SUPPLY CHAIN MANAGEMENT: May 2009

Friday, May 29, 2009

Extending Quality's Reach to Manage Quality in the Supply Chain

0 comments 8:21 AM Posted by amma

Introduction:The quality department lies at the heart of a manufacturing concern. The quality department is responsible for ensuring that a company's products consistently meet its quality expectations. The speed and accuracy with which the quality department can perform its functions is one determinant of how quickly products can be delivered. Traditionally, quality departments have focused their efforts within the four walls of the plant, but today's demands and technology are pushing quality requirements beyond those four walls to the entire supply chain.

The quality department's role starts with the receipt of materials and continues to finished product. However, its responsibilities go even further. The quality department must reach out to other parts of the business. Working with purchasing and other departments, the quality department helps set the standards for incoming material and provides feedback on the quality performance of suppliers. In addition, for selected consumer products, the quality department manages the company's products shelf life and stability. For suppliers of industrial products, the quality department is responsible for ensuring that the materials meet customer specifications and for documenting the quality of products with certificates of analysis (COA).

As today's plants push for the integration of various systems, with a view towards streamlining operations, cutting costs, and improving overall quality, the expansion of the quality department's role is being taken into account. For example, many enterprise resource planning (ERP) systems that work at the plant level now consider quality characteristics to be part of the material's inventory record.

Software Suppliers :Software suppliers addressing the needs of the quality department fall into two categories, ERP vendors and independent suppliers. ERP vendors typically have a module called quality management that provides functions for specifications, samples, tests, etc. These modules are tightly integrated with the appropriate portions of the ERP supplier's product. For example, Patrick Sjoberg, product director for food and beverage industries at Lawson (formerly Intentia) tells us that their ERP system, Movex, contains an integrated quality module, saying, "We consider quality to be a vital part of any ERP solution for the manufacturer. To effectively maximize plant operations, quality information must be used to determine production requirements, scheduling, product availability and many other day to day operational issues."

Independent suppliers often provide products called laboratory information management systems (LIMS) that offer extensive functions, including connections to lab instruments, statistical analysis, instrument calibration, lab resource scheduling, and more. LIMS providers typically supply integration tools to enable their products to integrate with ERP, manufacturing execution systems (MES), and other plant level systems.

In general, although my software supplier friends may not agree, the ERP products offer greater integration into the supply chain, but less laboratory-specific functionality, while the LIMS products offer greater functionality to improve product quality and less integration.

Demands on Today's Quality Systems:

The increased call for product safety from customers, consumers, and regulatory bodies is fueling the demand for more formalized and self-documenting quality systems. For example, to prove chain of custody, samples require tracking from receipt through analysis, data entry, and approvals, all the way up to the final report. Every action must be logged, and every record properly signed and archived for future retrieval.

Moreover, most industry observers expect that the electronic signatures now required in the pharmaceutical industry (as defined in the Food and Drug Administration [FDA] 21 Code of Federal Regulations [CFR], Part 11) will be a requirement for many industries in the future. In addition, regulations regarding the documentation of standard operating procedures (SOP), staff training, equipment inspection, maintenance and calibration, and other information are also expected.

The increasing need for documentation is not the only demand being placed on today's quality systems. While enterprise systems typically provide tracking and tracing from supplier to customer, quality systems must provide the quality picture related to all affected lots. All samples and results, including the people and testing equipment involved, need to be linked to the lot management system to help research and resolve product quality issues quickly. Many ERP systems targeting the process industries do this well, and leading LIMS providers consider it an absolute requirement, providing such a link as part of their standard product.

The introduction of mobile computing and browser technology has aided the trend towards a more inclusive role for the quality department, letting quality systems extend into the warehouse and onto the plant floor. For example, Ron Kasner, senior director of Strategic Business Development at LabVantage Solutions, Inc. (the provider of the Sapphire� LIMS product) tells us of a process that some of his customers have in place:

Using a handheld wireless device that can access the web, a sample is taken, barcode scanned directly into Sapphire�. Associated batch and lot information is immediately captured. Depending on the test, a technician will initiate the test and record the appropriate sample data in the handheld device, or the data is automatically uploaded from the nearby instrument. The results of the test performed on the floor are recorded on the spot. Using LabVantage's built in work flow functions, if further action is required (for example, in the event the sample did not meet the designated specification) the technician is stepped through the SOP dictated process. (�) For example, the technician may be directed to take additional samples or perform additional test, make a batch correction or perform other functions. In addition, if required, a quality person in the global organization may be alerted to take further action. Through integration to the ERP system, data is passed on to the rest of the supply chain. In all cases, the data and actions are authenticated via electronic signature and recorded for future audit trail.

Conclusion

Quality systems must reach out beyond the confines of the plant or enterprise. For instance, most manufacturers already use some outside testing. In addition, companies providing industrial products must share quality data with customers. In both cases, a quality system that runs over the Internet will be an asset. Outside testers will be able to see their backlog of samples and enter test results over the Internet without any special equipment, while customers will be able to review detailed test results or download COA data as required.

In conclusion, quality does not start at the receiving dock and end at the shipping dock. The focus on the supply chain demands that the quality department be involved from the beginning to the end of the supply chain. ERP and LIMS providers are providing the tools to extend quality management outside the four walls of the plant, permitting a cradle to grave view of quality.

Using a handheld wireless device that can access the web, a sample is taken, barcode scanned directly into Sapphire�. Associated batch and lot information is immediately captured. Depending on the test, a technician will initiate the test and record the appropriate sample data in the handheld device, or the data is automatically uploaded from the nearby instrument. The results of the test performed on the floor are recorded on the spot. Using LabVantage's built in work flow functions, if further action is required (for example, in the event the sample did not meet the designated specification) the technician is stepped through the SOP dictated process. (�) For example, the technician may be directed to take additional samples or perform additional test, make a batch correction or perform other functions. In addition, if required, a quality person in the global organization may be alerted to take further action. Through integration to the ERP system, data is passed on to the rest of the supply chain. In all cases, the data and actions are authenticated via electronic signature and recorded for future audit trail.

Conclusion

Enterprises May Be Overlooking Profits from After-sales Service

0 comments 8:19 AM Posted by amma

Introduction:Traditional sources of profit margins for manufacturers from product sales are diminishing as more and more products are commoditized, and margins are thus further and further reduced. On the other hand, profit margins from after-sales service are good (if managed well), and hold the promise of sustained (if not increased) revenue in the future. In industries like aircraft, automobile, computers, mobile phones, electronics, and so on, a major portion of revenue comes from after-sales service. Also, from the point of view of retaining customers, efficient and reliable after-sales service is important.

These facts warrant investment in good systems—popularly known as enterprise service management systems—to better manage after-sales service. Unfortunately, AMR Research points out that manufacturers invest four times as much in IT solutions for their product businesses as they do for their service businesses, but one quarter of their revenues—and half of their profits—come from service.

The Rising Importance of After-sales Service

After-sales service is no longer an afterthought for manufacturers. It is now firmly on the strategy agenda for most manufacturers with significant after-sales service operations.

Across all industry segments, an Aberdeen-Industry Week study found that profit margins for after-sales service and parts ranged from 25 percent to 1000 percent higher than margins for initial product sales. The study further revealed that after-sales service accounted for 20 to 30 percent of revenues, and about 50 percent of profits for most companies.

In the automotive industry, parts and services constitute nearly half of revenues, and 45 percent of profits, for both automotive original equipment manufacturers (OEMs) and dealers. Much of the remaining profit in the automotive industry come from financing and other value-added service (rather than sales of new cars).

