SUPPLY CHAIN MANAGEMENT: October 2009

Monday, October 26, 2009

SAP Keeps Traction On Some Tires Of Its Omni-Wheel-Drive

0 comments 5:58 AM Posted by amma

SAP believes mySAP CRM offers chemical companies a strategic advantage since its operational, analytic, and collaborative features empower employees to respond more quickly because they have a consistent view of their customers. mySAP CRM enables collaboration by distributing relevant information to internal and external communities of interest, informing customers and partners about new products, special offers, updates on new site features, and upcoming events. This improves marketing efficiency and speeds communication. Additionally, mySAP CRM helps chemical companies to grow top-line revenues by enabling more effective up-selling, cross-selling, and identification of new sales and delivery channels. Capabilities such as predefined buyer profiles, commonly sold product terms, up-to-the-minute information about pricing and availability, customer-initiated tracking, and automatically updated financial and inventory data should reduce purchasing cycle time and, therefore, the cost of transactions.

Renewing its pledge to open its products, on April 18, SAP announced it would accelerate the delivery of open, collaborative application solutions, which use open integration technology and enable customers to maximize the return on their existing IT investments, even in heterogeneous environments. The company announced it has created a new business area to focus on the next generation of collaborative solutions and that Shai Agassi, in his new role as a member of the SAP Executive Board, will be responsible for this business area.

By extending the SAP Executive Board to focus on the next generation of collaborative solutions SAP intends to demonstrate their strategic significance to the company. The business area will include development, market strategy, professional services, and business development personnel of the formerly independent SAP subsidiaries, SAP Markets and SAP Portals, as well as strategically built field initiatives and solution centers. It will focus on providing an open integration platform that unifies people, information, and business processes. On top of this platform, which combines portal, business intelligence (BI), knowledge management (KM), and exchange technology, the new business area will supposedly deliver collaborative, analytical, and commerce solutions that should run within and across business boundaries.
On the same day, SAP also announced its preliminary results for the first quarter ended March 31, 2002. In Q1 2002, revenues increased 9% from EUR 1.52 billion in the same period last year to EUR 1.66 billion (See Figure 1). While product revenues in the quarter rose 6% to EUR 999 million from EUR 943 million in Q1 2001, license revenues notably dropped 12% to EUR 402 million from EUR 458 million a year ago. More notably, net income for Q1 2002, adjusted for the TopTier acquisition costs and the Commerce One impact, was EUR 65 million, a 40% drop compared to EUR 109 million in Q1 2001. In the quarter, revenues in the Europe, Middle East and Africa (EMEA) region increased 11% to EUR 886 million and in the Asia-Pacific region (APA) revenues were up 4% to EUR 185 million.

Figure 1.

Even revenues in the Americas region rose 7% to EUR 587 million, and, at constant currency rates, revenues in the Americas would have risen 5%. Still, the continued tightening of IT budgets, especially in the US and Japan, have given raise to disappointment, particularly as license revenue in the US was down 28% (down 30% in Americas) and in Japan was down 56% (down 32% in APA). Also interesting is the fact that while the license revenue in the EMEA market was up 1%, it dropped 4% in its domestic German market.

SAP continues to take market share in sales of specific software solutions, and it also increased its personnel 3% in the quarter, mostly in Europe. In Q1 2002, software revenues related to mySAP CRM reached approximately EUR 74 million, representing a 10% growth and accounting 18% of total software license sales. Even recently considered unexciting products, mySAP Financials and Human Resources, grew at a steady 6% rate to EUR 172 million, representing 35% of license sales.

On a less positive note, the steepest revenue declines come from other newer mySAP initiatives, including mySAP SCM (with a decline of 23% to EUR 79 million), mySAP PLM (with a decline of 28% to EUR 33 million), and mySAP Portals and Exchanges (with a decline of 45% to EUR 44 million). Although the conditions for software purchases are challenging, the company still expects a much stronger second half of the year, and still anticipates revenue for the full year to grow by around 15%. SAP anticipates that the improvement will become more evident in the second half of the year as software license performance improves and the company benefits from ongoing cost curtailment measures.
Finally, as to bolster its performance in North America and to get itself in a better shape for impending intensifying bloodbath in the CRM market, on May 23, on the eve of its forthcoming SAPPHIRE user conference at the beginning of June, SAP announced that it has appointed Lo Apotheker as president of Global Field Operations. In this newly created position, Apotheker and his management team will realign SAP's worldwide sales force around the needs of global customers for consistent processes and seamless operations across geographies. The realignment will also decouple some of SAP's regional organizations to create more homogenous market segments to enable the field organization to better meet customer needs regardless of the size of their businesses. Formerly president of Europe, the Middle East and Africa (EMEA), Apotheker will oversee all SAP field operations worldwide, reporting directly to SAP Co-chairman and CEO Henning Kagermann. Apotheker joined SAP 14 years ago and launched SAP France, serving first as managing director and eventually assuming responsibility for SAP's southwest Europe region. In 2000, he was appointed to SAP's Extended Board and named president of EMEA.

Apotheker will serve as acting head of the North American region of SAP, gaining hands-on experience in SAP's largest potential market, since Wolfgang Kemna, current president and CEO of SAP America, Inc. is assuming the role of executive vice president, Global Initiatives reporting directly to Henning Kagermann. Kemna will build on the success of SAP's global strategic initiatives in CRM and Supply Chain Management (SCM), leading a new organization dedicated to these and other future strategic initiatives.

SAP Announces Investment in Catalyst International

0 comments 5:57 AM Posted by amma

In return for an insignificant portion of its capital, SAP gains an experienced consulting partner. The alliance will help SAP expand its already huge market footprint into warehouse management execution, by leveraging certified interface partner Catalyst. Although the strengthened relationship stands to significantly accelerate Catalyst's business, having a big investor like SAP carries a price. It remains to be seen just how much longer Catalyst can continue to market its Catalyst WMS and CatPack products for use by other ERP systems, given the resource commitment the new alliance will demand. As part of their reorganization efforts, Catalyst will cease development on its NT version of Catalyst WMS. This allows Catalyst to focus entirely on UNIX. History indicates that their departure from NT may be a good move in the short term. Catalyst has tried repeatedly to deliver a Windows NT product without success, most recently through the acquisition of Kearney Systems Inc. (KSI). A previous attempt to deliver an NT-based WMS was abandoned when management scrapped development on a product acquired from Information Strategies Inc. (ISI) in early 1997.

SAP's move is another example of the rapid consolidation and partnering underway in the ERP and supply chain planning/execution markets. There are varying degrees of commitment in these relationships and the SAP-Catalyst deal is stronger than many. SCM powerhouse, i2 Technologies maintains alliances with Industri-Matematik International Corp., and EXE Technologies, Inc., that involve joint marketing and development aspects, but not an equity investment. Though strategies differ, these moves ultimately provide tighter integration of the packages, more comprehensive services and support, and lower installation costs for companies who seek to benefit from new technology.
Current SAP LES users should benefit short-term from the consulting and training services available through the SCE Competency Center. More advantages will come later as Catalyst leverages experience from its SAP integration projects to scale Catalyst WMS to larger and larger enterprises.

Drive down cost? What does that really mean in a supply chain world

0 comments 5:56 AM Posted by amma

Many organizations would like to lower their cost in the entire supply chain, but achieving this is not possible without suitable strategic plans in place. Usually, in cost cutting strategies, organizations don’t look at the entire value chain, but decide to cut for sake of saving some dollars. When you think about cost cutting, is it really a good, strategic plan for the organization in long run? Or should we be looking at reducing non-value added activities and processes from our value chain? In an economic downturn, the latter makes more sense—organization should be looking at the overall, long term objectives and ask what it wants to achieve while maintaining its profitability.

Now the question comes: should organizations be cutting or reducing cost? For some companies there is no difference between cost cutting and cost reducing—however, there is. Let me describe the fine difference between these two strategies. In cost cutting, each department or group within an organization has the mandate from upper management to bring costs down to a minimum. However, this mandate is not based on visibility throughout the entire organization. Cost reducing, on the other hand, cuts out only non-value added activities from their supply chain process.

In general, when a supply chain manager considers cost cutting, he or she is looking solely from the perspective of “where can dollars be saved”. And this is often done through quick fixes, without realizing that they are actually much more harmful. Below is a table of typical, cost cutting quick fixes and the potential risk they may have to the overall organization.

The above cutting tactics will lessen cost in the interim, but may also create major issues for the organization in the long run. That is the reason why many organizations won’t realize benefits from cost cutting.

