SUPPLY-CHAIN AND

LOGISTICS MANAGEMENT
FOR
CREATING A
COMPETITIVE EDGE
PART ONE
A STRATEGIC ANALYSIS REPORT
By
Plant-Wide Research Group
860-319-9972

A PWR STRATEGIC ANALYSIS REPORT

12-24-12

SUPPLY-CHAIN AND LOGISTICS MANAGEMENT

FOR
CREATING A COMPETITIVE EDGE
PART ONE

ABSTRACT: This is the first of a three-part series of reports on SCM

(supply chain management). In todays chaotic global market place,
(SCM) is todays promise and tomorrows new competitive
battlefield. The issues are many and varied.
ARE YOU READY TO COMPETE SUPPLY CHAIN AGAINST SUPPLY
CHAIN?
This series of reports is your guide to SCM success and
collaboration. We present the facts and expose the fantasies, and
our analysis, born of hands-on experience, of what succeeds and
what fails. We focus on a high ROI and risk avoidance. And finally
we discuss - what to expect and what to watch out for - in this
emerging field of the next generation of supply chain management
strategy.

SUPPLY CHAIN SYSTEMS DEMOGRAPHICS AND PRACTICES

(And other SCM mysteries solved)

TABLE OF CONTENTS
SUPPLY CHAIN SYSTEMS DEMOGRAPHICS AND PRACTICES
WHY ARE TODAYS LEADING COMPANIES TURNING TO SCM?
WHY ARE SOME LEADING COMPANIES REINVENTING SCM?
SUCCESSFUL MANUFACTURERS ARE SUPPLY CHAIN MASTERS
CONSIDERATIONS FOR ENHANCING SCM VALUE
YOUR CURRENT IT INVESTMENT MUST ALSO BE CONSIDERED
KEY ROI ISSUES
WHY CHOOSE A HOLISTIC APPROACH
CONCURRENT PLANNING MATTERS
LOGISTICS & SUPPLY CHAIN MANAGEMENT
SIMPLIFICATION, THE KEY TO MEETING EXPECTATIONS
DATA WAREHOUSE INITIATIVE
THINKING OUTSIDE THE BOX
A SIGNIFICANT INVESTMENT MUST BE CONSIDERED

###

SUPPLY CHAIN SYSTEMS DEMOGRAPHICS AND PRACTICES

(And other SCM mysteries solved)

***

WHY ARE TODAYS LEADING COMPANIES TURNING TO SCM?

The 21st Century would better be called the agile age. Demand/supply volatility is a
reality in many of todays enterprises, from Discrete to Process to Defense industries.
For example, in retail, businesses are serving ever more selective and distant
consumers. Nowhere is this situation more apparent than in the fashion industry. In fact,
all consumer goods industries are faced with volatile and ever changing consumer
demand. This volatility is being passed on to manufacturers and distributors, especially
at different stages in the value chain. A specific example is the F&B (food and
beverage) industry, which deals with worldwide demand/supply value chains. This
demand/supply experience, and many other factors, contributes to demand volatility
across the industrial manufacturing landscape. Other factors include increased
customer choices; product customization, rapid technological improvements, global
competition and value stream supply fluctuations. From High Tech to Retail to Chemical
to auto to energy industries, high volatility is a challenge faced by companies across all
verticals.
To tackle volatility, a proactive management stance in supply chain management, can
be a cost effective program that can lead to significant benefits resulting in lower supply
chain costs and improved customer service levels. More importantly, managing volatile
demand efficiently can be a huge competitive differentiator for companies. As we move
deeper into the 21st century, globalization makes us all move closer to competing supply
chain against supply chain and the winners will be those that master the demand/supply
challenge.
Todays manufacturers are global businesses; no matter their size. Businesses seldom
plan to go global. As manufacturers compete with each other, globalization happens.
Global companies have to deal with many stakeholders: partners, suppliers, employees
and customers in many countries and many markets within a country. Soon, a
manufacturer finds it is located around the world.
According to recent research, high-performance businesses are particularly adept at
using a wide range of information to make the right decisions at the right time.
Compared to less-effective organizations, high performers, they:
Gather more and better information about their business and competitive
environments.
Analyze that information more thoroughly, and make better decisions based on
the results of their analyses.
Act more quickly and decisively on the acquired information.
Monitor their performance more closely.
Improve and innovate continuously.

