Using Demand to Drive Supply Networks

Until recently, CPG companies have adopted ad hoc initiatives to control costs and improve service levels, and over time many of these initiatives have been exhausted. Now is the right time to look beyond traditional practices and transform existing supply chains into illuminated and informed supply networks. Companies must start focusing on all forms of demand inputs from retailers, distributors, channel partners, and even end consumers, and use these as a guiding light to steer supply in the right direction and to enlighten its entire supply network with timely information.

In any dynamic system like a supply chain, variability is inherent. Sensing the variability in time and formulating strategies, innovative processes (and the technology to respond quickly to these variations) sets progressive companies apart from the competition. Using demand to regularly modulate the supply process is the new generation of SCM that integrates demand, supply, and product processes across the network of customers and suppliers to balance revenue against cost. It is a system of tightly linked processes and technologies, which not only responds to demand, but which can also reshape demand through solid collaboration with value chain partners in the market place.

Business Challenges in the CPG Vertical

With pressure coming from diverse sources, the limitations in existing CPG supply chains can lead to severe challenges that highlight certain fundamental areas for improvement. But those are not the only difficulties. CPG companies also face specific challenges inherent to the industry.

Decreasing profitability and market share
The one-strategy-fits-all approach within linear supply chains has not been adaptable enough to meet rapid operations that switch between requirements for low-cost/high-volume commodity products and low-volume/high-cost premium products. Typical asset- and cost-focused arrangements have diverted attention from anticipating and responding to unique and niche market requirements, leading to reduced growth and profitability. Also contributing to lost market shares is the intense competition from private label products. Furthermore, some low-growth local brands became targets for acquisition by stronger regional (as well as national) brands, leading to extended supply chains and hence added complexities and cost.

Effective management of promotions and new product introductions
Lack of communication or wider collaboration with retailers and distributors (as well as with internal teams) are significant factors in the less-than-stellar performance of CPG companies with respect to promotions and new product introductions. A number of CPG companies do not have formalized internal stage-gate processes to justify and effectively drive new product demand. Also, companies tend to focus more on initial new product sales (for example, for the first two quarters) and ignore subsequent demand, which then provides only partial insights into product failure or success factors.

Added costs due to regulatory compliance requirements
Regulatory bodies, including the United States Department of Agriculture (USDA), tightly regulate the packaged food and beverage sectors on the following mandates:

* Hazard Analysis of Critical Control Points (HAACP) regulations—quality control records and manufacturing data access
* Occupational Safety and Health (OSHA) requirements—material safety data sheets (MSDS) maintenance, good manufacturing practices (GMP), and safety programs
* country of origin labeling requirements

It’s the Time to Master Your Master Data

A recent blog post CRM for the Finance and Banking Industry – Part 1 by Gabriel Gheorghiu touched on a pain point of many of today’s enterprise IT environments. Due to the inconsistency of customer data amongst different systems in use, the bank employee “asked three or four of her co-workers for help, and took about 15 minutes” to simply change the address of one customer. As a matter of fact, the bank that Gabriel mentioned is not the only one in this situation. Recently at the Gartner Master Data Management Summit 2009, I learned from a case study that prior to the master data management (MDM) initiative, a large Canadian retailer had over 45 million domestic customers recorded in its various systems, even though the entire country has a population of less than 34 million.

Nowadays, many companies are able to automate transactional activities thanks to solutions such as enterprise resource planning (ERP), customer relationship management (CRM), and supply chain management (SCM). However, due to the barriers among various software systems that companies have implemented along the way, and multiple operation locations that require complicated data storage mechanisms, inconsistent master data becomes a critical issue that hampers effective and efficient business operations.

For customer-facing operations, when a customer receives two phone calls from a company–a delivery notification made by a shipment clerk working with a SCM system, and a service follow-up handled by a customer care representative using a CRM system, the customer wants to be addressed as the same person. More importantly, as a company, you don’t want the two departments to contact the same customer as if they were talking with two individuals. What you want is the single version of the truth with respect to your customers.

Besides managing customer master data, product master data is another major area of MDM. The accuracy of product master data needs to be maintained consistently across various departments and branches. This way, when different people refer to a product, they talk about the same thing, with the same information. Without the consistency of product master data, a salesperson may sell a product with a feature that is no longer available due to a design change. This situation is not only embarrassing but also revenue-losing.

