The Supply Chain Information Technology blog

Thanks to my friends at Vocollect, I had the opportunity to co-present a session on Voice-enabling the Warehouse at the SAP Logistics and SCM 2010 conference in Orlando last month.

I must admit I had a slight case of nerves prior to my presentation. It wasn’t a case of stage fright. But with an 8:30 a.m. slot for what was essentially a vendor presentation, I was concerned that I might have a very small audience. There is nothing more awkward than doing a presentation at conference for an audience of one or two people. Fortunately, I ended up with a decent crowd.

The SCM conference is one of five bundled into a week-long event, which includes Customer Relationship Management (CRM), Product Lifecycle Management (PLM), Procurement and Materials, and Manufacturing. Some folks come to the show seeking ways to get more out of their existing SAP Supply Chain Management (SCM) products. Others are SAP Enterprise Resource Planning (ERP) users who are considering various SCM solutions to address specific supply chain information technology needs that aren’t being met by core ERP functionality.

Attendance appeared to be good. So hopefully this is a sign that things are improving in the SCM application marketplace.

For those of you that have missed their marketing message, SAP is not just an ERP vendor that provides some supply chain functionality. They are a business suite provider with a vision of being a prominent player in the SCM application marketplace. This is completely understandable since their SCM suite offers a substantial source of new license revenue. These include:

• SAP’s Advanced Planning and Optimization (APO), which already occupies a premier position in the supply chain planning arena.
• Its Supply Chain Network (SCN) is a mature trading partner collaboration platform.
• SCM Extended Warehouse Management (EWM) 7.0 offers functionality comparable to top tier Best-of-Breed WMS packages.
• While Transportation Management 6.0 is still in ramp up, TM 8.0 is scheduled for release this November.  

Looking at the details, you can still find some holes in their overall footprint, but you cannot dismiss their vision or commitment.

All this brought to my mind the ongoing argument in the upper tier of the SCM application marketplace about Best-of-Breed versus ERP. Usually, SCM suite vendors are the ones driving this discussion by maintaining that top-tier supply chain operations need the top-tier functionality and performance provided by a Best-of-Breed solution. Core ERP SCM functionality doesn’t cut it for a complex operation.

SAP has an ERP solution set with supply chain functionality. But it also has a separate SCM suite that, in many ways, looks and feels like a Best-of-Breed solution set.

So what does Best-of-Breed versus ERP mean nowadays?

This question came to my mind sitting in a well-attended presentation on SCM EWM 7.0. Many of the attendees were undoubtedly SAP ERP WM users, who were considering their options. I could hear the wheels turning in their minds during the session: "Do I really need the additional functionality offered by EWM? How do I justify the addition cost in licenses and implementation fees? How does this fit within my overall SCM strategy?"

Certainly many of these folks are waiting for EWM’s install base to reach critical mass before seriously considering these questions. But that day isn’t too far off.

As the SAP SCM suite continues to gain momentum, it is only going to increase the natural tendency of SAP ERP customers who are seeking top-tier supply chain planning, collaboration and execution functionality to first look at SAP SCM. This is totally understandable for enterprises that have embraced SAP’s total cost of ownership paradigm and out-of-the-box integration value proposition. But SAP "first" can sometimes imply SAP "first and last," meaning that other solutions will not be seriously considered.

I’m sure many of these SAP "firsters" intend to do their due diligence when it comes to selecting mission critical supply chain applications. But exactly how does "prove to me it won’t work" work when selecting an execution system where closeness of fit, ability to deliver, and industry experience can spell the difference between success and failure? How do you run a competitive selection when you have given a single supplier the inside track?

All the questions aren’t limited to SAP customers. How will the Best-of-Breed SCM vendors address this changing landscape? What will they do to gain new business among SAP and Oracle ERP customers?

This is too huge of a chunk of the marketplace to ignore, but dusting off the old "Best-of-Breed versus ERP" whitepaper isn’t going to cut it as a response.

The landscape has definitely changed since the Best-of-Breed versus ERP argument first surfaced. It’s going to be very interesting to see how it continues to develop among vendors and top-tier ERP customers. So what does Best-of-Breed versus ERP mean to you?

-- Tom

Tags: best-of-breed, erp

Take a step back and look at your supply chain. What do you see? If you were to draw a diagram to represent communication internally and with your suppliers, what would it look like? Are your communication channels so haywire that drawing a diagram of it seems absolutely impossible?

Do you think your answers to these questions correlate with the stability of your lead times?

Stabilizing inbound leads times is a sure way to gain positive results and serious efficiencies in your supply chain performance.

