply chain operations, with remarkable benefits. What follows will answer the question: Can I raise the service level of my key customers without increasing my inventory and capital risk? The short answer is, “yes”. Significant service benefits and risk reductions can be achieved, but only if you are willing to deviate from your ERP’s standard approach to implementing key supply chain initiatives.
The industry standard approach for assigning available inventory to open orders is to use a FIFO (first in, first out) approach. This approach prioritizes orders based on when the order was received and assigns on-hand inventory to those orders that were received and entered into the system first. While this approach has a degree of fairness to it, and is available in all ERP systems, it did not align well with the business objectives of this company. It actually penalized key customers who issued JIT purchase orders while giving ample planning information. These JIT orders would have to wait until all the older orders, from non-key customers, were allocated before they would be assigned any inventory.
The standard ERP process does not take into consideration the customer’s strategic importance or their planning information. Given this FIFO process, the internal recommendation makes sense: set up separate safety stocks for each big-box customer (based on their planning information), in separate inventory locations, and make a rule that directs big-box orders to their separate inventory.
But having separate safety stocks violates the principle that more customers need lower inventory together, than each does individually. Pooling the inventory helps to avoid unnecessary capital risk. The standard ERP FIFO inventory assignment process could be replaced with one that met customer needs more effectively.
The company embarked on a project to take into account several important factors when deciding how much inventory to assign to each order:
- The priority of the customer
- The amount of inventory actually in the sales channel of the customer, and
- The planning information that the customer shared with the company.
Customer priority is a key and strategic factor in deciding which customers receive product, when inventory availability is limited or delayed. This business need meant that strategic and high-volume customers should typically be serviced before others. However, this may not be the case if a strategic or high-volume customer happens to be sitting on a lot of inventory in their channel. In these cases, it may be preferable to share the wealth with smaller volume resellers to maximize the sell-through to retail customers. Moreover, these rules may apply differently for each SKU in a manufacturer’s product line.
The business rules to implement these sorts of complex trade-offs can get complicated. If one wants to retain a certain amount of flexibility in these rules, then the ERP system is a poor place to make these decisions. However, since most, if not all, of the data resides in the ERP system, these decisions must be tightly integrated with the data and transaction handling within the ERP system. So an application was constructed to manage the inventory assignment process in this way to more closely match the business strategy. The new application is run several times a day, extracting needed info from the ERP system, making the assignment of inventory to all open orders, and sending back the info to the ERP system.
Using this integrated solution, overall service levels for these key customers were sharply increased, prompting several supply chain awards from these big-box customers. As a result of the increase in service level, Walmart (a strategic customer) was so pleased they chose to increase their orders of all this company’s products by 100 percent. The overall inventory did not increase.
The new method demonstrated that pooled inventory was an effective approach to containing inventory levels. In subsequent versions of this application, the integration of point of sale data has allowed even more control over the inventory in the various channels to market. As a result, this company has declared this application a business-critical application. It overcame the hurdle, and the application can defend its spot on the chart of critical business applications alongside the ERP system.
Integrated Solution Success
Using an integrated solution to the ERP system was a win-win approach that allows the business the flexibility to manage order fulfillment for competitive advantage while maintaining the benefits of centralized data and the strong transactional handling capabilities delivered by ERP.
But order fulfillment is not the only area where there is opportunity to supplement the strengths of ERP with flexible and powerful business optimization processes and tools. Other areas where leading companies have decided to enhance their ERP capabilities include optimization-based infrastructure planning, sales and operation planning, distribution route and territory planning, transportation bid optimization, transportation fleet planning, and production scheduling.
These are just some examples of where complex and/or strategic business rules can provide competitive advantage through improved supply chain performance. While ERP systems remain the backbone of all successful large business operations today, they are not the only path available to companies who desire to apply innovative approaches to their business and supporting supply chain activities. Global enterprises that seek a competitive advantage now have the opportunity to leverage their ERP investments by integrating optimization-based solutions to key business strategies.