A few quotes from research agencies indicate how important after-sales service has become for manufacturers:

* "Service also allows organizations to compete for and retain customers based on values other than price. In markets in which the product offering is viewed as a commodity, high-caliber service can serve as a rationale for higher prices."
— Aberdeen Group
* "A massive revenue opportunity follows each product sale."
— AMR Research
* "While original manufacturers spend billions to develop, produce, and market their durable goods, they don't pay equal attention to servicing these products once they're sold. As a result, OEMs' after-sale activities are held together with strings and baling wire."
— Forrester Research

Cost Economics:Major input costs in after-sales service are labor charges and service part costs. Service parts costs consist of inventory, transportation, purchase order, item, and administrative costs. This is why service parts costs can be as high as 70 percent of after-sales service. There is definitely scope to reduce this cost by as much as 50 percent, by reducing inventory and other costs. Service levels for service parts in many cases can be as low as 60 percent. This can be increased to over 95 percent, without increasing inventory costs. This can be achieved by better managing the whole process of procurement, transportation, and inventory management at all stocking points. This will result in reduced lead times, better predictability of demand, better visibility of supply, and more inventory turns. This helps to reduce safety stocks at all stocking points, and due to fewer chances of stockouts, helps in increasing service levels. Thanks to better visibility inside your safety stocks, you can also eliminate or reduce obsolescence of parts.

Currently, the service parts pricing model used by manufacturers is "cost-plus," where the sales price of a part is calculated by adding a certain percentage of the manufacturing or purchase price. This ignores the impact of competitive and comparable price points, and sacrifices opportunities to increase revenues and profits. By adopting optimal pricing strategies, manufacturers can increase revenues and profits.

One last consideration is the cost economics effect of having service part networks on a global scale. Having global suppliers, regional hubs, and service stations located in different parts of the world (and in mobile units) makes for a huge network. If this network can be managed efficiently, to minimize localized excess inventory, transportation costs, lead times, and delays in providing service, then huge savings can be realized by the manufacturer. There are some best-of-breed software vendors whose software can be used to achieve these cost savings, including Servigistics (www.servigistics.com), Xelus (now Click Commerce [www.clickcommerce.com]), and so forth.

Service Parts Supply Chain The service parts supply chain network basically consists of a chain which extends from service parts suppliers (after-market manufacturers and service part dealers) to central warehouses of manufacturers, to repair sites, field locations, mobile units, and so on.

The service part supply chain is very different from production parts or products. First of all, demand for service parts is not predictable, and is wholly dependent on predictive and preventive maintenance (and thus on calculations of mean time to failure). The sparse nature of usage or consumption data makes it difficult to generate valid forecasts for service parts. These parts are costly, and so excess inventory at any inventory location is always a costly affair. These factors means that effective supply chain management for service parts is very difficult.

Based on historical data, customer service departments make a projection for need of service parts for any future time period. Based on this forecast (coupled with lead times, order costs, inventory costs, and other cost factors), service departments decide how much inventory they should be keeping with respect to different service parts. Since there is no firm demand as such, and since supply is totally dependent on this forecast, exact matches of supply with demand is very elusive.

Potential for Savings

There is huge potential for saving costs in service parts management, as well as for improving service. Among the major potential areas for improvement, there are five which merit close study:

* Reduction of inventory costs and parts optimization: By reducing inventory throughout the supply network, inventory costs can be substantially lowered. Parts optimization can be achieved through supplying the right parts, to the right places, at the right time.

* Service improvement: Through accurate forecasting and supply planning, service levels can be significantly improved.

* Revenue enhancement: With optimal pricing and better service levels, revenues can be increased.

* Bottom-line and top-line improvement: Increasing revenues will improve the top line, while reducing costs will improve the bottom line.

* Efficient management of global supply chain network: The efficient and effective management of the global service network delivers significant value in the form of dramatic cost reduction, revenue gain, increased profitability, and higher levels of customer loyalty.

All of these potentials for savings can be achieved if supply and demand information can be integrated in real time for all points in the supply chain, right from suppliers to service centers, production units, mobile service stations, and so on. This will ensure that live information is available to make the right decisions. With a planning and forecasting system, things can be improved further, as demand and supply can be matched in the most optimal manner.

Scenario in Developing Countries:In developed countries, service parts management is well-organized. In developing countries like India and other Asian countries, however, service parts management is still nascent. Manufacturers and service centers in these regions may thus not be able to obtain benefits from the business opportunities which are increasing due to high market growth and favorable government policies. For instance, the Indian government recently announced policies to enhance India's status as a major hub for small car manufacturing. Demand for small cars in India is already reaching double-digit growth annually, and after this governmental policy is instituted, growth is going to explode. All this will lead to high growth for service parts management. Similarly, the use of computers, mobiles, and many hand-held devices has been growing, and the need for efficient service parts management in these sectors has become critical.

One estimate is that in India, revenues from after-sales service in the automobile industry does not contribute more than 10 percent of the total revenues for the manufacturer. Contrast this with figures of more than 50 percent in countries like the US. These facts indicate that there is huge potential for manufacturers.

A Brief Case Study from India

A tractor and farming equipment manufacturer had been struggling with service management of its products. This manufacturer had an ERP system installed but was not using any service management application.

A study was conducted with help of a management consulting agency. This agency evaluated the manufacturer's situation and compared its existing performance against the benchmark standard for similar businesses operating in the US who were using service management applications. There were seventeen major areas included in the study. In areas such as "improving fill rates for spare parts" and "reducing customer response times," there was room for as much as 40 percent improvement. In eight areas, as much as a 25 percent improvement was possible. In three areas, 20 percent improvement was possible. All of these gaps were attributable to the fact that business processes, although similar to the US counterparts, did not have any service management application at the enterprise level. Such applications can integrate all business processes within the enterprise, and with suppliers, customers, and partners. This manufacturer would definitely benefit from investing in any good service management application.

User Recommendations

As the market is becomes more and more commoditized, margins are shrinking from product sales. Most manufacturers are trying to find new avenues for obtaining more revenues, and trying to find new business lines from which they can get better margins. In this scenario, after-sales service looks very promising, and is becoming a savior for the manufacturers. But efficient and reliable after-sales service needs a good enterprise service management system to manage it. And there lies the rub. Manufacturers are still slow to invest in buying and implementing a good enterprise service management system.

Undoubtedly there is a big potential in after-sales service for saving costs by streamlining service parts procurement, improved service, and inventory management. Revenue can be increased by service parts price optimization and improved service. To tap this potential, manufacturers should look into making investments in enterprise service management systems.

Method to the (Expansion) Madness: Some Common Threads

0 comments 8:15 AM Posted by amma

Click Commerce, a thriving provider of on-demand supply chain management (SCM) solutions for a variety of worldwide industries, has been impressively active in its expansion efforts. Its product offerings now include quite a few solutions outside its traditional demand channel management (DCM) and extranet realm. While each of these solutions has a unique focus and its own traditional customer base, the company's target market of large multinational businesses often requires solutions from several of these categories. Each of the vendor's disparate solutions is designed to assist customers with various key business processes:

* coordination and optimization of business processes by providing visibility into partner activities and the tools for improved management of tasks and processes;
* standardization of sales and order management processes, and facilitation of collaborative commerce among trading partners to shorten revenue cycles;
* lowering of costs through reduction of manual touch points and processing times;
* provision of assistance to partners to provide better service (to increase brand loyalty);
* compliance with regulatory requirements by speeding application preparation, eliminating routine errors, and notifying research teams of approaching deadlines; and
* enhancement of collaboration with customers and prospective customers.

Part Three of the series Will a Tool Manufacturer and a Supply Chain Software Vendor "Click" in Matrimony?

For background information, see Will a Tool Manufacturer and a Supply Chain Software Vendor "Click" in Matrimony? and A Supply Chain Applications Vendor Expands Beyond Its Roots.

Click Commerce believes that the quality, depth, and scope of its diverse product offerings should create opportunities for integrating and cross-selling its solutions from one product offering to existing and future customers of other product offerings. The products also have a few common, underlying themes. For instance, regulatory and compliance issues have lately been mushrooming, such as those highlighted by the US National Institutes of Health (NIH), as well as the US Automotive Right to Repair Bill, the Robinson-Patman Act (anti-price discrimination act), the Public Health Security and Bioterrorism Preparedness and Response Act of 2002 (also known as The Bioterrorism Act of 2002), and the Sarbanes-Oxley Act (SOX) (see Using Business Intelligence Infrastructure to Ensure Compliancy with the Sarbanes-Oxley Act). There are a growing number of regulatory and compliance opportunities in the market, and these are just a few. Accordingly, Click Commerce has lately been structuring its business as it continues to look for acquisition targets to take advantage of these compelling possibilities. For instance, former Webridge had solutions to take advantage of the market created by the NIH, and had already captured five of the top ten research institutions, whereas erstwhile ChannelWave had solutions to take advantage of the automotive right-to-repair mandate.

