Release Date: 06 October 2006
Release ID: 978
There is an interesting phenomenon taking place right now within the supply chain sector. Unprecedented changes in the way the supply chain operates are placing new demands on IT systems while, in turn, developments in IT systems are opening up yet more novel ways of exploiting the chain - a self-fuelling cycle. Management can be forgiven for feeling insecure when making strategic decisions affecting the way they operate, or making decisions on their future IT infrastructure, in such a dynamically changing environment.
In fact, it is possible to detect a coherent movement once the key environmental trends are recognised. They are globalisation, symbiotic partnerships, outsourcing and the Internet. The purpose of this paper is to examine each of these movements and assess their implications in terms of systems design.
To gain an indication of the pace of change in recent years, we have only to turn to the novels of Charles Dickens. They conjure up vibrant images of a Victorian world built very much around trade - complete with a well established supply chain linking manufacturer to wholesaler, merchant and retailer, all serviced by local carriers. The world of importing and exporting features strongly too, complete with freight forwarders, agents, wharfingers, shippers and so on. If we then reflect on the way trade was conducted as little as a decade ago, a Victorian would have recognised and felt very comfortable with the whole mechanism. The supply chain infrastructure, including its terminology simply hadn't changed very dramatically. Then, over the last ten years we have experienced revolution.
Competitive pressures have squeezed margins to such an extent that corporations have turned to low cost sources, such as Mexico, Indonesia, Thailand and China for components and even finished product. These emerging economies, in turn, are benefiting from global trade to become significant consumers in their own right. It is estimated that by the year 2015, the gross domestic product of the Asia Pacific region will outstrip North America and Europe, with Latin America next in the growth league.
The net result is an exponential increase in the need to service far-flung markets, to transport and track products over a much wider geography and to provide high levels of customer service around the globe. The supply chain infrastructure that sufficed from Victorian times to almost the close of the twentieth century simply could not cope. Rather than being a compartmentalised part of the chain, even small companies are becoming directly involved in shipping, air freight, road freight and so on. Organisations that were relatively local in their logistics service provision, perhaps transport and warehousing, are widening their service offerings to provide new levels of distribution internationally and are becoming more focused on freight & shipping, while some shipping companies that previously restricted their operations to movement by boat, are now extending their service portfolio to door to door operations.
The implications for IT systems, as traditional supply chains become extended and de-compartmentalised, are:
• The need to handle intermodal movements
• The ability to conform with different national legislation and customs requirements. The implications are more than just documentation and include the process of customs clearance, management of bonded storage and so on.
• Multi-currency and Multi-lingual capabilities(including accommodating such things as the Chinese character set)
• Multi time zone (allowing users to track global movements and transactions stage by stage, all related back to their own time zone)
• Significantly more powerful database and data handling capabilities necessary to provide a real-time, single view across the globe
• The ability to support low volume users in remote, under-developed regions, cost effectively
The concept of partnership between suppliers and customers has been around for a number of years, particularly in the Just-In-Time environment. Increasingly, the relationship is becoming symbiotic and the demarcation between partners blurred. Once jealously guarded corporate information is now shared as a matter of course. Within the global supply chain, this extends to business partners sharing access to their internal systems to provide lead time, pipeline, stock level and product movement information on demand.
A similar degree of partnership is also becoming essential between partners in the extended supply chain. Companies operating globally need the ability to track consignments on multi-leg, multi-modal journeys, which predicates clear partnerships with warehousing operations, shipping companies and so on.
The resulting demand on IT systems is for strong integration capabilities between both the trading partners' systems and those of their logistics service providers. Telephone calls and faxes associated with the relaxed pace of old-world (ie pre-1990!) supply chain simply won't wash if, say, we want to make a transport booking and is unthinkable for passing on instructions to service partners. And to be able to make informed decisions, some integration is required to enable us to have visibility of the parts of the supply chain not directly under our control - an increasingly key aspect of supply chain visibility.
Outsourcing is the next logical extension of the partnership concept. The benefits are well rehearsed, particularly the ability to focus on core competencies. You need to understand your core competencies and identify you own place into your supply chain; then you can understand the need for collaboration. This collaboration can also provide the added benefit of being able to control your supply chain without the huge investment associated with warehousing and transportation assets.
The last thing any organisation adopting an outsourcing strategy wants, however, is to abrogate control. Ideally the systems infrastructure has to be capable of deploying solutions such as warehouse management in both owned and outsourced facilities. In the real world this may mean a compromise, including a mix of operational solutions, which again raises integration issues.
The implications of the Internet are much wider than e-trading. Internet trading has already changed people's perspective and expectations. Read any informed trade journal and the dominant issue when discussing the net is Customer Relationship Management. Customer expectations have changed overnight and the balancing of supply and demand becomes an even more critical process. The global access to your products provided through the web, opens up the need for distribution channels across the globe. Product differentiation is becoming even more important. One manifestation of differentiation is the growing trend towards product customisation on demand, with many web sites offering on-line product configuration options.. Such added value functions take place in the warehouse and systems now have to be capable of much more than simply recording the movement of standard products. They may have to accommodate WIP and simple 'manufacturing' functions into what were traditional warehousing systems.
The Internet has also revolutionised remote systems deployment. For years companies have struggled to implement operational systems at small sites around the globe. The cost of communications, support and systems maintenance have been prohibitive, resulting in a proliferation of stand-alone PC based solutions. At a stroke, the Internet has demolished the cost barriers and the web is fast becoming a corporate communications infrastructure supporting operational systems. The industry's reliance on EDI and flat file communications over dedicated or dial up links has also been eradicated with the widespread availability of a new information highway.
