Most manufacturers aspire to create a lean manufacturing environment but are challenged to achieve this as their supply chain networks become more distributed through outsourcing and offshoring. Manufacturers initially pursued outsourcing and offshoring strategies to save on labor costs. However, in many industries, such as high technology, labor is only 5%-10% of the product cost, compared with materials, which account for 50%-80% of the cost.
What manufacturers are discovering is that in their pursuit of lower labor costs, they have created extended supply chains for the higher-value material costs. Therefore, manufacturers have turned to lean concepts to reduce their material costs and improve their bottom line The way to do this is to create an agile supply chain network that is consistently receiving updated information, which helps to lessen the widening gap between supply lead time and customer lead time.
Distributed supply networks create a gap that exposes manufacturers to increased risk. Consider the difference between your inbound supply lead time and your customer lead time. How large is that gap? A gap of 5 to 10 times is not unusual. That gap is your risk -- risk in the form of reduced cash flow as more inventory is needed at each stage of the extended supply chain; increased inventory levels to offset shorter customer demand time; and increased stockouts due to slow response times and longer lead times.
The key to gaining control is not pulling operations back within the enterprise but finding a way to gain visibility and control over the movement of critical materials with these suppliers. This control comes from improving the visibility of actual events in the process by making key data and transactions more transparent. In fact, the timely movement of data is more important than the movement of material.
Unfortunately, it is often left to paper-based or batch processes, resulting in inaccurate information or delayed access to information that can affect critical decisions. For example:
- What happens when demand changes are received after a planning run and plans are set? Or
- When negative supply information is received inside the manufacturing lead time in a flow environment?
Data movement and real-time visibility are the linchpins, and potentially the bottlenecks, in the supply chain. With more efficient management of the data exchanged with their supply chain partners, manufacturers can be more agile and flexible in meeting the demands of their customers. But, hasn't this always been the case? What's changed? On-demand and managed services solutions can now provide data and file exchange with your partners and customers at pennies per kilobyte.
In the past, these services were something only the big companies could use, but on-demand and software-as-a-service technologies have made them available to enterprises of all sizes.
So, how does greater and cheaper availability to data change your world? Consider how a company dealt with its smaller suppliers in the past. All communications were paper-based, updated on a weekly or monthly basis. The manufacturer ordered larger quantities to be prepared, but were still slower to react to change. Now, due to the availability of low-cost communications, these two companies can be linked electronically and functioning in a vendor managed inventory process.
Through event-based triggers and/or scheduled information feeds, the supplier has access to the manufacturer's inventory availability. When inventory drops below a certain level, an electronic signal is sent and the inventory is replenished by the supplier immediately. This process improves service while reducing costs for both the supplier and the manufacturer. Improvements in data transmission technology are making the sharing of information, and the ability to react to that information, more pervasive.
Moving data efficiently will enable manufacturers to gain increased visibility as well as implement best practices to improve the performance of their entire supply chain. Increased visibility provides additional manufacturing and supply chain capacity, reduces labor costs and improves cash flow. For example:
- Proactive alerts to planners and buyers will enable them to focus on exception-based management. This activity will reduce stockouts, improve customer satisfaction and lower labor and expediting costs.
- Dashboards to measure community performance will enable the supply chain to be modified constantly to meet the higher levels of performance demanded by customers.
- The communication and tracking of business process metrics can be handled with all suppliers regardless of size, enabling the fine tuning of the supply chain partners and collaborative processes.
- Customers can on-board their entire supplier community and change quickly as demand profiles require.
- Inbound alerts can be used by manufacturers to access a virtual transportation network and quickly reroute in-transit material to the appropriate customer, distribution center or manufacturing plant. They can reduce ongoing costs by providing visibility to all transportation providers at any given time.
When implementing new data integration technology to help you take advantage of these benefits, be sure to consider how the technology supports the growth of your business and lowers IT costs. Look for solutions that enable Internet as well as standards-based data movement (EDI, XML, etc.) and are available on a common service-oriented architecture (SOA) platform. In addition, to optimize agility, make sure your solution is easily configurable. Configurable networks and business process modeling capabilities will enable you to respond to change more quickly. For example, you can rapidly on-board customers, partners and suppliers in hours or days instead of days or weeks, and you can rapidly add new distribution centers or transportation carriers to your inbound/outbound logistics network.
By getting control over your data movement processes, you can close the gap between your supply lead time and customer lead time. Plus, having information at your fingertips enables you to prepare for the future. For example, manufacturers are facing increasing demands to support cross-channel capabilities. Considered a retail phenomenon today, cross-channel services will be an expectation for anyone serving customers in the future, and it will require even greater visibility of all orders, inventory and inbound supplies in order to facilitate efficient orchestration of the entire supply chain.
How well are you prepared?
Sterling Commerce, a subsidiary of AT&T Inc., provides software and services to integrate customers' systems -- inside and outside the four walls of the enterprise. Sterling Commerce solutions help customers adopt best practices in e-sales, supply chain execution, payment processing and business-to-business integration. www.sterlingcommerce.com.