Furthermore, as application service provider (ASP) hosting technology matured (meaning that ASP is not a "dirty word" any more—see Trends in Delivery and Pricing Models for Enterprise Applications: Pricing Options for more information), Click Commerce saw this trend and recognized the benefit of the former Allegis business model when it acquired the company in 2003. Historically, the vendor had realized most of its revenues from licensing its software on-premise, and related implementation and maintenance services. The software was usually installed on customer-owned hardware at the customer's facility, and was operated and maintained by the customer's personnel. This software license model generally resulted in lengthy sales cycles, significant integration and implementation challenges and expenses, and relatively large (but one-time) revenue recognition events for the vendor.

Today, while still selling some products under the license model, Click Commerce offers all of its products either on a software as a service (SaaS) basis, or on a hosted ASP basis. Under the SaaS model, the software is installed, operated, and maintained on the vendor-owned servers, which are monitored and maintained by vendor personnel. While the software is still configured and integrated to the customers' needs, implementation and integration challenges are substantially reduced (see Software as a Service beyond Customer Relationship Management and Sales). Under this approach, a customer's monthly subscription and hosting fee is substantially less than the typical one-time license fee, but over the life of the subscription equivalent or greater revenue is generally produced for Click Commerce. The lower up-front costs and integration hurdles tend to reduce customer approval requirements and shorten sales cycles. All revenues associated with subscriptions are recognized ratably over the life of the arrangement, including software licenses, set-up services, and implementation services. This results in more stable and predictable (albeit deferred) revenue for Click Commerce.

Also, through several of its acquisitions, the vendor has assembled a suite of products and services that enterprises can use to implement radio frequency identification (RFID)-enabled SCM solutions. The emergence of RFID has created market momentum for Click Commerce's global data synchronization (GDS) solutions, and was one of the reasons why the vendor looked at SCM companies during its most recent acquisition binge. The vendor views the RFID market as important because major, industry-leading retail chains (channel masters), including The Home Depot, SUPERVALU, Tesco, and Wal-Mart, in addition to the US Department of Defense (DoD) have announced initiatives that will require their suppliers to become RFID-enabled. The idea is to thereby reduce product shrinkage, reduce stock-outs, and reduce inventory costs within the supply chain, while concurrently improving product time-to-market.

According to UCCNet, there are more than one million suppliers worldwide, and more than a quarter million suppliers in North America that will eventually have to implement collaborative commerce solutions. A key trend that cuts across all Click Commerce verticals is RFID, with a huge projected $10 billion (USD) software and services market by 2010. This will revolutionize how trading partners interact with each other, and how they manage their own internal processes to serve those external partners (see As Hype Becomes Reality, a Radio Frequency Identification Ecosystem Emerges).

While the company does not supply RFID transmitting or receiving devices, its RFID-enabling software can process data from such devices, and integrate and communicate that data to and among trading partners. The key enablement software, the GDS and secure communications product, is part of the Click Commerce Master Data Management (MDM) solutions product offering. The value opportunity from RFID investments in GDS and in tags and readers comes respectively from errors reduction and labor reduction. However, even bigger value opportunities come from RFID investments in SCM, planning, and optimization. These are, respectively, cycle time reduction, improved visibility, and demand-driven execution, where Click Commerce hopes to delight its customers.

To that end, in early 2006 at the company headquarters in Chicago, Illinois (US), Click Commerce announced the opening of the RFID Competency Center to showcase how RFID enhances its solutions. The Center features the Intelligent Supply Chain, a RFID solution created by Click Commerce and Vue Technology. This demonstration tracked the movement of inventory through a multi-tier supply chain, from manufacturing through distribution to the retail store shelf, where item-, case-, and pallet-level RFID tagging was used to provide inventory visibility and management across the supply chain. This visibility and control logically increase supply chain agility and accuracy, allowing inventory to be pulled through the network based on real-time demand conditions to avoid stock-outs. Within the distribution center, RFID drives labor productivity and accuracy by automatically sensing inventory throughout the warehouse, and eliminating labor associated with check-in, bar code scans, and cycle counts. The resulting benefits of the Intelligent Supply Chain reportedly include fewer lost sales, increased customer service levels, and lower supply chain costs.

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Currently, Click Commerce has about 1,500 customers with over a million individual users in 70 countries and 15 languages. Its Global 2000 clients typically have complex products and multilevel, hierarchical relationships with a broad range of channel partners. Click Commerce solutions have also been devised to support the unique business processes of a wide variety of industries, including manufacturing and distribution (Delphi, Hyundai, Jabil Global Services, Abbott Labs, Kawasaki, Lincoln Electric, Goodrich, Honeywell, BP, Solectron, Subary, Tyco, etc.) and consumer products and retail (Wal-Mart, Home Shopping Network, Ann Taylor, Procter & Gamble, Bausch & Lomb, Pier1 Imports, Sara Lee, Black & Decker, etc.). Also included are commercial aviation and A&D (American Airlines, Delta Airlines, Lockheed Martin, Alaska Airlines, GE Aircraft Engines, Air France Industries, the Canadian Department of Defence, etc.), high-tech and electronics (Motorola, Microsoft, Dell, SAP, Oracle, Intel, Nortel, Lucent, Hitachi, etc.), and financial institutions (Bank of America, JP Morgan Chase, ABN Amro, American Express, Citibank, Union Bank of California, Charles Schwab, Countrywide Financial, etc.). One should also not forget its health care and higher education clients.

The company says that its products and services enable such corporations to coordinate and optimize business processes, accelerate revenue, lower costs, and improve customer service. For instance, Microsoft, the world's largest software company, relies on the Click Commerce Demand Channel Management (DCM) solution, which is deployed in 17 countries and 8 languages to support 350,000 partners, nearly a million users, and 400,000 customer accounts. The system's primary functions are to manage leads, control the allocated marketing funds, and manage all partner communications. As another example, Nissan Motor Corporation, a leading manufacturer of commercial cars and trucks with North American sales of about $1.3 billion (USD), relies on Click Commerce SPP&O solutions. In North America, Nissan products are sold through a network of over 1,200 Nissan and Infinity dealers, and the challenge has been to reduce high inventory value while at the same time improving overall fill rate and service levels. Reportedly, Nissan reduced overall spare parts inventory by 33 percent in year one, and by 50 percent in year two, while simultaneously increasing fill rates by 10 percent.

An unnamed leading supplier of telecommunications equipment relies on the Click Commerce SCM solution suite. Since it was a make-to-stock (MTS) manufacturing environment prior to deploying the suite, management had the challenge of customarily high levels of inventory and facilities costs, and lack of visibility and control of order fulfillment process, while poor on-time delivery was negatively impacting revenue recognition. After the company was re-engineered to become make-to-order (MTO), there were reported results of reduced inventory (from $7 billion [USD] in 2001 to $632 million [USD] in 2003) and reduced numbers of company owned-warehouses (from 200 to 15 virtual outsourced warehouses), with its gross margin improving from 12 percent in early 2002 to 43 percent by the end of 2003.

SSA Global finds Little Known SCM Gems in Filling Out its Solution Portfoli

0 comments 8:12 AM Posted by amma

Background:The stages of SSA Global's continued success over the past five years are well documented by the media and analyst communities. With financial year (FY)2005 revenues of $712 million (USD), up 12 percent over FY2004, a net income of $8.9 million (USD), and 3,700 employees in North America, Europe, Asia Pacific, and Latin America, SSA Global's recent performance is considered exemplary relative to the overall software market.