“Network structure, which determines 75%-80% of total supply chain costs, offers the biggest opportunity to reduce those expenditures.”
A recent study of supply chain activities indicated that as much as 80% of total supply chain costs are determined by the network in place and not by the decisions the supply chain team makes on a daily basis within that network. The cause can be attributed to infrastructure, which significantly determines the types of decisions and degrees of freedom that are available to supply chain decision makers. As a result, many companies have literally stumbled into pitfalls associated with warehouses, distribution centers and sources of supply (manufacturing, supplier locations, etc.) because they lacked thoughtful design.
There is help available for vigilant executives in the form of 10 guidelines to implement necessary cost saving measures. All are applicable whether the company is pursuing a growth strategy or struggling with underutilized assets in a challenging economy. Keeping these guidelines at the forefront of consideration can create opportunities to ease pressures on margin and the bottom line.
1. Network structure, which determines 75%- 80% of total supply chain costs, offers the biggest opportunity to reduce those expenditures.
That’s because when manufacturing and distribution assets are in place, and major transportation contracts are negotiated, actions to improve operations and efficiencies in the supply chain are limited. The time to discover the biggest supply chain improvement opportunities is during assessment or reassessment of the infrastructure in place; e.g. manufacturing capability, raw material sourcing, major transportation lanes, distribution facilities and delivery to customers.
2. Optimize supply chain infrastructure to realize maximal cost savings.
A company’s existing supply chain infrastructure is a primary cause of daily disruptions and short-term challenges. Those companies that experience the smoothest and most profitable operations are the ones who routinely re-evaluate both operations and infrastructure. Those who reevaluate as a matter of procedure tend to become supply chain and profitability leaders. A recurring evaluation of infrastructure should be considered a necessity.
3. Understand the changes that can be impacted.
Change is inevitable, and the response to it will determine a company’s profitability. First assure that the processes and tools are in place to recognize the changes occurring in the supply chain. Then identify and analyze potential courses of actions and communicate the execution plan.
4. Consider technological analysis to make the supply chain decisions.
Spreadsheet analysis can evaluate a potential change in a business plan or supply/demand balance and perhaps project the impact of a given course of action. However when decisions involve multiple products made across multiple manufacturing sites, shipping and distribution point issues while serving thousands of customers, companies need sophisticated tools to effectively consider all the options to assure maximization of every supply chain infrastructure.
5. Modern infrastructure planning requires a collaborative effort.
Good supply chain operations happen because the people in charge of different aspects (sales, manufacturing, logistics, procurement and finance) are effectively communicating by:
- Providing the critical data necessary to make the best overall decisions.
- Understanding how each critical decision \impacts them.
- Informing each department of every decision and the steps they need to implement.
6. The planning process needs to include many different scenarios to ensure a robust solution.
Even with collaboration across all of the stakeholders, the supply chain infrastructure design process depends on forecasts of the future that will not all prove to be accurate; e.g. customer demand, competitors’ actions, cost of raw materials and transportation. Those who recognize the uncertainty of the data that drives their business planning can use supply chain tools to explore different possible futures and evaluate a course of action. That way they can confidently make decisions that will perform well across a wide range of possible futures and position themselves for a positive return.
7. Consider hybrid solutions to ensure low-cost, high level customer service.
Simplified assumptions are quite common during evaluation and analysis of complex supply chain operations. These may cause managers to overlook opportunities that are combinations or hybrids. For example, instead of sourcing 100% of a raw material from a low-cost country, perhaps optimal customer service at lower costs can be achieved by sourcing 80% to the low-cost provider and 20% to a higher cost and more reliable alternate supplier. Another example is demand variation by day of the week, which may warrant different operations on different days. Hybrid solutions are frequently solutions for optimal mix of customer service and cost, however they are often difficult to identify and evaluate.