Instead organizations need to adopt the strategy of cost reducing for their overall supply chain in their supply chain network. Cost reducing includes

Buying raw materials at the right price from the right strategic partner (supplier) and moving the material in the most effective and efficient manner (channels), while keeping in mind that the objective is to move as little as possible so the material price stays low.
Making product in a lean manufacturing facility will reduce waste and increase operation throughput. It will also reduce the overall lead-time to deliver. When doing this, organizations need to keep in mind that quality does not need to be jeopardized to implement this new process. It’s important to measure key cost reducing indicators to see if cost reduction has been achieved.
Transportation has a variable cost, depending on mode and location. The best ways to reduce cost is for organizations to establish relationships with its suppliers so they can plan their freight delivery in a manner which will benefit both parties. This also allows organizations to manage the freight delivery of finished goods to distribution centers and customers in the most cost effective and economical manner. Organizations should also use tools to analyze each transportation delivery to understand hidden cost and to build an improved transportation model.
Distribution centers need to have a best-in-class facility layout which can reduce the movement of material, as well as reduce the need to store inventory at other locations. Organization should apply the best practices of warehouse management to run the distribution center and remove inefficient labor cost. Organizations should also keep in mind the environmental impact of distribution centers, and strive to reduce the energy consumption and waste of packing material.
Inventory should be managed in-house, at stores, and in warehouses. The number of days supply is stored at a location needs to be evaluated on a daily basis so that organizations don’t get stuck with non-conforming inventories. The bottom line is to keep business profitable by having the right inventory, at the right location, at the right time to create satisfied customers.
Outsourcing should be evaluated through key indicator metrics, regardless of which activity is being outsourced. The organization should identify the benefits (profit) of outsourcing based on timelines and measure its return on investment.
IT systems are just one of the places where organizations need to re-evaluate their current providers. Some systems are out-of-date and need to be replaced or upgraded with new technologies or capabilities. These systems will identify the organization’s obstacles regarding data accuracy, completeness, and timeliness. All IT systems need to be able to integrate with each other, as well with other third party providers and partners.

These areas of supply chain need to be analyzed further for companies to implement a cost reducing strategy. Some, which are simpler and easier to achieve, have already been identified in this blog, but others are harder to achieve without further collaboration with other parties in the supply chain network.

Instead organizations need to adopt the strategy of cost reducing for their overall supply chain in their supply chain network. Cost reducing includes

Buying raw materials at the right price from the right strategic partner (supplier) and moving the material in the most effective and efficient manner (channels), while keeping in mind that the objective is to move as little as possible so the material price stays low.
Making product in a lean manufacturing facility will reduce waste and increase operation throughput. It will also reduce the overall lead-time to deliver. When doing this, organizations need to keep in mind that quality does not need to be jeopardized to implement this new process. It’s important to measure key cost reducing indicators to see if cost reduction has been achieved.
Transportation has a variable cost, depending on mode and location. The best ways to reduce cost is for organizations to establish relationships with its suppliers so they can plan their freight delivery in a manner which will benefit both parties. This also allows organizations to manage the freight delivery of finished goods to distribution centers and customers in the most cost effective and economical manner. Organizations should also use tools to analyze each transportation delivery to understand hidden cost and to build an improved transportation model.
Distribution centers need to have a best-in-class facility layout which can reduce the movement of material, as well as reduce the need to store inventory at other locations. Organization should apply the best practices of warehouse management to run the distribution center and remove inefficient labor cost. Organizations should also keep in mind the environmental impact of distribution centers, and strive to reduce the energy consumption and waste of packing material.
Inventory should be managed in-house, at stores, and in warehouses. The number of days supply is stored at a location needs to be evaluated on a daily basis so that organizations don’t get stuck with non-conforming inventories. The bottom line is to keep business profitable by having the right inventory, at the right location, at the right time to create satisfied customers.
Outsourcing should be evaluated through key indicator metrics, regardless of which activity is being outsourced. The organization should identify the benefits (profit) of outsourcing based on timelines and measure its return on investment.
IT systems are just one of the places where organizations need to re-evaluate their current providers. Some systems are out-of-date and need to be replaced or upgraded with new technologies or capabilities. These systems will identify the organization’s obstacles regarding data accuracy, completeness, and timeliness. All IT systems need to be able to integrate with each other, as well with other third party providers and partners.

Multi-enterprise Responsiveness—Can It Ever Be Achieved

0 comments 5:55 AM Posted by amma

Reassessing Existing Tools and Practices

Enterprises need to re-examine and redesign their supply chain processes and supporting IT tools to accommodate more responsive collaboration within a multi-enterprise, multi-echelon context. Most current enterprise resource planning (ERP) systems in use (as technical backbones) not only suffer from the vertical integration mind-set (i.e., they have a single-enterprise or manufacturing in-house orientation), they also suffer from being forecast-driven rather than demand-driven (see Demand-driven Versus Traditional Materials Requirement Planning) and from dealing with extended time brackets (i.e., weeks, months, or quarterly cycles). However, these systems merely record transactional history, and they require many complementary processes to address operations. In other words, ERP systems have to trigger too many additional external (often manual) transactions for more granular scheduling to occur.

To illustrate, sometimes users must perform manual steps on the ERP data to make it fit for use. Such steps may include creating production dispatches and schedules for production lines, which are often presented in a post-processed spreadsheet instead of coming directly from the ERP system in a useful format. Also, ERP systems typically cannot perform the following: map individual items to product lines; recognize the most appropriate order-scheduling rules; split days into shifts; and present input, such as adding finished goods replenishment needs to the production scheduler in an out-of-the-box manner.

As for the order-promising that is needed when moving toward a make-to-order (MTO) environment, ERP systems can typically show available inventory. But what MTO manufacturers need to know is the exact product line’s (work center) capacity for a particular routing operation by seeing the next open slot in real time from a single view. These companies also need to know raw material availability to ensure that the capacity can be used.

A manufacturing execution system (MES) can help to resolve these issues to a degree—see What Are Manufacturing Execution Systems? However, in addition to the well-known issues of integrating two systems that “live in different worlds and think in different terms” (see The Challenges of Integrating Enterprise Resource Planning and Manufacturing Execution Systems), the question remains of how large a step forward an MES is for responding to unplanned events versus doing more of the same (i.e., recording history, albeit in more granular, plant level).
Further, advanced planning and scheduling (APS)—see Remember APS?—and supply chain planning (SCP) systems came as improvements to ERP in the late 1990s, but only in terms of strategic- and tactical-level optimization (and again, mainly in the realm of long-to-mid-range planning), with hardly any help in terms of real-time operational advice to provide a solution or action in the nick of time.

APS uses linear programming, which imposes limitations on how it arrives at optimal solutions, since linear programming does not deal well with uncertainty. The APS system assumes that the input parameters are fixed and certain, that relationships are clear-cut, and that a single action results in a single result. However, in a sophisticated supply chain, actions may have nonlinear results that these systems cannot predict. In other words, planning-oriented applications do not allow for a fast enough response when changes in demand, inventory or supply, capacity, product mix, or orders occur. At best, these systems will offer another replanning exercise, and analysts then have to pore over mountains of irrelevant data to find the cause of a problem.

While this does not mean that APS calculations are useless and cannot be trusted, it does mean that the calculations should be compared to real results, and some processes may need to be modeled or simulated separately. One possible solution for managers suspecting that some of the APS’s inputs are highly variable would be to run a Monte Carlo simulation, which uses random variations to simulate chance. However, even if such commercially available solutions exist (similar to ERP and APS products), these too would typically be confined to a limited number of trained users and would not lend themselves well for the collaborative real-time environment.

Some organizations will then turn to business intelligence (BI) and analytical solutions, since if the ERP and APS systems have weak analytics, they will probably arrive at merely feasible rather than optimal solutions. However, while investing in management decision support systems (DSSs) should become a priority in terms of time and spending once transactional systems are complete, BI DSSs mainly score and magnify history. They are unable to provide a useful answer to the “now what?” situation of a customer canceling a major order (or increasing an order quantity) or an engineering department introducing a new product. Predictive analysis of demand and customer behavior can help in such situations (see Predictive Analytics—The Future of Business Intelligence), but to our knowledge, such commercially available solutions for manufacturing and distribution processes do not currently exist.

