Does Supply Chain Management Software Make Sense in Wholesale Distribution?
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
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.
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.
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.
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.
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.
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
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.
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.
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.
1. Causal Metrics Matrix
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.
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.
can be reached at email@example.com.