Part of their strategy has been to grow both organically and through acquisition, while developing a complete end-to-end suite of applications with one open platform architecture. Founded in 1981 and headquartered in Chicago, Illinois (US), this traditional enterprise resource planning (ERP) vendor has evolved into a software provider with multiple supply chain management (SCM) solutions.

SSA Global's original flagship product, Business Planning and Control System (BPCS), was introduced in 1982 and was very successful in the mid-market. After its early years of success, SSA Global went through the typical software vendor ups and downs until 2001, when Michael Greenough became president and chief executive officer (CEO) and brought a new "growth through acquisition" mindset to the company.

Their acquisition timeline is as follows.

* 2001 � Acquisition of Max International adds worldwide coverage of industrial ERP to the small and medium business (SMB) market.

* 2002 � Infinium Software acquisition deepens financial and human resources (HR) functionality for the gaming, healthcare, and hospitality industries.

* 2002 � interBiz� acquisition provides SCM, financial, and HR product lines.

* 2003 � Elevon is acquired for its e-business and collaborative commerce capabilities.

* 2003 � Ironside acquisition strengthens sell-side and buy-side e-commerce solutions for the manufacturing and distribution markets.

* 2003 � Baan acquisition doubles SSA Global's global size and adds manufacturing strength for the engineer-to-order (ETO) and manufacture-to-order (MTO) environments, as well as ERP, supply chain, and transportation planning capabilities.

* 2003 � EXE Technologies acquisition extends SSA's supply chain execution (SCE) capabilities.

* 2004 � Arzoon acquisition brings SCE infrastructure for multimodal transportation.

* 2004 � Marcam acquisition adds specialized ERP solutions for process manufacturers.

* 2005 � E.piphany acquisition adds customer relationship management (CRM) capabilities as a wholly owned subsidiary.

SSA Global's tag line monikers are "Moving Forward Faster" and "Enterprise Resource Doing". They have being practicing what they preach in this regard, committing to a customer-for-life services mantra and a "never sunset" approach to key acquisition software integration. Significant product integration activity has been under way since 2002, and should reach fruition by the end of 2006.

SSA SCM:

SSA Global's SCM solution strategy is to develop a comprehensive SCM solution suite with a focus on demand management and SCE. Their SCM line-up of products is as follows.

Advanced Planning and Scheduling: demand planning, inventory planning, supply and replenishment planning, manufacturing planning, and manufacturing scheduling
Warehouse Management Systems: work and task management, labor management, slotting and optimization, value-added services, yard management, third-party logistics (3PL) billing, radio frequency identification (RFID) for distribution, and voice directed distribution
Transportation Management Systems: supply chain design, transportation planning, transportation procurement, rout planning, transportation execution, and international trade logistics
Supply Chain Event and Performance Management: sense, measure, respond, act on visibility, key performance indicators (KPI), intelligence, and performance metrics

In addition, SSA OnePoint Services provide applications management, consulting, education, solution development, and support for all SCM products.

SSA Global's strongest industry vertical is retail, especially the grocery, high volume retail (with clients like CVS), and automotive and after market service parts segments. It has developed key SCE functionality for these verticals, for example labor management with time and attendance, assignment monitoring, and forecasting. SSA Global also competes well in 3PL and manufacturing verticals with its advanced distribution capabilities, leveraging technologies gained from the EXE acquisition, such as SSA Value for value-added services, and SSA Billing and SSA Optimize for space utilization. Moreover, SSA Global offers key vertical clients participation in industry advisory boards (IAB) that are configured by vertical to drive future requirements and to discuss hot issues affecting the industry.

SSA Global's product differentiators include the following.

An engineered migration path initiative that moves SCM products to a Java 2 Enterprise EditionJ2EE) base with common user interface, workflow, and portal capabilities

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Decision support capabilities for warehouse configuration and labor
Distribution fulfillment orientation that goes beyond a traditional warehouse management system (WMS) with a comprehensive distributed order management module

Other SCM Gems Found During this Growth Period:

While the above mentioned acquisitions have garnered most of the attention, SSA Global has quietly recognized the value of some of the lesser known SCM software components that have been gained by acquisition or partnership during this period, including the following examples.

Voice-driven WMS picking operations with Vocollect partnership. As one of the largest resellers of Vocollect's Voice-Directed Distribution solutions and with the integration of the solution with its warehouse management modules, SSA Global has made serious inroads into the grocery sector with its combined WMS and voice software solution. SSA is on its fourth release of voice software, which is fully integrated with its labor processing solution, and boasts more voice installations than any other SCE company. Hannaford Brothers (a major grocery entity in the Northeast), Safeway, and Publix all use SSA's WMS and voice directed distribution solution on Vocollect's voice driven hardware.
Supply chain event management (SCEM) with Vigilance. This gem was part of the Arzoon acquisition, and during the high period of attention to SCEM, Vigilance was considered a potential star with a solution that could span any application platform or multiple operating systems and databases in real time. The software monitors the execution of all key events and processes, and provides for intelligent alerts with closed-loop workflows and actionable event management. Sales of the SCEM software have been brisk, with recent deals with Conagra Foods, Marathon Petroleum, Pfizer, and Hewlett Packard.
Yard management software (YMS) through original equipment manufacturer (OEM) agreement with the C-3 Solutions partnership. In a close and well managed partnership with C-3 Solutions that resulted indirectly from the EXE acquisition, SSA Global provides for YMS capabilities, including real time inventory visibility for trailers and their contents with wireless communication to yard drivers, Web-based self-service appointment scheduling, and automatic schedule change notification and unload scheduling. Safeway is one of the primary users of this joint software solution.
Trade logistics planning and supply chain network design with SSA Network Design . Used by both Wal-Mart and General Motors, this software assists companies in making better strategic, tactical, and operational plans throughout the supply chain. Supply chain network design, tactical planning, transportation procurement, and transportation and route planning are salient components. These modules complement the SSA Transportation Management suite for multimodal transportation execution.

Assessment:

SSA Global completed a successful initial public offering (IPO) this year and has posted strong financial results as of late. Existing clients of acquired companies have commented that they see improved account management since SSA Global acquisition. Moreover, the SCM products' international capabilities and SSA Global's global infrastructure positively affect product and risk performance for prospects and the installed base.

Although two WMS products that SSA Global gained through the EXE acquisition, Warehouse 2000 for retail and Warehouse 4000, are difficult to evaluate because most of the current users are running older releases they acquired from EXE and have not upgraded (something the company is working hard to correct), SSA Global consistently scores high in product functionality compared to other SCE vendors. The company's financial risk factor is low to moderate, as SSA Global's market strategy is to sell its WMS applications to both the open market and the extensive SSA ERP customer base, which is very large because of its BPCS and Baan customers. Both BPCS and Baan suites had WMS capabilities, but these are considered rudimentary, single site solutions that have seen little development over the past few years.

SSA Open Architecture 5.1 was launched in May 2005, and SSA Global espouses a commitment to a service-oriented architecture (SOA)-based architecture on J2EE technology. SSA Global also used this launch to jump on the demand driven supply network (DDSN) band wagon via business process management (BPM), the speed and agility of its forecasting, order management, inventory management, and supply chain products. This was more than just a repositioning of the existing product suites with the various integrations of supply chain extensions that have been developed since 2002.

SSA Global's new releases of WMS and transportation management system (TMS) in November 2005 include SSA WM2000 5.5 and SSA WM 4000 3.10, which provide an enhanced user interface, compliance capabilities, and improved warehouse operational capabilities. SSA Transportation Management 6.2 provides increased functionality for supporting heavy international air cargo transactions.

However, despite their success, product integration will remain a big challenge for SSA Global for some time to come. Until full end-to-end SOA capabilities are available, prospective clients have a bevy of products to choose from, but with considerably less confusion and doubt about their various integration points. Nonetheless, unlike Computer Associates or other software vendors that have tried to merge multiple application suites into an end-to-end consolidated solution, SSA Global appears to be investing the time and capital to make it all work properly as a comprehensive suite of ERP software with SCM products that can compete effectively with best-of-breed solutions.