Sales and operations planning (S&OP) also comes to mind as a helping tool. APICS Dictionary defines S&OP as

a process to develop tactical plans that provide management the ability to strategically direct its businesses to achieve competitive advantage on a continuous basis by integrating customer-focused marketing plans for new and existing products with the management of the supply chain. The process brings together all the plans for the business (sales, marketing, development, manufacturing, sourcing, and financial) into one integrated set of plans.

Still, while S&OP is a huge step toward establishing and instilling effective and efficient collaboration—one by which all parties can explore options, wrestle with trade-offs, and develop a shared understanding and mutual commitment to a resolution—the problem is in S&OP’s focusing mainly within the single enterprise and on the level of tactical plans (versus operational ones).

Vendor Articulates Message and Vision for Product Lifecycle Management:Future PLM Roadmap

0 comments 5:54 AM Posted by amma

SAP boasts over 5000 companies using lifecycle data management (1500 of those for product development), over 4000 companies using project management, and over 750 companies using EH&S. Customers tend to be clustered in the industries of industrial machinery, automotive, consumer products, high-tech, aerospace, and chemicals life sciences. What's missing is a view of the number of customers using a core combination of lifecycle data management, cProjects, cFolders, RPM, or xAPP Product Definition, in a virtual product development environment. These users are in the best position to comment on the general health and value of the PLM suite. A new cooperative announced in April 2005, called the PLM Alliance, is comprised of a group of SAP development partners, including CENIT, CIDEON, DSC Software AG, and .riess. These partners offer joint development, marketing, and implementation services around SAP PLM. They propose to introduce an SAP PLM "core system," which would include functions like CAD integration, vaulting and data exchange, document management, office integration, release and change management, output management, and catalog part integration, all bundled for rapid implementation. Given their background and expertise in CAD integration, SAP workflow, and SAP web applications servers such as cFolders and cProjects, they are well suited to serve as SAP PLM systems integrators. Their presence will be felt foremost in Europe, but should extend naturally to North America.

SAP's PLM product development and release strategy are clearly founded on the significant advantage of integrating all aspects of enterprise. Recent PLM application enhancements have centered on improving the NPDI process through focus on the product and project portfolio management dimension, improvement of product definition integration aspects, better use of RPM and collaborative project team capabilities, better product design cost estimation (PDCE), and enhancement of the user experience through improved usability and flexibility. Furthermore, the need to streamline the entire implementation process of SAP PLM must not be overlooked. SAP has recognized this need, and has worked on defining various paths as optional starting points for initiating a PLM implementation project. These paths might depend on various pain points, such as the need to extend product structure controls, or to attack a lack of operational controls in research and development (R&D).

SAP's PLM solutions and release strategy are diagramed below to illustrate the tightly integrated components:

mySAP PLM 2005	mySAP PLM 2007
mySAP ERP 2005 (Ramp-up: October 2005)	mySAP ERP 2007
cProject Suite 4.0 (Ramp-up: October 2005)	cProject Suite 5.0
xRPM 4.0 (Ramp-up: October 2005)	xRPM 5.0
xPD 2.0 (Ramp-up: November 2005)	xPD 3.0
	xEM 3.0 (2006)

As this diagram illustrates, there is a rough two-year plan that heavily leverages the enterprise integration nature of mySAP.com products. This could be a hugely positive characteristic of the plan for companies using the corresponding required releases of mySAP ERP, or a potential challenge for companies using much older releases of R/3. Regardless, companies requiring PLM capabilities will always be able to migrate forward, or hire assistance in migration, thanks to the abundance of SAP systems integration partners.

SAP's PLM solutions and release strategy are diagramed below to illustrate the tightly integrated components:

mySAP PLM 2005	mySAP PLM 2007
mySAP ERP 2005 (Ramp-up: October 2005)	mySAP ERP 2007
cProject Suite 4.0 (Ramp-up: October 2005)	cProject Suite 5.0
xRPM 4.0 (Ramp-up: October 2005)	xRPM 5.0
xPD 2.0 (Ramp-up: November 2005)	xPD 3.0
	xEM 3.0 (2006)

Vendor Articulates Message and Vision for Product Lifecycle Management

0 comments 5:53 AM Posted by amma

SAP's recent product lifecycle management (PLM) conference, PLM 2006, was a networking event and solution showcase for strategies and new technologies. Also showcased were solutions for product data and document management, new product development and introduction (NPDI), supplier-sourcing strategies and selection, as well as manufacturing process and quality management. With PLM license revenues of $162 million (USD) during fiscal year 2005, and high expectations for future growth, SAP is motivated to push the PLM suite forward. Consistency is the hallmark of any marketing organization; providing a clear message that resonates with the audience and rings true to the organization which develops the delivery products is an especially admirable characteristic of a software solutions provider in a highly competitive market. SAP consistently provides a message to its clients and prospects which reflects its true PLM vision and intentions. The solutions they provide, to organizations needing software tools to streamline product development and collaboration, correspond to their marketing themes. Of particular interest, and a salient differentiator in their conference approach, is the fact that SAP has woven their PLM product solutions message jointly around the new SAP SCM 5.0 product offerings (xApp Manufacturing Integration and Intelligence, as well as SAP NetWeaver and Enterprise Services Architecture [ESA]). The focal point of this message is the ability of enterprises to leverage SAP technologies for connecting supply chain processes with manufacturing and product lifecycle processes as a near-seamless operation. SAP's ability to present a cohesive solution set is founded on its applications solution maps, and on its product lifecycle management dimensions.
An examination of SAP's mySAP PLM application map illustrates its four dimensions in building-block fashion:

Product and project portfolio management: idea management and concept development, project planning, time and resource management, project execution, and strategic portfolio management. It is also worth examining some key components of this dimension:

* SAP xApp Product Definition (SAP xPD), which addresses the front-end processes for definition and management of ideas, concepts, projects, and products.

* Collaboration Projects (cProjects), which supports phase-based process methodologies; multilevel accounting; and integrations with human resources management (HRM), supplier relationship management (SRM), resource and portfolio management (RPM), financials, document management, and quality management.

* SAP xApp Resource and Portfolio Management (SAP xRPM), which allows for portfolio hierarchies, reviews, prioritization, scoring, and financial impact.

Lifecycle process management: product development, development collaboration and strategic sourcing, prototyping and production ramp-up, sales and service transition, quality engineering, and product costing. Lifecycle process support addresses requirements (as well as functional and product structures), supports virtual teams, and provides one user interface via a workbench for the computer-aided design (CAD) designer and CAD integrations. The web-based SAP PLM collaboration platform, cFolders, provides cross-enterprise processes for enabling virtual teams.

Lifecycle data management: document management, product master and structure management, specification and recipe management, service and maintenance structure management, and change and configuration management. The integrated Document Management System 6.0 (DMS 6.0), in conjunction with a knowledge management and content server, provides a portal for web document access with authorizations, thumbnails, mass change, mass check-in, and digital signatures. The integrated product and process engineering (iPPE) module addresses functional structures, configurables, maintenance structures, and variant configurations.

Corporate services: this uses an Environment, Health, and Safety (EH&S) module for audit and compliance management, hazardous tracking and product stewardship, dangerous goods and waste management, worker health and safety management, and compliance reporting.

These dimensions transcend the three fundamental time horizons (new product development and introduction; maturing of the business model; and service management through to retirement), and are "stacked" over these time horizons, with supply chain management and manufacturing process integration. This provides a clear image of how SAP PLM addresses the complexities of product development through launch, production, service, and retirement. SAP has done a good job of delineating both the business challenges and the information technology (IT) challenges inherent in product lifecycle management.

Can ERP Speak PLM

0 comments 5:52 AM Posted by amma

Product lifecycle management (PLM) promises significant benefits to manufacturers, and the market is full of vendors claiming to provide faster new product introductions, reduced product costs, reduced product development costs, increased revenue, better quality products, enhanced product innovation, and other valuable benefits. Because of the high appeal of these benefits and their associated return on investment (ROI), PLM has become one of the fastest growing categories of enterprise applications.

The PLM market today consists of vendors offering a variety of solutions that in some way offer value to the product life cycle, but there is no single vendor that is supplying all of the solutions required to support a full PLM program (please see The PLM Program). Many PLM solutions have their roots in the engineering department, but make no mistake—PLM is an enterprise application suite, and it has all of the additional requirements that come with enterprise-class applications.

