Yankee Offers Advice On Supply Chain Management, Long-Term

04/20/2004

Enterprises are defining and implementing IT roadmaps designed to reduce TCO and improve business performance, according to research and consulting firm The Yankee Group. It says, “The best way to improve business performance is through better management of demand and supply. Enterprises can manage demand and supply more effectively in their supply chains and across their networks of suppliers and business partners by using integration and application technologies that connect, coordinate and synchronize the business network, and by implementing innovative business strategies.”

The Yankee Group offered these details on its conclusions:

During the next 4 years, enterprises must migrate from supply-chain management to network supply management (NSM). This migration requires careful planning and implementation of supply chain technologies including ERP, decision-support and execution systems. NSM leverages data and information flow across the extended network of business partners including suppliers, logistics providers, banks, customers and other providers of complementary products or services. Enterprises that implement NSM-based strategies and technologies will realize strategic and tangible benefits in one or more in these areas:

-- Product design and introduction

-- Sourcing, procurement and materials management

-- Marketing, sales and revenue management

-- Manufacturing, inventory and fulfillment

The migration to NSM occurs slowly because of the time it takes to incorporate new technologies and revise strategies.

Enterprises must define and implement an IT and supply chain roadmap that enables them to migrate from linear supply chains to highly connected, nimble and efficient supply networks.

The design and implementation of the four-year roadmap occurs across three phases.

1. Alignment of business goals, strategies and IT. Business requirements must drive technology roadmaps. However, certain customer channels might require real-time visibility into inventory and order status as an order moves through manufacturing and fulfillment processes. Without knowing that IT can provide this capability as part of the roadmap, the enterprises might exclude that channel from strategy and goals.

2. Deployment planning. During this phase business and IT works together to select the technology and vendors that meet internal supply chain and network supply management requirements. Enterprises must make decisions across six technology areas (see Exhibit 2). Identifying the implementation sequence for the selected technologies is tricky. An enterprise must not take a simplistic sequential approach. It must evaluate implementation scenarios based upon cost impacts and how quickly benefits occur. Some technologies must be implemented before others. However, business realities preclude enterprises from working on only one technology area at a time. For example, suppliers to Wal-Mart and other large retailers must migrate from EDI to AS/2 and implement data synchronization via UCCnet--regardless of where those initiatives are positioned on the enterprise’s planned roadmap.

3. Implementation. Enterprises should utilize proven implementation methodologies and consultants that have real-world experience with the technologies being implemented and the processes being affected. Depending upon the enterprise, we advise against choosing a single service provider for all aspects of the implementation process. Using a portfolio approach to selecting and contracting with firms is the best course--especially for large complex enterprises.

ERP vendors must help enterprises reduce IT costs. Every ERP vendors needs a service offering and tools that help enterprises understand the cost and benefits associated with standardizing the transaction layer.

Decision-support vendors need to build complete suites. As enterprises view planning, optimization and other decision-making activities across interdependent supply-chain processes they will recognize the value of integrated best-of-breed decision-support solutions. Failure means the ERP vendors take over the entire decision-support layer within most enterprises.

Enter[prises need to build a business case to support the roadmap. Implementing technology and changing the way supply and demand are managed costs money, impacts employees and affects business partners. The business case must be based upon enterprise goals, strategies and objectives. A company must identify the costs and benefits associated with the roadmap to get it approved.

During implementation, the business case will enable the project team to point to the strategic and tangible benefits as the reason for deploying the roadmap.

Enterprises should also simplify the transaction layer. The best way to simplify this layer is to use one ERP vendor for transactions with one centralized set of master data. Enterprises with homogenous customers and demand channels should operate on a single instance. Enterprises with multiple business units that service diverse customers and demand channels should use a single repository for master data and an instance for each demand channel. For example, oil and gas companies typically have at least two demand channels (wholesale and retail). The customer requirements and the order-to-cash process differ in each channel, making it essential to have two instances.

Companies should also simplify the execution layer. Enterprises should standardize on a single supply-chain execution vendor that provides execution capabilities in transportation, warehousing, event management, yard management, material handling equipment management, RFID and cross-boarder logistics. The same logic applies to the manufacturing execution layer.

In addition, organizations should deploy decision-support tools in phases. Implement each module of an integrated planning application based on customer requirements and ROI. For example, if poor transportation management is causing poor delivery performance and damaging customer service, activate the transportation management module first. This spreads out cost, reduces risk and allows the enterprise to adopt supply chain best practices at a comfortable pace.

Companies should implement NSM technologies in the correct sequence. Establish a solid foundation for network communication, integration, and synchronization that can support escalating requirements beyond the edges of the enterprise. This foundation or platform should provide EDI to XML conversion and the ability to support AS/2 and UCCnet at a minimum. Enterprises should activate AS/2 portion of the platform first then tackle UCCnet. After these capabilities are in place, the enterprise should aggressively expand the use of RFID and collaborative supply chain processes such as CPFR, DOM, and collaborative transportation management.

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