Changing world stresses supply chains

Globalisation and increasing demands from suppliers and customers mean good supply chain management is more important than ever for multinationals

Extending and maintaining its global supply chain has been a thorny challenge at clothing maker VF. The company sources finished products from the Far East and Central America and uses a combination of VF-owned factories and outside manufacturers operating under contract. "One thing about globalisation is that it tends to throw a company into a constantly changing environment," says Ellen Martin, a VF vice president.

As market demands push operations further out globally, organisations such as VF are being forced to tweak and stretch their multimillion-dollar supply chain management (SCM) software investments to match their extended supply chains.

Along with globalisation come the pressures of meeting ever higher customer demands, fulfilling tough service-level agreements (SLAs) and adding increasingly sophisticated forecasting, tracking and replenishment systems, such as those based around radio frequency identification (RFID) technology.

These new challenges follow the SCM boom of the late 1990s, when companies devoted considerable resources rolling out and then stabilising complex forecasting, supplier management and replenishment applications, as well as other related software, says Kevin O'Marah, an analyst at AMR Research.

The year 2000 was the high-water mark for SCM spending, he says, but over the past year, there has been some new stirring in the marketplace, largely fuelled by fiercer global competition. However, buying patterns are more modest than they were five years ago, when business was booming for vendors such as SAP, i2 Technologies and Manugistics. That's because manufacturers and suppliers face overseas rivals that are able to deliver the least-expensive products to retailers such as Wal-Mart, which have a seemingly insatiable demand for low-cost goods, says O'Marah.

Companies that want to compete must shave expenses while becoming more nimble. "If you go back even a couple of years, you could be a bit more supply-driven and push product out to the market, and, if there was a drop, fix it with promotions, but today, you've got to be more demand-driven," he says.

VF runs i2's Demand Fulfillment 6.04 and Supply Chain Planner as its primary SCM system. To help do things such as share information with offshore planners, it is rolling out i2's Master Data Management (MDM) application, says Will Shiver, the company's senior i2 analyst. This middleware tool promises to consolidate all relevant information around global manufacturing and supply chain operations and ensure that the information is kept up to date.

VF has completed a pilot of MDM and plans to phase out a green-screen, mainframe-based planning system. Presently, VF has to import data to the mainframe, but after the MDM implementation, it will be able to leave the data in the Supply Chain Planner system without having to reformat it. From there, the data can be easily exported to an Excel spreadsheet and sent overseas to, say, a planner in Hong Kong. With globalisation, VF has recognised the importance of making the full picture accessible virtually anywhere, Shiver says.

In addition, over the past two years, VF has been rolling out a sourcing and production management application for tracking and tracing orders over the web, says Martin. The product, called e-SPS, is made by Miami-based apparel software maker New Generation Computing and requires only a PC and web access. With it, a supplier and manufacturer can confirm that orders were received and give status reports on the actual production. If there is a problem, an email notification is sent to the appropriate VF staffer. The application talks to the i2 system via custom-written hooks created by VF, says Shiver.

As supply chains grow, the volume of information generated increases, demanding greater scalability for the SCM applications. VF is in the midst of an upgrade to Supply Chain Planner 6.1 from Version 5.3, which is expected to finish by the end of the year, says Shiver. The new version, which runs on IBM's high-end Unix boxes, will deliver a greater level of flexibility and complexity to rapidly create models of VF's growing international supply chains and produce more accurate forecasting, Shiver says.

Exploiting business intelligence software to boost planning accuracy is another way VF is fine-tuning its supply chain. The e-SPS software can do vendor report cards and keep track of things such as how many irregular goods a supplier delivered, how efficiently the supplier shipped the goods and how much it costs to do business with, says Martin. Some factories are better at supplying certain garments, and VF wants to pinpoint where contracts should go.

Among the challenges of stretching out to the Far East is having the ability to access, control and manage information while protecting intellectual property, notes Duane Hardacre, director of supply chain strategy and corporate business systems at Finisar, a maker of optical components for the networking and telecomms industry. The company currently runs Oracle's 11i E-Business Suite and recently rolled out Oracle's iSupplier and Collaborative Planning portal to tighten collaboration with its offshore contract manufacturers and suppliers.

Finisar is using Oracle's software to make sure that suppliers have access only to the critical data they require, and that safeguards are built in to prevent unauthorised access or theft. The security infrastructure ensures that nonsensitive information is accessible to anyone in the company who needs it, while access to sensitive intellectual property is limited.

In addition, Finisar built security controls around transferring specific types of data, such as manufacturing-process documentation and bill-of-material information. The company used a document control application from Agile that provides a security infrastructure to share this sort of data with suppliers.

As companies continue to test the limits of their SCM software, more challenges will emerge. "I can think of a myriad of problems going to the [Far] East that I never had before," says VF's Martin, "and there's no road map [to follow]."

Stand-alone or suite?

Users of SCM software face the decision whether to go with a supplier of tools targeted at a single use, such as Manugistics or i2, and cobble the pieces together, or buy a completely integrated suite from Oracle or SAP.

One benefit of buying from the suite vendors is built-in integration with, for example, CRM applications, says Joshua Greenbaum, an analyst at Enterprise Applications Consulting. That can make suites more responsive to demand. "If you look at how the supply chain is different today than five years ago, there is a very customer-centric focus," he says.

SCM systems are affected by information gleaned from callcentres. so tying CRM to the supply chain is worth the trouble, but it's also expensive, says Greenbaum.

For example, at Finisar, the strategy is to go vanilla with the Oracle E-Business Suite, says Hardacre. He says that 10 years ago, consultants were pushing "best of breed" in the hope of selling clients on SCM projects that required integration with back-end systems. However, in the past five years, the ERP vendors have been closing the functionality gap with those SCM specialists.

"I am a 100% believer that it kills a company to go outside its ERP system," he says. "It's a complete waste of money unless you're in a unique business situation."

On the other hand, at Dell, the philosophy is to implement standalone SCM systems that are best in class and then do the integration work, says Dick Hunter, Dell's vice president manufacturing and distribution for the Americas. Rather than standardise completely on a single ERP system, which has integration but may have "suboptimal" features, the company runs i2's Factory Planner and Supply Chain Planner applications.

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