The PLM concept pulls together information and business processes from multiple disciplines within the enterprise and across enterprises. While product design plays a crucial role in the product life cycle, PLM is not just a series of add-on tools for computer-aided engineering (CAE) and product data management (PDM). PLM is a suite of applications that can be used by a company to get the highest value from its products to improve its business results. And like any other new suite of enterprise applications, as learned from supply chain management (SCM) and customer relationship management (CRM), companies may have to choose between the potential tradeoffs of best-of-breed solutions and solutions from their enterprise resource planning (ERP) vendors.

Innovation Is King

PLM is not just another module of the ERP system. At the risk of simplifying things too much, PLM enables innovation and relies on flexibility and loosely structured information, while ERP enables control and relies on discipline and structure.

Without getting into a philosophical debate, let's examine what that means in practical terms by looking at an example. During the process of developing a new product, companies typically go through multiple iterations of the design. The designers may procure or produce component materials to use in the product and go through many different sets of specifications before delivering the final design. In addition to the product design, information about internal design reviews, market analysis, customer preferences, supplier input, pricing, and other documentation is generated. Many finished designs will never see production, however, let alone the components, ingredients, or specifications.

ERP applications supply the discipline to control these materials on a large scale from an inventory, costing, and regulatory view. This level of control, which is required to plan and execute a global supply chain, may not be appropriate for the product innovation environment. In addition to avoiding too much "ERP overhead" in the design process, we also don't want to pollute the ERP system with a lot of experimental material definitions and documentation that may never be used again.
If innovation is the highest priority, then integration is not far behind. Integrating the business processes and information flow across the enterprise and the supply chain is a key component of enabling PLM. Many of the benefits from a PLM implementation come from better communication between departments and trading partners, and the integration of different people and perspectives on the new product introduction processes. An enterprise-level view of the design process promises to result in a design that takes into account the strengths and possibilities of all departments and business partners involved, and a design that can be efficiently and effectively introduced into current operations.

While some business processes rely solely on the PLM system, others cross the line between innovation and execution. Let's explore the engineering change process, for example. Assuming that some simple file transfers between ERP and PLM are in place, it is a relatively easy task to populate the PLM system with the current bill of material (BOM) or recipe, if it is not already there. As the new design is developed, many tools provide a compare utility that will show the net change between the new and old structure. That defines one important aspect of the engineering change: the changes in materials used in production.

The next aspect of change is the timing of when the change should be implemented. In order to plan the execution of the engineering change, information about levels and locations of inventory, costs, planned production, planned purchases, and current demands for the product must be taken into account. This information resides in the ERP application, and is critical to making the optimal decision on when to introduce an engineering change. Without that information, the impact of making this change based on a set date—the date when existing inventory is consumed or for a particular production run—cannot be understood.

A Failure to Communicate?

Integration is more than just transferring data between two systems. Integration requires that both information and business processes be supported across multiple systems (see What's Wrong with Applications: Business Processes Cross Application Boundaries). One of the key challenges of integrating PLM with other enterprise applications is semantics. "Semantics" is a term that is sometimes not very well understood, but a semantics problem could be summarized by the phrase "It's not that I didn't hear the words that you spoke. I just don't understand what you meant." Different systems have different ways of representing concepts and associate different meaning with their data. In order to integrate systems, you have to know more than how the data are stored; you have to know what it means. While standards efforts, like RosettaNet for the discrete industries and ISA S95 for the process industries, have helped to standardize data structures, they still do not guarantee semantic compatibility.

Can You Bring Cost Down through Better Inventory Management?

0 comments 5:48 AM Posted by amma

The main objective of a supply chain is to have the right inventory, at the right time, at the right location with the right quantity. To achieve this objective, it’s key to have a proper inventory management process in place within the organization. There are numerous ways to achieve this without driving up the cost of operations or the cost of inventory. Most importantly, such strategies will help the organization reduce the cost associated with inventory. There are some common techniques and some unique business processes which can be implemented to achieve cost reduction and help with the better management of inventory. Many organizations should implement the following ten practices to reduce inventory costs:

1. Conduct periodic reviews and audits of various inventories being held in-house.

2. Analyze the usage and lead times of on-hand and order book inventory.

3. Reduce safety stock based on customer demand.

4. Use 80/20 rule (ABC approach) for inventory control.

5. Improve cycle counting techniques for inventory management.

6. Use vendor managed inventory or implement vendor stocking programs, which means supplier are managing inventory with the organization.

7. Use collaborative planning and replenishment (CPFR) business processes and IT standards to collaborate among multiple parties in the supply chain network.

8. Improve the forecast of each product at the item level, i.e. use a variety of demand forecasting arithmetic models. No single set of algorithms fits all customers’ forecast or product families.

9. Communicate demand/hard orders to suppliers for better delivery of inventory.

10. Implement new inventory software which uses inventory quality ratio methodology and multi-echelon inventory optimization tools.

Many inventory management teams have ideas and strategies in their minds, but no time to bring them into action. That’s why when implementing any inventory management best practice, it’s important to have upper management’s support. Additionally, any process improvement should be in-line with the corporate objectives. Regardless of what size the organization is, any of the above inventory management best practices can be used to gain extraordinary results for the organization’s bottom line.

As organizations have an overall objective to put best practices into its supply chain management, supply chain managers need to start by looking at each process within the supply chain. Each activity needs to be mapped to understand where a best practice can be implemented, and where standard cross-functional processes can be set up. Every process and activity has owners who need to be in-line with the overall best practice implementation. For every process, it is crucial to have performance measurements which will create accountability and allow users to focus on the continuous improvement of process.

Monday, October 5, 2009

Managing the Weakest Link in Your Supply Chain

0 comments 7:21 AM Posted by amma

Supply Chain Management Challenges
The good news: Supply chain management professionals have been able to implement important technology and strategic business initiatives (such as ERP systems) and value-added strategic business initiatives like outsourcing, just-in-time inventory, and lean manufacturing programs to reduce costs and minimize supply and service interruptions.

The bad news: These initiatives have unwittingly pushed supply chains to their breaking points. A disruption in any key area (as indicated below) could leave an organization unable to manufacture goods, and unable to ship product to customers—and will ultimately result in lost market share.

Potential Causes of Supply Chain Collapse
If you deprive a person of oxygen, he or she will turn blue, collapse, and eventually die. If you deprive global economies of credit financing a similar process occurs. The recent economic outlook published by the International Monetary Fund on November 6 stated that

…world output is projected to expand by 2.2 percent in 2009, down by some ¾ percentage point of GDP relative to the projections in the October WEO. In advanced economies, output is forecast to contract on a full-year basis in 2009, the first such fall in the postwar period. In emerging economies, growth is projected to slow appreciably but still reach 5 percent in 2009.

What this means for global supply chains is that certain key industries that rely heavily on consumer spending will likely be affected.

Let’s take the North American auto industry as an example. In September 2008 in the US, 159,000 jobs were lost—the most in one month since 2003. Auto sales fell to a 16-year-low as would-be buyers were unable to obtain credit financing. In other indicators, a survey of purchasing managers sponsored by the US-based Institute for Supply Management suggested that the manufacturing sector overall is weak. Among the report highlights:

* “Financial services industry continues to be impacted by the global economic crisis — impacting all aspects and areas of the business and supply management.” (Finance & Insurance)
* “Economic slowdown starting to have an impact on customer count and check averages.” (Accommodation & Food Services)
* “Uncertainty is having the usual effect on business. Our response is traditional — stop all discretionary spending.” (Management of Companies & Support Services)
* “General pick-up in business in spite of all the bad economic global news.” (Wholesale Trade)
* “We are experiencing a slowdown in new job orders and existing job awards are lower. Clients are not extending project support professionals.” (Professional, Scientific & Technical Services)
* “Business down significantly! Discretionary spending disappearing.” (Arts, Entertainment & Recreation)

To illustrate the global vulnerability of the global supply chain, the World Economic Forum (an international think tank not particularly well known as a source for SCM information) in its 2008 global risk document cited supply chain vulnerability as one of the key global risks in 2008.

Additional Factors that Can Lead to Supply Chain Collapse

* If a supplier goes out of business

During this economic downtown there inevitably going to be casualties, whereby companies will determine they cannot weather the storm and have to go out of business. If one of the key vendors in your supply chain goes out of business, what impact will this have on your organization? With a global economy, many suppliers are located offshore, and managing a disruption in supply will become more difficult to manage.

* Geopolitical problems

Although many of these situations are unforeseen, you have to consider risk elements when you try to assess vulnerabilities within your supply chain. It could be in the form of an attack by a terrorist organization to a major seaport, which could cause a major disruption to shipments of key raw materials or finished products.

