Get smarter with your supply chain

July 12, 2005
Are you hesitant to jump into a new technology or even upgrade current systems? You may be missing out on competitive opportunities. When most people

Are you hesitant to jump into a new technology or even upgrade current systems? You may be missing out on competitive opportunities.

When most people think about technology, they tend to think only of the application layer, observes Patrice Knight, vice president strategy and transformation with computer giant IBM Corp.'s Integrated Supply Chain. At IBM, she notes, "We think about the data, the application and the whole on-demand approach.

"It's about the work flow, data and integration pieces that equal technology — the ability to share data, connect data, and make decisions regarding supply chain," Knight continues. "Technology connects us to all our core suppliers. They can see our forecast, demand and replenishment requirements."

In a more traditional view, companies might share data with their Tier One suppliers, but IBM's sharing goes at least two tiers deep, Knight says. The immediate benefit: With their clean line of sight, IBM and its partners can immediately correct supply/demand imbalances.

IBM's policy is full disclosure of appropriate information where it's needed. "People have different levels of access depending on their role," continues Knight. "Sharing information with partners is about having the right security protocols. We identify and manage roles so the right information is available for people who need it."

Sharing information both ways is a valuable supply chain tool for Sun

Microsystems Inc., a provider of network computing products. Supplier coplanning (SCOP) is an add-on to Sun's basic system for supply chain management that lets suppliers see Sun's requirements at multiple steps in the supply chain.

"If we need a processor chip in a system that's built by a supplier, SCOP tells the supplier and the other multiple steps of the supply chain what we need," explains Eugene McCabe, executive vice president, worldwide operations with Sun.

"The contract manufacturer, the supplier of the component and Sun all see the information at once. SCOP makes sure we quickly pass requirements up and down the supply chain."

For three years, Sun has appreciated that SCOP flags any errors in the supply chain plan early in the process instead of at the point of shipping to the customer. "If there's a disconnect, we can clear it up at once," adds McCabe.

Technology advances make this type of supply chain visibility available in a variety of ways. "We use many different processes to connect to our 33,000 suppliers electronically," says IBM's Knight. "The key is how quickly you can set it up. EDI (electronic data interchange) is a one-to-one handshake requiring someone to hook up on a onetoone basis. When we share information in a web-based interaction, however, it can be one-to-one, one-to-many, or many-tomany. It's less expensive to do webbased sharing rather than EDI."

At IBM, every purchase order goes out electronically, Knight explains. " Suppliers choose whether the connection will be EDI or web-based. While some are still using EDI, most are web-based. Even mom-and-pop suppliers can be web-based. Using the web allows a business to operate the same across all suppliers."

IBM's web-based relationships with core suppliers "are far more advanced than EDI could ever be," Knight insists. "We can quickly communicate multiple steps in supply chain and receive rapid electronic responses. This is true process-to-process integration vs. the limited number of transaction sets available in EDI."

Capturing accurate, reliable information to communicate to trade partners has long been a challenge for many companies. Over the last five to 10 years, there's been tremendous development in business enterprise systems. For instance, Dow Corning Corp., a manufacturer of silicone-based products, implemented SAP's enterprise software across its entire organization about seven years ago.

"Complete implementation allows us to talk real time across the organization," says Brett Abels, executive director global supply chain with Dow Corning. "Some elements are better optimized than others, but it gives us a tremendous ability to make the model work. Every two to three years, we update SAP, but those updates are not nearly as intensive as was the initial implementation."

SAP now offers a number of software add-ons that correct some of the early concerns, according to Abels. "We've added advanced planning tools for more tactical scheduling. The software tackles planning asset utilization, manufacturing scheduling, and looking at delivery configuration to meet today's business model and the model of the future," he says.

Dow Corning is adding a procurement module to better analyze its spend as an organization. "Knowing the who, what, where and when of buying gives us a better opportunity to work with our supplier base to aggregate our sizeable spend and put in place supplier/customer relationships on our commercial end to smooth the supply chain," continues Abels.

