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TechnologyAdvice Guide to Supply Chain Management Tools
Supply chain management (SCM) is designed to help companies meet customer demand in the most efficient, cost-effective manner possible. In theory, it’s fairly straightforward—the strategic movement of products and materials from plant, to warehouse, to store, to customer. But in practice, it’s remarkably complex. This sequence is only one possible variation among many different supply chain structures, each which poses its own unique challenges. In a recent study by PricewaterhouseCoopers (PwC), only 36 percent of experts said their supply chains are good enough to help their company outperform in the broader market.1
That’s why many organizations are turning to automation for help. Gartner recently valued the market at almost $9 billion worldwide, with supply chain management companies like SAP and Oracle leading in revenue by a long stretch.2 But these two are certainly not the only options; there are hundreds of solutions available for supply chain management, and it can be difficult to know which will meet your specific industry and business goals. This buyer’s guide will help you develop an understanding of features, trends, and specific use examples in order to choose the best supply chain management software vendor for your company.
SCM software has extensive applications in almost any product materials-focused industry, such as logistics, manufacturing, automotive, retail, grocery, healthcare and pharmaceutical, and many others. Items managed can include finished goods, partially-finished goods, or raw materials used in production.
Similar to the move toward virtual IT infrastructure in other industries, many customer-facing organizations are deliberately ceding ownership of their materials and production processes. Yes, this lets them devote more resources to high-level innovation and their core business model, but it also complicates the supply chain by outsourcing more phases to partner organizations and overseas facilities with less centralized control. This multiplication of suppliers, distribution channels, and work-in-process inventory also creates higher levels of global competition and risk. Roughly two-thirds of senior executives expect supply chain risk to grow in coming years.3
The extreme complexity of modern supply chains calls for strong central management tools and better visibility, which are two of SCM software’s biggest promises. An SCM solution helps companies establish and automate pricing, transportation, and payment models to better manage their supply and distribution network, all while staying responsive to the ebb and flow of customer demand.
There are several different solutions available for supply chain IT buyers:
- Best-of-breed programs provide specific functionality for localized aspects of SCM, such as inventory, freight brokerage, or procurement, but usually won’t function as a company-wide solution.
- Integrated SCM suites support end-to-end management of supply chain processes from demand planning to materials sourcing, procurement, transportation, and delivery. SCM suites can be purchased as an all-in-one solution or as-needed in discrete modules.
- Enterprise resource planning (ERP) systems often provide built in supply chain management and offer the additional benefit of synchronizing business processes in one system. This can include SCM, customer relationship management, human resources, business intelligence, accounting, and more.
Common Features of Supply Chain Management Tools
Software will vary from vendor to vendor according to pricing, scale, and use intent, but most supply chain management companies will focus around the following areas of functionality:
Keeping the appropriate amount of items stocked in the right locations (warehouse, distribution center, store) in a supply network to minimize overhead cost and enable uninterrupted delivery; influenced by customer demands, seasonal fluctuations, promotional campaigns, and regular replenishment schedules. Inventory can be tracked using barcodes, serial numbers, or even RFID (radio frequency identification) tags. Standalone inventory management software is also available.
Used for tracking goods and materials within a warehouse or distribution center as a closed environment, to include stock picking and shelving, as well as shipping and receiving. Items will either be moved to an intermediate storage location or moved to a store or customer. This feature (sometimes its own dedicated system) is especially important for companies with larger networks of warehouses in multiple locations.
SCM solutions can use algorithms based on sales history and/or customer variables to help companies anticipate fluctuations in supply and demand. Being able to match inventory levels with projected demand prevents over or under-stocking—which results in waste, lost sales, or in the worst case, lost customers.
Manage and automate your purchase orders from suppliers, including placement, payment, and receipt; integrations with financial management systems approve and log expenses to create a clear audit trail and a baseline for future cycles. This area has seen a lot of attention by best-of-breed vendors like Procurify and Verian.
Order fulfillment and returns:
Order fulfillment tools help your supply chain centers streamline the fulfillment process from inquiry to quote, invoice, shipment, and delivery. Determine the best fulfillment option based on the order type and configuration, whether it be engineer-to-order (ETO), build-to-order (BTO), assemble-to-order (ATO), make-to-stock (MTS), or digital copy (DC).4 You’ll also need a system for processing returns and tracking payment through revenue recognition.
Sometimes referred to as supplier relationship management (SRM), this functional area helps companies monitor and curate their relationships with suppliers. Essentially, it gives the sourcing organization visibility into supplier assets and metrics in order to maximize value on both ends. This can include performance and compliance tracking, risk measurement, supplier segmentation, and other capabilities.
Corporate Social Responsibility (CSR):
Steeper competition and a more conscientious consumer population has caused many companies to adopt higher social and environmental standards to govern their supply chains. For example, in 2008, Wal-Mart stated that all of its U.S. and foreign suppliers would have to comply with new social, environmental, and energy efficiency standards.5 This corporate conscience, however, requires even greater visibility into supplier practices throughout the entire chain. To support this endeavor, many SCM solutions incorporate regulatory compliance measures into their supplier management module.
E-Commerce Supply Chains:
E-commerce has become a significant piece of the retail economy in recent years. Some stores have moved away from the brick-and-mortar model completely and instead sell through an online storefront. These vendors essentially function as distributors, which means they need efficient solutions for demand planning, inventory control, and order fulfillment, rather than traditional point-of-sale (POS) software.