* Damage to product reputation

For an organization connected to a global supply chain, sometimes issues arise whereby a licensed subcontractor to the manufacturing organization engages in unlawful business practices (such as child labor, or poor labor and environmental practices). These elements can have a negative impact on your brand. Alternatively, outsourced suppliers may consider substitution of lower-cost and unapproved raw material substances without advising anyone. One example of this was when lead paint was found on children’s toys destined for North American consumers and when melamine was found in both pet food and in toothpaste.

* Natural Disasters

As many key commodities are sourced on a global basis, it’s not improbable that a key component in a process may be manufactured in a global region which is struck by a natural disaster like a hurricane or earthquake. This can have a destabilizing impact on a manufacturer’s ability to procure vital raw materials and meet customer orders. There have been notable cases where an unforeseen incident has caused an organization considerable harm. One well documented case occurred in 2001, when a fire occurred (the result of a lightning strike) at a semiconductor plant where Swedish cell phone manufacturer Ericcson was single-sourcing a supply of semiconductors. This fire caused Ericsson to lose significant market share to their key competitor (more details here).

Preventing Supply Chain Collapse
Proactive organizations have increasingly taken steps to minimize their exposure to risk, in much the same way manufacturing organizations have instituted quality control programs such as six sigma.

This has seen the development of risk management teams being set up in companies to review current practices and identify areas of potential exposure to risk, including their supply chain. The development of the practice first was introduced in a book written by Professor Yossi Sheffi (Director of the MIT Center for Transportation and Logistics) and titled The Resilient Enterprise: Overcoming Vulnerability for Competitive Advantage (see executive overview).

Among the key recommendations made by Professor Sheffi is to build redundancy and flexibility into your supply chain in order to minimize disruption:

Redundancy
Redundancy is the first line of defense to minimize supply chain disruption. This means adhering to safety stocks of finished goods to minimize the impact of demand variability, managing available capacity within the manufacturing location, and managing a wide variety of multiple vendors in your purchasing database.

Flexibility
Flexibility provides many options when faced with supply chain disruptions, including the ability to standardize operations in any location where a manufacturing organization is sourcing the same parts from the same vendor or multiple vendors. Having a similar set of machinery and training personnel will ensure that if there is a disruption, manufacturing operations elsewhere can partially fill the void until the effects of the disruption are known and managed.

Process Flow for Developing an In-house SCM Risk Assessment Program
The diagram below illustrates the steps that an organization could follow to implement their in-house SCM risk management program.

A Final Thought
My research into this topic made me think SCM risk management was similar to an insurance program to protect against unseen forces. I hope you’ll never be in the position of having to put these steps into practise. In this part of the early twenty first century it seems like the only certainty is uncertainty, however, and perhaps this is the most compelling reason to consider implementing these measures. Can you really afford not to?

6,000 Jobs Slashed at Sun Microsystem

0 comments 7:21 AM Posted by amma

If one quickly skims through Sun Microsystem’s newspeak-style press release, its devastating cut to 6,000 jobs, globally, only sounds like a doubleplusungood minor reshuffle. Newsoutlets and investors, however, weren’t fooled, and the announcement caused the troubled company’s shares to plummet to $4.06. At its height, during the dot-com boom, Sun’s shares were worth $250.

For eight years, Sun has been in deep financial troubles, and it hasn’t escaped the global credit crisis—a significant number of its customers are banks. This latest shakeup in has some analysts speculating that Sun will become a “dirt cheap“ acquisition target for larger rivals, such as HP, IBM, or Dell.

While this move is expected to save Sun between $700 million and $800 million annually, it won’t be enough to preserve the company. Sun may still undergo further restructuring, including splitting its software division into three different business units to push its open source business.

IBM & ILOG Matrimony: Good for BPM, Uncertain for SCM? — Part 1

0 comments 7:20 AM Posted by amma

What’s ILOG’s Dowry?

The deal, valued at approximately US$340 million, is expected to close by year-end 2008. By acquiring ILOG for Euro 10 per share, at a premium of 37 percent over the ILOG’s market capitalization at the time, I believe that IBM has gotten a good deal for a member of the Cape Horn Strategies Sustained Success Honor Roll.

This esteemed membership is comprised of all software companies that are listed on the NYSE, AMEX and NASDAQ stock exchanges that have six (or more) consecutive years of measured profitable growth. ILOG is recognized as belonging to the group of only 23 out of 482 public software companies with seven consecutive years of profitable growth.

In fact, ILOG, with over 850 employees in the following nine countries: US, France, Germany, Spain, United Kingdom (UK), China, Japan, Singapore, and Australia, has a stable recurring revenue stream from several hundreds of ISV’s royalty arrangements to embed its products. Indeed, it is quite difficult to think of how many vendors involved in some optimization or intelligence area are not leveraging ILOG’s optimization, visualization and rules engines (and thereby not reinventing the wheel themselves).

Most importantly, IBM has had partner and OEM agreements with ILOG for over a decade (since 1996). The giant incorporates ILOG’s network visualization technology into its Tivoli Netcool and WebSphere Business Events products, and it also uses ILOG’s manufacturing optimization products at its semiconductor wafer plant in Fishkill, New York, US.

Moreover, ILOG’s business rules capability is embedded within IBM WebSphere Process Server and WebSphere Application Server. It is interesting to note here that IBM also partners with ILOG’s foes Fair Isaac Corporation and Corticon Techologies for their BPM and rules management capabilities. Last but not least, ILOG BRMS engine also runs IBM’s InfoSphere Master Data Management (MDM) Server and IBM FileNet enterprise content management (ECM) offering [evaluate this product].

As another marquee partnership, SAP uses ILOG’s optimization engine embedded within SAP Advanced Planning & Optimization (SAP APO) and possibly within other SAP SCM suite’s applications [evaluate this product].

Former Manugistics (now part of JDA Software) has also embedded ILOG algorithms in several products, most notably in the strategic network design product. i2 Technologies (ironically, also soon to be part of JDA Software) did as well dating back to the Intertrans Logistics Solutions Limited (ITLS) acquisition 10 years ago. However, for some of the most complex SCM products (i.e., inventory optimization and manufacturing scheduling/sequencing), both Manugistics and i2 have developed proprietary algorithms (oftentimes heuristic-based ones).

BPM Is in Play Here, Duh!

Software tools, rather than enterprise applications, are primary targets of IBM purchases. It is thus not a big revelation here that IBM has acquired ILOG primarily for its market-leading business rules generation capabilities. Business rules engines are at the core of any service oriented architecture (SOA), complex event processing (CEP), Business Activity Monitoring (BAM) and/or BPM infrastructure, because they enable change of the underlying logic of business applications to nimbly adapt to new business conditions (environment), risk management policies, or local regulations.

IBM plans to much more tightly combine (than it has been done so far via ILOG extensions) its BPM, business optimization, and SOA technologies with ILOG’s BRMS software. When completed, the acquisition should strengthen IBM’s BPM and SOA positions by providing customers with a full set of rule management tools for complete and near-real-time business information and application lifecycle management (ALM). The unified business process modeling & design, process execution, BAM & analysis, and human interaction & collaboration capabilities will be able to work across a variety of platforms, including IBM’s WebSphere application development and management platform.

With more than 6,550 client engagements worldwide, IBM is a worldwide leader in the SOA and BPM markets. This leadership is further illustrated by a community of greater than 120,000 architects and developers, more than 150 universities incorporating IBM’s SOA and BPM curricula, and more than 6,000 IBM Business Partners building SOA skills, solutions, and practices.

IBM & ILOG Matrimony: Good for BPM, Uncertain for SCM? — Part 2

0 comments 7:19 AM Posted by amma

Oracle BPM Suite – a Market Threat or Validation?

Indeed, the recent acquisition of the former middleware competitor has promoted Oracle into the middleware market leader position, at least in the Java world. For more on Oracle’s strategy behind the ambitiously broad Oracle Fusion Middleware (OFM) suite and on its plans to stratify the middleware products into the strategic, continued & converged, and maintenance categories, please see my “Taming the SOA Beast” blog series.

Zooming in on Oracle’s BPM product strategy, the idea here is to offer a complete and integrated BPM platform that caters for system-centric, human-centric, document-centric, and decision-centric business processes (workflows) in a single runtime environment. The suite is aimed at business owners and developers to collaborate, to define processes across systems and lines of business (LoBs), and to improve business process efficiency by modeling, executing, monitoring, analyzing, simulating, visualizing, and optimizing business processes.

