| By Steve Heistand
Modern Best Practices Driving New Supply Chain Management Systems
As modern Supply Chain Management (SCM) becomes strategic, adaptive and demand driven, software vendors are developing systems to support the new SCM paradigm. The new supply chain systems will go beyond operating efficiencies to a totally integrated system that improves management, planning and execution at all levels, giving the organization key competitive advantages. Supply chain software vendors are building and integrating the following five revamped best practices into their SCM solutions:
1 – Demand Driven Supply Chains
Demand is the most important component in determining the use of working capital, operational capacity and resources; therefore, demand should drive supply chain planning. A key element of top performing organizations is customer segmentation and delivering on a value proposition for each segment, at the same time managing demand in a way that best serves their goals. Based on well defined value propositions for each customer segment, planners can set forecasting and fulfillment strategies by product grouping. Planners can now forecast demand, simulate buying patterns and perform "What If" Analysis to align the supply chain with timely market conditions and the organization's goals.
2 - Dynamically Synchronized Supply Chains
A proven best practice is to facilitate multiple supply chain strategies based on demand types. Software simulation, analysis and planning supports the selection of supply chain strategies most appropriate for the different products or product groupings. The business software should also monitor for changes in a product's demand type and dynamically allow for changes in SCM strategies, with minimal interruptions. The following are common Supply Chain Management strategies:
Responsive Supply Chain Strategy is used for Unplanned Random Demand which requires postponement strategies and operational decisions based on fluid changes in demand. For example, manufacturers place greater emphasis on flexibility than efficiency so that they can quickly respond to changes in demand; while retailers maintain smaller display quantities and narrow the category assortments.
Agile Supply Chain Strategy is used for Unexpected Variations in Demand and is based on flexibility in decision making. One of the challenges is maintaining the right balance between safety stock and service levels.
Lean Supply Chain Strategy is used for Predictable Demand and is best served with automated decision making based on forecasts, fulfillment priorities and operational parameters. Lean supply chain strategies maintain short lead times, low ordering cost, low inventory levels and higher service levels.
Replenishment Supply Chain Strategy is used for Known Demand whereby replenishment orders are automatically triggered when inventory levels fall below thresholds or re-order points. Typical of this supply chain would be when inventory is consumed and replenished two to three times a day from bulk storage or several times a week from a distribution center.
3 - Globalization
The challenges of globalization include mitigating factors such as delays, longer lead times, sub-standard quality, lesser customer service, and, in some cases, higher total cost. The benefits of globalization include higher revenues and lower labor costs. To minimize the challenges and enhance the benefits of globalization, new SCM systems will need 1) real time updates using GPS, RFID and other types of integrated tracking and identification systems, 2) interconnected supply chain partners providing real time visibility to product movement and 3) collaboration on planning, execution strategies and mitigating risks. Today's market share leading supply chain systems provide varying levels of these increasingly critical capabilities.
4 - Risk Management
According to a recent IBM study, the lack of standardized processes, insufficient data and inadequate technologies thwart effective risk management. Supply chain software vendors are enhancing management features to better understand risks, the impact of risks and how to mitigate risks. High impact risk management planning is done with software simulation models. To manage common low impact events, supply chain sub-systems will provide real-time updates on events and facilitate the deployment of contingency plans. For example – when an overseas container is lost during shipping, the transportation system will get earlier notification; the demand management team can recalculate the sales forecast, deploy demand shifting strategies and re-prioritize fulfillment.
5 - Collaborative Relationships
Distribution and supply chain systems are trending toward new ways to facilitate relationships and enhance collaboration. The new supply chain paradigm calls for collaboration that crosses hierarchical, departmental and organizational boundaries. Enterprise software is facilitating departmental, trading partner and 3PL stakeholders to interactively collaborate on operational tasks and planning activities. For example, Sales & Operational Planning software will coordinate and synthesize input from all internal and external stakeholders. Also, collaborative SCM relationships will be enhanced by tightly integrating supply chain management systems with Customer Relationship Management software and Supplier Relationship Management applications.
Supply Chain Software Summary
Until recently, SCM software dealt with execution efficiencies in the areas of procurement, inventory management and logistics. As Supply Chain Management becomes increasingly strategic, adaptive and demand driven, software vendors will work with key stakeholders to define and implement best practices for the new SCM paradigm. To support the implementation of new best practices, software vendors are moving to new innovative software architectures. As a result, the end users will have greater flexibility in deploying the new best practices in ways that best address their own unique business requirements—and take advantage of additional trends such as cloud computing, mobility and social media.