Lastly, high-performance businesses truly understand the drivers of current and

future value, and they translate those insights into differentiated operating
models and business architectures.
Corporate under-achievers often have one thing in common a slow supply chain
response. That is because they have demand/supply systems designed to be pushdriven. The transition to becoming pull-driven or demand-driven is slowly occurring in
many industries. Managing volatile demand efficiently in a demand driven environment
is a significant challenge and requires companies to employ robust supply chain
strategies. Often the focus tends to be on one area of the supply chain (e.g., inventory
optimization) without consideration of all aspects of the supply chain, often resulting in
sub-optimal results. In this strategic Analysis Report (SAR), we outline comprehensive
supply chain strategies that companies can adopt to manage volatile demand efficiently.
This report also examines the reasons that one such tool often employed to meet
synchronization and followup of this diverse need is optimum supply chain
management, a business process that still is viewed by too many, as a cost center
rather than a means to extend company wide efficiency and enhance profitability. The
reality is that the benefits of superior supply chain management initiatives greatly
transcend cost savings. More than ever before, leading companies are using the supply
chain management to enhance differentiation, increase sales, and penetrate new
markets and channels. Based on PWRs (Plant-Wide Research) market research and
observations by our project managers in the field, the role of supply chain management
is a key to building and supporting a high-performance business.
This SARs focus is providing a path forward in reinventing your SCM system, providing
does and donts, and helping to make a direct connection between a companies supply
chain performance and their bottom lines. We also provide guidance in the vertical
markets of A&D, Automotives, and other verticals. The SAR also looks closely at
practices that can make you a market leader, through positioning your supply chain as a
vital contributor to business success.
WHY ARE SOME LEADING COMPANIES REINVENTING THEIR SCM?
According to recent research, high-performance businesses also are particularly adept
at using SCM information to make the right decisions at the right time. The research
also found that supply chain management, a management process that still is viewed by
to many as a cost center; in reality can be a significant Profit Center. The research also
confirmed that the benefits of superior supply chain management initiatives greatly
transcend cost savings. The report notes, More than ever before, leading companies
are using the supply chain to enhance differentiation, increase sales, and penetrate new
markets and channels. Based on Plant-Wides hands-on project management in the
field, the business role of highly successful supply chain management is as a highperformance competitive tool.

SUCCESSFUL MANUFACTURING COMPANIES ARE SUPPLY CHAIN MASTERS

NOTE: as supply chains become more global and dynamic, companies
are looking to increase their SCM capabilities. 30% of automotive, and
40% of aerospace and defense companies are seeking a stronger
partnership with their ERP vendor and/or best-of-breed supply chain
vendor to create new innovations for their supply chain program. 70% of
companies with revenue of over $1 billion plan to spend more than
$250,000 in 2007 for new supply chain technology projects. Top areas of
technology investment included supply chain visibility, order management,
supplier collaboration and inventory management.
Most senior decision makers have come to acknowledge that supply chain management
is an essential contributor to operational excellence of the firm and a key management
tool to help at the top line (new revenue) and bottom line (cost reduction) at the same
time. The SCM masters are also planning masters. Key planning elements are:
Balanced schedules between demand and supply (push/pull)
Proper levels of inventories (matching supply to demand)
Proper inventory buffers (safety stock) based on value chain performance
Use of capacity buffers where and when practical
Multi-enterprise collaboration strategies
Cycle time reduction on a continuous improvement program
Mitigation of risk strategies (lead time, terrorism, political, customs)
While demand volatility is a reality faced by companies across many industries, by
employing the right supply chain strategies companies can reasonably and efficiently
handle volatile demand. All strategies outlined here may not apply to all companies
selection of the right strategies to adopt will vary. Adoption of the strategies should be
based on a careful consideration of supply chain attributes, supply chain costs,
competitive considerations and implementation costs. This has been documented many
times, most recently by an international study team staffed by researchers from
Accenture, INSEAD and Stanford University. Results gleaned from that effort show that
the supply chain is very important even critical to nearly 90 percent of an executive
survey population. Backing up those statements, a nearly equal percentage has
increased their supply chain investments in recent years. But what is the actual
relationship between supply chain mastery and business success? Can it be proven
that supply chain leaders are also business leaders? Does supply chain success equal
financial success?
As part of their investigation, our research team set out to quantify the relationship
between companies financial success and
Factoid: The cost of upgrading
the depth and sophistication of their supply
SCM is exponentially proportional
chains. To establish this linkage they
to the complexity of the business.
analyzed corporate disclosure data from 636
Global 3,000 companies in 24 industries. For

each company, three supply chain performance variables were measured: inventory
turns, cost of goods sold as a percent of revenue, and return on assets. Two distinct
time periods1995 to 1997 and 1998 to 2000were used to associate gains or slips in
supply chain performance with improvements or deterioration in financial performance.
For the purposes of the research, superior supply chain performers were defined as
those whose supply chain execution was ranked in the top third of their industry for two
of the three variables (inventory turns, cost of goods sold and return on assets).
Companies were assessed according to these criteria for each time period and placed
in one of four categories:
Leader: Superior supply chain performance demonstrated across both time
periods.
Transformer: Supply chain performance migrated into the superior range over
time.
Decliner: Supply chain performance deteriorated over time, from within the
superior range to below it.
Laggard: Superior supply chain performance was not achieved during either time
period.
Suffice it to say that Supply chain excellence clearly has the potential to drivenot just
influencebusiness performance. But most supply chain managers still see greater
efficiency as their principal mission. As a result, they propagate an inward focus on
cost control, rather than spearheading supply chain strategies that seek to improve
overall business performance. Senior executives often fall into the same trap: Few think
about how they might position supply chain mastery as an engine of differentiated
market positioning and sales growth.
Companies that put the supply chain center stage when defining, enabling and
executing business strategies are the most successful in entering new markets. More
often than not, these are the leaders and transformers identified in the previous section.
And in all probability, they also practice manyif not allof the following supply chain
behaviors:
1. Recognize the strategic possibilities that innovative supply chain strategies and
operating models do enhance shareholder value and competitive differentiation.
2. Embrace end-to-end process integrationacross firms, systems and peopleas
the key to aligning demand and supply.
3. Execute supply chain initiatives selectively using common processes and
technologies to achieve uncommon results.
4. Challenge the status quo regularly and aggressively to drive supply chain and
business strategy innovations within and across companies.
Researchers found a strong and consistent relationship between supply chain and
financial performance.

