Integration Moves into the Middle Ground

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Integration is extremely important to medium-sized businesses struggling to keep pace with increasingly complex supply chains and a growing number of channels through which to reach consumers. However, all too often they spend their time making emergency repairs to broken supply chains and running just to keep pace with market demands. There is little time to consider how more closely integrated information services might better serve the organisation.

Integration involves bringing together three key components – processes, systems and procedures. Processes stretch from one end of the supply chain to the other and cover activities involved in taking an order, allocating inventory, dispatching goods and so on. There may be many different types of process for each business.

Systems are the software and hardware that an organisation needs to execute its processes. It is important that processes are correctly configured. Many mid-market players opt to buy systems off-theshelf rather than risk reinventing the wheel.

Matching ambition to resources
Mid-market companies – with between 100 and 2,000 employees – tend to be fast growing enterprises with all the difficulties involved in matching ambition to the resources that are available.

With less room for manoeuvre than larger corporations and shallower pockets, but with just as complex issues – although on a smaller scale – their approach has got to be more risk averse. IT has to work straight out of the box – they don’t have the luxury of doing lengthy SAP implementations.

Procedures is the third and increasingly important leg of integration. This aspect of integration covers not only the business of aligning processes and systems with an organisation, but also encompasses all the rules and oversight relating to supply chain execution: everything from the controls required by the finance department to the dictates of corporate governance and compliance with regulations such as the US Sarbanes Oxley law.

With the three legs in place, a company is in a position to optimise its supply chain, improvingfficiency and crucially gaining all-important customer service improvements, because in the final analysis all eyes need to be focused on the consumer rather than the supply chain itself.

The results can be startling. When one well-known mobile operator set out to integrate its processes, systems and procedures in order to optimise forecasting and replenishment it looked like a daunting task.

The business is fast moving, competitive and works on very tight timetables. However, the mobile operator was able to use forecasts from individual shops to drive a reduction in lead times in the supply chain. The data gathered from the company’s local retail outlets is passed to a back office financial procurement and advanced
planning tool.

Forecasts developed by the mobile operator in real time using the planning tool are transmitted to one of the company’s mobile handset suppliers, giving the manufacturer clear visibility of the mobile operator’s forward order requirements. The upshot is that the phone company has cut the lead time for ordering mobiles from monthly to weekly or on occasion daily timescales.

Close collaboration was critical to the project which involved both the phone company and the mobile handset supplier in changing their processes and the way they worked with data to achieve mutual benefits. The mobile operator’s back office systems, which supported the procedural aspects of the business, were the first to go in. The company then gradually expanded the system by adding in the collaborative elements. There was no big bang.

The benefits have been dramatic with a reduced requirement for working capital, better cash flow and lower cost of ownership. Sales have increased because the mobile operator has been able to get handsets and service to customers quicker. The improvements have been underpinned by increased forecasting accuracy of between 30 to 50 per cent.

The mobile operator’s gains rested on implementing a real time system, but for many supply chains weekly order updates are sufficient. In these circumstances tried and tested systems such as electronic data interchange are ideal for handling the processes involved in swapping information and documents between retailers and suppliers.

However, with online channels becoming increasingly important in the sales mix, integration between ecommerce platforms, fulfilment houses and suppliers is important and here XML-based applications help to oil the wheels of commerce.

Web-based initiatives
There is increased pressure on firms to use the web to improve business processes. In the supply chain, for example, suppliers and retailers use web-based systems to exchange information about the movement of goods and to gather data on customers; these developments are in many cases driven by larger companies.

Major retailers such as the US supermarket chain Wal-Mart, which has set a timetable for its suppliers to adopt radio frequency identification (RFID), are driving technology investments to track goods in the supply chain. Other industry groups, including parcel carriers, auto makers and aerospace companies have adopted comparable, collaborative IT initiatives.

The complexities of running an effective supply chain are such that many companies opt to outsource their in house facilities, particularly warehousing and transport. It is important to ensure the business has final control over IT processes. The loop should begin and end with the business so that the business can measure performance directly.

In any case wholesale outsourcing may be inappropriate for some mid-size companies. They run the risk of losing control, which allows little room to use IT to drive competitive advantage or shareholder value.

Mid-tier companies need to ensure that they stay in charge of IT strategy. It is surprising the number of companies that hand over strategic control to suppliers who have little knowledge of their industry.

My advice is don’t sell yourself short, you need processes, systems and procedures that are flexible enough to face every kind of requirement. You never know what may be around the corner.

Hitesh Amin is mid market sector leader, IBM Global Business Services. Email:

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