SCP and SCE Need to Collaborate for Better Fulfillment Part One: How SCP and SCE are Addressing WMS

SCP and SCE Need to Address WMS

There are two important business problems associated with today's manufacturing planning, materials planning, and supply chain environments:

1. Supply chain planning (SCP) applications need to address the lack of accurate logistics costs and service information that would enable more optimized decisions across the entire supply chain. SCP typically generates weekly or daily plans (in a better case scenario), but without adequately addressing the issues that arise almost every instant in dynamic logistics environments. Thus, plans are often invalid as soon as they have been made, while a mere re-planning does not answer the question of what went wrong in the first place (i.e., there is no facility to learn from prior plans' inadequacies).
   
   
2. Supply chain execution (SCE) applications need to further address the lack of real time inventory visibility and event management feedback information needed for SCP to respond to frequent supply chain changes when building and executing manufacturing and materials plans.

Much has been said lately about the SCE market thriving and its SCP counterpart being one of the worst performing enterprise applications segments during the still ongoing economic downturn. While core back-office ERP and possibly even more cumbersome SCP systems might have traditionally excelled at planning, conceptual optimization, and financial integration functions, they have not however, addressed warehousing, yard management, distribution network planning, or transportation/logistics management. Yet, increasingly, every user company's success is contingent upon its ability to make almost immediate finished product or service delivery to customers. Additionally, data inaccuracy and inconsistency problems, complex planning algorithms/models requiring sophisticated user skills, lack of easy integration to other applications, and plan timeliness have all contributed to traditional SCP products' steep fall from their early grace.

The demand for near real time supply chain collaboration will, in turn, place an increasing emphasis on any company's ability to immediately commit itself to promising orders' delivery dates on a global basis and to consistently meet those commitments ever after. This available-to-promise (ATP)/capable-to-promise (CTP) aptitude will be made more complex as companies rely on an increasing number of business partners and suppliers to procure raw materials, assemble, and deliver finished goods. SCE is therefore gaining increasing awareness among companies that realize that planning can do only so much without the ability to make the right and timely decisions and execute on the shop floor, in the warehouses, or within the entire distribution chain.

However, it would be too nave to dismiss the need for proper planning, because regardless of how responsive an SCE system may be, waiting for chaos to happen and only then trying to act would be equally disastrous, as it has been with compiling nearly ideal plans (through cumbersome algorithms) and never doing anything about executing them or obtaining feedback about their outcomes. Companies need real time information from execution systems to develop and adjust optimal plans, while the execution side should benefit from more realistic plans for the sake of readiness, rather than to merely react after the fact in a firefighting fashion. We believe that planning and execution will become more or less inseparable in a trend that will see SCP, SCE, supply chain event management (SCEM), manufacturing execution system (MES), and analytics/enterprise performance management (EPM) (i.e., decision support tools and multidimensional analysis on information aggregated from all levels of the commerce chain, and an extensive sets of predefined performance indicators, as well as strategic planning/forecasting and balanced scorecard functions) coming together into an adaptive system.

Leading SCE vendors will thus continue to move beyond their current SCE functionality to more collaborative and optimized holistic supply chain management (SCM) solutions, which will include more consistent functionality at all levels of the organization, including collaborative planning, forecasting, replenishment (CPFR), order management/customer relationship management (CRM), warehouse/yard/transportation management, integrated business intelligence (BI) and performance measurement, as well as industry-specific functions. Vendors lacking the technical expertise for the development of integration and business process management (BPM) platforms, and analytical planning engines will find it necessary to preferably OEM-embed or just loosely partner for this functionality.

As supply chains become more dynamic and operate in near real time, the lines between planning and execution continue to blur, which bodes well for their functional convergence. Companies need real time information from execution systems to develop and adjust optimal plans. The execution side should benefit from more realistic plans, rather than to merely react after the fact in a firefighting fashion. Harnessing this technology should lead to the so-called "self-healing" or adaptive supply chain—when a software engine monitors all the numerous events taking place supply chain-wide, identifies and escalates exceptions, sends notification, and reacts appropriately to those exceptions, ideally without human intervention.