CONSIDERATIONS IN ENHANCING SCM VALUE

Some very confusing IT terminology surrounding SCM has been bandied about in the
media recently; issues like capable-to-promise, collaboration, life-cycle management,
customer relationship management, and supplier
POINT: SCM in the
management, to name just a few. These management
Aerospace & Defense
techniques are competing with each other for your
industry is different
attention, but be aware that they are all part of a
than
the
Retail
successful SCM initiative. However, these terms take
Industry (and other
different forms and mean different things to different
supply chain mysteries
users, even in the same market vertical. How do we deal
revealed)
with these differences? What are the best practices in
each area? Should they be treated independently? The
answers to these and other issues are very important to your success and your
companys success. This is an introduction to those and other issues in a general
discussion of a responsive Supply Chain Management program.
Today, the reality for emerging SCM programs is dealing with change and making sure
expectations are realistic. The measures of executive success are meeting the key
business drivers through profits, asset growth, agility,
POINT: More than ever
risk avoidance, and improved collaboration. High risk
before, leading companies
or disruptive initiatives are to often not on the
are using SCM to improve
executive radar screen today. Mastering risk,
differentiation,
increase
improving collaboration, and being agile are a
sales, and penetrate new
continuous way forward and not simply a destination.
markets and channels.
Achieving operational excellence never ends; there
are always new challenges. The focus then is always
on the way forward and requires attention to the entire supply chain of interaction with
customers, factory and supplier.
Before reviewing Supply Chain Management (SCM) or any an e-business initiative, it is
very important for the reader to know what business components drive their business.
This initial step is most important and is needed to help discover the differences
between executive management thinking and the architectural design objectives of ERP
(enterprise resource planning) and SCM. There are five basic business drivers. Every
executive activity in your company can be boiled down to satisfying one of the following
CXO and middle managerial business drivers you need to know each drivers level of
importance to your businesses success:

COST
PRICE
TIME TO MARKET
QUALITY
FLEXIBILITY

Based on our most recent research, only a very few well run companies are able to
compete on all five business drivers simultaneously. It is usually too costly to focus on
more than three of these drivers at the same time, though there are, of course, a few
exceptions (GE comes to mind as an example of a
POINT: Why is this business
corporation focused on all five). It is important,
driver identification initiative
therefore, for the SCM project leader to know
important? It is to ensure
specifically which of these business drivers are the
alignment and prioritization
key to meeting the mission(s) of his business
of
corporate
and
SCM
executives so as to insure identification of the
strategies
at
the
highest
value chains of information necessary to drive
businesstolevel.
the right competitive SCM value chain application components
insure the right focus,
level of expectations, and highest return on investment (ROI) from any major SCM
initiative. We would suggest that once the basic value chains are identified that each be
modeled.
YOUR CURRENT IT INVESTMENT MUST ALSO BE CONSIDERED
Your company has placed a significant investment in its overall IT program. A review
and documentation of the applications software (CRM, ERP, MES, and FAS) and
business practices necessary for the SCM initiative will point to areas of improvement
and help spot many opportunities. Thinking out side the box would help identify further
opportunities for improvement as a part of a continuous improvement program.
Enhancement of core systems via an opportunistic business process re-engineering
(BPR) first is recommended and is an important part of the process for improvement in
profitability. We also recommend tighter integration for supporting the real-time aspects
of e-business strategies. We suggest the use of a pilot project to help bring together
current IT projects in support of the e-business initiativethey cannot be conducted
exclusive of one another. Current IT projects should not operate independent of an ebusiness program. Remember, the emphasis is on bringing new ideas into play, the
extended use of current systems to run the business, and a focus on meeting the new
e-business goals.
KEY ROI ISSUES
Key ROI issues that must be focused on are:
1. Efficiency: To be competitive, every company must be as efficient as
possible in each of the appropriate business drivers chosen to compete
tactically and strategically within their chosen market place(s). Let us also
acknowledge that there is a price to pay for being too efficient.
2. Collaboration with customers, suppliers, and company employees is of
the utmost importance today requiring competition in a real-time rather
than batch planning and control environment. You are competing supply
chain against supply chain in real-time.

