Efficient supply chain execution is dependent upon systems that are highly connected, responsive and, perhaps above all else, capable of delivering agility. As near-shoring gathers pace and supply chains become shorter, the emphasis will be on agility. By Nick Allen.
Western companies are shortening supply chains by bringing manufacturing back closer to core markets. The implication for those using supply chain execution systems is a shift in emphasis, away from global transport management systems to applications focused more on localised or regional forms of transport – those of road and rail. Jan-Paul Boos, senior vice president EMEA at Kewill, says: “Retailers are now looking closer to home to source their goods, because of the cost of fuel and wanting to be more responsive – meaning a greater focus on road and rail.”
According to a recent white paper from Kewill, “Logistics in 2020”, a barrel of oil will be on average about $150, with much higher prices possible, making energy savings a major focus for logistics service providers.
The report also points to a wider adoption of cloud technology in the future, facilitating visibility and the exchange of information, with the streamlining of international customs declarations and improved accuracy of follow-on activity scheduling. Boos sees a trend that customers are becoming increasingly reluctant to manage IT infrastructure and information themselves.
Cloud based platforms offering SaaS options are already prevalent in the logistics space. Jez Tongue, partner at @logistics Reply, a company that offers warehouse and execution software on a SaaS basis, sees the opportunity for such systems to provide small to medium sized companies with a competitive advantage – particularly when dealing with large customers.
The company is extending its warehouse SaaS offering, “Side up” with modules centred on supply chain execution so that users can link supplier’s suppliers and customer’s customers.
“The key attributes are visibility and collaboration,” says Tongue. “Both of which have been talked about for a long time in supply chain, but they seem to have been very much at the high end of the industry, so only available to the big CPG manufacturers dealing with the big retailers.”
He sees SaaS applications as “democratising” supply chain software. “It brings the capabilities of visibility and collaboration to much smaller organisations through lower price points, speed of implementation or speed to value, and the lack of technology [investment] required – basically, it’s using all the inherent capabilities of the internet rather than having to have expensive ERP solutions. “In many respects it allows the smaller players to leapfrog some of their larger competitors, because with SaaS you are always on the latest version of the software – and also, those significant IT costs for upgrades are eliminated,” he says.
Tongue explains how, for example, a grower of tomatoes in Spain would be able to comply with the inbound goods requirements of a large supermarket or manufacturer. Using a simple web tool, the grower would be able to create a load of, say, mixed tomatoes, label them and create an outbound advanced shipping notification for the retailer or contract packer. Visibility of the goods would be provided from point of production right through to the retailer – even with a sea-leg in the journey.
“Most people start from the warehouse and work out from there to facilitate their inbound processes, using some tools on the front-end for suppliers – even to the point of a vendor managed inventory situation,” he says.
“Then they will look to their outbound processes, particularly to the retailers where they have to have labelling compliance and advance shipping notifications. SaaS supply chain execution is an easier way of managing compliance with retailers and for meeting regulatory requirements, such as cool chain record keeping.”
Tongue is not suggesting that this is a replacement for SAP or Oracle, but it does enable visibility of loads, orders and inventory using the capabilities of the internet.
“Typically, users are SMEs or decentralised business units where they may be using multiple systems in different locations,” he says. “Also, potentially, those tier one players that may have temporary operations or that have business units that they have acquired which are perhaps a little too small to deploy their traditional tools sets.” Bakkavor, a manufacturer of prepared foods, uses one of @logistics Reply’s SaaS offerings for the supply chain.
Ian Roper, director supply chain division at Access, believes that over the last five years of economic slowdown, businesses have been tolerating their legacy systems through necessity and have been making in-house, “make-do” adjustments to their systems to cope with changes to the business over that period. He says this is now changing, “We are starting to see a lot of companies investing for growth”.
Roper says it is critical that a supply chain execution solution should support the growth aspirations of the organisation. “It should underpin the growth for year 1, 2, 3 and 4 but without increasing unnecessary headcount or cost, and should maximise the core collateral of the people you have,” he says.
“It should provide visibility to make informed decisions. That starts with the design stage, through manufacturing to warehousing and then the end user,” he says. “The way we look at it is that it has to be a fully integrated solution which allows the flow of information, the flow-through of efficiencies, to underpin the business and help it move forward.”
Interestingly, he puts forward the idea that implementing the right systems can engender a positive attitude within the workforce – “we’re using automated systems where possible, we’re taking out manual interventions, we’re adopting best practice – and it helps to establish a happier workforce because some of the frustrations are removed,” says Roper.
Creating a joined-up enterprise appears to be at the heart of Access’s approach. He describes how a great number of organisations have the classic problem of “islands of information” scattered throughout the business, and how in many instances those businesses may have applied some process automation, or process flow, in pockets over time, but are now in need of a more comprehensive view of their operations.
“The correct way to do it is not to look at pockets of good practice, but to look holistically at the supply chain from design, through manufacturing to warehousing and then delivery – and join them all up as a continuous process-flow,” he says.
“So that at any point in the process you can look at the design and ask – is the design being captured properly, is it efficient? At every stage through manufacturing asking, are you profitable – are your raw materials ‘actuals’ matching-up with the budgetary cost you put forward? And then when you warehouse product, are you holding the correct level of stock?”
Access works with manufactures, wholesalers and distribution organisations with a turnover of around £50 – £100 million. He says a lot of manufacturing businesses are now looking at re-shoring to the UK.
Profitable product lines
“Most organisations want identification of their most profitable product lines, how they can increase that profitability without taking away quality, which of their product lines are sitting in stores longer, which ones of those are tying up cash-flow, and which product lines are now not profitable,” he says.
A problem for a great number of companies is volatile demand. In order for companies to “execute” efficiently against volatile demand, an agile supply chain is required. However, an agile supply is highly dependent upon the agility of the systems that support it.
Relex, a Finland based software company founded in 2005 by PhD academics with a background in supply chain management research, places an emphasis on moving to the pilot phase of implementation as quickly as possible. Using agile business process development, adjustments to the system are made directly from real-life feedback, allowing constant analysis and instantaneous change.
Mikko Kärkkäinen, chief executive officer of Relex, noticed the problems companies were experiencing with demand forecasting and inventory management when it came to high demand variation – especially with regards promotions and new product introductions.
“Some companies had built automatic demand forecasting and ordering solutions, but then they had these special products and special cases which meant that a large proportion of their operations still had to be managed manually – even though they had invested substantial amounts in these systems, they couldn’t use them.
“We have an in-memory analytics solution, so that once you have implemented you have instant visibility of the supply chain as it changes and if you change a promotion or shelf deliveries, you can build new business logic through the user interface – for example, if you are a food retailer, you can segregate products that have a shelf life under four days from those over four days,” he says.
It is interesting that as new business rules can be created directly from the user interface by the customer, consultants and IT people are not required for executing changes. In addition, in-memory data offers immediate query response times.
According to Tommi Ylinen, head of Relex in the UK, “The UK has used demand forecasting and auto replenishment for some decades, but now those systems are becoming quite old. The algorithms and models are quite simple and now there is an appetite to look at better forecasting.
But Ylinen believes forecasting is just one element of the solution. “One important thing is to get an accurate forecast, but to some extent a forecast is always wrong. So the other part is to manage the inventory so that even though the forecast is wrong you still get the maximum performance and this is something we have been trying to highlight,” he says. This is where the fine tuning of auto-replenishment comes in.