The online retail boom, the recession and the introduction of software-as-a-service have all had a dramatic effect on the supply chain execution market, so what’s the next step? Lucy Tesseras reports.
We live in an increasingly technology-led world with the advent of the internet, smart phone applications and a host of other gadgets and gizmos changing the way we operate on a day-to-day basis. And the supply chain market is no different.
In fact, James Norwood, senior VP for product marketing at Epicor, says: “Consistently, customers tell us that the technology supporting their business will be the key to success in the future.”
And rather than the economic downturn being a time to hold back, he reckons many took advantage of the slowdown to review their processes and technology – some of which may not have been updated for more than ten years – so they emerge on the front foot and fighting.
We might be over the worst now, but there are still risks. Raw materials and fuel prices are likely to rise as the economy recovers and companies will also have to meet re-emerging demand levels with a reduced workforce and capacity.
However, Razat Gaurav, EMEA senior vice president at JDA, reckons: “More and more businesses are effectively managing this risk by investing in specialised software and technology that enables them to better forecast, plan and deliver on customer demand at lower costs and with increased speed to value.”
For those companies that haven’t invested in supply chain execution systems for more than a decade Denis O’Sullivan, managing director of Deltion, highlights the fact that “the business world is a very different place today and the underlying technology for supply chain systems has changed significantly”.
Above all else, he says, managers today want a real-time view. “The problem with older technologies is that they are not designed to be real-time. They do what they do well, but what they do is constrained by the underlying technology.”
He points to the relevance of internet-based technologies in today’s market which can offer increased resilience. “We build rule-based solutions, but the key to flexibility is that when the company changes its processes, and therefore the rules, modifying the rule is usually neither difficult nor expensive. Therefore there will not be a queue of people looking to change their systems in ten years – they will still be up-to-date.”
Having this inherent flexibility is vital, especially when considering the volatile state of the market, but according to AEB’s general manager Mark Brannan, agility and resilience have always been a key requirement for any supply chain software suite – recession or no recession.
“However, many companies only learnt this lesson during the crisis and are now eager to put this insight into action. By doing this, they realise that agility and resilience to some extent are contradictory objectives. The more agile or flexible a supply chain gets, the more fragile it becomes. So, finding the right balance is the way forward, and good software supports this, for example by being able to adapt and to integrate a new supplier or carrier quickly and easily.”
Rob Gibney, UK country manager of Imtech Logistics Software, reckons that as companies emerge from recession they are prioritising productivity over cutting costs. “They are however looking carefully at how they invest because they see that volatility is a fact of future business life that must be accounted for so they are looking at ways to reduce their initial capital expenditure. This is leading many companies towards software-as-a-service supply chain execution systems.”
While most agree that SaaS has now established itself as a legitimate and safe method of software delivery, there are mixed opinions about why it is popular and the applications it is most suited to. “SaaS is here to stay but will remain the preference of companies wishing to minimise capital investment and accept a corresponding reduction in their ability to control the development or direction of their systems,” says Terran Churcher, chairman of Codegate.
However, Deltion’s O’Sullivan argues that it is not just a case of money: “Low cost is not the key factor when people buy SaaS applications. Companies are looking for feature and functionality rich robust service solutions which are highly flexible and future proof.”
Andy Stinnes, executive vice president for product & strategies at GT Nexus, agrees that interest in SaaS has not grown purely because times are tough. “We saw a growth spurt during the recession, but there has also been a mindset shift. I don’t think it was a temporary phase as the growth is continuing just as much now. The need for companies to be more thrifty and the fact that the economic downturn was a time when companies were looking for efficiency gains only accelerated uptake. Largely, there has been a shift in perception. It is now a much more accepted way of procuring application software.”
Plus, Stinnes says there are areas of capability that were impossible before cloud computing as it allows companies to run extended supply chains and connect with supply chain partners.