"We've also added the ability to place monitor controls at the fingertips of offsite managers. They can access information periodically or real-time from their desktops, to manage facilities throughout the world," he adds.

In some locations, the third-party logistics providers (3PLs) Dow Corning uses for delivery are now tracking movements with global positioning system (GPS) technology. "This gives us actual delivery information to the customer's doorstep," Abels notes. Dow Corning insists its 3PL partners use SAP technology as well.

Working in partnership with its primary U.S. customer, farm equipment manufacturer Deere and Co., Bossard USA recognizes the critical role its fasteners play at John Deere manufacturing facilities. Bossard locates warehouses close to manufacturing sites and delivers just in time to the production line.

"There's not a lot of cost in fasteners, but they are a critical need," notes Wayne Johnson, computer programmer with Bossard. "We maintain a relatively high number of warehouses as a service to customers."

The fastener distributor processes 1,500 to 2,000 orders per day in its U.S. facilities. Johnson works closely with Bossard's supply chain people to optimize the use of technology.

"Our warehouse locating system automates order fulfillment," Johnson explains. "In our primary warehouse in Iowa, a new scanning system puts realtime information into the computer system. After checking product into our computer system, we use scanners to track it, scanning pick tickets to fill orders, scanning bar codes and rack labels as items are picked. Any movement of product in the system is scanned," he notes.

"The biggest value in our new scanning system is an increase in inventory accuracy," Johnson points out. "We have many high-volume part numbers. If we had to rely on ballpark estimates, we would need a lot of buffer stock. We needed to be able to track inventory electronically and improve accuracy."

Bossard also uses the scanning system as a quality control check from vendors. "If we find a bad lot of fasteners, we can pinpoint the specific shipment while quickly halting processing of that product so none goes out to the customer," Johnson says.

At Sun Microsystems, shipping from its manufacturing facility to customers is no longer the only option. "We have two fundamental supply chains," notes McCabe. "Components come into our factory, we do final integration of product, and then ship to customers."

About a year ago, Sun introduced supplierto-customer, he continues. "Our external manufacturers do final assembly and ship direct to the customer. It is significantly more efficient but requires precise information management. The order could be from multiple manufacturers. We receive information from the customer, translate it to the manufacturers, and ensure the right product goes to the right customer at the right time," Mc-Cabe explains.

"This is all managed by merge-intransit software," he continues. "Mergeintransit is a total information management job, but it takes away the need for a distribution center (DC)."

Last year, Sun had three large DCs worldwide. Now there are none. The only material that leaves Sun's suppliers is to satisfy a customer order.

"We don't build inventory and consider that a competitive advantage," insists McCabe. "We have a limited amount of inventory, mostly where we're the manufacturer."

While software nowmakes it possible to do merge-in-transit successfully, information flow is only as good as the information itself.

"For example, SAP is a powerful tool if you are disciplined enough to feed in accurate, timely information," cautions Dow Corning's Abels. "Use of radio frequency identification (RFID) could provide-more information in a more productivemanner and take away repetitive tasks. Technology like RFID and bar code scanning can make the information more accurate and improve everyone's confidence in the reliability of information that is shared."

RFID is just one example of rapidly changing technology. "The rate of evolution of technology is mind boggling," notes Abels. "If it takes too long to implement, the technology will be obsolete before you use it. You need speed of implementation to extract value."

Are you optimized?

How do you know your supply chain is the best it can be? Can you demonstrate that you're providing a competitive advantage to your company?

For Sun Microsystems Inc., measuring total-labor and overhead throughout the supply chain as a percent of total product cost gives the supply chain team a guideline.

"Some companies just measure their internal overhead. We measure both ours and our suppliers' overhead," says Eugene Mc-Cabe, executive vice president, worldwide operations with Sun. "If you get it down to 10%, you're competitive. We're very close and improving rapidly."

Sun also measures total distribution cost as a percent of total cost, including freight cost and duties. "Typically in our industry, below 2% is good, and we're beating that," McCabe claims.

Bossard USA
Deere and Co.
Dow Corning Corp.
IBM Corp.
Sun Microsystems Inc.

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