3. Complexity: SCM and any attendant e-commerce costs are exponential

in proportion to the complexity and speed of implementation. The more
complexity involved, the more the cost surges. Consequently there are a
number of areas where the firm could benefit from a bit of opportunistic
business process re-engineering such as establishing a simplification
and/or integration program. Major BPR is another issue and should be
part of a continuous improvement (Kaizen) program after initial SCM
initiatives.
4. Real-time Business: The most important point for us to emphasize in
this SAR is that SCM implies the adoption of real-time business strategies.
That is why we focus on the necessity for tightly integrating existing
systems. The depth of that integration is also a factor of the complexity of
the e-commerce initiative. The implementation of an e-business initiative is
usually a journey, not a destination.
5. Integrated Systems: What to look for - (a) better utilization of current
systems, (b) a tight real-time integration of current systems, and (c) the
simplification of the way you currently do business. A CPM (corporate
performance management) initiative may be a part of an SCM initiative.
Thus, the simpler and better-prepared current systems are to support the
e-commerce tasks, the easier and less costly implementing an e-business
initiative will be.
6. Low-hanging Fruit: Plant-Wide suggests you reinforce the importance of
targeting low-hanging fruit in the beginning since achieving early success
in any e-business initiative is paramount to support and success. Nothing
encourages management support and project enthusiasm better.
One important management initiative to consider as a part of an SCM program is long
term strategic planning as well as short term tactical planning. It is important to
investigate the potential and value that the use of the Internet can add to provide a
competitive advantage and ROI. This requires thinking out of the box. Why do we
suggest thinking outside the box?
Here is one possible consideration; your company might possibly be able to expand
your sales horizons. For example, you may want to leverage your managerial skills and
infrastructure to support and resell other products than your own in your field of
specialty. Farfetched? Maybe not, you may find outsourcing some selected production
and reselling other complimentary goods from another company is a viable option. A
singular outstanding example is Proctor & Gamble. This initiative is not recommended
without a careful risk analysis.
Costs of running out of inventory:

Loss of customer/sale
Bad reputation
Disruption in supply chain
Cost Analysis:
Can a less expensive material/components be used while maintaining quality?
Are the costs reasonable?
Is a standard item in the market a suitable substitute?
Can the weight of the item be reduced?
Can the packaging be redesigned to reduce costs?
Are the correct costs being allocated to the project?
Have the correct activity based costing methods been used?
Is the product over engineered? Could a lower quality product be substituted?
Are other suppliers making a comparable product?
Once the economies and benefits of supply chain management are fully recognized
within your company, this and other possibilities for adding new business to the top line
are worth considering. Why not leverage the rich sales, marketing, and management
capabilities your company has developed? This could fill-in sales during a period of
seasonal demand fall off, or outsourcing some production may dramatically reduce
manufacturing costs. Thinking outside of the box is a practical step to reviewing SCM
strategies.
Note: There are many opportunities to think outside of the box with exchanges in
support of an SCM initiative. For example, there is a concurrent e-commerce and SCM
initiative. Taking advantage of multiple e-commerce capabilities allows examination and
exploitation of complimentary product exchanges outside the specific vertical you are
part of. What is the objective here? The objective is enhancing the overall business
process. E-commerce is one component of doing so, but it should never become an end
in itself. While we are on the subject of extended thinking, why limit our thinking to ecommerce or SCM? Be sure to carefully examine the opportunities for each of the five
business drivers. As a reminder, they are COST, PRICE, TIME-TO-MARKET,
QUALITY, and FLEXIBILITY.
WHY CHOSE THE HOLISTIC APPROACH?
The best approach to establishing a SCM e-business initiative is to take the holistic
approach. Holistic efforts starts by identifying the key business drivers noted above, and
then focus immediately on the entire set of issues concerning product life cycle
management (PLM) and processes required for success. There is, of course, always
the threat of attempting to tackle too much at once in a holistic approach, which can
result in analysis paralysis. Dont take on too much at one time. This must not be
allowed to occur. We recommend cutting the project into 3 pieces (1) low hanging fruit
first, (2) intermediate objectives properly prioritized, and then (3) longer-term objectives

