INTERNET-ENABLED SUPPLY CHAIN MANAGEMENT
Introduction and Overview
Why is it that Supply Chain Management has yet to realize the benefits that have been promised? In fact, those companies that were ‘early adopters’ are reaping great benefits from the various strategies attributed to Supply Chain Management (SCM). Continuous Replenishment strategies include Vendor Managed Inventory (VMI), Efficient Consumer Response (ECR), and Distribution Resource Planning (DRP).
This White Paper will show that the fundamental building-block of SCM - that of effective information sharing - has not previously been supported sufficiently enough with traditional technology. Further, this White Paper will show how the use of the Internet can extend the principles of SCM by providing a cost-effective communication back-bone - so that the right information can be shared between business partners more efficiently and effectively than before. In closing, this paper will show how Supply Chain Management solutions can help customers and suppliers share mission critical information on a timely basis - better to enable real-time and effective decision making.
Certain technologies are enabling such business benefits via process re-engineering toward SCM. Electronic Data Interchange (EDI) is a major enabler that supports the various Continuous Replenishment (CR) strategies described above. In all cases, the goal is to improve partnership with suppliers and customers, share information more effectively, and realize true WIN:WIN benefits - such as reduced inventory, higher service levels, reduced obsolescence and so on.
EDI today is still relatively under exploited. The major Retail chains and their suppliers are the prime drivers in the mass use of EDI with its associated standards, with other industries sometimes driving their own standards - as shown by the Automotive Industry.
What companies are finding is that the overhead and infrastructure required for introducing EDI is huge. If your business is not within the Fortune 1000 you may well feel that the benefits sometimes get lost in the discussion as to how EDI might be employed.
The Internet is a complex association of integrated servers throughout the world. Centered on the US and Europe, these servers link all kinds of organizations, from educational, professional and entertainment.
Last year’s Internet headline story was about establishing a corporate (and personal) presence on the Internet by launching a "Home Page". This vision supported the idea of ‘electronic storefront’, a way to electronically attract customers and business partners via the Internet. The programming language used to create such store fronts (Home Pages) is called HTML.
More recently, the story focused on how companies might go shopping on the Internet to purchase software components from various vendors. In vogue today is Networked Business Objects, or NBO. This implies the accessibility of software objects across the Internet. Objects and purchasing software, or other goods, via the Internet is no linger setting anybody on fire. The vision that is involves one which actually ties in the way companies can achieve Supply Chain Management.
So what is stopping everyone achieving SCM? If SCM is not achieving real business benefits for many organizations today is it because they are still operating the way they have always operated?
A retailer will sell product, place an order to replenish that inventory; the supplier will receive the order, then replenish the inventory to the retailer; the supplier will consume inventory, and then place an order on the manufacturer; the manufacturer will consume inventory, and then place an order on the raw material supplier and so on. The whole process is sequential. This is quite logical, and perhaps even intuitive - since material flow throughout the supply chain is, in general, serial. In this sense information flow at best precedes inventory flow, and at worst, follows it. We consume inventory, and then signal to our supplier the need to replenish it.
Figure 1
Traditional SCM only had the tools to focus on Cycle Time Reduction as opposed to Cycle Time Elimination.
Companies used to protect their business forecasts and had no motivation or any good reason to share it with a business partner. Indeed, it was seen as dangerous to share such information with one’s business partners. Today this is still common business practice - despite what the visionaries are suggesting.
The Internet is the perfect vehicle to change that most traditional of all business models. The Internet is an infrastructure that transcends boundaries. A consumer at home an access the Internet; a retailer at work can access the Internet; a Buyer at a Manufacturers location can access the Internet; everyone can gain access. But what to do with the access?
The ‘big picture’ can be presented as follows:
Figure 2
The Internet facilitates continuous, near-real time information sharing - using an ready made infrastructure. Information no longer follows the traditional inventory flow.
The diagram above shows how customers may soon interact with their suppliers, and their suppliers.
Instead of being a sequential relationship where orders are placed on a supplier, inventory is consumed, and another order is placed on the preceding level of the supply chain, it may become a Web - using the near-instantaneous communication facility of the Internet. Information can be passed directly to the relevant level of the supply chain.
