Tuesday 25th Oct 2016 - Logistics Manager

Too old to work

Supply chains have changed, but has our IT? Lack of investment in supply chain systems may be putting future growth at risk for Western companies.

Supply chains are critically dependent upon the efficiency of the IT structures that support them. However, the nature of supply chains has changed significantly in recent years, and in retail, that change is quite radical. Networks have replaced chains, interfaces with the customer have proliferated, and competitive advantage is won through greater and close collaboration with suppliers, customers and partners. Our supply chains have changed, but has our IT?

The technology has certainly moved a pace and through the wonders of the internet, provides the wider connectivity now desired. Supply chains are process driven and therefore information needs to be consistent and standardised to be useful. But for most long-established businesses in the West their systems have evolved over time and are now an eclectic mix of point source solutions and mismatched ERPs.

Can these systems be made to drive supply chain processes that require dovetailed sources of information? How are these systems going to cope with the demands of the future? And can they provide the competitive edge needed for growth?

According to a recent large-scale enterprise IT spend study by Gartner, a modest increase in worldwide software spend through 2014 will be driven by greater adoption of cloud-based software. The analysts expect cloud services’ spending to continue to outpace other parts of the IT marketplace, with worldwide spending on cloud services growing to 17.7 per cent through 2016.

However, regions with higher IT maturity such as North America and Western Europe, expect lower or no budget increases over the next two years. The report suggests the largest budget increases in software spend will be in areas with immature IT infrastructure, such as Eastern Europe, Latin America and Asia/Pacific.

“UK and EMEA companies have not been investing in major platform changes in the last few years due to economic conditions, whereas Asia, and now the US again, have been investing. But in Europe companies have been going for easily managed projects that provide a short time to benefit and a quick ROI,” Andrew Dalziel, VP marketing and product management EMEA, Kewill.

He suggests that retailers, manufacturers and distributors in the UK are keeping their old systems going rather than investing in new systems. “Parts of Asia – India and China – are investing in the latest technology and they are getting the full benefits and value out of the latest technology – systems that offer a better fit with more streamlined processes,” he says.

It seems mature markets are burdened by budget constraints and legacy systems that are becoming more expensive to maintain, making it difficult for companies to make the transition to new technology. Immature markets have the advantage of being able to take a clean sheet approach.

“Many companies in the West have systems in place from before Y2K, now 14 or 15 year old systems,” he says. “There have been a lot of changes in business models and processes over that time. So they are trying to adapt and make their own solutions fit what are totally new business models and processes. They are trying to extend the life of their systems.”

A white paper produced by Manhattan Associates suggest that most legacy systems are outdated, barely fit for purpose and to all intents and purposes, often obsolete. However, the vast majority of retail businesses still rely on “old supply chain systems that inhibit potential growth, limit innovation and introduce risk to the business”.

The company says, retailers will need to be able to switch on new channels as they emerge and be able to offer a matrix of service options for customers to choose from across blended channels – whether it be “order online, collect from store”, “buy online and return to a store” or even “buy online for same-day delivery from a local store”.

Dominic Regan, senior director logistics product business development, Oracle EMEA, says: “Traditionally people have looked for point solutions to solve particular supply chain problems, and have then sought to integrate those solutions into their ERP, sharing information in a batch or near-to-real-time basis. Others have taken an ERP centric approach – using the capabilities within the ERP.”

Fragmented landscape

He believes global companies would, in an ideal world, like to have a single ERP system but have been hampered by a fragmented IT landscape, the result of corporate acquisitions and divergent purchasing decisions across divisions.

Regan’s view is that, “customers are becoming much more process-centric in terms of how they look at supply chain. So rather than looking at individual silos, they want to look at the process which might be, for example, combining S&OP with financial analysis, or various areas of supply chain execution,” he says. “This places a requirement out there to be much more flexible in how you share data and to share it in a much more timely and granular fashion.”

