Supply Chain Management Tips and Best Practices

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1 Supply Chain Management Tips and Best Practices

2 According to Aberdeen Group, as companies seek to contain or cut supply chain management (SCM) costs, they are prioritizing increasing supply chain visibility, inventory optimization and supply chain analytics this year. Many are looking into their supply chain processes in order to reduce costs and remain cost competitive. In this E-Guide, readers will hear from both Aberdeen and Gartner around tips and strategies to keep Supply Chain Management competitive and running smoothly. top SCM priorities By: Courtney Bjorlin, News Editor Published As companies seek to contain or cut supply chain management (SCM) costs, they are prioritizing increasing supply chain visibility, inventory optimization and supply chain analytics this year, according to Aberdeen Group. More than two-thirds of the 389 companies surveyed by Boston-based Aberdeen said the need to contain supply chain costs to remain cost competitive is the key pressure forcing them to look into their supply chain processes. With budgets so tight, any software purchases and other projects have to be justified as mission-critical. "There are major concerns about cost," said Nari Viswanathan, vice president and principal analyst at Aberdeen Group and the report's author. "The cash flow situation is bad." Customers of Acsis -- an SAP partner that caters to SAP customers in the chemical, pharmaceutical, consumer products, aerospace and defense industries -- all find themselves in a "pretty dismal economic climate," CEO Page 2 of 9

3 Andre Pino said. They're working only on projects that will produce a return on investment (ROI) in less than six months, he said. What are SAP SCM customers doing? Many SAP customers are implementing tools that will help them derive more value from their existing investments. There's a move to embed supply chain analytics and performance management in business processes, Viswanathan said. In turn, if a company has implemented demand planning, it's now seeking to do more what-if analysis, or using it to support sales and operational planning. Most SAP customers look to SAP for this functionality, according to Noha Tohamy, vice president at Boston-based AMR Research. "It's still the case that most current SAP customers look to SAP to begin with to see whether they have the right functionality," Tohamy said. Increasing supply chain visibility is also high on the radar. Over the last several years, because companies have outsourced parts of their supply chains, they've lost control and visibility over what used to be part of their own operations, Pino said. To help one of its customers, a chemical company, gain greater supply chain visibility, Acsis created a facility through which it can link partners into the SAP system. The company can collaborate with its partners on production requests and orders, shipment of raw materials and status information and can provide information on product shipments, deliveries and confirmations. "The way it's been set up in the SAP system, these outsourced partners look like another one of their plants and facilities, so it's managed in exactly the same way as their own operations," Pino said. Which SCM strategies should companies implement? Some companies aren't taking the best approach to optimizing these processes, however. For instance, when it comes to inventory optimization, Page 3 of 9

4 Viswanathan said he's finding that projects are driven by the company's financial organization, such that they're being handled more in a crisis fashion. "[They're not] worrying about the long-term impacts of what they're doing," Viswanathan said. "That should not be the case." Last year's highest technology priority -- sales and operation planning/demand management -- sank in importance in this year's Aberdeen report, falling from first to third. But companies should still focus on supply chain profitability, Tohamy said. See what the cost to serve is, understand where the profitability lies, match the supply chain or integrate the supply chain, and try to have a more holistic approach to managing it. "Sales and operation planning, integrated planning and understating costs, that's where we want companies to focus," she said. Companies should look at the software as an asset and seek ways to optimize the return, Viswanathan said. It's a good opportunity to take a look at a tool, chart how much it's being used and come up with better ways to use it. "I think the biggest advice for SAP customers is get more out of their investment. I see a lot implemented [such as APO] that they've just scratched the surface with," Tohamy said. For inventory optimization, Viswanathan recommended looking at SmartOps, a third-party inventory optimization software. In turn, very short-term consulting projects can help find ways to optimize existing software, he said. Have experts come in and do updates and process changes, he recommended. Page 4 of 9

5 It's also a great time to be looking for good supply chain talent -- which has historically been very difficult but could become easier with fewer jobs available on Wall Street for the brightest students, Viswanathan said. "The best supply chain practitioner should be open-minded, willing to learn things on the fly, understand the connection between processes, and look to what others are doing in manufacturing," Viswanathan said. "It's a difficult skill set to find." By: David Essex, Site and News Editor Gartner Inc. says so many companies are turning to supply chain outsourcing that the strategy calls for some best of its own. The Stamford, Conn.-based research firm recently published a list of eight that place a heavy emphasis on making sure outsourcing providers deliver on a host of key business goals. For many areas of supply chain outsourcing, the decisions were driven from a tactical, cost-basis-only perspective, said Michael Dominy, the Gartner research director who wrote the recommendations, basing them on vendor briefings, client visits and a round-table discussion at Gartner s supply chain executive conference. Now supply chain managers want to do a better job of including other factors in their demand planning, such as quality, agility and service, Dominy said. The savings mentality was especially prevalent when North American manufacturers first decided to outsource production to places like China because of their cheaper labor, according to Dominy. But now high-end apparel makers, for example, are factoring in the true cost of the months of ocean shipping required to bring Asian products to the U.S. retail market. Demand- and supply-side planning when you have a number of outsourced partners is different from traditional inside planning, and requires a cloud- Page 5 of 9