“Any large supply chain operation has 1,000 companies that it deals with, 80 per cent of which live outside its four walls. We offer a LinkedIn type model which enables the whole supply chain to achieve efficiency gains that weren’t there before.”
He continues: “It’s much more than migration from one business model to another. It’s evolution versus revolution, and there is definitely more revolution than there is evolution in cloud. It has opened up the way for new models of working together.”
The value of social networking has not gone unnoticed by GXS’s Steve Keifer, who says it is particularly important to keep track of suppliers and plans, especially as a number of companies were caught off guard as some suppliers were not prepared for the recession.
He too likens GXS’s Enterprise Community Management to LinkedIn, in that once everyone is With inventory accuracy and order fulfilment close to 100 per cent, the workforce is an area for attention especially as labour costs in a warehouse can be as high as 40 per cent.
Andrew Kirkwoodregistered onto the central system companies can plan and track operations and categorise different levels of risk. Plus, he says: “It can be used to resolve disputes more efficiently, exchange ideas and start business discussions in a familiar way that people are used to.”
Indeed, Rob Gibney, UK country manager of Imtech Logistics Software, reckons: “SaaS is shaping up to have a significant impact on supply chain management.” He says supply chain applications are one of the fastest growing markets for SaaS having seen a compound annual growth rate of 20 per cent over the past five years. “With the market for SaaS predicted to double between now and 2014, supply chain solutions provided in this way are set to grow significantly faster than traditional software and services,” he adds.
While SaaS is now an accepted form of delivery for certain applications, there is still doubt that it will ever replace more traditional systems entirely. Steve Keifer of GXS says: “I don’t think there will be a polarisation one way or another.” He believes applications like ERP will never move to the cloud though as there is too much customisation involved.
Epicor, however, launched its SaaS ERP system last year. James Norwood says: “Like many other cloud companies, and in particular those that offer a full SaaS-based ERP, our experience globally is that not all companies in all countries are ready to move their core systems to the cloud yet, for many businesses it’s a major decision to move financial or manufacturing data to the cloud, but we are confident that position will change in the near term, as it did with CRM and HCM.”
Epicor is now building out plans for expansion of its core ERP offering from manufacturers to distributers with comprehensive supply chain, warehousing and logistics requirements.
Automating processes to increase productivity is one thing, but there is always going to be an element of human interaction involved in any operation and as such labour management and workforce management systems have come to the fore.
Chris Buckley, services director at RedPrairie, says: “With supply chain processes and product flows optimised to the max during the recession, an increasing number of organisations are switching on to substantial further productivity improvements which can be achieved through the introduction of supply chain workforce management systems.”
And RedPrairie’s Andrew Kirkwood reckons most retailers now buy workforce management alongside a WMS and that other businesses such as 3PLs are beginning to follow suit. “With inventory accuracy and order fulfilment close to 100 per cent, the workforce is an area for attention especially as labour costs in a warehouse can be as high as 40 per cent,” he says.
Productivity
“By implementing a WFM solution, customers can expect a return on their investment in six to 12 months…WFM will improve productivity, reduce labour costs, and lift worker satisfaction and retention.” He highlights department store John Lewis as an example, which has seen a 40 per cent improvement in warehouse picking and 16 per cent productivity boost.
Chris Maynard, senior director, professional services EMEA at Manhattan Associates tells a similar story. “There has been a significant increase in the attention paid to managing labour more efficiently in warehouse operations.”
He points to Gartner’s research paper “Improve Workforce Performance in the Warehouse with WFM” published last September which states that by using warehouse labour planning and management software, companies can expect to increase workforce productivity by up to 20 per cent.
Another area which has changed the dynamic of the SCE market is multi-channel retailing, in particular e-commerce.
Maynard says: “As retailers seek to make the most of the opportunity presented by the web and build out new sales channels, the challenge for the retailer is one of tackling complexity.”
He says to create continuity across channels, and to be able to act and react in accordance to customer demand, a retail organisation needs to move away from a siloed approach where each channel operates independently and develop an integrated offering across all channels.