Unfortunately, the industry response has, in the main, been disappointing. A lot of attention has been devoted to developing sophisticated front end solutions, without addressing the sticky issue of real-time integration with back office systems. Too many developers, both in-house and packaged solutions providers, have balked at the cost and disruption of converting to the very latest development environments capable of true web deployment, such as Oracle Forms. Screen scrapes and front-ends are purely cosmetic and simply delay the inevitable - a complete re-write.
Supply Chain Demand
The supply chain is suffering tensions from two directions. On the one hand, we are experiencing a sea change in consumer expectations. Several years ago consumers (and companies) were happy to work to three day delivery cycles, whereas today twenty four hours or less is the norm. The consumer is also demanding greater choice and we have only to compare the relative fortunes of Marks & Spencer with that of ZARA to see how that translates into company performance. M&S is still associated with rigid season ranges (and until very recently these were sourced from within the country), whereas the whole premise of ZARA is many thousands of product changes during the season (with the added complication of being sourced from overseas). Such flexibility is possible only with an incredibly responsive supply chain
So much for the consumer. On the other hand, the supply chain is suffering tensions from increased competition. Margins have been squeezed mercilessly and companies need to sell more and hence move more volume through their supply chain to achieve the same returns. A slicker supply chain is able to provide two types of saving - operational savings and, more significantly, inventory savings. For most operations, the supply chain still comprises fragmented processes. Errors and shortcomings in each process result in arrhythmia, just like the stop-go cycles that frustrate motorway journeys. The net result is that most supply chains are carrying on average twice the inventory really necessary to achieve a given service level.
The solution to both types of tension - the need for flexibility and speed to satisfy consumer demand, plus the need to reduce operational and inventory costs - has been clearly identified as improved access to real-time information right along the supply chain.
The real central issue and differentiator is having access to timely, comprehensive and accurate information across your entire supply chain. Issues such as integration with partners systems, use of the Internet and the right functional and technical architecture of your systems facilitate this.
We have already discussed some of the systems requirements necessary to meet the demands of globalisation, the movement toward closer business relationships, outsourcing and the Internet. Speedy access to information globally has emerged as the key requirements and this inevitably means IT systems with true global supply chain capability. Although a number of systems may claim such capability, very few bear close scrutiny. Beneath the surface, most are still a collection of disparate systems loosely connected and with little real integration with the outside world.
So what is the model we should be looking for? Clearly, an e-commerce front end, but what is important is that it should be linked integrally with shipping, freight forwarding, warehousing and financial management - plus strong integration capabilities with external systems. In shipping, for example, this means integration from quotations through bookings, invoicing, manifests and documentation. In Freight forwarding it means a seamless flow across multi-modal movements, with a strong emphasis on track and trace.
The secret is to treat a freight movement very much as a series of journey legs - by ship, plane, through the warehouse, on the road and so on. What then becomes important is having the appropriate level of detail for each leg of the journey - with airline movement, the airway bill; with shipping, the bill of lading; and so on. Not only is breadth of available information important, so is level. For example, it is no longer sufficient simply to be able to track consignments. It has become necessary to get down to individual orders and even the products that make up an order; not just within the warehouse but also in the freight element of the chain. It is remarkable how many 'integrated' solutions lose all detail below consignment number once outside the warehousing system.
As to the warehousing requirements of a global system, we have touched on the increasing need to support value-added services and multi-locations. Other, less obvious complications have crept in. Even companies with a highly focused product range may have to handle totally unrelated product types. For example, a Wines & Spirits operation may have to accommodate promotional items such as books or tee shirts. It is also becoming increasingly common to sell spare warehousing capacity to suppliers or even unrelated local companies. Yet another reason for the systems to be able to handle very different product types and to handle the registering of stock ownership, a problem central to the business of shared user warehousing since its inception. Moreover, warehousing systems are having to cope with cross docking requirements, the revolving door concept applied to receipt and despatch of goods, as well as increasing concept of vendor managed inventory.
Finally, the transport element of a global supply chain system has expanded from basic functions like load planning to incorporate capabilities such as buyers/sellers consolidation, import/export, track and trace.
In a paper such as this it is not possible to provide a 'laundry list' of features and functions, and anyway that would be missing the point. What I hope to have achieved is an appraisal of the new structural demands on supply chain systems. The obvious outcome of these demands is the need for systems integrity along the whole supply chain, plus the highest levels of integration between the e-commerce front-end, the whole range of back office applications and even external systems to provide us with the information infrastructure across our entire supply chain. It is those companies which have the information infrastructure and operational systems to support their own operational elements of their supply chain which will come out on top - a model familiar to the growing number of 4PL organisations today.
So back to the question as to whether supply chain software solution providers are really 4PLs, - I think not. But they do provide an essential element of the supply chain management infrastructure and the one which more than anything can impact and enhance the efficiency and robustness of supply chain execution.
FWL Technologies supplies integrated solutions spanning the global supply chain.
David Renshaw BSc, AMILT, MinstD - COO
David has 22 years experience in the IT and supply chain sectors, including a consultancy role to organisations such as P&O Shipping and British Steel Distribution.
David was appointed to the board in 1988 with responsibility for growing the company's business in land-based distribution and warehousing. He has considerable experience of the global supply chain, much gained from a company client base that includes five of the top 10 UK logistics companies, three of the top five global freight companies and five of the world's largest shipping companies.
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