after a solid SCM foundation is built. The latter should be setup as a closed loop
continuous improvement program.
Accordingly, SCM initiatives require a dedicated team made up of knowledgeable
personnel who are given appropriate responsibility and commensurate authority. With
respect to using multiple concurrent teams (often attempted by larger firms), using
multiple concurrent teams will often fall into the trap of breaking up an SCM initiative
into too many smaller projects requiring too many extra layers of project management,
or conversely, trying to swallow the SCM initiative whole can cause far too much
complexity to permit effective results; both may even become a never ending struggle
achieving nothing but frustration. That is because, as often noted by experts, the cost
and complexity of SCM initiatives is exponential to the size of the effort. Too many large
projects are also focused on the wrong payback areas. When outside consultants from
the big three are used, they often hype up as a panacea achieving the highest ROI
focusing on the areas of customer care (CRM Extended), e-procurement (often with
exchanges), and supplier management (VMI, Etc.). However, we must point out that
current trends indicate that these not only cannot be mutually exclusive projects, they
should not even be areas of initial SCM focus other than a part of identifying the value
chains of information in each; the AS IS model to compare to the TO BE paradigm.
CONCURRENT PLANNING MATTERS
In a holistic SCM strategy, there are three initial areas that must receive concurrent
planning attention. The initial plan should also include:
(a) The entire order management process through to delivery
(b) Stakeholder collaboration strategies throughout the information chain including
cost and financial controls, and
(c) Supply/demand controls governing the current product manufacturing processes
This is because, as noted, it is essential that an SCM initiative be comprehensive but
built on a carefully thought out framework of realistic expectations right from the
beginning. It can be very costly to retrogress or add one of these components later on.
Further, the ERP system applications architecture on which an SCM e-business
initiative is to be integrated must be carefully considered. For example, SAPs mySAP
was established to support a role-based operational premise while Oracle Apps
supports the more traditional functional specialization style of management strategy.
IFS use the Plant-Wide preferred component architecture model. These are major
structural application differences. Each style of ERP or methodology is a significant
factor in SCM planning, integration, and interoperability issues.
Just as important, all SCM initiatives require people consideration. That is, a SCM
initiative is going to be a cultural change, especially if aimed at the suggested initiatives:
simplification, the incorporation of real-time activities, and the extension of management
and product design responsibilities (PLM) product lifecycle management - into the
supply chain. Such competitive strategies require the empowerment of employee

activities. While it is important to let the computer make as many decisions as possible
(under carefully selected business rules), people are the most important ingredient of an
SCM initiative.
Take the first strides toward an integrated supply chain solution with a step-by-step
program:
An initial workshop to determine the processes to be analyzed
An assessment workshop to develop plans for optimizing business processes
with advanced planning and costing analysis
A prototype configuration based on defined scenarios
A feasibility assessment
Project objectives
Next-step project planning
A systems architecture, sizing, and security plan
LOGISTICS & SUPPLY CHAIN MANAGEMENT
When it comes to choosing a holistic approach to SCM, there is often confusion
between an SCM initiative and the role of logistics. Here are the boundaries and
relationships of Supply Chain Management as adopted by the Council of Logistics
Management: "Supply Chain Management is an integrating function with primary
responsibility for linking major business functions and business processes within and
across companies into a cohesive and high-performing business model. It includes all of
the Logistics Management activities, as well as manufacturing operations, and it drives
coordination of processes and activities with and across marketing, sales, product
design, and finance and information technology."
The Definition of Logistics: Logistics management is that part of the Supply Chain
Management process that plans, implements, and controls the efficient, effective
forward and reverse-flow and storage of goods, services, and related information
between the point of origin and the point of consumption in order to meet customers'
requirements.
These are the boundaries and relationships of Logistics Management adopted by the
Council of Logistics Management: "Logistics Management activities typically include
inbound and outbound transportation management, fleet management, warehousing,
materials handling, order fulfillment, logistics network design, inventory management of
third party logistics services providers. To varying degrees, the logistics function also
includes sourcing and procurement, production planning and scheduling, packaging and
assembly, and customer service. It is involved in all levels of planning and execution -strategic, operational and tactical. Logistics Management is an integrating function,
which coordinates and optimizes all logistics activities, as well as integrates logistics
activities with other functions including marketing, sales manufacturing, finance and
information technology."

The Definition of Supply Chain Management: Supply Chain Management encompasses

the planning and management of all activities involved in sourcing and procurement,
conversion, and all Logistics Management activities. Importantly, it also includes
coordination and collaboration with channel partners, which can be suppliers,
intermediaries, third-party service providers, and customers. In essence, Supply Chain
Management integrates supply and demand management within and across
companies.
Logistics and Supply Chain functions overlap. Different companies define them in their
own ways. Logistics is generally concerned with strategy and coordination of
transportation and distribution. However, it cuts across many functions within Supply
Chain. Supply Chain tends to be a focus of purchasing and procurement, but not
always. It often includes materials, inventory, and production planning. There is also
Demand Management, which focuses on forecasting, but it may be included in either
logistics or supply chain functions.
Logistics, however, is the overall strategic glue that crosses multiple functions including
demand chain and supply chain, physical flows, information flows and the systems that
support them.
A state-of-the-art, modern transportation management and shipping application is a
must in a successful SCM program, For example, CMS WorldLink is a web-based,
multi-carrier shipping system enabling management of multiple distribution centers
located virtually anywhere in the world such as Singapore, the Netherlands, United
Kingdom, United States and many other international locations to execute and
complement a successful proactive supply chain initiative.
SIMPLIFICATION, THE KEY TO MEETING EXPECTATIONS
Almost all of todays businesses are made up of a number of mission critical software
products, often including ERP and specialty solutions. This sharply increases the level
of complexity of any SCM initiative because each system is designed differently, may
not integrate deeply, and most are proprietary. It is not unusual for a business to have a
CRM (Customer Relationship Management), ERP (Enterprise Resource Management),
and MES (Manufacturing Execution System) or FAS (Factory Automation System) all
from different vendors operating in the same manufacturing environment, but not much
more than interfaced together. These are not interoperable for the most part. Such
disparate software automatically increases integration, education, and maintenance
costs through extended complexity and layering.
The key to controlling success in complex software is managing expectations, and of
course, proper education. But there is a huge opportunity to lower the cost of buying
and implementing a newer fully integrated mission critical software solution with
interoperable supply chain management solution on a SOA platform. If you already
have a functional ERP solution you might consider a best of breed solution with
attendant interfacing capability. If you already have both, an ERP system with SCM (or