SSA Global's SCM solution strategy is to develop a comprehensive SCM solution suite with a focus on demand management and SCE. Their SCM line-up of products is as follows.

Advanced Planning and Scheduling: demand planning, inventory planning, supply and replenishment planning, manufacturing planning, and manufacturing scheduling
Warehouse Management Systems: work and task management, labor management, slotting and optimization, value-added services, yard management, third-party logistics (3PL) billing, radio frequency identification (RFID) for distribution, and voice directed distribution
Transportation Management Systems: supply chain design, transportation planning, transportation procurement, rout planning, transportation execution, and international trade logistics
Supply Chain Event and Performance Management: sense, measure, respond, act on visibility, key performance indicators (KPI), intelligence, and performance metrics

In addition, SSA OnePoint Services provide applications management, consulting, education, solution development, and support for all SCM products.

SSA Global's product differentiators include the following.

An engineered migration path initiative that moves SCM products to a Java 2 Enterprise EditionJ2EE) base with common user interface, workflow, and portal capabilities

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Decision support capabilities for warehouse configuration and labor
Distribution fulfillment orientation that goes beyond a traditional warehouse management system (WMS) with a comprehensive distributed order management module

Other SCM Gems Found During this Growth Period:

Voice-driven WMS picking operations with Vocollect partnership. As one of the largest resellers of Vocollect's Voice-Directed Distribution solutions and with the integration of the solution with its warehouse management modules, SSA Global has made serious inroads into the grocery sector with its combined WMS and voice software solution. SSA is on its fourth release of voice software, which is fully integrated with its labor processing solution, and boasts more voice installations than any other SCE company. Hannaford Brothers (a major grocery entity in the Northeast), Safeway, and Publix all use SSA's WMS and voice directed distribution solution on Vocollect's voice driven hardware.
Supply chain event management (SCEM) with Vigilance. This gem was part of the Arzoon acquisition, and during the high period of attention to SCEM, Vigilance was considered a potential star with a solution that could span any application platform or multiple operating systems and databases in real time. The software monitors the execution of all key events and processes, and provides for intelligent alerts with closed-loop workflows and actionable event management. Sales of the SCEM software have been brisk, with recent deals with Conagra Foods, Marathon Petroleum, Pfizer, and Hewlett Packard.
Yard management software (YMS) through original equipment manufacturer (OEM) agreement with the C-3 Solutions partnership. In a close and well managed partnership with C-3 Solutions that resulted indirectly from the EXE acquisition, SSA Global provides for YMS capabilities, including real time inventory visibility for trailers and their contents with wireless communication to yard drivers, Web-based self-service appointment scheduling, and automatic schedule change notification and unload scheduling. Safeway is one of the primary users of this joint software solution.
Trade logistics planning and supply chain network design with SSA Network Design . Used by both Wal-Mart and General Motors, this software assists companies in making better strategic, tactical, and operational plans throughout the supply chain. Supply chain network design, tactical planning, transportation procurement, and transportation and route planning are salient components. These modules complement the SSA Transportation Management suite for multimodal transportation execution.

Assessment:

Supply Chain Management Vendor Finds Balance for Service Supply Chains

0 comments 8:09 AM Posted by amma

Background:The early years for Click Commerce (founded in 1996) centered on extranet enablement, and in particular, on demand chain solutions for business-to-business (B2B) and business-to-customer (B2C) e-commerce. Click Commerce's early channel management software allowed manual and dynamic creation of relationship hierarchies and online communities within a distribution channel, through the use of membership rules. The intent of this functionality was to help enterprises establish B2B distribution portals and B2B-to-consumer portals. In these portals, the relationships and business process rules between the enterprise and its channel partners are transparent to the consumer. Enterprise channel management strategies gradually gave way to the potentially explosive private trading exchanges (PTXs), leaving Click Commerce and competitor Comergent in a leading position for the sell-side PTX market. This market, however, never materialized.

Click Commerce also ventured into product information management (PIM), acquiring PIM vendor Requisite Technology in late 2005. Flagship client Delphi Automotive worked with Click Commerce to move its entire aftermarket catalog online, as the first step towards aggressively driving its aftermarket e-business. Large tier one suppliers looked to Delphi as a model for how to manage an aftermarket e-business strategy without rubbing distributors and original equipment manufacturers (OEMs) the wrong way. Delphi's initiative also continued Click Commerce's successful run at extranet implementations in automotive and heavy equipment channel management.

Click Commerce's Version 4.0, dating from early 2000, featured layered architecture consisting of the Relationship Manager platform and a suite of more than eighty application modules. Version 4.0 featured extensible markup language (XML) for communication between its application modules and an enterprise's legacy, enterprise resource planning (ERP), and other back-end systems, in order to streamline implementation and integration processes. Click Commerce licenses Relationship Manager and Application Suite at enterprise or divisional levels. The enterprise then authorizes its channel partners, and in some cases the consumer, to access the modules, including the enterprise's ERP software and other legacy systems, via an Internet connection and a browser.

More recently, Click Commerce has ventured into warehousing and service supply chain execution solutions, with the acquisitions of Optum Software in early 2005 (which had in turn previously acquired World Chain) and Xelus, Inc., a leader in services parts management, in June 2005.

Optum was an established supply chain execution (SCE) vendor with over 750 implementations of its MOVE WMS product; clients included Grainger, Federal Mogul, GE Aircraft Engines, and Pier 1 Imports. Like many SCE vendors, Optum realized that its core competency of complex, high volume warehousing and distribution systems could be transformed if the classical four walls and enterprise-constrained boundaries in SCM could finally be broken. Optum invested heavily in its TradeStream product; this was a collaborative integration and aggregation application which provided centralized visibility of order and inventory information. This was an ambitious undertaking, and a more difficult project than it seems, given the difficulties of connection technologies and critical mass participation within a specific supply chain community. TradeStream was piloted and implemented by Lucent Technologies, which brought credibility to the initiative.

The company which for three decades was known as LPA, renamed itself Xelus in mid-2000, to exemplify its new zeal. Xelus, a leading service parts inventory management application vendor, survived by dominating the market for best-of-breed service parts inventory and demand planning technology—first with customized systems, and then with software applications. After a difficult period from 2002 to 2004, the company emerged with new technology, leveraging its installed base of clients like Delta Airlines and British Airways.

Click Commerce's supply chain solutions, while diverse, find synergy and balance through Network Logistics.

Network Logistics:

Click Commerce's supply chain solutions spectrum now spans three segments:

demand chain solutions, which regroup B2B and B2C e-commerce, product information management (PIM), and channel management
supply chain solutions for warehouse management, order fulfillment, and supplier relationship management
service supply chain solutions, with parts forecasting, planning and optimization, repair depot management, and reverse logistics.

Network Logistics combines the strengths of the (acquired) parts, coupled with existing and newly developed technology:

Integrated service supply chains require the connection of demand, supply, and service, to power high performance supply chains that are lean, extended domestically and globally, agile and flexible, and demand-driven. Supply chain execution can be more complex in the service supply chain, as parts and assemblies have multiple and varied part identities, workflow, and assembly and disassembly processes. Service supply chain optimization is the key message and strategic thrust of Click Commerce. Service supply chain complexity is inherently plagued by critical issues of disconnected and error-prone manual processes, suboptimal fill rates and service levels, high inventory and cycle times, forecast inaccuracies, and limited flexibility. Click commerce is proceeding with its solution strategy based on the premise that time is the common metric across all links in the service supply chain. A tight coupling between decision support and execution systems is required in order to reduce cycle times, which translates into increased performance.

Network Logistics 4.1, the current generally available suite, addresses the critical service supply chain issues via rapid trading partner integration; n-tier supply chain coordination; global supply and demand visibility; order and forecast collaboration; real-time sense and respond capabilities; predictive, exception-based event management; and supply chain analytics. More specific to service parts management than previous releases, this release also offers subinventory tracking of inventory details, attribute and rule specifications based on part group, parts substitution, user level configurability, replenishment based on inventory condition, and enhanced serial number tracking.