Regan offers the example of a large company looking at transport, where there is a common requirement across different geographies and ERP systems, and where the company wants to present a single face to carriers, suppliers and customers. “It [the solution] should be transparent to them [suppliers and customers] regardless of which division they are talking to,” he says.

“The transport module should present that single face, by taking a process centric view – where this is a common process across the business,” he says.

“ERP is the price of entry for running a business,” says John Hamman, industry principle for manufacturing at SAP. He points out that SAP is the single largest enterprise application in the software market, and it is “changing to make sure it can support important processes”. However, he says, “business processes don’t start or stop at a definite line”.

Like Regan, he identifies the market focus on processes. “If you look at plan to deliver, procure to pay, or order to cash, these are important business processes that need to be supported,” says Hamman.

The way forward, he points out, is through in-memory technologies, as used in SAP HANA. “We are able to support both transaction and analytics from within the same platform,” he says.

Looking at this technology in the context of supporting a supply chain with material planning, he explains that the process is usually based on a periodic “material requirements planning” (MRP) run using “out-dated” information.

“The ability to re-plan quickly is not usually easy because of the long times to run. But we have seen reductions of 50 per cent in some instances, because of the in-memory capability being able to accelerate calculations that support things like the stock requirements lists,” Hamman says.

“There is a faster reaction to demand changes, so you can reduce stock outs. Also, you become more agile and get information to people faster,” he adds. Würth Group and Lenovo are using the technology.

One advocate of In Memory Analysis (IMA) is Relex. The company took the decision back in 2007 to develop its own database, one specifically designed for supply chain applications. “IMA bypasses the hard drives and holds all the data it needs and performs all its calculations in the active memory – the chipsets or DRAM,” says Relex UK country manager Tommi Ylinen.

He says: “Others have been slower to introduce IMA than we’d anticipated, and the charges have sometimes been high, not least because with many systems it involves buying in a proprietary database and that is often expensive. It’s something that we include along with our system. It means that we can make in-memory analysis of big-data cost effective for companies outside the Global 1,000; indeed it makes it readily accessible to most Tier 1 and Tier 2 businesses.”

Kewill’s Dalziel says: “More and more companies are moving to SaaS-type subscription based environments. That may be partly due to the economic situation where people want to keep costs off the balance sheet and get up-and-running with a lower up-front investment and less of an internal resource requirement.”

The view from Regan is: “A few years ago people were nervous about putting supply chain data out in the cloud. But I think that attitude is changing. For procurement we are seeing far wider adoption of SaaS based models, but for supply chain planning and execution attitudes are slightly more conservative. We are probably about three to five years away from SaaS being adopted widely across different industries and geographies.”


Nigel Illingworth, chief executive officer for Merret at Retail Assist, sees the expansion of retail organisations into international markets as a major development, impacting systems requirements. “Sub-hubbing is a new move,” he says.

“People used to bring things in from the Far East to the UK and then end up pumping it back out again. But now they are being more intelligent about splitting orders – moving the majority of stock into the UK or Europe but moving a small amount from the Far East into a warehouse in, say, Australia, rather than sending from the Far East, back into the UK and then out to Australia.”

He sees retailers taking a phased approach with regards to technology for their internationally expanding businesses. “The first phase is creating a transactional web-site, the second phase is putting language into it. But what people haven’t been doing, especially in tier two retail, is using multiple warehouses to achieve efficient distribution,” he says.

Illingsworth also points out that retailers are now looking to become more dynamic with their pricing, which requires smarter systems. “Retailers have tended to have one price for a product and have used a blunt exchange rate mechanism. Merret is more market channel orientated, so you may say this product in the UK may stand a price of £10, but it might bear a price of $20 in the US, but maybe in China it has an equivalent of say £8. So you are not looking at exchange rates, but what the market can stand.”

Keith Rogers, a senior consultant at The Logistics Business, believes the future is mobile. “Everything we do points to portability and the need to access information wherever we are. By nature the supply chain executive works in a portable world, and accessing their solutions whenever and wherever they are has provided them with the ability to monitor detail and make decisions in a much more dynamic manner,” he says.