The management of product master data is also called product information management (PIM). If you are looking for a PIM solution, you may find Technology Evaluation Centers’ PIM Request for Proposal (RFP) Template helpful (click here to download a free sample).

Miscellaneous Processes

Miscellaneous processes consist of those activities needed to ensure that the warehouse inventory is accurate and that promote good warehouse practices and procedures. These processes include inventory control and management, stock consolidation, and stock locator. Inventory control and management includes physical and cycle counting and intra and inter-warehouse transfers.

It is a general rule of thumb that a software solution that focuses on one discipline is better at supporting the single discipline as opposed to software supporting multiple disciplines. This is why you look to a WMS to satisfy these miscellaneous processes. A prime benefit of a WMS is suggested inventory movements and consolidations to increase warehouse efficiencies. Inventory counting schemas in a WMS are typically more adaptable to your environment, thereby creating the least downtime and disruption to warehouse operations.

Obviously, inventory management functionality of both software solutions needs be evaluated objectively. However, any WMS worth its reputation and cost should be able to provide more effective tools to solve your existing warehouse problems. If not, you should question the purchase of a WMS in the first place.

Inbound Processes

The inbound function consists of processes that deal with ordering, receiving and storing material used to manufacture products. As with the outbound discussion, there are certain processes for which there is no choice. These processes include purchasing and purchase order generation, vendor invoice processing, cash disbursement, and accounting activities as indicated in the inbound processes chart.
Disposing of these administrative tasks, the physical act of receiving and storing the inventory in the warehouse can best be accomplished in the WMS.

Even when not using ERP software, purchasing information needs to be ported to the WMS in order that receipts can be validated and approved. Since at some point information must be transferred and inputted into the WMS, receiving represents a clean demarcation. This being the case, the receiving process initiates the inbound processes resident in the WMS. A WMS will have putaway logic to suggest stock locations whereby ingredients and goods are more readily accessible, reduce warehouse travel time, and maximize the use of available space. Likewise, since this inventory will eventually be used to satisfy production and customer orders, it is logical to use the barcode and label functionality available in a WMS as materials are being placed into stocking locations. Again, inventory updating would need to be accomplished in both software systems.

ERP and WMS Co-Existence: When System Worlds Collide

Typically, after the enterprise resource planning (ERP) software has settled in, you may start to investigate ways to improve your warehouse management and operations through the use of a warehouse management system (WMS). Unless you're faster than a speeding bullet and can leap tall buildings in a single bound, normally you do not install both ERP software and a WMS at the same time. Regardless of your approach, early on you will notice an overlap in warehouse functionality between the ERP software and a WMS. When comparing the warehouse functions and features embedded in ERP software against those in a WMS, the ERP software usually comes out on the short end of the measuring stick. So your path is obvious; use the WMS for inventory related functions. Not so fast big fellow.

Focusing on warehouse functionality that is typically contained in both software solutions, this article discusses the merits of using the features of one software solution over the other. This discussion will concentrate on outbound, inbound, and miscellaneous warehouse processes. Most importantly, it concludes with an identification of the critical interfaces, where a majority of the work is to be done. While there are no exactitudes and you may be left with more questions than answers, completing the thought process can help you gain an appreciation of the complexities of making these two software solutions work together effectively for your organization.

So Who Really Needs a DMS, Anyway

Car manufacturers, that’s who; mainly for control purposes. In Europe, before the Block Exemption Regulation, automotive manufacturers used to force dealerships to use a DMS. This way, the car manufacturer could control the sales and purchases of the dealers, and decide to increase or decrease quotas for them. It also helped them determine the optimal quantities to produce, which could vary by season, by model, and even by region. Most major car manufacturers would not allow their dealers to sell other brands at the same site.

Another reason for using a DMS was so manufacturers could control the quality of the services provided by the dealers—making sure they only used genuine spare parts and that they followed the work procedures defined for specific processes. A unique system for all dealers would also provide them with the right tools to be efficient in their relationship with the car manufacturer (e.g., spare parts ordering tools, warranty management, vehicle repair history).

Dealers need a DMS to grow efficiently. Let’s say a dealer started a family business decades ago; if everything went well, it acquired five or six new dealerships in the region. Later it would expand even more. The problem: the six or seven dealerships were now using three or four different systems. This raised some very big problems. Their only options:

* Gather a team of programmers and build a completely customized solution that would make all systems talk to each other and exchange information in a seamless manner. This would mean a lot of work, and even with a huge budget, they might not be able to produce the end product—not to mention that any dealership they acquired in the future would force them to review their existing solution.