8. Models and analysis mean nothing without implementation.
A good supply chain infrastructure planning process begins with solid analysis and evaluation of various scenarios to identify an optimal course of action. However, it is not complete without implementation planning, which must address the cultural and organizational issues that too often prevent companies from achieving the gains that have been projected. If there is resistance within the organization to change, it may be necessary to stage the implementation in increments to gain credibility before tackling the more strategic approach.
9. Optimized supply chains minimize inefficiencies.
A good supply chain infrastructure planning process goes beyond elimination of waste to analysis of benefits and tradeoffs among the different drivers of sustainability in the supply chain. This by definition means that you are creating a greener and more sustainable operation. One example is analysis of tradeoffs between profit and other sustainability measures (for example CO2emissions). Using tools to analyze the total impact of different courses of action can optimize decision making to meet the overall objectives.
10. The answer is in the data.
Assure the accuracy of the data, and then present it to the right people (See #5).
Roadmap for the Future
Supply and logistic executives recognize the importance of developing new and improved ways to understand and use the volumes of data to help them find and utilize the best approach. It is incumbent upon them to ensure that each aspect of the operation is fully aligned to business strategy and goals, which is the purpose of these guidelines. They should be considered a roadmap combining sound business management practices with the newest technologies and tools as a path to success.
Alan Kosansky, Ph.D., is president and Ted Schaefer is director of logistics and supply chain services of Profit Point Inc.. Profit Point, based in North Brookfield, Mass., is a provider of supply chain optimization systems providing such services as infrastructure and supply chain planning, scheduling, distribution and warehouse utilization improvement.
“With every passing year, the amount and variety of information available to make business decisions continues its exponential growth. As a result, business leaders have an opportunity to exploit the possibilities inherent in this rich, but complex, stream of information. Alternatively, they can continue with the status quo, using only their good business sense and intuition and thereby risk being left in the dust by competitors. Top-tier companies have learned to harness the available data with powerful decision support tools to make fast, robust trade-offs across many competing priorities and business constraints.”
Read the complete article here: Face Complexity – Making Sound Business Decisions
October 28th, 2010 3:32 pm Category: Publications, by: Editor
This month’s issue of Supply Chain Solutions magazine features an article by Dr. Alan Kosansky and Dr. Joe Litko entitled Leverage Value.
“Executive-level business decisions include a broad range of interconnected variables leading to an extensive array of options. In the supply chain arena, this often plays out as a tradoff between operating costs, working capital, asset utilization and customer service levels.”
This article looks at the challenges faced by executives in making these decisions and the value of modeling future scenarios to make better decisions. You can read the complete article here.
July 6th, 2010 12:10 pm Category: Publications, by: Editor
“Swapping commodities with other manufacturers instead of shipping internationally can greatly reduce transportation costs and boost profits. Finding the right swap partner will help you avoid the risks that are inherent in these arrangements.”
“If you’re under a mandate to make substantial cuts in supply chain costs, you probably have already “picked the low-hanging fruit”—that is, you’ve made the obvious, easyto- achieve improvements. You probably have optimized delivery to your customers by routing orders through the most efficient network of warehouses. It’s likely that you also are sourcing from highly efficient manufacturing plants around the world. And perhaps you have partnered with ocean carriers and leveraged your shipping volumes to negotiate the best rates in the industry….”
This month, Manufacturing Today magazine published an article entitled Supply Chain: Time to Experiment, which was co-authored by Dr. Alan Kosansky and Dr. Joe Litko of Profit Point. The article discusses how executive-level business decisions can include a broad range of interconnected variables leading to an extensive array of options and discusses how business leaders can gain exceptional insights in to future scenarios.
Read the complete article here.
This month, Chief Executive magazine published an article entitled Increasing Value Across the Supply Chain, which was co-authored by Dr. Alan Kosansky and Jim Piermarini of Profit Point. The article discusses how optimization technologies can be used to maximize supply chain value by implementing more sophisticated approaches to standard practices such as inventory and asset management.
