A tough business climate can be an opportunity as well as a threat – those companies that have positioned themselves well can take advantage of the difficulties of others. But having the right systems in place is critical and no system is more critical than supply chain execution.
So it is no surprise that companies, which are already juggling complex issues such as globalisation, collaboration, outsourcing, competition, and now the economic situation, are looking to supply chain execution systems to help ease the strain.
An economic downturn leads to new product, service and delivery demands, and SCE systems are no exception to this.
John Bird, director, international communications strategy for Manhattan Associates, believes it will be the companies that plan and prepare for the possibility of a downturn that will be “armour-tough” against any threats and challenges that might occur.
“A recession-resistant business is flexible and creates opportunities when other companies spend needless time wringing their hands over the challenging changes taking place,” he says.
Bird reckons the key to surviving any downturn comes from a mix of improving forecasting and planning, optimising labour, optimising inventory, improving collaboration and trading partners, streamlining order fulfilment activities and staying agile. “Users will look to these software packages to help them cut supply chain costs at the same time as maintaining or improving service levels,” he says.
Dave Food, business development director, supply chain applications at Oracle, is confident that the slowdown will not affect consumer demands. “There will still be that pressure on timely deliveries. People may respond differently. Some may look to simpler and cheaper, perhaps web-based, solutions.
“But this may throw up difficulties later on when it comes to interfacing and linking up systems, because they won’t have the depth of solution necessary and so will hit a brick wall,” says Food.
It’s unlikely that the larger companies will cut back on IT spend as a result of the slowdown. They’ll still want to invest in technology to meet long-term plans. But the small and medium-sized companies will feel the strain more, and as a result, may delay IT projects where they can, or put big budget upgrades on hold.
But this can result in what Martin Hiscox, vice chairman and managing director, international, RedPrairie, describes as, “hammering a nail into their own coffin”. He says: “If you can’t deliver things fast enough because you don’t have the right technology or you can’t use your resources or people effectively, your overheads will be higher therefore your cost base is higher. So although you’ll be saving cash initially by not investing, in the long term, your competitors will have had that in place for a period of time and their prices will be cheaper.”
Investment in technology is crucial to dealing with the surge in online shopping and home delivery. Research shows that 17 pence in every pound is now spent on online shopping in the UK – that’s 50 per cent of all supermarket sales. In the first six months of 2008, it raked in £26.5 bn – up 38 per cent from last year.
Environmental issues are also exercising minds. Howard Turvey, managing director of Proteus, reckons green issues will have the biggest bearing on supply chain execution. “Third party logistics companies are becoming consolidators, where they can put together mixed items, from more than one supplier, onto a pallet to ship to their clients. “This is where technology can help. WMS systems provide them with the ability to consolidate and track stock, all in a paperless environment. Transport Management Solutions are able to devise quickest routes, driver schedules, track drivers hours and more.”
Ronald Teijken of Sterling Commerce reckons SCE users will expect systems to have more real-time capability, and offer more decision support, alerting functionality and more KPI/portal functionality. “SCE systems are increasingly taking over the control of operations across the supply chain, and therefore more managerial information is required from them.
“There is also a trend that SCE systems are increasingly controlling a supply chain connectivity role to connect and control the progress in the supply chain in real time,” he says. Therefore
SCE systems will be increasingly used as a method to make response-decision for next operations.
Seamless integration of systems is what guarantees maximum visibility – a factor all the more vital in the current economic climate.
Rob Smith of Kewill, says: “Issues around the last mile of delivery are linked to a lack of systems integration. If there’s a lack of data flowing seamlessly from system to system the company’s visibility breaks down.”
Agility is another issue. Jonathan Jackman of HighJump Software says companies will need adaptable systems so they can be more agile in their response to challenging business requirements.
“Companies are now challenged with having to provide a supply chain infrastructure that can support multiple delivery channels and a global network of suppliers, the SCE software has to have the functionality and adaptability to support this.”
The downturn is likely to trigger a sharper focus on a return on investment, argues Kewill’s Rob Smith, and the standard ROI period of 18 months to two years will come down, so that systems start delivering within a year.
Teijken sees companies adopting a range of strategies: “Companies will need to focus more on their core-competencies and from there decide what applications are really needed. Software supporting the main processes will be required; the remainder will be looked at for more outsourcing capabilities, both for the processes and for the software.”
James Hannay, managing director of Zetes, reckons pilots are vital when selecting a package because they give clients real data to support the business case to senior management for approval. He says Zetes’ contribution to assisting with the ROI business case, has increased “significantly” in comparison to previous years.
Jackman points out that some companies might wish to make more tactical investments and choose the packages that solve a specific requirement. Also, solutions such as labour management and slotting optimisation, which have traditionally been seen as integrated modules of a SCE suite, may now get more focus from customers.
“These modules often bring very achievable labour savings and improve optimisation into the warehouse allowing companies to do more with the same or even less resources. These solutions do not require the high investment of other systems and offer great payback.”
Alex Mill of Chess, believes that one way to reduce costs is to ensure the performance of the SCE matches the application requirement and does not provide extra features and functions that aren’t needed and are expensive to buy, integrate and support.
“A more sensible approach is to use a WMS/SCE that has a core application to support the main functional requirements, allows easy addition or integration of specialist functions – such as voice directed picking or RFID tracking – and can be upgraded easily and cost effectively when a new process requirement is identified,” he says.
Jackman reckons companies often forget all the work they have done in developing a return on investment as soon as they sign the contract. Companies should work with their selected software vendor throughout the implementation to ensure the final application delivered will meet or exceed the expected ROI set out at the start of the project.
“Too many companies forgo potential optimisation by conforming to the standard processes within the SCE, which often leads to expensive workarounds that have a negating effect on the ROI.”
Users can release cash from their businesses by minimising the amount of stock or inventory held in their warehouse. Accepting stock later and making deliveries earlier are part of this process. But Mills says both rely on having a WMS/SCE that is good enough to deliver the increased stock control flexibility and data accuracy needed to maintain 100 per cent availability.
“Cross docking is an extreme version of minimum stock/inventory. Increased data accuracy means fewer mistakes to put right, which costs less,” says Mills.