As a proof of concept, the other vendors still doing well in the segment are those that enable companies to efficiently manage trading relations, demand management and fulfillment processes. Companies such as Prescient Systems, Escalate, Demand Management, RiverOne, WorldChain, SoftChain, webplan, Demantra, John Galt, PipeChain, VCommerce, Ortems, SeeCommerce, and Tradec (now part of Agile Software) in supply chain event management (SCEM), visibility, and performance monitoring are able to connect disparate systems to provide all the parties with near real time information on current movements and trends. While the WMS market is expected to continue to grow modestly and faster than many other applications, it appears the customer order fulfillment process management as an add-on solution to WMS will experience much higher growth. At the same time, best-of-breed SCP vendors have been stripping down and streamlining product sets, given their cumbersome and confusing offerings in the past, which have consequently resulted with a bad image in many cases. An emerging SCP approach espoused by the likes of Optiant, SmartOps, and LogicTools has been to use inventory optimization techniques that create plans to minimize inventories across the network, but with achieving desired customer service targets.

Still, warehouse and transportation management, the traditional "bread and butter" pieces of SCE, have emerged as two of a few rare remaining fertile areas where companies still have an ample opportunity to redesign and optimize, while they are at the same time less time consuming and more oriented towards return on investment (ROI) in terms of incrementally improved operating costs and fulfillment capabilities. Particularly during these calamitous times, manufacturing and distribution companies continue their efforts to meet high customer expectations for on-time delivery by achieving general responsiveness, speed, and agility. Again, SCE is gaining increasing awareness among companies that realize that planning can do only so much without the ability to make the right and timely decisions and execute on the shop floor, in the warehouses, and within the entire distribution chain. Bringing down costs directly attributable to production has long been a matter of course for companies regardless of the economic environment.

This is Part One of a two-part tutorial.

Part Two will cover the upbeat WMS vendors and make user recommendations.

Warehouse Management System (WMS)

WMS applications traditionally automate activities falling within the four walls of a warehouse, such as receiving, put-away, serialization, picking, packing, and shipping (see ERP and WMS Co-Existence: When System Worlds Collide and What You Should Know Before Selecting a WMS). However, since the warehouse is no longer merely a static storage facility, and it now has to use real-time data to closely match supply to demand, eliminate the need to hold excess inventory, and increase the flow of goods throughout the supply chain. Therefore, the SCE software's capability to handle complex requirements does not necessarily have a negative connotation like in the case of SCP, since there has been a trend of pushing many light manufacturing operations (e.g., final assembly, customized packing, etc.) from shop floors to warehouses and distribution centers (DCs). This environment has prompted forward-thinking companies to take action, extending their solutions to include applications complementary to WMS.

SCE Specific

The consequence of today's extremely tight IT budgets is that people have very real needs to save money and improve customer service. Delivering the right part, at the right time and place, and at the lowest possible cost has become an imperative, particularly in a wobbly economy. As a result, lately the SCE market has been indisputably growing faster than its other application siblings, given its more apparent provision of hard benefits (e.g., improved inventory accuracy, improved space utilization, improved labor productivity, etc.) with quick deployments, appetizing price tags, and detailed total cost of ownership (TCO). To that end, warehouse, yard, and transportation management have emerged as some of the rare remaining areas where companies still have ample opportunity to redesign and optimize, while at the same time, deploying these is less time-consuming and more oriented towards tangible payback.

Gone are the days when these cumbersome systems were only affordable by large tier one global corporations, due to their early functional out-of-the-box inadequacy and the need for every individual project to be a huge customization and system integration adventure. The vendors have lately shown the ability to provide their clients with a strong standard product set that requires limited modifications, making it easier and more cost effective to upgrade and to realize the strong value proposition and new features in the upgrade. The fact that WMS software (particularly the legacy instances) tends to be among the most customized of enterprise applications, which often makes it more affordable for companies to forego the upgrade process and just install newer more out-of-the-box functional WMS applications.