Read the complete article here.
This month’s issue of U.S. Business Review features a supply chain article entitled Balancing Act: Cost, inventory and service in a volatile economy. The article, which was co-authored by Profit Point’s CEO/CTO, Jim Piermarini, and the company’s Senior Account Manager, Cindy Engers, discusses solutions for preserving customer service levels, while reducing costs and inventory risks.
This month’s issue of Supply & Demand Chain Executive features a supply chain “best practices” article entitled The Changing Landscape of Optimization Technology. The article, which was co-authored by Profit Point’s Director of Sales, Rich Guy, and the company’s President, Dr. Alan Kosansky, reviews the optimization tools that are empowering today’s leading supply chain decision makers.
This month’s issue of Supply & Demand Chain Executive features an informative article entitled The Future of Network Planning. The article, which was co-authored by Profit Point’s President, Dr. Alan Kosansky, and the firm’s Director of Supply Chain Services, Ted Schaefer, looks at the emerging trend towards a more “local” supply chains.
You can read the complete article here.
This month’s issue of Manufacturing Today features an informative article entitled You Can Go Green. The article, which was co-authored by Profit Point’s President, Dr. Alan Kosansky, and the firm’s Director of Supply Chain Services, Ted Schaefer, reviews the trade-offs and consequences of improving financial performance of the supply chain footprint, while also reducing the environmental impact.
You can read the complete article here.
Posted with permission from Manufacturing Today.
Jim Piermarini Recognized for Ability to Turn Supply Chain Managers in to Supply Chain Heroes
North Brookfield, MA (PRWEB) March 27, 2009
Profit Point, the leading supply chain optimization company, announced that CEO, CTO and Founder Jim Piermarini has been named a 2009 Supply & Demand Chain Executive “Provider Pro to Know.” Supply & Demand Chain Executive, the executive’s user manual for successful supply and demand chain transformation, announced the ninth-annual listing of Pros to Know in its February/March 2009 issue.
“This year’s Provider Pros to Know have shown themselves to be thought-leaders in their respective supply chain segments,” said Andrew K. Reese, editor of Supply & Demand Chain Executive. “Their efforts in developing the tools and processes that enable companies to weather risky economic conditions and place them in a position to surge ahead in better times have earned them a place on this year’s Provider Pros listing.”
The Supply & Demand Chain Executive Provider Pros to Know is a listing of individuals from a software firm or service provider, consultancy, or analyst or research firm who have personally helped clients during the current economic downturn by assisting them in managing risk in the supply chain, providing competitive advantage and/or delivering value to the bottom line.
“I am honored to be recognized by Supply & Demand Chain Executive as a Pro to Know,” said Piermarini. “I believe this award is a reflection of Profit Point’s team and our collective ability to deliver practical solutions to complex supply chain decisions. Our unique combination of supply chain expertise and software, enables us to make heroes out of our clients, especially in these economic uncertain times.”
Profit Point’s supply chain optimization services provide clients with clear, actionable guidance that accounts for the many what-if scenarios facing their businesses in these uncertain economic times. By optimizing the supply chain network design, Profit Point’s clients are able to recoup millions of dollars in annual operating costs.
To learn more about Profit Point’s supply chain software and services, visit www.profitpt.com.
About Profit Point:
Profit Point Inc. was founded in 1995 and is now a global leader in supply chain optimization. The company’s team of supply chain consultants includes industry leaders in the fields infrastructure planning, green operations, supply chain planning, distribution, scheduling, transportation, warehouse improvement and business optimization. Profit Point’s has combined software and service solutions that have been successfully applied across a breadth of industries and by a diverse set of companies, including Rohm and Haas, Dole Foods, Logitech and Toyota.
About Supply & Demand Chain Executive:
Supply & Demand Chain Executive is the executive’s user manual for successful supply and demand chain transformation, utilizing hard-hitting analysis, viewpoints and unbiased case studies to steer executives and supply management professionals through the complicated, yet critical, world of supply and demand chain enablement to gain competitive advantage. On the Web at www.SDCExec.com.
