ERP helps manage cost savings efficiencies and growth in supply chains
INSIGHT ARTICLE |
As the economy continues its recovery from the recession, many companies are beginning to invest in their technology infrastructure. Competition and customer demand will not allow these companies to put off upgrades or purchases any longer. From Internet and web applications that support supplier and customer collaboration to customer relationship management and enterprise resource planning (ERP) software, manufacturers and distributors are looking to technology to help them lower costs, operate more efficiently and ultimately increase profitability.
With proper due diligence, analysis and review, these companies can identify opportunities to where technology can help them meet their objectives ("Becoming the nimble organization"). In particular, supply chain performance can leverage technology to ease access to information that can help improve processes, reduce cycle times, enhance inventory forecasting and generally encourage greater collaboration with supply chain vendors ("Optimizing your supply chain to counter rising costs and improve processes").
Identifying the opportunities for supply chain improvements will differ from business to business. But companies will find there are some areas where technology can help with issues and challenges that are common to every business.
Following are examples where companies have addressed some of the most intransigent issues seen in supply chain performance.
Accurate and accessible information
A large retail design company was often asked to manage complete store makeovers for retail store chains with 200 locations or more — stores what that would need to be outfitted with custom displays, shelving, branding and signage throughout each location. Yet the company discovered that a lack of accurate and consistent information was having a significant impact on sales, cost estimates and resource utilization.
Not surprisingly, estimating these makeover projects could be time consuming. This was due, in part, because personnel throughout the company responsible for the developing the estimates did not utilize a consistent approach.
Work orders containing incomplete/incorrect information for product assembly resulted in packing and production problems. A lack of information integration in systems and processes required data entry duplication and, inevitably, there were discrepancies. Perhaps most important, inconsistent cost estimation methods and inaccessible data were costing the firm money and engagement opportunities. Disparate project estimates led to under- or over-staffing and inefficiencies in resource utilization. Profit margins were difficult to assess at the conclusion of each project.
To address these issues, a single model was developed to capture estimates based on known machine and labor capacity and costs. Information integration in systems and processes eliminated the need for data-entry duplication and allowed for real-time collaboration between departments, sister companies, customers and suppliers. Clear bills of material and routings for all departments enabled the company to pinpoint problem areas in product assembly.
A manufacturer of bottles, jars and caps was running at nearly 100 percent capacity in all of its warehouses, but old technology, inefficient warehouse management and insufficient data was resulting in lost sales. Limited infrastructure was impeding growth and providing management with a limited view of the company's profitability.
Management felt that producing more custom molding capacity could increase business significantly. But the process for producing the molds was cumbersome, resulting in missed deadlines and an inaccurate picture of the total costs involved. System capabilities did not allow for an accurate conversion of jobs into requirements for planned hours; planning was limited to a day-to-day window.
There were a number of opportunities for improvement: standardizing prices for component items; capturing the accurate costs overall; leveraging best practices for roles and workflows.
Capturing everything from a "capable to promise" perspective in a single platform gave the company multiple benefits. A master production schedule utilized clear bills of material and routings, resulting in more efficient labor and equipment utilization. Management has improved inventory control for every stage from receiving to storage to raw material issue, with related cost savings due to freight and inventory counts.
Lack of demand visibility
A soft drink manufacturer needed visibility into key customer demand for its retail product. Collaboration between the grocery chains where the product was sold and the manufacturer is critical, as customers will quickly make a switch to another brand if their product is not on the store shelf. A new ERP system was needed that provided this insight.
To add to the complexity of the situation, the company needed a comprehensive technology infrastructure as it was being divested from its parent. The company's requirements also included multi-currency and multi-lingual capabilities, as more than a quarter of revenues were earned in Europe and there were production facilities in Germany and Spain.
Because management needed to stay focused on its core business, many components of company operations were outsourced. The approach cost more than in-house resources, but management felt it would save time and leverage expertise that the company simply did not have. This was important for a company that needed to deliver product to more than 1,400 addresses in North America alone.
One solution handles the company's financials, general ledger, accounts payable, accounts receivable and payroll. An outsourced partner takes orders from customers and coordinates invoices and billings. Collaboration between vendors ensures requirements for production planning and forecasting, work orders for production plants and distribution shipping orders are in harmony.
In the digital age, putting photo books together is a simple process for the consumer: a vendor enables them to assemble photos using an online tool that offers a variety of book formats and sizes, hard or soft-bound covers, and the like. The number of books ordered can run from one to 100, and often can be printed and shipped within 48 hours.
One supplier for a digital book vendor was experiencing issues associated with work orders going to the shop floor. Despite the different lead times needed for the two components for the books – the covers and the content – orders were released into the electronic queues simultaneously. A mid-process inventory site took components out of the workflow until their counterparts arrived. This additional handling resulted in losses due to damage and introduced opportunities for mismatched covers and content. In addition, operators were free to choose which product within their queues they wanted to print, often putting off the more complex products and contributing to the mismatches and shipment delays.
To address the issues in production timing, a system was developed that built lead time differences into the release calculation. Covers and content would arrive at the binding station simultaneously, eliminating the previous additional handling at the mid-point inventory station. Operators were also locked out of the ability to choose when and what items in their production queue to complete.
As a result of the reduced throughput time that the elimination of the mid-process inventory queue and other improvements provided, on-time shipments improved to 96 percent, up from 78 percent. Rework due to handling damage was reduced to 2 percent, down from 6 percent. Cover mismatches fell to .73 percent, down from 2.3 percent.
As the examples of these companies attest, proper analysis of supply chain processes can identify opportunities for cost savings, efficiencies and growth. Fully integrated ERP systems can standardize forecasting processes and eliminate data-entry duplication. The right systems capabilities can leverage best practices to save time and money. On-time shipments can rise and damage can be reduced with the implementation of the appropriate software. Management should set aside time for regular strategy reviews of company systems and processes to identify the need for accurate and accessible information. Reviews should also look for system bottlenecks and the lack of demand visibility. Ultimately, there may be technology solutions that can address these issues and support company strategies.