Troubleshooting supply chain management

An upturn in IT spend across the supply chain might be just around the corner

The retail and manufacturing sectors have been as lively as a graveyard as far as sales of new technology have been concerned in the past couple of years. However, with politicians and economists busy talking up the recovery, an upturn in IT spend across the supply chain might be just around the corner.

Research company Gartner estimates that retailers worldwide spent $153bn (£100bn) on hardware and software in 2009, the same as in 2008, with manufacturing IT spend similarly flat at $480bn.

Though these figures include expenditure on IT infrastructure such as networks, storage, servers and desktops, as well as specialised hardware such as integrated point-of-sale systems, printers, barcode scanners and RFID components, it is a reasonable assumption that a significant percentage went on supply chain management (SCM) software specifically designed or customised to help retailers and manufacturers carefully plan their supply chains to optimise product availability and minimise wastage.

Tim Payne, research director and member of Gartner’s business applications group, says SCM software can be split into two specific types: supply chain planning and network design applications, and execution solutions such as enterprise resource planning (ERP), warehouse management, manufacturing execution and transportation management.

“Usually vendors focus on one or the other, but some do both, or at least elements of both,” he said.

According to research by AMR (now a Gartner company) last year, the top 10 SCM suppliers by revenue going into 2009 included SAP, Oracle, JDA Software, Manhattan Associates, RedPrairie, i2 Technologies, Infor, ILOG, IBS and Epicor.

It is no coincidence that SAP and Oracle are also the two biggest global vendors of ERP applications, traditionally the mainstay of SCM software. But while there are some elements of manufacturing resource planning in the major ERP systems, as well as forecast and demand planning and shop floor management capabilities, these tend to be very basic, and certainly not up to the demands of companies with large, complex supply chains spanning multiple regions and product lines.

“These require more advanced algorithms that can take seasonality into account, for example, and which are not found in ERP systems,” says Payne. “You have to go best-of-breed for that and while the two big ERP vendors, SAP and Oracle, provide more advanced SCM capabilities, they are not part of the standard ERP suite; customers have to buy something else to get them.”

Good planning makes perfect
The precise nature of that “something else” is what companies running complex supply chains rely on for the efficient operation of their business. The last thing that retailers and manufacturers want to find themselves doing is holding significant surplus stock, given the myriad associated costs this can incur, but conversely, end user demand is notoriously hard to predict. Other eventualities that need to be planned for but are also hard to predict include supplier bankruptcies (see page 26) or reductions in service levels causing sudden shortages, and fluctuations in cost due to exchange rate variations.

“The biggest challenge in the supply chain revolves around shelf availability, and various systems provide answers to how that is implemented or pipelined,” says Lawrence Freeman, development manager at UK retailer the Co-operative Group.

Data standards and data quality
Another challenge is the question of universal data standards, particularly around electronic data interchange (EDI) technology on which SCM applications rely to swap details about products, inventories and financial transactions between organisations and different divisions within the same commercial entity.

“The big thing in the industry is data standards and overall data quality, which varies a lot from industry to industry,” says Martin Neil, CIO for mainland Europe at DHL Supply Chain, which handles transportation management for big companies such as Ford.

“In the car industry, visibility is a big deal – imagine SCM as complex as this with hundreds of suppliers in lots of different countries, as well as carriers and transport companies, all looking at the same data,” adds Neil, who believes that common data standards are pretty good in the automotive industry, but perhaps not as well established elsewhere.

“One country may call a product ABC, and another 123, so even in internal company supply chains this can be a big issue,” says Payne. “It can be a determining step in planning, rather than execution, implementations, particularly where companies have moved to hired services for transportation because they come up against data issues in demand and inventory planning.”

To solve the problem, some vendors, such as i2, are building master data management (MDM) into their platforms and applications to build an EU inventory that helps ensure that the same product is called the same thing in all countries.

A standard EDI format is proving a much tougher nut to crack. The differences tend to rest on which type of communications protocol value added networks (VANs) support for use between trading partners. VANs, which are basically telecoms companies or service providers, are essential to determining those standards because they form the go-between for EDI communications, responsible for routing, storing and delivering EDI messages, and producing delivery reports.

The protocols traditionally employed here have been diverse, often based around FTP or email attachments. They include Applicability Statement 2 (AS2) for EDI over the internet, for example, as well as web-based EDI and the US ASC X12 EDI standards designated by the American National Standards Institute (ANSI), which can include standards for financial transactions as well as document or message transmission.

Things are improving with the increased adoption of web-based EDI based on XML, Ajax and other internet services, but more traditional EDI tools still underpin the vast majority of e-commerce transactions and a single, universal standard for all is difficult to negotiate.