it is available from the vendor), and have not activated it, do so. And finally, if you have
an ERP system and non-integrated SCM product, determine the ROI of interfacing
them.
Here is a brief explanation of what each discipline is designed to do:
Older legacy systems (prior to ERP) were separate financial, inventory
(order point) or factory management (automation) solutions that were
mainframe based and batch oriented. The various material, capacity and
demand constraints were all usually considered separately and in relative
isolation of each other. They were focused on controlling finance,
materials, capacity, or transportation planning. IBMs mainframe PICS
system was a forerunner of ERP focused only on rudimentary coordination
of material with production. A few had basic planning front-ends. Some
are still used, are green screen, but some have been upgraded to
Windows GUI (Graphic User Interface). Some have limited multi-currency
and language support.
MRP (Material Control Systems) introduced the first use of bills of
materials (BOMs) and order (customer, production, and purchasing)
specifications compared to inventories. MRP first came into existence in
1970 (APICS sponsored) and emerged as the first significant
computerized software tools about 1975 concurrent with the introduction
of departmental (mini) computers. The first IBMs Mapics (manufacturing
applications planning information control system) was the forerunner of
todays ERP solutions. MRP systems focused on inventory and cost
control and replaced order point applications. MRP proliferated in the
1980s and grew more feature rich and by the 90s became complex
enough to support enterprise-level business management activities. MRP
systems were mainly single plant systems.
ERP (Enterprise Resource Planning) emerged in the late 80s and early
90s enriching current MRP features and growing beyond material control
to include shop floor scheduling based on a BOM explosion adding
capacity controls, finance and asset management, human resource
management, and advanced inventory planning techniques. So by 1995,
ERP solutions are much more functionally rich, and focused on all fourresource planning (material, machines, manpower, and materials) and all
running in close-to-real-time. Almost all have a Windows GUI. ERP
systems could be either single plant or divisional oriented solutions. The
introduction of an ERP system to replace two or more independent legacy
applications eliminated the need for external interfaces previously required
between systems, and provides additional benefits that range from
standardization and lower maintenance (one system instead of two or
more factories or businesses) offering easier and/or greater reporting

capabilities (as all data is typically kept in one database). Optional

modules began to emerge including CRM and SCM.
ERP II (Extended Enterprise Resource Planning) resulted from intense
upgrading of ERP solutions in the late 90s many adding capabilities to
support the emerging Internet emerging concurrent with the Y2K issue. By
the early 2000s, ERP II solutions offered B2B (business to business)
functionality, provided in-depth order tracking, infinite/finite scheduling,
and optional CRM, SCM, Asset, Human Capital, and PLM modules. ERP
II systems all contain advanced planning, multi-currency, multi-language,
multi-taxation solutions. They have fully integrated real-time reporting and
extended ad hoc and specialized reporting systems, which operate in
pseudo real-time. ERP II systems are all on proprietary platforms and
many have been upgraded for Internet use. Most have rich language,
currency, and taxation functionality. Many have on-line tutorials; provide
tailorability, and offer multi-company capability. Generally the term is
typically reserved for larger, more broadly based applications. Large scale
enterprise-level ERP II solutions are usually complex, expensive, difficult
to implement, and interoperable, but offer a rich field of tightly integrated
applications - often vertical market focused - tightly bundled for maximum
ROI, specialized for upgrade, and deliver richer functionality across the
entire spectrum of management requirements. All offer significant
language, regional taxation, currency, FASB, Sarbanes-Oxley and CRM
other specialized capabilities.
SCM (Supply Chain Management) Older SCM solutions are off-line
solutions (non-ERP integrated) based on advanced planning solutions
simultaneously considering demands, capacity and material constraints
(usually mutually exclusive) focused on the factory floor in the order
management subsystems. They may provide visible maps of the entire
supply chain showing where problems are, and offer some limited
corrective action possibilities (what-if analysis). Often do not integrate with
MES solutions, but may interface with selected ERP systems. Newer
Supply Chain solutions offer a combined platform structure for most of
your business process requirements and interface with newer versions of
ERP systems sometimes in a two-way communication configuration
needed to satisfy the demand of goods and services. These may be in
pseudo real-time or real-time. They usually start with the demands of the
raw materials and end with supply to the final consumer. Most of the larger
systems offer Internet access.
Emerging enterprise-level SCM solutions offer across the entire
enterprise views in real-time with real-time suggested solutions or
capabilities to determine the best solution to bottlenecks providing both
on-line or off-line in real time updates, portals, dashboards, and a rich
assortment of Internet access and pre-capable real-time capabilities. The

