Creating a Common View
Most companies within the consumer goods industry have, at most, 10 customers that comprise up to 70 percent of their revenue. This concentration of power provides great influence. In fact, it dictates business process, from the rate and pace of change to much of the technology and data standards that support them. With many ground rules set by retailer requirements, the consumer goods industry is grappling with how to service its customer base at the highest possible level, while maximizing its revenue. The industry met these challenges head on in 2003. Intelligent and practical use of technology at hand was a major contributor to these efforts.
The Influence of Change
The concept of influencing change initiatives in the consumer goods industry is the Consumer Connected Supply Network, in theory a supply chain where actual demand from retailers and their customers' influences and drives decisions made in sales, marketing, product development and manufacturing. While the industry has a long way to go to make this a reality, the foundation for it was being constructed in the past year.
Collaboration is the fundamental building block of the Consumer Connected Supply Network. Much broader in scope than any industry initiative today, the network's success is dependent on building collaborative relationships not only with trading partners but within the company itself.
Many technology initiatives launched over the past year are aimed at creating internal collaboration. Sales force automation and the ability to remotely access enterprise systems both contribute to the growing trend of sales directly inputting its forecast into advanced planning and scheduling applications. Internal collaboration is also predicated or presenting a common view of business activity and performance across multiple functions. For this reason, we are seeing a growing trend moving towards reducing the number of instances of a company's ERP system.
Common Data Standards
Between trading partners, scaleable collaboration processes start with common data standards. The creation and adoption of these standards between retailer and supplier is and will continue to be a leading technology initiative. For suppliers with revenues of $100 million and above, data synchronization of electronic catalogs between themselves and their customers is growing. Smaller suppliers should not ignore this trend and can get started at a relatively low cost by using the services of UCCnet or public exchanges. The use of XML schemas for business messaging grew rapidly in 2003, and the industry will definitely see higher adoption in 2004.
Optimizing the Plan
Planning and optimization applications are not just focused on production or product stocking locations. Revenue optimization is beginning to take hold in the industry. Supply-chain planning and optimization applications are still regarded as providing the most value of any in the supply-chain portfolio. Because of the increased velocity of the supply chain, companies are recognizing that planning and execution must be tightly integrated. The growing use of supply chain event management to spot breakdowns in process is a demonstration of how companies are coping with this reality.
Supply chain execution applications and their adoption will increase in 2004 as rate of flow and flexibility, key metrics in measuring performance, become increasingly important in the demand-driven supply chain. Companies are continuing to invest in analytics to measure product, category and customer profitability, operational performance and to determine the unique service requirements of individual channels.
Meeting the Mandate
The short time frame with which to comply with the Wal-Mart radio frequency identification (RFID) mandate means that most consumer goods companies will look to satisfy the basic requirements over the next two years. With investments in technology and integration estimated to be between $10 million and $25 million, though, compliance will not be enough to justify its cost. Companies will have to find ways to use RFID to drive benefit inside of their own organizations. The criteria for selecting technology vendors in this area shouldn't be based solely on how quickly they can bring a company into compliance with the Wal-mart mandate. The selection should also be made based on its vision and ability to deliver on it.
The Bottom Line
There is an interesting convergence of technologies that is relevant to building the Consumer Connected Supply Network. To create a supply chain where activity is coordinated across all trading partners is beyond the capability of most enterprise applications. Both ERP and best-of-breed vendors are beginning to blend together integration tools, business process management applications, analytics and event management to provide one view of an activity and common applications to use in planning and execution. Think of it as a thin skin of technology that encircles the current application portfolio of your company. There have already been successes in procurement and sales and operation planning using such an approach, and AMR expects to see continued adoption of the concept in the coming year.
John Fontanella, vice president, research, AMR Research, has over 25 years of business experience in supply chain, manufacturing and marketing in the high-tech, consumer products and third party logistics industries. At AMR Research, Fontanella is responsible for providing research and vendor analysis in supply-chain planning, execution and event management. John also provides thought leadership, strategic guidance and best practice research to AMR.