Part of the reason for the continued investments in SCE may also stem from the fact that the C-level executives are becoming increasingly (and sometimes painfully) aware of the damage that unsuccessfully managed inventory can cause, particularly in light of increasing demands for lower costs, reduced order cycle time, increases in order frequency while diminishing order sizes at the same time, mushrooming of stock-keeping units (SKUs), growing customer/supplier visibility and vendor managed inventory (VMI) requirements, to name only some of the recent change drivers.

In addition to the above demanding functional capabilities to optimize inventory management, seamless integration of transactional and decision-support applications has become quite important and consequently, modern SCE systems provide the tactical, transactional backbone for order fulfillment and visibility atop their core functionality of order management, warehousing, transportation, and inventory management. To be able to react to fluctuating demand, respond to customer specifications, and coordinate real time event messages from multiple disparate systems, these systems are being further enhanced with decision support capabilities and planning engines aimed at inventory and order status visibility.

Like any software technology that reaches maturation, WMS products have evolved to a point where there is little differentiation among them. Still, since the warehouse is no longer merely a static storage facility, it now has to use real time data to closely match supply to demand, eliminate the need to hold excess inventory, and increase the flow of goods throughout the supply chain. Therefore, due to the SCE software's capability to handle these complex requirements, there has been a trend of postponing many light manufacturing operations (e.g., final assembly, customized packing, labeling, engraving, etc.) from shop floors to warehouses and distribution centers, and a WMS package plays a key role in the company's postponement strategy to delay the customization of products until after the products, or a set of common components, have left the manufacturing plant. To that end, introducing the value-added services capability (e.g., kitting assembly and disassembly, multiple bills of material [BOMs], special instructions, and labeling) within the software is one answer to helping its customers reduce the costs associated with their supply chains, where one of the most significant facilitators is postponement, and that is where kitting helps because it allows enterprises to keep their products in a more generic state for as late as possible.

Real Time Supply Chain Event Management

To be able to react to fluctuating demand, respond to customer specifications, and coordinate real time event messages from multiple disparate systems, these systems are being further enhanced with decision support capabilities and planning engines aimed at order fulfillment and inventory and order status visibility. Therefore, while many original WMS suppliers have lately added transportation and order management to their core products, and others have developed optimization or value-added service options, the most regular and justifiable enhancement has been Web-based order-fulfillment modules, which typically include real time supply chain event management, alert messaging, order tracking, and complicated workflow management. Harnessing this technology should lead to the so-called "self-healing" or adaptive supply chain—when a software engine monitors all the numerous events taking place supply chain-wide, identifies and escalates exceptions, sends notification, and reacts appropriately to those exceptions, ideally without human intervention.

One could discern three ways that SCEM functionality can be used to assist order fulfillment.

1. SCEM should enable the necessary supply chain-wide visibility to compare ordered quantities against both available quantities and expected quantities, which should allow enterprises to see when they are likely to experience inventory problems that could impact customer orders, and alerts them early on so they can alter production or delivery schedules to rectify the shortage.
   
   
2. SCEM should provide multisite inventory visibility, so that a distribution center clerk can assess if there is a shortage in the warehouse, and then look across the network, possibly find that inventory available at another location, and deploy it to fulfill a customer order.
   
   
3. SCEM should assist with actual delivery, since many events can occur that might impact meeting the committed delivery date or quantity. If there is a problem with, for example, picking the order, shipping the order due to a backlog, or trouble with the carrier, SCEM should allow visibility into those execution activities and alert the appropriate people, while there is still enough time to take action to rectify the problem.
   

This concludes Part One of a two-part tutorial.

Part Two will cover the upbeat WMS vendors and make user recommendations.