To that end, most of the Oracle and BEA products will end up in the strategic product category, starting with Oracle Business Process Analysis (BPA) Designer, which is a structured BPM designer for rigorous process modeling and simulation, and BEA AquaLogic-BPM Designer, which is an agile BPM designer for iterative process modeling. The above strategic Oracle BPM suite can be bolstered optionally with the BPA, design, and modeling capabilities via the partnering IDS Scheer’s ARIS tool (e.g., for achieving the Six Sigma compliance).

But at the core of the Oracle BPM suite are the converging BEA AquaLogic BPM (formerly Fuego) and Oracle Business Process Execution Language (BPEL) Process Manager (former Collaxa) products. This convergence will cater to both human-centric and structured BPM in a single Business Process Modeling Notation (BPMN) and BPEL runtime environment. Such an environment is seen to bridge the traditional gap between business users and the information technology (IT) departments.

Other parts of Oracle BPM are Oracle Document Capture & Imaging (coming from the Stellent acquisition). This content management module [evaluate this product] enables paper document capture, imaging, and document-centric workflow with enterprise resource planning (ERP) systems integration. For its part, Oracle Business Rules is a declarative rules engine for users to express their business policies, while Oracle BAM provides dashboards for users to monitor business events and business process key performance indicators (KPIs) for optimization purposes.

Last but not least, the Oracle WebCenter suite supplies a business process portal interface for users to visualize composite processes. When one adds Oracle CEP to the above portfolio, which is an in-memory event computation engine that is being integrated with BEA WebLogic Event Server, as part of the Oracle SOA Suite, it is small wonder that IBM had to do something to counter Oracle’s BPM assortment. Hence, the ILOG acquisition.

IBM & ILOG Matrimony: Good for BPM, Uncertain for SCM

0 comments 7:19 AM Posted by amma

What About ILOG’s SCM Products?

Whether as a sort of “collateral damage” (given IBM’s foremost interest in beefing up its SOA/BPM infrastructure product) or maybe not, the acquisition also leaves IBM with the supply chain management (SCM) applications business that ILOG has recently been developing in pursuit of a more profitable custom solution strategy. This strategy was going to complement ILOG’s tried-and-true “technology & platform” strategy of providing business rules management system (BRMS), optimization engines, and visualization tools.

ILOG saw custom SCM applications as a higher-margin business promising a better opportunity for profitable growth than the stable technology tools market. To date, however, the applications division has not grown significantly. ILOG’s more recent efforts to establish itself in the SCM application market have included in-house development of custom solutions and the acquisition of LogicTools, a strategic inventory optimization and network design application vendor in 2007.

Founded in 1995 by David Simchi-Levi, professor at MIT, LogicTools has over 250 corporate customers (over 70 of which are Fortune 500 members) that benefit from its sophisticated solutions. While ILOG has since made some inroads in selling the acquired LogicTools applications, the solutions it has developed in-house have had limited success.

Although “ERP- system-agnostic” in principle, LogicTools’ SCM applications strategy has long been to fill the so-called “white spaces” within the SAP SCM suite [evaluate this product], in terms of inventory optimization (IO), supply chain network design, planning and scheduling for process manufacturing, and planning and scheduling for multi-stop transportation.

IBM has yet to unveil any plans for the ILOG SCM applications. The giant states (or merely lives in a denial) that it is not in the applications business, though it offers a few own specialized SCM applications, primarily through its consulting business. In fact, SCM products like the IBM Dynamic Inventory Optimization Solution (DIOS) and IBM Carbon Tradeoff Modeler have come into being as a result of a number of special client engagements.

Although these consulting experiences have subsequently been productized, these offerings are strictly offered as toolkits that support and facilitate IBM’s new SCM consulting engagements. These IBM SCM products’ respective numbers of installations count in dozens rather in hundreds.

In his recent blog post, Jason Busch believes that based on this and other recent software acquisitions, and its already strong services and business process outsourcing (BPO) practices, IBM is the most logical vendor to step in and acquire a spend management solution provider like Ariba (which offers a somewhat non-traditional combination of software, services and supplier network enablement).

Given that i2 Technologies has lately, prior to the JDA Software merger agreement, groomed itself into a more specialized SCM consultant for complex environments, with a possibility of offering its software tools where appropriate, I was at some stage suspecting IBM as a possible suitor. Oh well, i2 might have had much more SCM software than IBM currently needs and wants.

Is There any Logic to Keeping These Tools?

For that reason, and given no mention of the SCM products and strategy in the IBM’s merger announcement for analysts, it is difficult to predict exactly what IBM will do with ILOG’s SCM applications, such as ILOG Plant PowerOps (PPO), a solution for manufacturing planning and scheduling for process manufacturing or ILOG Transport PowerOps (TPO), a solution for shipment planning and vehicle routing for retail/consumer packaged goods (CPG) and third-party logistics (3PL) providers.

Furthermore, the ILOG LogicNet Plus XE suite tackles the strategic network design (to determine optimal number, location, and size of warehouses, plants, and production lines), multi-site production sourcing strategies, production and procurement planning, and contingency planning. Last but not least, the ILOG Supply Chain Analyst suite consists of the following modules that can be thought of as separate products:

1. ILOG Inventory Analyst is the flagship product that has been around since 2001 for multi-echelon inventory optimization [evaluate this product]. It can be deployed strategically (to determine inventory strategies per location) or tactically (feeding ERP system safety stock targets on a periodic basis); and
2. ILOG Product Flow Optimizer, for distribution-focused analysis, is a new product that is a spin off from Inventory Analyst. It is a strategic tool for retailers and distributors with multiple echelons of inventory storage.

ILOG/LogicTools’ customers cite the following reasons for selecting these tools:

* The ease-of-use and the vendor’s willingness to prove it;
* The staff’s consulting experience and SCM savvy;
* The approach to customers, in terms of: costs and listening to clients’ issues; often starting with a small project and growing as required, and even providing leasemand/or hosted options as required;
* The portfolio’s capability of network design, production sourcing, and inventory optimization from a single vendor (since LogicNet Plus XE complements Inventory Analyst solution); and
* Out-of-the-box functionality, plus the ability to integrate with third-party solutions like SAP.

All of the abovementioned SCM applications products have either the “Certified by SAP NetWeaver“ (i.e., ILOG LogicNet Plus XE) or “Powered by SAP Netweaver” designation(i.e., ILOG Inventory Analysts, ILOG PPO and ILOG TPO). Other ILOG applications such as ILOG JRules and ILOG Optimization Decision Manager (ODM) are also “Powered by SAP NetWeaver.”

Such a set of products might be as equally tempting for the new owner to continue selling and developing as to possibly curtail it. The latter would be so that IBM would not lose its focus on infrastructure, and also not get in a conflict of interest with its SCM ISV partners, like SAP, Oracle, Lawson Software or Infor. Thus, I concur with Gartner’s assertions that, post-acquisition, there are the following possible scenarios for the ILOG SCM applications:

* Moving them under the IBM SCM consulting group, though as offerings with premium services wrapped around them that will likely cost more and will receive less focus than when they belonged to ILOG;
* Either limiting future product development or perhaps leaving the SCM business as independent, with the research & development (R&D) investment commensurate with the unit’s performance;
* Spinning off the SCM applications, given the existence of overlapping products like IBM DIOS;
* Delegating to partners to peddle the products. This seems to have already been the case with Maximo (from former MRO Software) for the enterprise asset management (EAM) market, since IBM acquired the product to fill the information technology (IT) asset management gap within the Tivoli product line.

While Maximo has not really disappeared from the EAM market, it has somewhat lost its erstwhile leadership luster, and thereby allowed much higher profiles in the market for Infor, IFS, Mincom, Ventyx or Lawson, to name some.

A friend/peer of mine, and a great SCM market connoisseur, who prefers to remain incognito, gave me his two cents worth below:

“My guess is that IBM will either wrap consulting services around ILOG SCM since IBM’s SCM practice is rather large (and since it was more of a service offering anyway) or investigate buyers and spin it off, though the list of buyers is probably pretty thin. SAP has relationships with SmartOps and Optiant, so I doubt it would want to jump in the fray. I doubt the offering is big enough to make much of an impression on Oracle.

I could see a venture capital (VC) firm getting its hooks into and merging it with something or trying to make a business around it. I doubt IBM would want to sell it to another big consulting firm, even the ones in India that might have fun with it. I’d say it is 80/20 that IBM keeps it versus spinning it off.”

