Connectivity is the key to better supply chains

Nov. 8, 2004
In order to improve customer service and increase operating efficiency, companies must invest in new technology in order to have real-time information

In order to improve customer service and increase operating efficiency, companies must invest in new technology in order to have real-time information about product, customers and order fulfillment across the supply chain, according to a report on enabling visibility in the adaptive supply chain developed by Capgemini and The University of Tennessee's Mary C. Holcomb, PhD, and sponsored by Microsoft.

While the 2003 study focused on the core of operations excellence through the marriage of customer relationship management (CRM) and supply chain management, this year's study highlights significant opportunities that exist for companies to become more "connected" to their suppliers and customers. The top five investments in supply chain technology for 2005 according to respondents were CRM (38%), demand planning (35%), warehouse management system (33%), supplier integration (32%) and ERP (31%), indicating a slight shift away from traditional transaction data systems towards those that link supply and demand more closely.

"This year's study provides companies currently connecting to the supply chain with a roadmap to increase their probability of success in using IT to compete," says Tony Ross, Americas solution leader for logistics and fulfillment for Capgemini. "Connectivity is needed to achieve the seamless integration of information coming from multiple supply chain partners, which creates true supply chain visibility. According to the study findings, there is a progression towards supply chain execution management, where visibility, exception management and automated decision-making come together to allow firms to dynamically plan and respond."

Nearly half of respondents (48%) say that a centralized system hosts a single database, applications, and hardware/software interfaces, while another 15% say their organizations use desktop systems to host the software applications, but these applications feed off a separate database server. Roughly one in five (18%) say their IT operations consist of separate applications and database servers, while 19% operate their supply chain activities over the Internet through an outsourcing arrangement (e.g., applications service provider.)

"The study shows that those companies that understand the relationships between technology, supply chain connectivity and the power of their entire value chain will be the winners in the competitive landscapes to come," says Charles Johnson, worldwide managing director for manufacturing at Microsoft. "By starting inside the enterprise and extending to trading partners and suppliers, the goal is to enable real time collaboration to optimize the supply chain."

A majority of respondents communicate with suppliers (55%) and customers (56%) primarily by e-mail or telephone, or both, while electronic data interchange (EDI) is used just as often as the telephone when communicating with suppliers (16%)

Within a firm's four walls, information or customer order status and outbound shipments received the highest rating in terms of visibility; over 80% of respondents report that data about these two items is "somewhat" to "highly" visible. Fewer respondents (67%) report this same level of internal visibility for vendor order status and inbound shipments. Only 30% say that information about finished goods inventory at the plant and distribution center is "highly" visible.

However, visibility to this data outside the firm (external visibility) is not nearly as good. With two exceptions, over 39% of the respondents have either "very limited visibility" or the information they sought is "not available." The two exceptions are outbound shipment and customer order status; about 60% of the respondents say this information is "somewhat" to "highly" visible.

Roughly half of the companies who responded (46%) have more than $1 billion in annual revenue, while slightly less than half (44%) of respondents are manufacturers, followed by high-technology & electronics (18%) and consumer products (12%) companies. The median amount spent on logistics by these companies ranged from $200 million and $249 million, and one-third of these companies spent $750 million or more on logistics.

"The findings from this year's research indicate that significant opportunities exist for companies to become more "connected" to their suppliers and customers," says Dr. Mary Holcomb, associate professor of logistics & transportation and assistant dean in the College of Business at the University of Tennessee. "That connectivity is essential for supply chains that are both tactically efficient and effective in meeting customer expectations, and that adapt to unforeseen circumstances."

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