6 based supply chain control tower that provides broad visibility, control and performance analysis of the partners, Dominy said. What s necessary is a solution that s pre-built, pre-defined and has the integration to the trading partners, he said. Major ERP vendors are providing this level of control and visibility by offering out-of-the-box integration between supply chain modules like transportation and warehouse management and cloud-based trading partner networks. Inside advice on business process outsourcing Outsourcing providers divide into three major categories, according to Dominy. Execution-oriented service providers take on transportation and warehousing tasks and include third-party logistics providers (3PLs), among others. Contract or outsourced manufacturers, along with business process outsourcers (BPOs) -- which handle what Dominy calls white collar supply chain management jobs like procurement and ERP purchase-to-pay processing -- are the other two. In his Gartner report, Dominy recommends the following best companies can use to manage outsourcing providers effectively. 1. Align the outsourcing strategy with the company s overall business and supply chain strategies. For example, manufacturers that make high touch customer service a priority will need partners with agile and flexible delivery models, while those competing mostly on price will seek lean, low-cost partners. Most companies operate several supply chains, each with its own volume, cost and customization requirements, and outsourcing partners should have capabilities that fit each segment, Dominy writes. 2. Assess the company s existing ability to manage outsourcing partners. The report recommends using a maturity model to evaluate stakeholder interactions with partners and identify new outsourcing that is needed to become more demand-driven. The most mature companies set up centers of excellence and dedicate staff to managing their outsourcing. Page 6 of 9

7 3. Understand the company s core competencies and where they overlap with those of supply chain outsourcing providers. Major players in the three main categories are expanding onto each other s turf, so it s important to know which services are core to each provider and which are not. The report cites an example of an anonymous high-tech manufacturer that experienced significant customer-service and order-fulfillment problems when it reassigned outbound logistics from a 3PL to a contract manufacturer. Dominy advises striking a balance between too few and too many providers. For example, using a single provider can reduce complexity but lead to service failures or higher costs if the provider strays too far from its core competency. 4. Make outsourcing decisions based on strategic and tangible factors, not just cost. Some companies that have outsourced functions such as manufacturing later found customer-service and quality problems ate into their savings. Dominy advises companies to do a cost-service analysis before outsourcing production and include quality, responsiveness, references and risk in the decision criteria. 5. Consider the corruption and intellectual property risks of outsourcing to specific regions such as Asia. The data can then be useful in defining policies, procedures and governance for doing business in those countries. 6. Maintain a regular flow of supply chain data, information and ideas and share it regularly with outsourcing partners. Share information that directly affects the partner -- such as promotions and supplier changes -- on a weekly basis. Establish a mechanism for collecting ideas for improving performance and visibility and discuss them at regular intervals, such as monthly or quarterly. 7. Define service-level agreements and key performance indicators that are linked to business goals, then track them. Companies that do so tend to have more positive relationships with outsourcing partners and achieve better results, according to the report. You want to have clear rules and responsibilities and the kind of seamless, fast information flows between your company and supply chain partners, Dominy added. Page 7 of 9

8 8. Leverage the outsourcing partner s processes, technologies and capabilities if it s warranted. Providers can sometimes do the job better, and they might be able to do it faster and more easily with their own technology. Page 8 of 9

9 Free resources for technology professionals TechTarget publishes targeted technology media that address your need for information and resources for researching products, developing strategy and making cost-effective purchase decisions. Our network of technology-specific Web sites gives you access to industry experts, independent content and analysis and the Web s largest library of vendor-provided white papers, webcasts, podcasts, videos, virtual trade shows, research reports and more drawing on the rich R&D resources of technology providers to address market trends, challenges and solutions. Our live events and virtual seminars give you access to vendor neutral, expert commentary and advice on the issues and challenges you face daily. Our social community IT Knowledge Exchange allows you to share real world information in real time with peers and experts. What makes TechTarget unique? TechTarget is squarely focused on the enterprise IT space. Our team of editors and network of industry experts provide the richest, most relevant content to IT professionals and management. We leverage the immediacy of the Web, the networking and face-to-face opportunities of events and virtual events, and the ability to interact with peers all to create compelling and actionable information for enterprise IT professionals across all industries and markets. Related TechTarget Websites Page 9 of 9

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