This statement made me think that Manhattan Associates could be one of a few viable suitors. The vendor has been making some noise with its own IO capabilities, but I doubt these are as powerful as those of Optiant, SmartOps, LogicTools or ToolsGroup. Also, LogicTools products could be embedded within the expanding Manhattan SCOPE (Supply Chain Optimization Planning through Execution) suite on top of its Supply Chain Process Platform (SCPP).

Certainly, JDA Software already has (or will soon have) some IO capabilities via acquiring Manugistics and i2 Technologies, while Oracle has combined the capabilities of Demantra’s demand planning [evaluate this product] and Numetrix’ scheduling and strategic network optimization (SNO). To refresh your memory, Oracle got the latter product via the acquisition of PeopleSoft in 2004, who in turn acquired J.D. Edwards in 2003, who in turn acquired Numetrix in 1999.

But again, IBM will most likely give the ILOG SCM applications to its consulting division, and leverage them into toolkits given to the IBM SCM consultants to market them as reusable services. The support model will likely gradually change to a service-based (consulting know-how) offering.

Why Managing BOM Is Such a Big Task

0 comments 7:18 AM Posted by amma

Collaborative Product Development

As time moves on, products become not only more complicated in structure, but also impossible to develop exclusively by a single department. In fact, developing a product is now a corporate-wide activity that involves almost every function of a company, from strategic planning, to sales and marketing, to after-sales services.

To see how things get more complicated, we don’t even need to look at all the participants. Let’s stay with three functions—product design, engineering design, and production—for a while. At the time when the product design department finishes its work, a design BOM will be generated. Ideally, this BOM will be carried throughout subsequent processes. However, this is not very likely to happen. For example, a single part created by product design team might be modified into two parts by the engineering design team for the feasibility of production; when the production team receives the production order, it might decide to use another material (which also meets the requirements) to produce the parts, since there is a large amount of this material in the stock due to a cancelled order.

The differences among the design BOM, engineering BOM, and production BOM create inconsistency of product data along the product’s life cycle, and sometimes increase product cost and time-to-market. Besides these three types of BOM, there are also customer BOM, sales BOM, maintenance BOM, cost BOM, etc., all used for different purposes, making things even more complicated. One way to resolve this problem is to bridge the information gaps on a constant basis under the change management mechanism, which is a fundamental functionality within the product lifecycle management (PLM) solution.

Mass Customization

To meet the increasing demands of consumers that want more personalized products without significant increases in price, many manufacturers now practice mass customization of products ranging from automobiles to computers—even apparel. Modular BOM is one of the enablers for mass customization. It defines the components needed to produce a subassembly, and provides cost information for each component and “rolled-up” cost for the overall subassembly. Nowadays, one product may many configurations. If computer systems store each possible configuration as an independent BOM, BOM maintenance becomes almost impossible.

Configurable BOM is another enabler for mass customization. By using this BOM, buyers and manufacturers can create “end-items” dynamically. Based on this configurability, Quote-to-order (Q2O) solutions (sometimes known as configure, price, and quote, or CPQ) enable manufacturers to mobilize their mass customization initiatives. These systems can reduce time-consuming quoting and ordering processes, decrease unit costs, and lower sales costs.

Global Manufacturing and Consumption

Another significant shift in the manufacturing industry is that product development and production have been widely distributed. It’s not a surprise to find “Designed by Apple in California. Assembled in China” on the back of an iPod owned by a 16-year-old boy in Spain. Production offshoring and global marketing give companies opportunities to cut costs and to reach more consumers, but these activities also require more collaboration with up- and down-stream partners. Product data transparency between a manufacturer and its suppliers (or in other words, consistent BOM information throughout its supply chain) becomes an important issue when companies want less expensive production resources but still need to keep up with the pace of shortening time-to-market. In an old-fashioned way, an engineering change that reflects material changes may reach suppliers in days. Not to say that suppliers may also have a few layers of suppliers.

Consistent BOM throughout the whole supply chain relies on integration. First of all, internal integration ties all the information systems running within an organization (PDM/PLM, ERP, SCM, etc.) that rely on accurate BOM data. This integration allows companies to have effective and consistent product information any time it is needed. Secondly, external integration connects all parties on the value chain. Based on electronic data interchange (EDI) or other means of data exchange, external integration allows enterprises to have a common view of the product structure and other critical data, so companies can collaborate across organizational borders.

Lawson Gains Strength in Fashion by Acquiring Freeborders PLM

0 comments 7:18 AM Posted by amma

Lawson’s Freeborders PLM acquisition sounded similar to me. Firstly, the Lawson Fashion Solution on the enterprise resource planning (ERP) side had some PLM functionality already (e.g., product development functionalities), although the company’s strength lies more in transaction-based systems. Secondly, Freeborders PLM would have a better platform to reach and serve more customers, given the significance of Lawson in the fashion industry. Lastly, Freeborders was willing to sell its PLM division. “The sale of the PLM software division allows Freeborders to focus on its outsourcing business as a pure play operation”, said a Freeborders press release. The Lawson-Freeborders PLM acquisition is just further evidence that ERP vendors are moving to vertical dimensions. Furthermore, it’s obvious, PLM provides broader coverage than customer relationship management (CRM) and supply chain management (SCM) in terms of connecting together different functions within an organizations.

Recently, I had a chance to have a close look at Lawson Fashion PLM. By walking through some of the major functionalities of Lawson Fashion PLM, I was assured that there is good match between the solution and its mid-market customers, as well as a good fit between the PLM solution and its new owner Lawson.

My first impression was that the product has its roots in serving the fashion industry. Comparing it with the engineering industry—where the PLM concept originated—the fashion industry has now started to realize the benefits of adopting PLM. If we divide all the fashion PLM solutions available on the market into two breeds, the first group would consist of well-established engineering PLM solutions moving to the fashion sector using tailored functionalities with added features specific to this industry; the other group would be solutions originally developed for the fashion industry. Both approaches have some pros and cons, and in my personal opinion, the traditional PLM developers are leaders in the game today. Long-time practice provides engineering PLM providers with significant strengths on the general PLM side. However, the PLM players who focus solely on fashion will also carve out their share of the market if they can focus their strengths on the fashion side. Lawson Fashion PLM is located in the second group. All existing Lawson Fashion PLM customers are in the fashion sector, and according to Chantal Chabot, Lawson’s product manager, Lawson Fashion PLM will keep focusing on this industry.

Through the functionalities and features of Lawson Fashion PLM, it’s easy to find its fashion orientation. Apparently, it aims to please fashion designers—the ones that start the product life cycle every season (with every collection). One thing that we have to realize however, is that by having a different mind set and work style from engineering designers, fashion designers will probably hesitate to use a system if it appears too technical and complicated. Fashion designers strive for inspirations and creativity. Dimensional precision is important in order for a garment to fit the human body; but that’s not what makes today’s fashion. Within Lawson Fashion PLM, modules such as Storyboard and Designer are easy to understand and very user-friendly. I have to admit that designers are going to like the visualization and simplicity of Lawson Fashion PLM, as will other key people on different stages of the fashion goods life cycle—including planning, costing, and sourcing.

Pre-configurability is another point worth mentioning. In the PLM world, pre-configuration out-of-the-box is not always a given, especially with the specificity and uniqueness of business processes and the integration perspective of PLM solutions. But, with a specific concentration in fashion, Lawson Fashion PLM makes pre-configurability more feasible. By serving 79 apparel manufacturers in the US, Europe, and Asia, Lawson Fashion PLM is able to extract best practices and turn them into pre-configured functionalities to address the key development and production issues facing apparel producers. For example, the solution now offers over 200 pre-defined forms to facilitate the implementation process, which is said to be as short as 3 to 6 months for a regular project.

In many acquisitions, integration during the post-acquisition period is the most important success factor. The Lawson-Freeborders PLM deal will also need to seek better ways to generate synergies based on both technology integration and marketing integration. The technology integration is relatively easy, and benefits are obvious, providing Lawson Fashion PLM can talk to other Lawson M3 modules. Since they are in the same family now, why shouldn’t they ?

On the marketing side, tasks lie in two major aspects:

1) how the PLM offering can take advantage of becoming a part of a company with hundreds existing customers in the fashion sector
2) how Lawson can maximize the benefit of being a more comprehensive solution provider vertically in the fashion industry

How Bad Can It Get? Challenges in the Distribution Industry

0 comments 7:17 AM Posted by amma

Manufacturers serving such retail giants as Wal-Mart or Costco are exposed to severe challenges—not only because of the economies of scale these outlets demand, but also because of the investment required in technology and capital equipment to manage the sheer volume of manufactured goods.