Causal factors, or demand drivers, will be measured and communicated to the retailer, so that in-store promotions can be better handled. Having near-real time access to partners in the supply chain will also have an impact on the way Point of Sale (POS) data is being used by the retailer in terms of replenishment.
New ways to take account of customer and consumer preferences will affect the current view of POS replenishment solutions, since the Internet implies that we can communicate changing needs and habits to more companies more effectively than the traditional "place order, consume inventory, place order, consume inventory" cycles, as shown in the previous diagram.
Customer Orders may be placed directly on the supplier - without even leaving the home - "home shopping". And this is another demand input that needs to be taken into account when developing supply chain management solutions. Suppliers will reside in the center of a web of customers - all communicating needs and information via the Internet, as shown in figure 3 below.
Figure 3
In the case of promotion information, any business within the supply chain can "talk" directly with any and all other levels of the supply chain. The Internet can link the customers upstream of their traditional customer - in other words the customers customer. The product demand being recorded and managed by the Internet will be communicated with every level of the supply chain - instantaneously. The traditional process of "order placement, inventory consumption and replenishment" may be forever changed. The result will be a great reduction in cycle time for the inventory replenishment cycle. The Internet will become the real-time, perpetual demand and replenishment solution.
As the customer orders a new product via the Internet, another set of raw materials will be replenished throughout the supply chain - without the typically associated definition of "end-to-end" lead time. Lead time will shift from serial product flow to instantaneous information flow. SCM has always talked about ‘cycle time reduction’. We have always assumed it would be a form of lead-time compression that would achieve the results. The desired improvements do not come, in this case, from small, periodic, incremental developments.
The Internet can provide for the replacement of lead-time and waste for information. And with more effective, timely information, we can reduce and eliminate costs.
Figure 4
The Internet does not have it all going one way. We can use the same software solution to support and promote more effective internal sharing of information. Intranet is basically the use of the internet to support an organizations internal business processes. An example is a company using an Internet solution to support internal processes within its organization. Lotus Notes is a great example of how Intranet can help expanding communications between people.
An intranet Supply Chain Management solution extends the use and vision of intranet further. A company’s sales people out in the field, gathering customer needs and suppliers information, can use the same solution to "dial up" the server/host application and feed data directly into the system. There is no need for ‘client side’ involvement.
This business model therefore revolves around Web/Server rather than Client/Server. For the customer side of the business, this might include order information, or promotion plans. For the supplier side of the business, it might be manufacturing constraints or changes in delivery schedules.
Figure 5
Customers who do business with large numbers of distributors may now gather field information, such as distributor orders, medium range promotions, or long range business plans via the Internet. Managers who are responsible for replenishing Distributor inventories may review requests and exceptions managed by the web system, and integrated to the manufacturing or purchasing systems.
Remote users may no longer have to purchase their own individual software packages or worry about synchronizing upgrades. Instead they can purchase access to a supplier maintained Supply Chain Management solution. Simply "logging-on" ensures that the latest software is being used on the client system - since the user is accessing the remote application. There is therefore no additional or traditional deployment process.
Conclusion
The Internet is the most effective way to gather information from large groups of people and companies distributed over a large area. Over the Internet, users can see, on-line, the results of their over-rides and orders on current and planned inventory levels for their supply chains, before they commit to place the order. The level of inventory throughout the whole supply chain can be reduced, and the cycle time from suppliers to end-customer is reduced.
American Software is the only provider of this Internet-enabled solution, Supply Chain PlanningTM, (SCP). SCP itself incorporates several modules, including Demand Planning, Replenishment Planning, and Manufacturing Planning. By incorporating the web-enabled component, Resource Chain VoyagerTM, no longer will an application package be purchased for its own use. Neither might it be used purely for outsourcing operations. With the Internet-enabled access, customers can now purchase access to the functionality, power, and supply chain management expertise supported by Supply Chain Planning.
Resource Chain Voyager redefines the concept of client/server computing, by offering access to the industry leading Supply Chain Management solution via the Internet. American Software has pioneered supply chain management solutions for the last 25 years. This new landmark in supply chain management, the first of its kind, will set a path for others to follow. More companies can now share in the vision and benefits of SCM than ever before.