AMR Research expects the global market for supply chain management (SCM) software to shrink by 6% in 2009, according to Noha Tohamy, vice president of supply chain research for the Boston-based research and consulting firm. While that statistic indicates that the recession has forced companies to curtail their IT spending, it doesn't diminish the role that SCM software can play for manufacturers in today's economy.
SCM systems can help companies reduce inventory and anticipate future demand -- both of which are top of mind for many manufacturers as they try to minimize excess inventory in their supply chains while ensuring that there will be enough inventory available when the economy recovers.
While some manufacturers are making new investments in SCM systems -- particularly in demand sensing software and inventory optimization software -- many others are taking a close look at their existing investments in supply chain management systems to ensure that they're being fully utilized, according to Tohamy.
"A lot of the software typically requires an 18% or 20% annual maintenance fee, so a lot of my customers are saying, OK, we paid a lot of money for the license, and we're also paying a lot of money on a yearly basis to maintain the software, so if there is a point to having it, then let's make better use of it,'" Tohamy explains.
That's no surprise to Lisa Anderson, founder and president of Claremont, Calif.-based LMA Consulting Group Inc., who asserts that she has yet to run into a company that fully utilizes its supply chain management system.
Anderson is somewhat sympathetic, as she notes that "there are so many features that you could probably continually work to fully leverage [your SCM software] and never achieve it." But she also believes that underutilizing the software starves manufacturers of valuable data that "can help them make more effective management decisions."
Lisa Anderson, founder and president, LMA Consulting Group Inc.
"I've seen many examples with my clients where they think that a system alone is somehow going to save them a ton of money, and it never does -- a system alone cannot do it," says Anderson, who prior to consulting was the vice president of operations and supply chain for Attends Healthcare (formerly PaperPak), an adult incontinence and absorbent food product manufacturer. "Once you do integrate the system with the people and processes, you can achieve some amazing results."
Achieving that integration is a matter of giving equal priority to all three components -- the system, the people and the processes, Anderson adds.
"I think some of it is a matter of focus," she says. "When you're looking for opportunities to leverage the [SCM software], you don't put 100% of the focus on the system. For example, you might focus on identifying expert skills in the company that can be utilized to develop a best-practice process for, let's say, inventory management, while at the same time looking at how you can leverage the system's tools to do that."
Leveraging your SCM software begins with using it. Tohamy notes that products such as multi-echelon inventory optimization software can help firms achieve "double-digit reductions in inventory across the supply chain" while attaining nearly impeccable customer service levels. However, due to the highly analytical nature of the software, she adds that the "adoption level is still very low."
To maximize the potential benefits of inventory optimization software and other SCM technology, it's critical to have a strong ongoing relationship with the software vendor.
"Leverage the software vendors, because they bring in a lot of domain expertise -- not just in inventory optimization, but a lot of times in specific industries' needs for inventory optimization," she says. For example, she notes that Pittsburgh-based SmartOps Corp. specializes in serving complex manufacturing industries.
Noha Tohamy, vice president of supply chain research, AMR Research
Another approach to getting more out of your SCM software is to create a "center of excellence" or shared service center consisting of a cross-functional team with the analytical skills necessary to help users optimize SCM technology. In companies such as Dell and Procter & Gamble, the teams essentially serve as "ambassadors to the supply chain," Tohamy adds.
"One business unit or region might not need a full-time resource to set up models and use optimization tools," Tohamy says. "So, by creating a shared service, that group can take their experience and evangelize it across all business units of the company, resulting in wider adoption of the tools."
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