ERP vendor solutions provide richer integration of ERP applications to

SCM applications and are interoperable. The newest SCM applications
have two parts planning and execution. Some offer VMI (vendor
managed inventory) and other specialty capabilities.
CRM (Customer Resource Planning) Standard CRM (customer
relationship management) is, of course, a strategic tool for instant
communications and customer order tracking process and the older
versions are a best-of-breed product (specialty sub-systems to backoffice solutions). Hence, there use is usually external to the ERP and other
solutions. Newer CRM solutions have the tracking of customer information
performed in real time and integrated with the planning system. This may
require some restructuring of solutions as older ERP systems are mostly
batch processing oriented. These newer specialty systems may also
interface with selected MES (factory floor manufacturing execution
systems) software which is generally event driven were as ERP is usually
not, factory automation systems (FAS) generally do not talk to CRM, PLM,
or ERP systems, and so on.
In a legacy information technology initiative, more often than not, the components are
isolated. What is of concern in those situations is incompatibility of the components. If
there are a large number of mixed solution environments (possibly as high as 60-70% of
mid sized businesses are still like that) the chief concern in such cases is that each
product does not contain the same data types and/or content or even programming
conventions. This makes SCM exceptionally difficult to integrate and the use of a data
warehouse may be in order. We will discuss data warehousing in the next segment.
That is the worst of all environments in which to establish a supply chain management
initiative. In multiple ERP solutions, the least complex step may be to implement a
single instance of one ERP solution across the enterprise is the best approach. To help
in even that environment, many SCM initiatives use a data warehouse platform with a
supplemental ability to scrub information to insure its quality and accuracy.
DATA WAREHOUSE INITIATIVE
With respect to the use of the data warehouse initiative, this is a key component of the
overall SCM initiative and requires careful investigation before developing an overall
strategy. Data warehouse is the main repository of the organization's historical data, its
corporate memory. For example, an organization would use the information that's stored
in its data warehouse to find out what day of the week they sold the most widgets in
May 1992, or how employee sick leave the week before Christmas differed between
California and Quebec from 2001-2005. In other words, the data warehouse contains
the raw material for management's decision support system. From an SCM standpoint,
the latter a decision support system is the foundation for business intelligence and
SCM monitoring.

While operational systems are optimized for simplicity and speed of modification (online
transaction processing, or OLTP) through heavy use of database normalization and an
entity-relationship model, the data warehouse is optimized for reporting and analysis
(online analytical processing, or OLAP). Frequently data in Data Warehouses is heavily
de-normalized, summarized and/or stored in a dimension-based model but this is not
always required to achieve acceptable query response times. The use of a dedicated
SCM warehouse has its advantages and disadvantages so education and training is an
important aspect of selection, development and use:
More formally, Bill Inmon (one of the earliest and more influential practitioners) defined
a data warehouse as follows:
1. Subject-oriented, meaning that the data in the database is organized so that all
the data elements relating to the same real-world event or object are linked
together;
2. Time-variant, meaning that the changes to the data in the database are tracked
and recorded so that reports can be produced showing changes over time;
3. Non-volatile, meaning that data in the database is never over-written or deleted,
but retained for future reporting;
4. Integrated, meaning that the database contains data from most or all of an
organization's operational applications, and that this data is made consistent
While choosing a data warehouse software product seems pretty straightforward, as it
relates to the use for integration and information initiatives, this is generally not the
case. Issues vary including data management via data cubes though the reader must
also recognize the complex issues with respect to normalization of data and multilanguage issues. In a data warehousing project, too much emphasis goes into technical
issues and too few into business issues. What are the key business issues in data
warehousing? The key business elements for substantial SCM savings that most
companies should initially consider when adopting an SCM initiative are the areas of
supply chain management collaboration, order management control, and engineering
support initiatives. These areas are usually more beneficial as efficiency tools promoting
SCM savings. Further, we advise the reader that the extension of these areas into the
business include such important components as:
Supplier/buyer back-end integration (open or closed market)
Supplier/buyer directory (proprietary)
Transportation management (proprietary)
Collaboration strategies (tactical and strategic)
Supply/demand control (SCM synchronization)
Fulfillment/apps planning (master planning/delivery)
Life cycle management (time to market, throughput, flexibility, ROI )

