The modern supply chain is the result of a revolution in the way we view the customer and organise ourselves to satisfy demand. We have come a long way in twenty years – just how far is quite startling.
The journey of supply chain management over the last twenty years has been remarkable in many respects. Its impact on the way corporate organisations conduct business, interface with suppliers and customers, and manage the whole process of satisfying demand - from procurement through to shelf - has had a profound influence on a company’s ability to compete and generate profit. But it is the way in which it has affected all our lives directly, from our expectations of customer service, low-priced quality products and instant availability that is perhaps, the most striking aspect of this transformational management practice.
Today, we rely on efficient and highly sophisticated supply chains to deliver to our high street, and even directly to our front door, electronics goods that have been fabricated in manufacturing facilities on the other side of the world, or perhaps, fresh produce that has been grown in different climate zones - providing us with all-year-round availability of once seasonal treats. As consumers we demand greater choice and easier ways of buying and receiving goods – and what’s more, we expect exceptional value. How has all this become possible?
In principle it comes down to a radical rethink in the way companies view the customer and organise themselves to satisfy demand.
In the early 90’s supply chain management was an emerging management philosophy with its roots in the manufacturing sector. The adoption of Just-in-time (JIT) supply of components to automotive manufacturing lines demonstrated the savings and efficiencies that could be achieved through controlling the ‘supply chain’, reducing inventories and minimising waste. Manufacturers saw the benefits to becoming more customer-focused, and operating a demand based supply chain where goods were pulled through the supply chain rather than pushed. Flexible manufacturing became the ‘Holy Grail’.
Retail organisations too, were quick to understand the value of taking greater control of their supply chains. By cooperating with key suppliers and exchanging information more effectively with their stores, a clearer view of supply and demand could be achieved. Fast developing information technology was the enabler for this customer orientated revolution. However, looking back it’s easy to forget the challenges faced and the relatively primitive capabilities available to those in the vanguard of this strategic and operational business transformation.
This was an age before the advent of broadband internet, fast and cheap computer power and open systems. Applications were very much point solutions and were time consuming to implement. Data was held in disparate silos dotted across an organisation, information was not easily shared and transactions with suppliers were, in the main, conducted by manual paper based processes facilitated by the then relatively new fax machine. Re-keying of information was common place, resulting in errors, expense and wasted time.
Jeff Baum, SVP International at Manhattan Associates – which, to remind readers, was a company incorporated twenty years ago in 1990 as a supplier of warehouse software systems - recalls how supply chain systems have evolved over the intervening years. “The 90’s saw the birth of supply chain systems that were distinct from manufacturing systems, MRP became ERP,” he says. “In the latter 90’s you started to see the adoption of up-gradable packages and optimisation coming into play for warehousing, transportation and inventory management – however, these were point solutions. One vendor would be best-of-breed for warehousing, another for transportation.” But Baum emphasises that supply chain was still a cobbled together set of point solutions or functions. “In many cases people called it supply chain, but it was really logistics, as they didn’t influence sourcing or inventory, they were focused on physical distribution.”
Alluding to the development of ERP systems, Baum explains the emergence in the mid 90’s of the idea of having one system that controls everything - from back office functions, through manufacturing, to supply chain operations. He goes on to outline the difficulties in achieving this, the market desire for the simple integration into ERP of best-of-breed solutions and the consequent adoption of more open standards, web services and easier ways of sharing real-time information.
Ten years or so ago, the huge expense of long implementation times dogged the software sector, coming to a crescendo in the lead up to the Millennium as businesses clambered to install new ERP system on what transpired to be an ill-founded fear of the mystifying ‘Millennium bug’.
Darryl Barr, Director in Manhattan Associates’ Product Management group, gives an insight into the lengthy implementation times of ten years ago. “These deployments used to take months and months, even years to set up, and they were very regimented in the way they were configured,” he says. “You had to set up large amounts of data around dimensions, weights and how you had to operate people and zones. And because of the complexity, it took a long time to solve problems and train staff. Back in those days, a six to nine month implementation was pretty good.” Barr explains that these were all big projects as “a full blown warehouse management system was not a solution for the small or even medium sized guys.”
According to Barr, average implementation times are now in the region of three to six months for Manhattan Associates and these days systems are far more easily affordable by smaller companies. He points out that “it’s the way we’ve approached the configuration of the solution that has driven down implementation times. A ‘Wizard’ like process drives you through a logical way of setting things up. Back in time, systems were designed by systems people who were solving a technical problem. Now we are designing systems from an operations standpoint. We are making sure the user experience is at the forefront of our thinking.”
Manhattan Associates’ senior director, Product Management , Eric Lamphier, offers a perspective on how the organisational hierarchy of corporate IT has changed. “Twenty, or even, ten years ago it was the operations people – those tasked with running an efficient supply chain – who would be the main drivers in the purchase of a system. The IT team would have very little say. They would deploy the technology locally, say, in a warehouse or in a region, and it would not necessarily be congruent with the IT strategy at a corporate level,” he says. “This has changed considerably with the rise of the CIO and IT director. Now we have to prove ourselves to the IT team and CIO as well as the operations team. They realise we can’t have disparate systems and localised installs, they want centralised, well structured data centres with corporate IT governance, security and integration that rolls up into higher level management reporting systems.”
This more structured and integrated approach to IT development reflects the dramatic growth in systems capabilities over the last ten years and illustrates how vital IT has become to business performance.
However, it is the co-development of computing power and broadband internet availability that has allowed supply chains to become global. The fast transfer of data across geographies has facilitated the visibility of information throughout the supply chain, linking suppliers and buyers, wherever they may be. Along with more open trading structures, technology has enabled the outsourcing of manufacturing to regions of low-cost production and through the expansion of logistics service providers offering global services, goods can now be cheaply made at a distance and brought to market in the West cheaply. The extended supply chain now drives the wheels of modern consumerism.
“There has been a flattening of the world,” says Darryl Barr. “In my early career, you rarely even thought about supply chain outside of the domestic region. Now you are talking about a centralised supply chain solution that is being leveraged in multiple time zones, multiple countries, around the world. Twenty years ago this was ‘Star Wars’, now days it’s pretty common place.”
Barr explains that supply chains are now vastly more complex than they used to be. Core to facilitating the integration of various supply chain systems has been the development of the ‘SCOPE solution’ that uses a master data file that is shared across a suite of applications. “Whether you are talking about an item in the warehouse or an item in the transportation solution or the replenishment solution, it’s the same physical table in the database – it’s a shared data element that all of our products look at across the supply chain,” says Barr.
This single view of the world ties in with a Distributed Order Management solution that provides flexibility in the way supply chains are now able to execute fulfilment. Barr gives an example, “an order comes in and you don’t necessarily know where you are going to ship it from. You may have multiple nodes in your network where that inventory could come from, and based on a great number of factors – least cost, best time, inventory positioning or optimisation of future orders – the system determines where this order should be fulfilled from,” he says. “The cheapest way of fulfilling an order may not necessarily be best overall for the company.”
Flexibility and agility are core attributes of today’s forward looking supply chains. The ability to respond quickly to changes in circumstances places the agile supply chain in an advantageous position and gives a business the competitive edge by which it can profit. Modern supply chain technology enables this to happen. How things have changed.