Click Commerce has an ambitious product evolution roadmap that includes the technical progression of its Network Logistics and next-generation warehouse management system (WMS), towards a J2EE n-tier architecture, pure Java code base, with multiplatform support and database independence. The next generation WMS solution, WMX, scheduled for release in the fourth quarter of 2006, will be based on service-oriented architecture (SOA), and will be deployable as a service-and-use standard open source tool. Salient features will include voice identification and radio frequency identification (RFID) with compliance. Click Commerce is partnering with Vue Technologies for RFID, and pilot projects with Ryder and HP are under way.

Click Commerce recognizes that the playing field is highly competitive and fragmented with IT behemoths, best-of-breed operators, and B2B platform players. It is imperative for Click Commerce to differentiate via the provision of strategic business process-centric solutions, with technology and solutions that compliment ERP, designed for the extended enterprise. These complimentary solutions need to be flexible, adaptable, and efficient. Click Commerce believes that it will remain competitive because its composite applications will create true business process solutions that follow the current market trend toward integrated suites of best-of-breed applications. ERP has traditionally not been equated with highly agile performance, and Click Commerce believes it can provide process-centric solutions faster and cheaper, with an on-demand or license deployment model.

While manufacturers tend to perceive a conflict between best-of-breed and ERP suites, actual deployments indicate that coexistence is the norm. Recent analyst studies find that companies that implement a framework of leading functionality with strong integration between application solutions can achieve best-in-class operating results.

Manufacturers have dramatically improved inventory turns, and effectively positioned their service parts operations as a key profit center for the future. This coexistence between service planning and enterprise transaction application solutions has enabled service-oriented manufacturers to optimize their resources while supporting increasing demands and complexities with agreements at the level of customer service. Manufacturers have traditionally leaned towards best-of-breed functionality. However, until recently, the lack of acceptance of best-of-breed applications has been a key barrier to technology integration. Applications and integration technologies such as SOA are now evolving so that companies can obtain the best overall solution to their business problems.

Summary:Recently announced revenues of $58.7 million (USD) for fiscal year 2005 represented an increase of 128 percent over fiscal year 2004 results. Revenues appear to be evenly split between the three solution segments of demand chain, supply chain, and service parts. The balance of solution offerings appears to be achieving a positive result where the sum of the parts translates into a well-balanced whole. Given its head-to-head competition with major ERP vendors (SAP, Oracle, SSA Global, Infor, and Epicor) and Manhattan Associates, the largest best-of-breed supply chain execution (SCE) vendor, Click Commerce realizes that it will require focus, leverage, and near flawless execution. They are honing in on industry verticals like high tech, electronics, automotive, and aerospace, where they can leverage existing assets as well as its product strategy of an integrated and agile B2B suite delivering more for less. There may also be new opportunities in consumer goods and retail, with its WMX product attributes for RFID and voice identification coupled with strong value-added processing capabilities and next-generation architecture

Click Commerce's supply chain solutions spectrum now spans three segments:

demand chain solutions, which regroup B2B and B2C e-commerce, product information management (PIM), and channel management
supply chain solutions for warehouse management, order fulfillment, and supplier relationship management
service supply chain solutions, with parts forecasting, planning and optimization, repair depot management, and reverse logistics.

Network Logistics combines the strengths of the (acquired) parts, coupled with existing and newly developed technology:

Software as a Service's Functional Catch-up

0 comments 8:05 AM Posted by amma

One should not readily dismiss software as a service (SaaS) as an effective solution for front-office functions only (that is, e-mail, messaging, calendaring, and similar team-oriented collaboration functional nuggets), or for juvenile purposes like managing personal web sites or music and movie downloads. SaaS solutions are emerging to address nearly every "mission critical" business application need. These needs range from financial and accounting, asset management, and human capital management (HCM) applications to supply chain management (SCM) and channel management solutions.

Part Three of the series SaaS-ing the Manufacturing Opportunity.

In fact, while in many sectors functional depth, vertical orientation, and customization remain works-in-progress for SaaS vendors, there are certain realms of HCM (recruitment, employee performance management, expense management, talent management, human resources [HR]/payroll, eLearning, and compensation management), where SaaS solutions have quite a deep functionality (at least on par with that of on-premise solutions) and serve the largest, most complex organizations in the world. Authoria, Taleo, and Ultimate Software, in addition to the earlier mentioned ADP/Employease and Centive, are only some companies worth mentioning here. For more information, see Thou Shalt Manage Human Capital Better.

Along similar lines would be the on demand collaborative e-procurement, sourcing, spend management, vendor on-boarding, or contract management providers like Ketera, Procuri, or Frictionless Software (now part of SAP). Procuri, for example, offers on demand software for spending analysis, supplier management, sourcing, and contract management. Emptoris, which recently merged with contract management vendor diCarta, offers a similar array of supplier relationship management (SRM) software that users can opt to deploy on premises or via a SaaS model.

A good indicator that the market for back-office and SCM SaaS solutions is growing could also be the increasing number of application providers adding their names and solutions to THINKstrategies' SaaS Showplace online directory (www.saas-showplace.com). While the uptake has thus far been too fast for one to remain current with the latest number of available solutions therein, there are presently a few dozen SaaS providers in such software categories as accounting and financial management applications and various e-commerce providers. In addition, there are also over a dozen enterprise resource planning (ERP) and SCM solution providers, and even several offering some niche manufacturing SaaS applications. Among the forty or more software categories listed in the SaaS Showplace directory, some of the more notable ones include call center management; dispatch management; document management; project portfolio management (PPM); product lifecycle management (PLM); and web analytics.

Manufacturers and Distributors are Checking Out Software as a Service:There are a growing number of indications that manufacturing and distribution enterprises of all sizes are looking into hosted software for such core supply chain functions as demand planning and factory scheduling. This interest stems from the need of these companies for tools to streamline business-to-business (B2B) processes across increasingly distributed supply chain networks. Web-centric environments are not new to manufacturers (see Differences in Complexity between B2C and B2B E-commerce), since online B2B trading hubs and exchanges mushroomed during the late 1990s. Many have meanwhile ceased to exist, but some, such as E2open, thrive today as community marketplaces and SaaS hubs for trading partner collaboration in terms of order and inventory management, supply chain visibility, spend consolidation, demand/supply synchronization, and eco-compliance management. Some might remember that this company began as a trading exchange for high-tech companies in mid-2000, at which time IBM led the formation of a consortium that included Nortel, Solectron, Toshiba, Hitachi, Matsushita, Seagate, and Panasonic.

CommerceHub would be an example of a focused SaaS provider in the tricky realm of drop-shipping; see A Drop-ship Enablement Pioneer Leads the Way. Global trade management (GTM) and similar applications that entail event management and visibility in a dispersed environment seem to lend themselves well to on demand deployment (see article on TradeBeam, Confronting Core Global Trade Problems: Order, Shipment, and Financial Settlement). Since 2005, Revionics has been offering SaaS pricing management and optimization capabilities for its retail customers.

Newcomer Mitrix is something of a hybrid, since its on demand SCM Live suite includes collaborative features such as private trading communities, but the vendor also has more traditional on-premise SCM functions including forecasting, inventory management, fulfillment, and logistics. Headquartered in Irvine, California (US), the company currently manages over $250 million (USD) in supply chain transactions across eight countries. The start-up software company has an interesting pedigree. It is a subsidiary of Japanese conglomerate Mitsui & Co., which built the Mitrix system to handle supply chain activities for its assorted business units. Mitsui USA, founded in 1966 and headquartered in New York City, New York, is a leading international trading and service enterprise with an extensive global network consisting of eleven local offices and over ninety subsidiaries and affiliated companies across the United States.