THINKING OUTSIDE THE BOX

We have all heard the term, Think Outside the Box, but what does it actually mean in
SCM initiatives? One of PWR Consultings customers has supplied a concept that may
entice you to understand just what it means to Think Outside the Box. Thinking-out-ofthe-Box refers to the capacity of individuals and businesses to see any situation from
fresh and new perspectives. This is what sets the SCM Masters apart from competitors
in today's extremely demanding way of global business. Thinking-out-of-the-Box is not a
luxury it is a necessity!
Moreover, it refers to the capacity of individuals and business to act highly effectively on
these fresh and new perspectives. A major re-invention of your SCM strategies in
todays global markets requires thinking out of the box. However, this is not a one-time
exercise. Thinking-out-of-the-Box requires individuals and businesses to continuously
challenge and expand their way of thinking. Thinking-out-of-the-Box provides ways to
generate and implement innovative ideas and solutions to address difficult (and even
not so difficult) situations.
For example, we are in a time of disruptive events; political, competitively, technically,
and functionally. Terrorism is a realistic possibility from both inside and outside the
country (and your business).
Thinking-outside-the-Box can be used to ensure optimal effectiveness in Decision
Making, Problem Solving, Strategic Planning, Personal Growth, New Product
Development, Conflict Resolution to Artistic Inspiration to name but a few. In effect, it
can be used for every conceivable (and inconceivable) situation. The reality is that
everybody can cultivate and improve their Thinking-outside- the-Box skills. Recently,
many Canadian businesses had their SCM programs seriously challenged due to a
strike against the Canadian National RR. Several industries were seriously impacted
including automotives, chemicals, and consumer goods manufacturing. Many were not
prepared with alternative sources of supply, delivery, and services.
A SIGNIFICANT INVESTMENT MUST BE CONSIDERED
Their methods may vary, but IT executives who calculate return on investment (ROI)
before launching major technology projects say they reap benefits that make doing the
math worthwhile. The most obvious payoff is getting resources to do the job, but the
ROI process also forces IT to explain to corporate management what's going on. This
can provide buy-in for a particular project. It also enforces two-way communication
between the CIO and other company executives about IT's overall role in the company.
The rewards of being a supply chain master are sometimes over advertised here are
a couple of types of expectations that may or may not apply to your business:
Research has shown that companies with best-in-class supply chain
operations typically enjoy supply chain costs 40% less than average

companies (Source: PRTM). That might well represent a potential saving of

5 million per 100 million of turnover for the average company; not
something to be ignored in the current business environment. Supply
Chain Management is now recognized as a critical business process for
companies manufacturing or distributing products.
The challenge of getting it right gets even tougher yet the rewards for
those companies that do so are significant:
Profit margins are 73% higher for manufacturers who excel in SCM,
as compared to companies with poor SCM performance.
84% of companies with turnover >$200m rated themselves as poor
at SCM. Source: Survey of 600 companies by Deloitte & Touche.
SCM, therefore, is a hot topic these days. This is because customer demands for most
products are ever more demanding in response time, in choice (e.g. customization)
and in seeking more competitive prices and thanks to globalization, customers can
choose from an increased number of suppliers. In response, companies have
outsourced elements of their manufacturing to lower cost offshore suppliers. The result
is an extended, global supply chain, seeking to provide on-time delivery of products, at
competitive price, in ever increasing variety and with shorter product lifetimes.
As a general rule, major SCM investments should go through the ROI wringer just like
any other business investment -- even more so, because IT investments have a
questionable history. One side benefit to ROI scrutiny is that it can identify pet projects
that need to be examined, like the customer relationship management (CRM) initiative
launched because the marketing vice president is a golf buddy of a guy selling a CRM
product. Doing the math is especially important for projects that have million-dollar price
tags.
But, we must point out that on the other hand, an ROI analysis (especially using the
Balanced Score Card methods) would be overkill for projects so small that the ROI
exercise would be more expensive than the project itself. Even ROI calculations need
an ROI. Occasionally, an IT project might deliver such a mind-blowing competitive
advantage that crunching the numbers seems unnecessary.
There will always be a middle ground between what PWR calls the "just do it" and the
"by the book" methods. But in the case of SCM, the complexity and possible high cost
of an initiative requires a sound business cases, but an ROI analysis incorporates a mix
of common sense, professional judgment, quantitative modeling and strategic
perspective.
That is why a financial-only ROI process, is only part of many factors as part of its
overall evaluation of any new technology. First is how mature the technology is and
whether it represents a continuation of the company's existing skill set or a totally new
direction.

Every company must also look at the market position of the SCM vendornot just its
financial strength when doing a cost analysis, because in the current software market,
many technology providers are struggling. Instead, if the product or service has the
lion's share of its market, it will continue to be offered, even if another ultimately
acquires the vendor.
The last step is viewing the project in the context of the firm's overall strategy. "Not the
written strategy or whatever people are paying lip service to, but the things that are
really important to the executive team.
After all these factors are gathered and given a numerical weight, costs, skill sets,
market position and how the project fits with the companys overall strategy.
____________________________________________________________________
For more about this topic read Part Two of SUPPLY-CHAIN AND LOGISTICS
MANAGEMENT FOR CREATING A COMPETITIVE EDGE Part Two

Disclaimer: Plant-Wide receives no revenue or compensation of any kind from any vendor
mentioned in this report nor does it endorse any product herein.

For more information about PWR Consulting and its Supply Chain Management
capabilities and projects visit www.Plant-wide.com