This month’s issue of Supply & Demand Chain Executive features an informative article entitled Understanding the Four Pillars of Supply Chain Technology. The article, which was co-authored by Profit Point’s SC Planning Practice Leader, Ted Schaefer, and the firm’s President, Dr. Alan Kosansky, lays out “What you need to know about the information technology that drives your supply chain – and ensures that your supply chain drives profitability”.
You can read the Complete article here.
Supply & Demand Chain Executive magazine honored Profit Point, a leading supply chain optimization company , with a 2008 Green Supply Chain Award. The company and its Green Network supply chain design software was recognized as a Green Supply Chain Enabler. Profit Point is showcased with other award winners in the latest issue of Supply & Demand Chain Executive.
Profit Point has been delivering supply chain optimization services and software to Fortune 500 companies for more than a decade. Earlier this year, the company introduced Green Network when it recognized that its clients needed a robust tool to account for and optimize away manufacturing waste, such as industrial pollutants and green house gas emissions.
“Profit Network software has been helping large companies around the world build more robust and profitable supply chains for more than 10 years,” said Jim Piermarini, Profit Point’s CTO. “From our clients’ perspective it makes sense to incorporate environmental byproducts in to the network design to evaluate opportunities and costs and conduct scenario testing in advance of these critical infrastructure decisions.”
The company’s software products are now used to help companies manage the tradeoffs associated with environmental resource constraints, such as limited water supplies in developing countries. Profit Point’s transportation and distribution clients achieve more efficient territory planning and vehicle routes, which mitigates unnecessary fuel consumption and carbon dioxide emissions.
The Green Supply Chain Awards recognize small, midsize and large organizations that are taking steps to realize eco-efficiency goals. Submissions were judged based on the clarity and content of each program’s goals and strategy, the extent of the steps being taken, the impact of the results to date and projected results, and the form and presentation of the information submitted.
“We are honored to be recognized by Supply & Demand Chain Executive for our focus on sustainability and we’re delighted to play a role in helping business managers define and reach environmental sustainability objectives across their supply chain,” said Alan Kosansky, President of Profit Point. “We look forward to any opportunity to help create a more sustainable business environment.”
To learn more about Profit Point’s supply chain software and services, visit www.profitpt.com.
About Profit Point:
Profit Point Inc. was founded in 1995 and is now a global leader in supply chain optimization. The company’s team of supply chain consultants includes industry leaders in the fields infrastructure planning, green operations, supply chain planning, distribution, scheduling, transportation, warehouse improvement and business optimization. Profit Point’s has combined software and service solutions that have been successfully applied across a breadth of industries and by a diverse set of companies, including The Coca-Cola Company, General Electric, Logitech, Rohm and Haas and Toyota.
This month’s cover story in the CSCMP’s Supply Chain Quarterly magazine feature’s an excellent article written by Profit Point’s Green Optimization Practice Leader, Ted Schaefer, and the firm’s President, Dr. Alan Kosansky.
The article, Can you be green and profitable?, deals with two competing, yet critical issues that face supply chain managers across the globe. As the authors point out, “profitability and sustainability don’t have to be mutually exclusive. By considering environmental issues when setting financial objectives for a supply chain network analysis, companies can successfully balance the trade-offs between them.”
You can read the complete article here.
The article, titled Reconnecting With Your Network, reviews the assumptions that motivated the recent shift towards offshoring and the global market changes that have occurred since.
The rush to reduce costs in manufacturing and procurement fueled a surge in outsourcing and offshoring over the last decade that has almost taken on a life of its own. While “low cost” manufacturing has proven a compelling factor, new evidence supports a more detailed understanding of a products total delivered cost.
Read the complete article here.
To learn more about how Profit Point’s supply chain consultants can help improve your supply chain network and infrastructure, contact us here:
(866) 347-1130 or