* To keep the best of all solutions they were currently using, which would mean that all other dealerships would have to implement that same system. This would mean new licenses to purchase, a possible new infrastructure to set up, training to be completed, change management, and more.

* If none of the existing solutions were good enough to make all dealerships work together, they would still have the option of implementing a new solution, which would replace all existing ones.

Dealership Management System: What Is It and Who Needs It

When one talks about a DMS, people usually think about a document management system, a data management system, or even a destroyer mine sweeper. But very few people know that it’s also the acronym for “dealership management system,” which is a product or package of several products which is created specifically for the automotive industry.

The core of any DMS is a system similar to enterprise resource planning (ERP), with, however, specific characteristics for car manufacturing, distribution, spare parts inventory, and work order management. DMS packages often also include customer relationship management (CRM) and business intelligence (BI) solutions.

Two of the most important players in the DMS market started doing business toward the end of the nineteenth century: 1886 for Reynolds and Reynolds in the US and 1896 for Kalamazoo in the UK. Both started as printing companies and later turned to the automotive industry (Reynolds and Reynolds in 1927 and Kalamazoo in 1960).

In parallel, some dealerships tried to create their own management systems. I have exchanged e-mails with one such dealer, Tom Mautner. In the 70s, Mautner retained the services of a bright programmer, and created something that would help businesses overcome the disadvantages of existing solutions, which were often adaptations of existing software and not designed for the car retail industry. In addition, they only worked on very expensive and difficult-to-maintain computers.

After six months of hard work and testing, Mautner and his partner tried to sell the software to other dealers, without much success. Finally they decided to sell it to a company called VISitronic. Over the years, they continued developing the product as consultants, and in the 80s their product was one of the first PC-based DMSs available in Europe.

VISitronic was later acquired by Kalamazoo, which is now part of the Reynolds and Reynolds group—one of the biggest DMS providers in the world.

A major step in the evolution of DMS systems was the Block Exemption Regulation (BER), adopted by the European Union in 2002. Its main goal was to deregulate relationships between dealers and car manufacturers and to allow dealerships to freely market their services and reach customers in different geographic areas. As a result of the BER, the DMS market also became free, and therefore more competitive—diminishing the power of the few vendors that were controlling it.

Case Study: Kempe Group Success story with DynamicFit and Microsoft Dynamics AX

Kempe is a leading global specialist provider of innovative engineering solutions and asset services for the aluminium smelting, major resource and other major industries.

Kempe's multi-level diverse range of engineering products and services are delivered across four business divisions:

* Technology, Engineering & Construction (equipment supply & turnkey projects).
* Manufacturing, Precision Spare Parts & Components.
* Maintenance & Asset Services including Sustaining Capital Works.
* Fluidpower, Industrial Products & Services.


Business and Technology Need

To manage the financial and operational aspects of the business, Kempe was using separate systems which proved to be unreliable and out of date and made timely, accurate financial reporting almost impossible. The existing software could no longer accommodate the company's continuing growth. They needed a business software solution that was customisable, secure and would take them into the future. After considering a range of enterprise systems including SAP, Great Plains, Sage, Pronto, M1, Mex and Greentree, the company decided to go with Microsoft Dynamics AX.

"Microsoft Dynamics AX has delivered everything we asked for. It's taken our business to the next level by significantly improving financial and operational management" Kempe- Kris Rendevski Operations Director
Benefits

Kempe now has one centralised, integrated solution that stores information in real time. Managers can access reliable data to help them better manage operations and support business growth. Administration is now consolidated into one location enabling better financial management and effectiveness.

* New sites and local functionality can be added easily. As a result, it supports the organisation's expansion strategy, helping it to cost-effectively open and acquire new business units.
* Significantly reduce cash collection cycles.
* Increased Inventory accuracy from 7% error rate to 0.6% at 2008 stocktake.
* Accurate data means managers have improved insight into supply and demand and can more easily identify areas for change or improvement.
* Productivity and sales gains achieved due to accuracy of reporting and reduction in administrative errors
* Reduction and identification of Inventory "dead stock" by 25%.
* On time accurate accounts across many business units.
* Ability to control larger, complicated, international project work.
* Security knowing business data is reliable and accurate.