With a weak economy, which usually translates into weak retail sales, these organizations may feel the pinch in a number of areas:

* Retail giants can dictate both price and terms of payment, as many of them are heavily integrated into vendor-managed inventory (VMI), also known as vendor consignment inventory programs. [Wikipedia on VMI]
* The credit crunch in the US has placed the ability to maintain these arrangements in jeopardy—manufacturers risk reneging on the contracts as the only seeming relief to remain viable.
* The VMI concept requires manufacturers to incur up-front costs in terms of materials and labor, with payment to come 90 to 180 days after—in other words, manufacturers rather than retail are assuming the risk.

Additional distribution industry challenges:

* Manufacturers must deal with increasing government compliance requirements (e.g., “fetus-to-fork” traceability, and the US Bioterrorism act of 2002)
* Fluctuating fuel costs require increased attention to route planning (ideally, using TMS software).
* Manufacturers are also feeling pressure to reduce their environmental footprint at the distribution center. In fact, the distribution industry was one of the leading forces behind the push to have manufacturers and retailers reduce packaging. An example: recently, detergent manufacturers have reduced the amount of water in their product, in order to create a more concentrated product—leading to smaller plastic containers and thus the ability to ship more product on fewer pallets.

The point? Lean economic times certainly put pressure on big-box retailers—but on the other hand, they’re in a position to transfer a portion of that pressure to the manufacturer.

So what can you do?

* Negotiate better terms/credit extensions/flexible conditions from your suppliers (this may not always be a viable option, given the current credit crunch).
* Manufacturers can also turn to outsourcing/off-shore subcontracting—after all, dealing with “Wal-Mart volumes” can potentially take up all your production equipment and capacity, which can make outsourcing all but an absolute necessity.
* Manage inventory more efficiently via just-in-time (JIT) practices. Software systems that can help: warehouse management systems (WMS), advanced planning and scheduling tools, manufacturing execution systems (MES), and supply chain optimization tools.

Taking a Lesson from Big-box Retailers: The World’s Distribution Pros

0 comments 7:17 AM Posted by amma

This blog post will examine how retailers have adopted a business model that presents unique challenges in terms of the development of distribution and infrastructure systems to support this growing retail phenomenon.

In order to differentiate from traditional retail concepts one has to comprehend the unique characteristics of this type of store. One of the more interesting features of this type of store is that the store serves as both a warehouse and a retail space. Unlike traditional retail outlets, you will not find the clerk heading to a backroom to find an item for the client.

The term “big box store” is generally used to describe a store belonging to a franchise chain (such as Wal-Mart or Costco). These stores have a similar physical resemblance to one another: generally they occupy locations larger than 70,000 square feet and usually consist of rectangular shaped buildings with a flat roof, usually made of steel with walls and floors made of concrete block slabs in a masonry floor. These stores are generally in a suburban setting in proximity to major highway interchanges. These buildings are designed to allow for merchandise display and to give the consumer the impression of large volumes of inventory and selection.

Why Has the Big-box Retail Model Flourished?
Big-box retail practices evolved from a series of academic marketing studies conducted in the early 1990s. Among the most notable studies is a key marketing research document published in 1994 titled Minimizing Technological Oversights: A Marketing Research Perspective, which stated that “retailers can often affect sales volume of a product by increasing the shelf space allocated to that product.”

Generally speaking, big-box retail stores are divided between general merchandisers such as Wal-Mart, and category killers such as Staples, which specialize in one type of product (e.g., office products). Among the several reasons for big-box success has been the sheer volume-buying power that these corporate retail organizations can leverage, which makes it difficult for traditional independent retail organizations to compete. Also, the relative low cost of building outlets in areas where retail land is inexpensive, and where populations have higher levels of per capita income, makes this a successful retail business model.

Consumers Have Created a Battle for Market Share
Retail consumers have expectations of increased levels of service based on product availability, product selection, and competitive pricing. The big-box model has been replicated by several retail organizations, resulting in a battle for consumer retention. This is particularly true in an environment where customers can go online, order merchandise, and simply pick up the items in the store. This is an attractive option during the busy retail buying season when sale items are more difficult to acquire. Also, customers know they can venture elsewhere in search of similar products and services in a highly competitive and price-driven environment, The organizations which can fulfill and exceed customer expectations will inevitably capture market share.

Manufacturers Outsourcing Distribution
Manufacturers have increasingly outsourced the distribution of products to third-party logistics (3PL) service providers. This has enabled manufacturers to focus on their core competencies while providing the retail market the ability to capitalize on the expanded areas of distribution service such as VMI (vendor-managed inventories) and just-in-time (JIT) inventories.

This has provided retailers with the ability to adjust for variability in demand, and to pass on the burden of forecasting inventory to the distribution channel specialists. David Bourque, in his article From Manufacturing to Distribution: The Evolution of ERP in Our New Global Economy, amplifies this point:

ERP-distribution software has integrated SCM functionality into its existing functionality to navigate through the complex global manufacturing environment. SCM software maps five processes into one solution: planning, sourcing (obtaining materials), producing, delivering, and returning final products if defective. These processes help to track and manage the goods throughout their entire life cycles. In addition, ERP solutions are used to manage the entire operations of an organization, not only a product’s life cycle. This gives users the broad capability to manage operations and use the SCM functionality to manage the movement of goods, whether components or finished product.

IT Has Provided Retailers with Increased Supply Chain Data

a) ERP-Distribution Systems
ERP-distribution software encompasses both SCM and ERP together, and is designed primarily for retail, logistics, and distributors. Among the key benefits is the ability to reduce time for warranty processing.

b) Point of Sale (POS)
Advances in POS technology provide retailers with information to track sales demand by SKU (stock keeping unit), the ability to transfer inventories from one retail outlet to another (since one store in a particular location may have more demand for a particular item) and the ability to track the progress of shipments from the factory to the distribution and retail outlet.

c) Transportation Management Systems (TMS)
A TMS enables retailers to efficiently manage delivery schedules from the distribution centers to the retail outlets by developing a sophisticated supply chain network whereby store deliveries follow a fixed schedule, alternatives can be developed for variations in demand, and adjustments can be made to the quantity of merchandise to a specific retail outlet or by SKU.

Alternatively, by optimizing transportation activity while a carrier is on a scheduled route completing deliveries on the return leg of the route The backhauling of unsold merchandise and returned merchandise for can be sent directly from the retail location to the distribution center and back to the manufacturer for distribution or vendor return. A TMS will also enable a retail organization to select the best rates from either a private carrier or common carrier over a given route, and enable effective route planning. One other benefit of deploying TMS technology is the ability for organizations to cite improved management of transportation and distribution resources as part of an overall green sustainability effort this can counter unfavorable media coverage of big box retailers.

d) Warehouse Management Systems
Through the use of other technology based tools such as WMS (Warehouse Management Systems) which have enabled retailer’s efficiencies in order fulfillment and replenishment, and in effective use of inventory movement and storage space within the retail location. This results in efficiencies in minimizing order backlogs and developing audit trails in the even of inventory reconciliation to improve loss prevention capabilities.

e) Product Lifecycle Management (PLM)
PLM is another technology tool which has helped retailers track the entire lifecycle of a product through development and introduction to the market, throughout the sales process, and finally to product maturation where discounts can be applied to adjust for decreased demand (as well as helping identify slow-moving inventories that can be discounted and sold at a clearance price, as opposed to returning as a credit against a purchase order from the manufacturer).

f) Analytics
Retail organizations have been using analytics embedded within ERP to examine trends related to ordering patterns within consumer behavior. Additionally, promotions and sales can be organized according to market segments based on demographic data from which price points can be established, and styles and patterns arranged.

g) Radio Frequency Identification (RFID)
RFID is another technological innovation that has enabled retail organizations to manage their resources and improve customer service. At the retail outlet, items are tracked as they would be in the warehouse, thus improving inventory control. The receiving of inventory is another process which is conducted rapidly and efficiently through the use of RFID tags and is extended from the manufacturer to the retail distribution process right through to the POS. In-store display and merchandising is another benefit of RFID: as merchandise is sold, inventory is tracked and can be linked by a min/max order calculation to send a purchase requisition for reordering merchandise. At the cashier customer orders can be processed rapidly, and RFID contributes to loss control, since any unchecked merchandise will trigger an alarm.

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