Certainly the hosted, multi-tenant software model might be relatively new to the computationally intensive SCM world, whose users traditionally have needed the speed and power of a memory-resident client/server application, but even that is beginning to change. Broader availability of wireless and broadband products has improved access and performance, while web services' application programming interfaces (APIs) have helped streamline application integration efforts. In addition, technologies such as Asynchronous JavaScript and XML (AJAX) as well as related part-and-parcel technologies of the Web 2.0 generation are letting developers add functional bells and whistles to the user experience while reducing data transport and response time requirements. Consequently, vendors lately have built SaaS applications that offer such traditional SCM features as distribution and transportation requirements planning, inventory optimization, material and transportation sourcing, and advanced planning and scheduling (APS)

JRG Software, which CDC Software (a Ross Systems' parent) acquired in early 2006, is tackling one of the more computationally intense elements of SCM. Namely, JRG's OnePlan is an on demand solution for factory planning and scheduling that combines an interactive graphical planning environment with integrated business intelligence (BI). This combination enables the real-time creation, sharing, and monitoring of production plans across a manufacturing organization. In other words, OnePlan offers web-based factory planning and scheduling applications aimed at helping companies improve store fulfillment rates, trim order-to-production times, and respond more quickly to all-too-common demand fluctuations.

As a good example of coexistence of on demand and on-premise solutions, Wise Snacks, a renowned maker of snack foods in North America, needed a solution to address production delays and high overhead costs resulting from the company's highly variable production schedules. The company also sought to reduce the overall investments in finished goods inventory. Because of frequent schedule changes, one of the biggest problems for Wise Snacks was simply the amount of time required daily to create and modify schedules. To that end, the company selected the OnePlan Factory Scheduler to address this problem with a vision of making the plant more efficient while also cutting costs. The solution was also selected because of its low up-front costs and lower overhead for ongoing maintenance enabled by the on demand, SaaS application. Within ten weeks, OnePlan was reportedly fully implemented, integrated to the existing JD Edwards ERP system, and live in production. After one month in production with the OnePlan production scheduler, Wise measured several immediate benefits including

* Scheduling times reduced from six hours to one hour,
* Inventory levels decreased by 28 percent,
* Short (incomplete) shipments reduced by 95 percent,
* Lengthy line changeovers across packaging and processing lines reduced by 35 percent,
* Labor costs reduced by $600,000 (USD) annually, whereby much of the scheduling staff has been redeployed within operations.

More Vendors Offer Supply Chain Management SaaS:Among the most recent additions to the SCM SaaS landscape is Kinaxis (formerly Webplan) with its new web-based, on demand RapidResponse Response Management service that enables brand owners and contract manufacturers to respond to possible changes in product demand and supply. Kinaxis has long delivered the on-premise Response Management software to drive operations performance in today's complex manufacturing world, and the product has recently been enabled for SaaS delivery. By responding more rapidly to constant volatility and real-world variances in demand, supply, capacity, product, and daily operations, Kinaxis's RapidResponse supersedes the need for traditionally tardy and complex supply chain planning (SCP) systems by enabling quicker collaborative response and operations action aligned with corporate objectives.

Customers use the product to gain multi-enterprise visibility and to drive swift response to change across their supply chains, as the software empowers action teams with a single view of the truth and real-time collaborative what-if analysis of action alternatives. Action teams are able to respond with more speed and confidence, thereby reducing costs, shrinking cycle times, and increasing customer service levels, which have been reported by global companies like Casio, Coty, Honeywell, Jabil Circuit, Raytheon, and Benchmark Electronics. For more information, see Can Webplan Reconcile Planning and Execution? and Supply Chain Vendor Morphs into SCEM with Response Management Vision.

In a recent supply chain spending survey, AMR Research reported that 26 percent of surveyed companies were considering on demand service offerings. Similar findings came from Aberdeen for such areas as network design and strategic inventory optimization; supply chain execution (SCE); trade compliance; SCP; data quality monitoring and cleansing; data mining and analytics; supplier on-boarding; and others. Both confirm the market trends, which one should expect to see accelerating over the coming months and years (see Software as a Service beyond Customer Relationship Management and Sales). Times and mindsets have changed and moved on from the days when most companies felt that their information technology (IT) operations and business applications were strategic assets. Namely, today's economic and competitive pressures make nearly any form of outsourcing fair game, as many companies now consider a range of IT functions and business applications to be commodities rather than core competencies.

To that end, as long as the quality and reliability of SaaS solutions continue to improve, the appeal of SaaS will not go away—quite the contrary. Hence, nearly every established software vendor is being forced to rethink its traditional approaches and determine how to overhaul the ancient application business models in order to join the SaaS movement. Not only do they have to painstakingly redesign their products, but they must also revise their sales and financial models to accommodate the SaaS, pay-as-you-go fee structures. They also need to rebuild their corporate cultures to make them more service-oriented rather than product-centric, which is no small feat given the myriad of cultural, business model, technology, and service and support transitional issues. What's more, these vendors must try to avoid cannibalizing their existing software business in the process.

Supplier Relationship Management: Benefits and Challenges

0 comments 7:58 AM Posted by amma

More and more companies are requesting their suppliers to integrate their business systems and share information online and in real time. Integrated business systems enable sourcing companies to plan and execute their supply schedules within minutes and receive confirmation almost immediately. Integrated systems effectively reduce the cost of purchasing, which may range from $30 to $170 (USD) per order, down to a few cents. In addition, they almost completely eliminate the need for expeditors and they improve compliance with shop floor schedules, resulting in better customer service. An added benefit of integrated systems is their performance tracking capability and its associated improvement in supplier relationships.

Supplier Relationship Strategies

Developments in information technology (IT) have required and enabled manufacturing companies to rethink and restructure their supply chain strategies. For example, customer focus strategies have led to the development of customer relationship management (CRM) tools, and back-office support strategies have helped develop enterprise resource planning (ERP). Other examples of integrated applications include electronic data interchange (EDI); manufacturing execution system (MES); computer aided design/computer aided manufacturing (CAD/CAM); Just-in-Time (JIT); vendor managed inventory (VMI); and warehouse management system (WMS). Finally, integrating suppliers' information systems beyond the EDI type connection has been necessary to shape this evolution into a more refined integration and relationship. Supply chain management (SCM) requires an outward view of company operations that extends to suppliers, customers, distributors, and beyond, as well as an understanding of the value of the contribution made by each element in the supply chain. A simple supply chain system includes three main elements: suppliers, a company, and customers, which are shown in figure 1.

Figure 1. Simple supply chain structure and relationship.

Complex supply chain models evolved from this simple model, with developments in management and technology adding components across the supply chain.

Many companies have come to realize that although the ultimate goal of making profit remains the same, relationships with suppliers are completely different from relationships with customers.

Supplier relationship management (SRM) includes information integration with respect to numerous areas: delivery schedules; inventory; capacity; commitment to schedules; delivery information; delivery; quality and financial performance of suppliers; quotation management or request for quotation (RFQ); credits; adjustment; and other related information in addition to its real-time tracking and monitoring.

Unlike CRM, an SRM relationship generally evolves with each supplier over time based on the significance of the sourcing. An illustration of this relationship is shown in figures 2 and 3. SRM may place key suppliers at higher levels of integration, and perhaps even at strategic alliance levels, while keeping some suppliers at the procurement relationship level.

Figure 2. Strategic relationships in SRM.

At its basic level, a purchasing transaction involves buying a product or service from a seller one time only and without any expectation of a repeat transaction. Buying items from a department store or gas at a gas station are examples of this type of transaction. The next level is where an expectation of repeat transactions and a resultant business relationship starts. The vendor is recorded in the buyer's database, the buyer is checked for credit worthiness, and a purchase order (PO) or invoice may be issued for the transaction. Thereafter, the relationship becomes more complex, with the vendor and the buyer entering into binding, long-term contracts and agreements and joint deployments of business processes.

Strategic drivers for SRM may include, but are not limited to, all of the following:

Consolidation of suppliers where better supplier capabilities are favored
Expansion into global markets
Pressure on price and profit from customers and competition
Pressure on value generation in supply chain
Performance requirements of shareholders

Changes in globalization and economic developments and significant improvements in quality, price, and delivery have directed many companies to shift their focus on suppliers that are located in other parts of the country and the world. In many cases, this has helped sourcing companies to develop new markets while sourcing from the same area. At the same time, however, increased global competition has placed enormous pressure on price and profit for products and services, as evidenced by global trade. Most companies are now faced with the challenge of sourcing and delivering the same products and services more quickly and at a lower cost. Coupled with the developments in IT and information management, some of these challenges are met by integrating the suppliers' information systems with customers' information systems, with improved visibility and timely decision support, while at the same time applying lean principles in order to improve their competitiveness.

