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Does Supply Chain Management Software Make Sense in Wholesale Distribution? Part 3: Meeting the Objectives

Written By: Mark Wells
Published On: September 14 2001

Does Supply Chain Management Software Make Sense in Wholesale Distribution?

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Executive Summary   

Growing competitive pressures compel strategies and tactics that yield efficiency and efficacy within virtual supply chains. This is especially true for middle tier suppliers. For example, distributors are finding that they need managers who are not only good expediters and know their products, but who also understand how to use decision support tools to make their work more effective. Advances in information technology now make it more feasible for distributors to adopt these tools such as supply chain management software. This paper examines the steel service center segment of the wholesale distribution industry as a case in point of the challenges facing distributors and the relief offered through supply chain software.

This is Part Three of a three-part note. Part One defined the Challenge faced by wholesale distributors. Part Two discussed the Critical Objectives in meeting this challenge. This part covers meeting the objectives with Supply Chain Management Software.

Meeting the Objectives with Supply Chain Management Software   

Thoughtful use of information technology enables successful business processes for inventory management, service assurance, return on assets, and effective sourcing. For example, the process of anticipating customer or marketplace requirements, often called "demand planning" is performed informally or formally by every business. The more accurate and collaborative that this process is, the more likely that purchasing and resource allocation will be in line with actual customer orders as they occur.

Demand planning software provides mathematical forecasting techniques that deal with seasonal, intermittent, lumpy and trending demand. It can also facilitate different perspectives on forecasts, as well as historical data, at various levels within multiple dimensions such as product, geography, channel, and customer. Equally important functionality gathers inputs to the forecasting process from sales, operations and even customers, lending validity to the final result. This, in turn, helps assure service and avoid waste in the sourcing process.

Purchasing and scheduling business processes can be enhanced through software that can leverage mathematics behind the scenes to perform sophisticated inventory planning that is presented through simple, easy to use screens. Applications are available that can evaluate tradeoffs between the risk of disappointing customers and the risk to working capital through investment in inventory. The resulting calculation determines the best stocking quantity and location at a very detailed level or at an aggregate level.

A well-architected supply chain solution aligns distribution and transportation planning with scheduling and purchasing so that all the supply chain decisions are synchronized. These capabilities increase the return on assets by making sure that the right product is processed at the right time to meet metrics like inventory turns and gross margins. Sourcing and inventory levels can be optimized to enhance the bottom line.

The process of promising orders to customers is a critical piece of ensuring service because it sets the expectation against which the service center will be measured on each individual order. Applications exist today that enable 24/7, real-time order promising that considers not only inventory that is on hand or on order, but also available processing capacity and transportation capacity.

Technology Creates Opportunity   

This kind of technology can remove both time and money from the total supply chain "balloon", creating opportunity for higher margins. In recent years, it has begun to be widely adopted across many industries. The technology has advanced over time so that the capabilities are more powerful, easier to use, and integrated. It has also evolved to be more open so that it can be used with the systems on which many steel service centers run.

Because of the power to enable the business processes that impact inventory management, customer service, return on assets, and sourcing, software applications in supply chain management are very appropriate in steel service centers and throughout wholesale distribution. Because the technology has become easier to implement, use, and maintain, many of the challenges to achieving the benefits that these applications can provide have been removed.

The Causal Metrics Matrix in Figure 1 summarizes how the capabilities of a supply chain management software application can positively impact the four critical business objectives for steel service centers.

Figure 1. Causal Metrics Matrix

  Inventory Investment Customer Service Effective Sourcing Return on Assets
Collaborative Forecasting
Inventory Optimization
 
Synchronized Planning
 
Accurate Order Promising
 
 
 

Conclusion   

The pressures on the bottom line for steel service centers have not weakened in the years since I worked in that industry. These challenges largely prevail throughout wholesale distribution. The technology is available, and the implementation path proven, that can help manage the four critical success factors (inventory, service, sourcing and ROA) within this context. Decision support tools such as those that help optimize inventory and service will improve margins significantly for SSC's, as well as other distributors, as they have for manufacturers. Supply chain planning software is one of the tools that can be used to release some of the time and money from the supply chain "balloon" to the bottom line.

About the Author   

MARK WELLS has worked for the past 20 years on many aspects supply chain management from within industry, as a supply chain consultant, and as part of a software development organization. For two years, he worked for a steel service center as an internal consultant. He holds an MBA from Drexel University where he has also taught operations management and operations research. He currently works for the applications development division of Oracle Corporation, focusing on supply chain planning.

He can be reached at mark.wells@oracle.com.

 
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