Manufacturers & Distributors ARTICLE - Technology Removes the Kinks from Your Supply Chain

Target Audience: Manufacturing and Distributing Companies, M&D Industry Employees, Manufacturing Distributors

Manufacturers understand how improving their supply chains can add value to their operational efficiency, but too many overlook what the supply chain can add to their level of customer service and time-to-market effectiveness.

A supply chain that flexes with changing requirements without losing speed is important not only for manufacturers, but also for their customers — especially those for whom manufacturers themselves are a pivotal part of the supply chain.

Costs drive locations

A benchmark Deloitte Touche Tohmatsu study, published in 2003, found that manufacturers are being forced to relocate or outsource pieces of their supply chains to control costs. Nearly 60% of the surveyed companies had already moved some production to lower-cost locations or outsourced some distribution and logistics functions.

But the study also revealed that manufacturers were sacrificing supply chain flexibility to control costs, which increased the risk of failure. Just-in-time deliveries and lean inventories all play a role in supply-chain risk. Add the potential for unexpected events such as labor strikes, power outages and natural disasters, and your supply chain may be so rigid as to be just one missed shipment away from collapse.

The solution to this dilemma is multifaceted, but virtually all analysts agree that technology will play a pivotal role, particularly because sourcing is increasingly being driven outside the United States.

ERP tops the initiatives list

A Computer Sciences Corp./Supply Chain Management Review survey released in November 2004 showed that enterprise resource planning (ERP) technology is the most common manufacturing supply chain technology, while the primary supply chain initiative is strategic sourcing of direct materials.

Only 40% of respondents said collaborative planning with customers and suppliers was a top initiative, ranking it not only behind strategic sourcing of direct materials, but also behind sales and operations planning, strategic sourcing of indirect materials, strategic inventory planning, and network partners.

But collaborating and sharing information with customers and suppliers is a key step toward improving supply chain flexibility. But sharing sales data helps to ensure that the entire chain knows, for example, that 12-inch parts are more in demand than 15-inch parts, and to adjust their procedures accordingly. Similar information sharing can affect post-sales service capabilities and even development and time-to-market speed for new products.

Technology can support such sharing in a variety of ways. For example, portals that allow approved users to access common interfaces can spread information easily and effectively. And mobile technology such as handheld wireless devices allows supply chains to monitor and react to changes in manufacturing, production and delivery operations as they occur.

Communication breeds success

Predictably, respondents said the initiatives that were farthest along yielded the best results, and in the Computer Sciences survey 53% rated strategic sourcing of direct materials as highly or moderately successful. But, again, to make significant supply-chain improvements you need to look beyond the shop floor to communicate.

Of those surveyed, 43% cited customer relationship management — second only to strategic sourcing of direct materials. Communication, and particularly instant, effortless communication, eliminates the uncertainty associated with hiccups, such as delayed deliveries, by allowing suppliers, manufacturers and customers to adjust.

But such communication is available only with technology, especially as the players (you, your suppliers and your customers) become more widely scattered. You may not be able to monitor everything that happens in your supply chains, but technology can give you unlimited visibility. Real-time data availability, global communication and business partnerships can create a fast, flexible supply chain — but only if you use them to replace your purchase-order and bills-of-lading systems.

Cost vs. benefit

Cost is a significant up-front deterrent to expanding technology that isn’t directly related to production. Before investing in new capabilities, consult with sales, shop, IT, pricing and other personnel, as well as key suppliers and customers. Such meetings can determine what features will benefit the company, help provide answers to top management questions and begin the process of gaining support from key personnel.

Manufacturers also should look beyond the cost of buying and installing supply chain technology to the benefits the technology can allow them to reap. GKN Aerospace North America, an aircraft engine parts supplier, for example, reported a 38% reduction in cycle times and a 35% inventory reduction, for a total savings of about $25 million, after it implemented a manufacturing system that monitored key indicators for the company’s ERP system. The monitoring system automatically responds to demand by increasing, decreasing or halting production as needed.

Markets require technology

Such sophisticated applications may be beyond the means and the requirements of many manufacturers. But in the face of shorter product cycles, increased customer demands, ever-expanding supplier locations and the need to improve time-to-market speed, virtually all manufacturers must consider what technology can add to their supply chain operations. You simply can’t afford not to.

3 ways to put technology to work for you

Supply chain requirements vary from company to company, and the technology needed to maximize the supply chain also will differ. But if you’re thinking of enhancing your supply chain with more sophisticated technological capabilities, consider these three strategies:

1. Integrate your shop floor with your computer applications. Make your plant activities visible online to avoid engineering change-order delays and inaccurate reports on order status.

2. Improve product quality and drive innovation. Product lifestyle management tools allow your research and development staff to access suppliers’ engineering expertise and to determine and respond to customers’ changing requirements.

3. Make your services more competitive. Product differentiation isn’t always enough to attract and retain customers. Supply chain technology that allows you to offer proactive services may make all the difference.

Find out how our M&D accountants can add value to your business. Email us or call us at 1 (888) 875-9770.

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