In these days of rapid change, deciding the level of relationship to develop with each supplier has become increasingly important. Depending on the structure of the supply chain, strategic drivers, strategic priorities, and operational objectives, a relationship with each supplier must be established. The level and the type of relationship (buy and sell, contractual, strategic alliance, etc.) must also be decided. For example, some current strategic supply chain alliances may include third- or fourth-party logistics, service and warranty management, exclusive distribution networks, etc. All of these can be controlled and managed by SRM.

Establishing Supplier Relationship Management:

Setting up SRM starts with deciding which level of relationship your company will have with each of its suppliers. Then the rest of the steps will follow the sequence below.

strategic approach and partnership level: Buying companies must identify which level of relationship they need to establish with each of their suppliers. Some suppliers will be of greater importance than others, and the development of strategic relationships with them may already be underway. Some suppliers may either be too large or too dominating, making it difficult to enter into a desirable relationship. Still others may not be significant at all. So, strategically speaking, positioning each supplier is key to the start of SRM. Negotiating a win-win proposition with each supplier is the next item to accomplish at this strategic level.
supply chain preparation: It is essential to evaluate and establish a relationship with each significant supplier. At this stage, it is preferable to have a uniform business process already established. A company and its suppliers may be part of a larger chain, major suppliers may have their own business process, and smaller companies may not be willing to commit to the terms and conditions that are required. Evaluating and preparing the supply chain is a long process that may take a few years to accomplish. Once the objectives and strategic goals are established, appropriate business processes must be developed. Bringing each supplier on board one at a time may make the task easier. One must understand that this is a journey that requires time to learn and adapt to the changes in the business relationship.
enabling technologies, IT, communication, and integration: There are literally thousands of technology solution providers out in the market. Companies (sometimes together with their suppliers) must decide which tools, platforms, software, etc. that they need to use. Some tools may only work in limited environments. Solution providers today are web-based, open systems and can connect with almost any other system. Considerations must also be made in relation to such integrations as level of automation, contractual obligations, real time versus frequent updates, and communication standards. The sourcing company must decide on the enabling IT to fit the needs of its supply chain strategy. The information tools must provide a necessary advantage for a successful SRM implementation.
information visibility and level of sharing: After technology selection, the level, security, timing, frequency, and amount of information-sharing must be decided on and implemented. Some companies (especially those in the automotive industry) require automatic visibility into suppliers' systems and their capability to supply the requirements. For some suppliers, this may cause conflicts within their internal operations, business processes, confidentiality policies, or business culture. Issues like these must be addressed individually with each supplier.
monitoring performance of operations and certification requirements: SRM software packages offer numerous tool sets to monitor the performance of suppliers. Supplier performance can be used to verify the agreed upon certification requirements.
contractual obligations (such as rules, penalties, rewards, etc.): Because each supplier is different, rules and contract terms may vary from supplier to supplier. Although the goal is to bring everyone on board with the same business process, this may not always be possible. Therefore, penalties and rewards are useful in bringing suppliers in line during the process of SRM development.
certification: Certification is a set of rules, business conditions, and performance requirements that is established as a general policy and defined specifically for each supplier. Certification may also be chosen to bring suppliers on board quickly. It requires extensive evaluation of a supplier's capability and ongoing performance. Based on the agreement with each supplier, contractual obligations and their related execution with rules, penalties, and rewards must be put in place. The conditions for certification must be satisfied by ongoing performance. As a resultant benefit, for example, incoming products (or services) become exempt from inspection, are delivered to point-of-use, and are paid upon use.
implementation and continuous improvements: As SRM implementation begins, business processes and supplier performance must be constantly monitored, with improvements or adjustments made as required. Once business processes have been correctly established and are working properly, they become standard, as they will facilitate improvements to the SRM process.

Most companies, unless they are start-up operations, already have established supplier bases, ongoing business relationships, and sourcing-related databases. Once a company decides to establish an SRM environment within its supply chain, the process described above should begin. Figure 3 shows development of strategic alliance relationships over time.

Figure 3. Relationships develop over time.

SRM tools are generally used in complement to such systems as ERP. While SRM tool sets enable the sourcing company to manage its suppliers, these tool sets have many uses, and some examples are given below:

Collaborative forecasting, planning, and scheduling
Web-based connection, private trade exchange (PTX), EDI, extensible markup language (XML)
Request for quotation
E-cataloguing
Logistics interface with carriers such as global positioning system (GPS) tracking
Corrective action and improvement tracking
Communication repository such as e-mail

Supplier Relationship Management Cases:An auto parts manufacturing company automated its entire purchasing cycle using an SRM system. Purchasing was expedited, and cancellations and delays were almost eliminated. Time saved is now used to focus on strategic management. Generating 5,000 POs each year, the company saved an average of $50.00 (USD) per PO. It has improved its on-time delivery by 65 percent because it is ensured of reliable deliveries from its suppliers.

The application of an SRM solution for a manufacturer of consumer products helped to significantly reduce "panic-buying" when changes to the daily schedule would call for a change in requirements. Optimizing transportation costs further increased savings by allowing trailers to be fully loaded with needed material, requiring minimal communication. The company realized a 500 percent return on investment (ROI) within six months.

An automotive original equipment manufacturer (OEM) implemented an SRM solution. In the following three years, 90 percent of its 200 key suppliers were added to the SRM application. The OEM manufacturer no longer calls, expedites, or cancels orders via fax or e-mail. It is just a simple EDI-based communication that updates all suppliers' schedules daily.

A major hotel chain in the Mediterranean region implemented SRM as a stand-alone system for its extensive number of suppliers. Daily purchases (as well as capital purchases) can now be placed online with various certified suppliers by the users of the hotel chain. This has saved the company substantial amounts in time and material.

Summary

Today's SRM tools are marketed as stand-alone or add-on options for ERP systems. Most first tier ERP systems are already integrated with an SRM solution. Some examples of these systems are mySAP's SRM, Oracle's iSupply, and Infor's Supplyweb. These systems are typically referred to as supplier web portals. Smaller ERP systems offer them as separately purchased solutions in cooperation with stand-alone solution providers such as vSRM, Supplyworks, Supplysys, and Intelex. Based on the selection of choices and the ERP system used, prices may vary from $500 to $250,000 (USD) in license fees plus the cost of maintenance. Low-cost solution providers are available in the market that can be integrated with full functionality into any system for a license fee of $500.00 (USD) and up with a nominal user-based fee (less than $75.00 [USD] a month) for each supplier.

Even with a best-in-class ERP system, your beautiful morning can quickly turn into chaos due to unexpected problems that can arise. One of your suppliers may not be able to deliver as originally requested, and you may not know it yet. RFQs may be late or lost on a supplier's crowded deesk, but you think everything is progressing as it should. You may have completed a material resource planning (MRP) run the night before and the action report recommends that a couple hundred POs be changed, canceled, delayed, or otherwise expedited. A typical procuring company has a handful of suppliers that communicate electronically through integrated systems, with the remaining suppliers communicating through a variety of manual methods such as faxes, e-mails, snail mail, voice mail, and phone calls—very costly solutions these days. SRM tools can resolve most of these problems automatically.

The SRM solution tools available today can provide many added benefits to companies. These benefits may include

1. a cross view of a supplier's inventory;
2. bar code on the go;
3. real time supplier performance view or dashboard;
4. corrective action form and continuous improvement;
5. RFQ;
6. connect anyone anywhere with any format;
7. multiple languages for each user;
8. transportation tracking;
9. EDI; and many more.

Finally, an SRM solution must be able to enhance the relationship between procuring companies and suppliers so that procuring companies can focus on best practice efforts. A correctly selected and implemented SRM solution will help companies to overcome most, if not all, of the above challenges.