Planes, trains and supply chains

31 Jan 2003

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Ireland today has many examples of enterprises using state-of-the-art, world-class supply chain management (SCM) systems and e-logistics.

The only trouble is that they are mostly the Irish operations of multinationals such as Dell, IBM, 3Com, Lucent and the service providers such as DHL, UPS and others. Overall, only about 20pc of our manufacturing industry has set up or even identified a specific logistics function. But SCM specialist management consultant Ann Potter, manager of the supply chain practice of Deloitte & Touche, is optimistic that in fact our industry is rapidly grasping the principles and benefits of smart supply chain systems. “Yes, it is the high-tech manufacturing firms that have been leading the way,” she says. “But all business has become much more customer-focused in recent years and no one needs reminding of how competitive global markets are. Two of the major benefits that SCM systems can offer are customer satisfaction and greater competitiveness. When you add cost reduction the attractions for today’s enterprise are very clear.”

The speed that technology can offer, for example in e-commerce with orders placed and confirmed within minutes over the web, is not yet matched by order fulfilment. “Many enthusiastic early adopters of web commerce found out that the most difficult element of the new business was following through and getting the goods to the consumer,” says Potter. “Yet the clear logic that similar technology could help along the whole supply chain process still has to be generally grasped, despite the many excellent examples at this stage – not to mention plenty of discussion in the business media. A Deloitte & Touche survey last year found that only about 40pc of enterprises saw optimising the supply chain as part of their e-business strategy – although 80pc did recognise that it would be a good idea if it could be related to their logistics.”

She makes the point that customer expectations are rising all the time – both business customers and consumers – and keeping up with or ahead of the competition is increasingly a matter of investing in better and more flexible systems. What can SCM deliver? First and foremost are the basic and essential functions of accuracy and timeliness – exactly what was ordered, delivered when expected, properly recorded/notified/billed with no errors. It can reduce costs as well as add efficiency by, for example, reducing the inventory level required for a company to be sure of fulfilling orders. Eliminating the elements of re-work and error correction can show highly visible cost savings. “Everyone in the distribution area knows how troublesome, disruptive and expensive it is to fix delivery mistakes and manage the reverse/return cycle. If the business is international, it can escalate from headache to nightmare in no time,” she says.

Decreasing the length of the cycle from order to fulfilment can also generate costs savings but equally important is that it will speed up cash flow. “Holding less stock – because you know where you stand and what you need at all times – also improves cash flow, as does the fact that you are improving the use of your fixed assets,” Potter explains. The information available also feeds into overall strategic management because you can now identify more clearly all of the elements in what is all too frequently an opaque catch-all category of ‘shipping and warehousing costs’ where it can be difficult to identify costs savings and almost impossible to spot value added or margin-increasing opportunities.

“For many companies internationally that have invested in SCM, new business opportunities are opened up because they now have the systems and experience to cope. Small and medium-sized enterprises are more credible when pitching for business from multinationals or large organisations that have e-enabled supply chain systems in place,” Potter adds. By definition, supply chains stretch from raw materials to delivery to the end-user, but in practice the most important relationships for many businesses are with partners along that chain. “Strengthening the relationships with trading partners, retaining and adding value to business because you are a good outfit to do business with – that can be a hugely valuable strategic asset,” she continues.

That part of SCM is all about collaboration and today online collaboration across entire business networks is increasing at an exponential rate. “In business to business particularly, it will soon become exceptional not to have online links with trading partners in your supply chain. It is certainly essential when you are managing elements such as Just-In-Time deliveries or where a sub-supplier has ship-to-stock status with its customers,” Potter explains.

Another increasingly common area where smart SCM comes into its own is in managing small quantity deliveries, irregular intervals and the complications of customers drawing down delivery of stock as they require it from pre-agreed purchasing quotas. “Flexibility and good communications are the keys, of course, and that’s where e-logistics software really scores. Traditional supply chain systems were optimised for conventional larger and regular deliveries. Today’s business world is full of build-to-order, narrow delivery windows, direct supermarket shelf loading by trusted suppliers – all sorts of business practices that are speedier, more responsive and flexible than ever before. It is also increasingly essential that your product or service be customised in various ways for each customer. That is certainly where customer loyalty is earned. “

So in this fast moving and changing business environment, smart supply chain systems are increasingly becoming essential management tools for any enterprise. “There is another factor too,” says Potter. “Competitiveness is about many things – and of course price will always be in the mix – but differentiating yourself from your competitors is clearly going to be at the top of the list. SCM systems can give you that sharp and constant focus on fulfilling each customer’s needs and expectations, which is essential.”

By Leslie Faughnan