Where Does the Supply Chain Fall Short?

Complex Build-to-Order Product

Let’s now discuss a company that lies in between the two extremes referenced above. This large equipment manufacturer has moderate levels of complexity and configurability in their product range. Given the nature of large equipment manufacturing, they had a lot of component parts and huge supply base. They were extremely reliant on their MRP to drive their production schedules, and the communication with their robust supply base was handled by a team of buyers. As the MRP ran multiple times in a week, the buyers were overloaded with approving, expediting, deferring and cancelling purchase orders.

If MRP recommendations were not being completed prior to the next MRP run, the consequence was substantial communication issues with the manufacturer’s large supply base. Some of the most obvious ramifications were part shortages and high expediting costs.

One of the reasons buyers couldn’t complete their task on time was the transaction volume combined with a typical MRP multi-screen interface. Navigating through MRP screens to confirm new orders or make changes to existing orders can be arduous and challenging, especially in this manufacturer’s case where a legacy MRP system was in use.

They decided to use a cloud-based supply chain solution to collaborate with their supply base, acting as a front end to their legacy MRP system. They set up a Software as a Service (SaaS) portal which was tightly integrated with their legacy MRP. Suppliers got their forecasts, planned releases and firm orders through this portal. They were able to acknowledge the orders, suggest reschedules, ship goods, print standardized bar code labels and track their performance. The buyers, on the other hand, were using the portal to approve POs and deal with MRP exceptions using a very intuitive and friendly user interface. The behind-the-scene integration was keeping the MRP and the cloud-based solutions in sync in real-time.

Within a short timeframe, hundreds of suppliers were transacting thousands of raw material parts through this cloud-based portal. Suppliers for this manufacturer varied from small “mom and pop” shops to large multi-billion dollar companies. Buyer productivity dramatically improved as buyers were using a simplified interface that allowed them to approve, modify or reject MRP recommendations with a few clicks. Buyers who were used to working long hours on the tasks at hand were now completing their responsibilities within an hour or two and focusing on the more important tasks of strategic sourcing.

Since the MRP was being fully updated between each run, the supplier bullwhip effect was virtually eliminated. Suppliers also had clear order signals, streamlined shipping processes and visibility into their actual performance. This type of self-measurement resulted in a dramatic reduction in part shortages and expediting charges.

 

Convergence in the Supply Chain

Most of us pride ourselves on the unique solutions we create in response to the problems we encounter. In the previous century, there was a very good reason why this diversity existed. Without a global network, customers had their own wide or local area networks that differed from those of suppliers. Customers had their ERP and suppliers had theirs (which is still true). Communication between each of the parties was disconnected and done in a batch mode.

However, over the last decade, more convergence—rather than diversity—has risen among the supply chain processes. There now exists a network that all of us reside in – the Internet. There is global infrastructure on which mission-critical transactional applications can be developed – cloud infrastructure. There is a common interface that can be globally used – an Internet browser. There is an easy deployment model that connects all of these –SaaS.

Cloud-based supply chain solutions offer opportunities for large manufacturing companies with globally dispersed manufacturing facilities and supply bases to actively engage with their suppliers to streamline manufacturing procurement and purchasing functions. This level of collaboration was not feasible in the past and therefore opens up an entirely new strategy for managing inventory and replenishing raw materials. Hopefully, as we ask the same question of “where does the supply chain fall short,” in the future the answer won’t be “collaboration.”

 

Narayan Laksham is CEO and founder of Ultriva, a provider of collaborative supply chain solutions.