The Basic Links of SCM
By Lee Pender
For most of the last century, the supply chain — a
company’s links to manufacturers, suppliers, distributors and customers — was an
inflexible series of events that somehow managed to get products out the door. A
paper-heavy adventure, it often involved questionable inventory forecasts,
iron-clad manufacturing plans and hypothetical shipping schedules.
The Internet has changed all that; it has transformed this archaic process
into something closer to an exact science. Think of the Internet-enabled supply
chain — with its just-in-time delivery, precise inventory visibility and
to-the-minute distribution-tracking capabilities — as a strategic weapon that
can:
- help companies avoid costly disasters
- reap cost-cutting and revenue-producing benefits
- slice the cost of holding too much or struggling with too little inventory
That potential, so central to the operations of any business, has CIOs
scrambling to find and fix the weak links in their supply chains. And it’s not
easy. Automating a supply chain requires careful planning, and must start with
an excellent understanding of relationships with partners and customers.
When evaluating SCM initiatives, it will pay to keep the following basics in
mind.
Visibility
- All the players in the supply chain should be able to react to the order.
The moment a retailer receives an order, the retailer’s supplier also sees
it. The supplier checks inventory. If inventory is low, a manufacturer — also
with access to the system — produces more product and ships it to the supplier
via a distributor that is also connected to the system.
Meanwhile, the supplier has sent the product to the retailer for shipment to
the customer. The customer, in turn, can track the shipment of the order and
perhaps even check inventory to make sure an item is in stock before ordering.
With Web technology, all the players in the chain simultaneously manage
inventory, control manufacturing schedules and deliver an order on time to a
customer.
The goal is to develop a system that will automate inventory management,
monitor parts usage by customers and replenish parts as necessary — all without
employees leafing through pounds of paper reports by hand.
Architecture
- Supply chain applications must link to existing enterprise resource
planning applications.
CIOs should look at their existing architecture and determine how best to add
supply chain applications to those already in place. ERP serves as the nerve
center of the organization — the repository for storing and tracking internal
information about inventory levels, pricing structures and other key supply
chain factors.
Ideally, there should be a single point of visibility for inventory and order
taking. Customers could place and track orders with a Web interface, and
customer service representatives would have access to the same information
customers see. A database would store and manage orders, and customers would be
able to check inventory and order status in real time any time.
Rethink the Chain
- The customer replaces the product line as the center of the supply chain’s
universe.
Most businesses established their supply chains around product lines. But
today, customer orders touch multiple product lines and multiple channels of
distribution. Modern supply chains focus on the customer — and on delivering one
order at a time rather than moving one product line at a time.
The focus has to be on filling, delivering and managing inventory for every
order that a customer places. Every order should penetrate the same system that
manages inventory and connects to suppliers and distributors.
Total Involvement
- Customers and other links in the chain have to be ready to handle
Web-based supply chain technology.
When rolling out a project, companies must decide which customers and
suppliers should use it first. That decision can be based on several factors.
Here the salesman’s “80/20” rule can apply: 20 percent of customers place 80
percent of orders, so companies should consider offering Web capability to that
20 percent of customers first.
Consider the IT capabilities of partners and customers. Simplicity is the
key: applications that are easy to use and easy to connect to will be the most
popular with members of the supply chain. Extensible markup language used in
applications can provide a lingua franca for all members of the chain.
Lee Pender, Senior Writer, can be reached at lpender@cio.com.
The Basic Links of SCM: Source: www.cio.com
