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Companies of all sizes are realizing that they no longer have complete control over their
market success. This is because they rely heavily on the performance of their supply chain
trading partners. Market-leading retailers and OEMs know this, and they are looking for
partners that work to ensure their success. Many large companies are now insisting that
their small and medium industrial suppliers help them improve supply chain cost,
responsiveness and reliability.
These market heavy weights are measuring suppliers performance against key indicators
and giving preferred status to those who perform well. This puts pressure on many small
and medium manufacturers. Those that have not invested heavily in supply chain
management (SCM) practices or solutions beyond ERP to date are now driven to seriously
consider making the investment. The business justification will rest on traditional cost
savings and on revenue and customer compliance issues.
Supply chain improvements will not only improve internal performance, but will also
create benefits that will ripple through to customers and partners as well. Cost savings
through reduced inventory levels, expediting, fulfillment and premium freight costs could
allow a company to provider more favorable prices or terms to customers. Likewise,
effective planning and execution can help companies and their customers adapt to the
markets demand shifts. When the company can purchase, produce and distribute the right
products to the right channels in the right quantities at the right time, both supplier and
customer will increase revenue capture by channel and region.
The Suppliers Role in Supply Chain Performance
Compliments of
Larger companies often issue mandates that simply force compliance, without offering
smaller partners an active role in improving performance. This type of relationship fosters
frustration and deep distrust. Further, it can put smaller firms in the precarious position of
being manipulated into the red or being replaced by another supplier.
To change the dynamics and give themselves a more powerful role, smaller suppliers need
to differentiate themselves. This differentiator may be consistent zero defects, a patented
or hard-to-find process critical to the customers success, value added services, vendor
managed inventory (VMI) contracts, or the highest delivery performance of any
competitor. As those last two illustrate, active participant supply chain performance
improvements can give even a small company more clout. Moving from being squeezed
Executive Brief
Large Customer
Small
Supplier
A: Small supplier crushed by customer demands
Large Customer
Small
Supplier
B: Small supplier acts as extension of customer
The more value a smaller manufacturer or distributor brings to the customer or supply
chain heavyweight, the more flexible and mutually beneficial the relationships. The
performance characteristics with the greatest value in a supply chain are accuracy,
responsiveness, on time complete deliveries, reduction of inventory and mutual continuous
improvement.
Document and Process Accuracy Discrepancies in actual vs. planned or actual vs.
documented order quantities, product specifications, promise dates and pricing cause
disruptions in production, costly expediting, and countless hours disputing and settling
charges. Unfortunately inaccuracies are common between supply chain parties. This is a
result of manual processes, human error, miscommunication and limited checks and
balances. Re-designing and automating supply chain processes and inter-company
communication can reduce these errors.
Supply Chain Responsiveness Inbound delays and shortages of material wreak havoc
on production schedules, promotional effectiveness and revenues. Suppliers often struggle
to produce enough of the right items at the time the customers need them because they
cannot build in small lot sizes. This inflexibility stems from a make-to-stock production
model and a management focus on equipment utilization measures. Even some companies
that are more flexible cannot process demand changes quickly. The focus needs to shift to
a build-to-demand model that better supports customers Lean and just-in-time (JIT)
production lines. When the company cannot meet a demand shift, it needs an early
detection system to avoid the problem or allow customer service or sales to alert
customers of upcoming delays.
Continuous Communications Supply chain responsiveness depends on frequent
communication between suppliers and customers. Many buyers are frustrated when
suppliers do not acknowledge their purchase orders, revised schedules, and order changes.
Executive Brief
This leaves customers wondering whether the order or request was received and what they
can expect when the shipment of materials arrives. Customers administrative costs are
high because they need to track down and resolve issues. If suppliers communicated better
and with greater frequency, that would be avoidable. SCM applications can provide
assistance with that process issue. Automated acknowledgement saves significant time, yet
keeps the customer informed and efficient.
Perfect Order Delivery Customers cant afford persistent shortages, errors and defects.
They look for zero defects, 100% fill rate and 100% on time deliveries. Few companies
have achieved these goals, but a growing number are getting very close. Everyone else
must improve their operations to retain their best customers. Perfect delivery requires
sound supply chain processes from start to finish from planning through production and
execution. Best practice processes and integrated SCM applications can support that
smooth operation.
Vendor Managed Inventory Customers always want to carry less inventory.
Originally, VMI just shifted ownership of inventory in customer facilities onto the backs
of suppliers. Now, customers are opening the kimono online and providing visibility into
their operations and inventory levels. This can lead to a real win-win situation. The
benefit to customers is the ability to reduce the cost of inbound inventory stores and
shortages on their lines. The benefit to suppliers is the ability to plan more accurately
based on real demand and thus significantly reduce their own finished goods inventory.
Coordinated Continuous Improvement Improvement in one part of the supply chain
may not pay off if other parts of the chain cant keep up. Companies have learned this the
hard way. They may achieve Lean production in their plants, but if suppliers dont deliver
the right parts at the right time, production stoppages often result. There are countless
opportunities to reduce waste and costs while improving product innovation, customer
experience, quality and throughput. Continuous improvement requires trust, joint
processes, common data points, shared data access and mutually viable metrics.
Supply Chain Value-Add
Accuracy
Response
Continuous
Comms.
Perfect
Orders
VMI
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External
Collaboration
Internal
Transportation
Management
(TMS)
Demand
Planning
Execution
Planning
Production
Planning &
Scheduling
(APS)
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Warehouse
Management
(WMS)
Demand Planning
Studies have repeatedly shown that forecast accuracy is one
of the biggest drivers of supply chain and financial success.
It is also one of the more challenging aspects of running a
manufacturing company. Today demand planning software options are widely available
for small and midsize suppliers. The vendors include Demand Works, i2 Technologies,
Logility and SSA. Most of the solutions are configurable for consolidating and analyzing
changing market demands as they occur not just a statistical forecast based on history.
Asking customers for more accurate and timely demand information to feed the demand
plan can help open up communications with customers.
Advanced Planning & Scheduling (APS)
Whether scheduling the plant, making order promises or planning production requirements
across multiple sites, constraint-based planning and scheduling (referred to as advanced
planning and scheduling) is one of the best ways to dynamically adapt to changing
customer demands and production resources. These APS systems differ from the
production planning in traditional ERP in that they consider actual capacity of resources
and timing of material availability in the calculations. Finite scheduling has been most
commonly deployed by smaller manufacturers during the past ten years, but the need for
more accurate promise dates is driving more companies to consider real-time ATP engines
from APS vendors Aspen Technology, i2 Technologies, Logility, Manugistics, SSA and
Viewlocity and from SCE vendors IMI, Manhattan Associates and Yantra.
Supply Chain Execution (SCE)
Accurate, efficient order fulfillment is also challenging for most suppliers, particularly
when customers are constantly changing their order line items, quantities and dates.
Warehousing operations must be flexible and highly responsive to customer changes.
Customers also value services such as VMI, Kanban replenishment, labeling, RFID
compliance, kitting and de-kitting, and immediate notification of any problems.
Warehouse management systems from IBS, i2 Technologies, IMI, Logility, Manhattan
Associates, SSA, Viewlocity and Yantra support these capabilities and can generally meet
the requirements of suppliers.
Executive Brief