On-demand SCM Software:
Supply chain management has seen lower levels of of software-as-a-service adoption than other verticals (such as customer relationship management or human resources). This owes, in part, to the complexity and dispersion of the SCM industry itself, but many middle-market suppliers and distributors are using web-based applications to better satisfy the logistical demands of large clients at a lower cost — and without formal IT infrastructure. Global vendors SAP and Oracle have played a large role in pioneering cloud-based SCM software.
Creating Executive Buy-In
Before you decide on any specific products, it’s important to sell the idea of an SCM solution to its future stakeholders in the company, especially leadership. Many companies form a software buying committee to conjunctively define business need, budget, and a strategy for measuring ROI. Here are some SCM talking points for specific executives:
How can SCM software improve our core business model? How can it set us ahead of competitors or pave the way for relationships with new partners and customer segments? These are likely the kind of questions that will concern your CEO—big picture questions, and rightly so. The right solution can help your supply chain scale and mature with future growth by automating routine logistics tasks (invoicing, receiving, inventory, etc.) and centralizing management of suppliers, customers, and goods. SCM software can also provide powerful business insights through modeling and analytical tools that help your company make proactive decisions and outperform competitors.
Your chief information officer (or chief technology officer, in some cases) can be an excellent resource for evaluating the technical nuances of available solutions. For instance, how will a new system integrate with the business tools you already use? Which vendors provide the highest level of security and support? Which deployment model (on-premise, cloud, or hybrid) is best suited to your existing IT infrastructure? Since your CIO’s job is to support business goals with relevant technology, you probably won’t have much trouble getting them on board. That said, if they’re clinging to a legacy system or a hodgepodge of outdated programs, you’ll need to pinpoint the areas where these systems are underperforming, whether it be data-siloing, compliance issues, runtime errors, or general dissonance with workflows. A formal SCM solution will provide better end-to-end functionality and bring the added promise of updates and support.
Your chief financial officer (or chief revenue officer, in some cases) will primarily be concerned with the cost and value-add potential of new software. You’ll need to draw out an estimate of both upfront cost (license purchase, installation fees, data migration, implementation support, etc.) and total-cost-of-ownership (especially for SaaS, which saves upfront cost, but requires more long-term budget consideration). Some software vendors provide ROI calculators, but you’re often better served by calculations based on your company’s specific cost and revenue streams. An SCM solution can help your company reduce labor hours and administrative costs by moving previously manual workflows to an automated, digital platform. This automation can also shorten cycle times for fulfilling customer requests and permit faster revenue recognition, especially when SCM software is integrated with accounting software. For larger supply chains, even a small improvement, when replicated across multiple centers and geographic regions, can yield huge annual savings.
Supply Chain Management Software Case Study
Company: YOKE Industrial Corporation6
Solution: SAP Business Suite, including ERP, SCM, and CRM
The YOKE Industrial Corporation is a manufacturing and supply chain company headquartered in Singapore. They specialize in mill products like lifting chains, steel and aluminum carabiners, snatch blocks, hoist hooks, and bearing swivels, with a market that spans 70 outlets in Europe, North America, Asia, and the Middle East. The items they manufacture are used in mining, shipbuilding, transportation, construction, fishing, and petrochemicals industries.
In the midst of the 2008 recession, president and CEO Steven Hong decided to move the company to a “high-quality and inexpensive, fast-in, fast-out” strategy, which would inevitably require a more unified management infrastructure. In their search for solutions, YOKE needed to replace six different third-party programs with a single, ERP-based system. SAP’s Business Management Suite promised to address all of YOKE’s business and logistical goals at once and improve their reputation in global markets by reducing prices and stabilizing supply lines. After deploying SAP’s solution across the enterprise YOKE reported a number of measurable improvements:
- 40 percent increase in new customer orders
- 10 percent improvement in overall production
- Cut machine line changing time by 20 percent
- Cut time to settle cost accounts in half
- Improved account settlement efficiency by 67 percent
Other Leading Solutions
While SAP’s integrated systems were the best fit for YOKE, they might not be the most appropriate system for your business. The following supply chain management systems are among the market’s leaders when it comes to functionality, and represent a full range of pricing, from low-cost, simple systems to high-cost, all-in-one systems resembling a full enterprise resource planning system.
- “Next-generation supply chains: Efficient, fast and tailored.” PwC. Accessed May 6, 2015. http://www.pwc.com/gx/en/consulting-services/supply-chain/global-supply-chain-survey/
- “Gartner Says Worldwide Supply Chain Management and Procurement Software Market Grew 7.3 Percent in 2013.” Gartner. Last modified May 12, 2014. http://www.gartner.com/newsroom/id/2735618
- “The challenges ahead for supply chains: McKinsey Global Survey results.” McKinsey&Company. Accessed May 6, 2014. http://www.mckinsey.com/insights/operations/the_challenges_ahead_for_supply_chains_mckinsey_global_survey_results
- “Order Fulfillment.” Wikipedia. Last modified March 19, 2015. http://en.wikipedia.org/wiki/Order_fulfillment
- Wailgum, Thomas. “Wal-Mart’s Green Strategy: Supply Chain Makeover Targets Chinese Manufacturers.” CIO. last modified October 24, 2008.
- “Customer Journey: YOKE Industrial Corporation.” SAP. Accessed May 7, 2015. http://www.sap.com/customer-testimonials/mill-products/yoke.html