“Many retailers are looking for the means of bringing this cross-channel functionality to their business, but few as yet, have successfully made the transformation.” To achieve this he reckons a new approach is needed, which he refers to as Blended Channel Activation.
“It is important that consumers do not feel that they are using distinct and individual channels, but feel they are interacting with the brand in a cohesive way…It’s vital that the store’s inventory is fully merged with the website experience.”
Terran Churcher, chairman of Codegate, agrees: “Without the swift fulfilment of online orders and the transparency of order tracking, online retailing fails.”
Case studies
JD Sports keeps on track of stock
Sports retailer JD Sports has selected VSc Solution’s TranSend Delivery Management System to provide secure stock tracking for deliveries and returns between its distribution centres and 500 stores nationwide.
The system is designed to provide accurate, real-time information on stock location and movement, which allows the company to relocate stock and reduce returns loss, while vehicle tracking and route monitoring against plan helps the retailer to optimise drivers and vehicles, and respond to any changes.
The system integrates with JD Sports’ back office system for route planning, SKU details and delivery information.
Tim Edwards, JD Sports’ loss control director says: “We have clear ideas of how this technology can bring efficiencies and cost savings to our business, including faster consolidation of stock for improved movement around the country and more secure stock tracking to reduce losses. TranSend provides us with valuable, real-time information and visibility of our delivery operation using our own performance measures and working practices.”
Anthony Munro-Martin of VSc Solutions says compliance and security are two important aspects of the system, which enables companies to see a ten per cent improvement and a rapid ROI.
Steel distributor boosts cash flow with 25pc cut in stockholdings
Steel distributor and processer John Parker & Son has boosted cash flow by reducing stockholding by 25 per cent after implementing Inform’s add*ONE inventory optimisation system.
The company buys steel from the UK and the rest of the world and stores thousands of products at its facilities in Canterbury, Shoreham, Cambridge and Andover.
At the end of 2008, when the recession began to take hold, managing director Guy Parker started a strategic review of stock control. He realised there was a business case for reducing stockholding to improve cash flow ahead of a predicted drop in demand, however, he needed to better understand and control stock levels. Plus the company was in the process of building its new Shoreham facility.
At the time, John Parker & Son was using an off-the-shelf software package that cost £100 three years earlier and interfaced at a basic level with the AS400 system in place to manage stock and process customer orders.
Parker says: “The software we used provided a single figure of expected usage once a month, but it offered very little else. It was also taking a day of time per month to do the calculations required to get that figure.
“We realised that with the planned construction of the new warehouse at Shoreham we needed to improve overall efficiencies of stock control. Longer-term, we planned to hold only ten to 20 days’ worth of stock in Canterbury, and the rest at Shoreham, which could be ordered into Canterbury as and when required. This would reduce the cost of goods received and transported by third parties, but was nearly impossible to achieve using the solution in place.”
John Parker & Son selected Inform’s add*ONE Inventory Optimiser for purchasing and storing goods, based on real-time forecasting.
It analyses historic data, looking at every demand fluctuation to a best-fit model that creates a forecast and states how accurate it is. Using the variability in accuracy by product, the system re-calculates a safety stock daily to ensure that the right amount of stock will be in place to meet customer orders.
The system then uses the supplier and manufacturing lead times and constraints, as well as key cost information, to calculate the economic order quantity and rhythm of supply, resulting in the optimisation of the cycle stock.
The add*ONE Inventory Optimiser software recalculates each individual forecast via information sent from the warehouses every night. Everything that happens during the day goes through detailed analysis and exception messages prompt the planner to re-plan only where necessary.
Parker has seen a reduction in average levels of stock of at least 25 per cent compared to the previous year.
Purchasing manager Malcolm Nicholson says: “We now have greater visibility of excess stock and this removes a degree of risk, helping us to make more informed decisions. That has enabled us to reduce our stock levels without impacting on our service levels.”