In the constantly expanding global supply chain, flexible sourcing needs to be complemented with real supply chain visibility and control in order to gain the competitive edge. Often product management, marketing or merchandising functions are not partnered with the related logistical review in evaluating forecast and pricing for products.

The bullwhip effect of demand variability and lead time swings (see more information on this effect from a report by the Tompkins Supply Chain Consortium) can offset the best laid plans. Also, when fluctuations to demand and sourcing complexities arise, getting everyone onto the same page how to handle the downstream impact is often difficult.

Where to start?

First, have an open internal dialog among product sourcing, logistics and IT. Make sure there is a common understanding on the movement throughout the supply chain and where the visibility elements may lie. Consider the suppliers’ capabilities for inventory management and manufacturing. Who are all of the parties involved in getting the product from source to destination?

Second, have an end-to-end walk through the supply chain – maybe for 2-3 key suppliers – to set the tone for the possibilities. What does the supplier do when you send the order? Are multiple orders accumulated to satisfy production efficiencies? Does what you understand as a minimum order quantity sync with the supplier? Walk through the essential logistical components – manufacturing site to outbound port, international shipment, inbound port and shipment to DCs or customers - de-composing the lead time into its multiple segments.

Third, assess how your internal IT systems support modeling the supply chain. Are there opportunities to better-represent lead times or make updates based on variable factors? Sometimes the updates might be a simple adjustment to existing practices. Other times, the updates may be justified by the addition of new supplier collaboration, trade management or order visibility tools – and just maybe, you have the tools sitting on a shelf ready to activate. Overall, focus should be on making sure everyone stays on the same page and knows the right way to manage.

Have you been able to walk the walk? What obstacles and discoveries have you identified?

-- Matt

Photo credit: D. Sharon Pruitt

Tags: end-to-end, lead times

"X" marks the spot for buried treasure, and I’ve been trying to find "X" since I was a youngster. No, I haven’t been walking around in a pirate hat with a map in one hand and a metal detector in the other. But I have had a piece of paper in one hand and a pen in the other – or since the mid-90s, a mouse and keyboard.

When I say, I’m trying to find "X," I’m really looking for the contingency factors in budgets and schedules that account for the unknown. And, of course, "X’ is always present in the IT world. From concept design thru detailed specifications, it is a way dealing with what we don’t know in our plans.

For example, early in my career many eons ago, my job was to provide initial estimate modification costs to support sales interactions for a CMMS vendor. Generally, the information I received to create the estimate came from a sales guy who provided a high-level description of a potential client’s need, usually based on a 10-minute conversation with the prospect.

At the time, my contingency approach was to estimate the development hours based on the stated need. I then doubled this estimate and applied a 20% bump on top of this total. While I was occasionally on target, some of my estimates eventually turned out too low – understandable since I really didn’t have detailed requirements.

My approach may seem quaint in retrospect, but luckily, I wasn’t responsible for the economic impact of my estimates on making the sale. Someone else would decide on the price quoted to the prospect.

Since those times so long ago, I have had to account for contingency on a wide variety of projects. I’ve also seen how numerous IT departments deal with the issue. Some employ a very structured approach concerning contingency, starting with a 50% plus or minus factor during initial concept design and driving down to 10% plus or minus, with detailed technical specifications. However, many still end up overrunning their budget plus contingency on supply chain projects.

This isn’t too surprising on supply chain execution system projects in which considerable process re-engineering occurs. The complexity inherent in these projects is fertile ground for unknowns. But there are other factors that present challenges when accounting for contingencies in these types of projects.

First, we have a vested interest in the resulting number, as approval of a project or modification is dependent on costs. Most folks believe they approach the process honestly. But the process tends to make optimists out of us.

Next, whenever a contingency number is placed on the table, there is an inevitable drive to reduce it. As we do our necessary homework, it is hard not to say that we have significantly reduced the unknowns. Contingencies can end up in the crosshairs when trying to make a business case work.

Finally, many approach contingency as accounting only for unknown requirements and hidden development complexity. But people aren’t perfect, and they tend to make mistakes. These mistakes can go beyond programming bugs touching all aspects of a project.

So how much contingency is enough? I’m not suggesting a double-the-number-plus-20% approach. But we need to step back and look at how honest we are with our processes. We need to evaluate the contingency factors that we use and resist the pressures to eviscerate them as we finalize our budgets and specifications. We need to learn to appreciate that we don’t know what we don’t know.

Do you have a better approach? How do you find "X"?

-- Tom

Photo credit: ShadBolling

Tags: budget, costs, time and cost

Tags: inventory, time and cost, budget, collaborative supply chain