Linking demand and supply
How efficiently and effectively consumer goods companies are able to manage their supply chains remains one of the keys to their success. The ability to predict demand as part of a supply chain planning model coupled with the importance of executing upon that demand is, in many cases, a critical variable in a consumer goods firm's growth factor in the consumer goods industry. This month, CGT spoke with J. Michael Edenfield, president and CEO of Logility Inc., who discusses key issues surrounding today's demand-driven environment, including issues surrounding globally sourced manufacturing, brand ownership and the integration of Best-of-Breed solutions with existing ERP systems.
What are the main challenges CG companies currently face in managing their supply chains?
Consumer goods companies are trying to gain a competitive advantage by accelerating their product introductions, improving inventory deployment and lowering manufacturing costs through global sourcing initiatives. Additionally, many CG companies are reducing transportation costs significantly while simultaneously improving on-time delivery and perfect order metrics.
One specific challenge that continues to increasingly impact CG companies is the shift to globally-sourced manufacturing. With increased cost pressures, companies are moving manufacturing out of North America and into Latin America, China, India and other parts of Asia. In the past, these companies owned their production facilities or leveraged manufacturers within the United States.
Now, many CG companies are becoming "brand owners", and are working with overseas manufacturing companies to gain a price advantage. The challenge becomes ensuring that their brands retain the same consistent quality and timely delivery as when they were produced in house. As a result, new Internet-based supply chain business processes must be implemented to allow companies to track the status of their orders and monitor product quality, just as if the manufacturing plant were attached to their corporate headquarters.
How should CG companies create a Demand Driven Supply Chain?
To support a Demand Driven Supply Chain, CG companies must employ performance-driven supply chain practices, such as continuous business monitoring and proactive alert notification. These practices will give them complete global visibility across supply networks to adapt to changes in demand and adjust accordingly based on real-time insight into worldwide operations.
Additionally, a reliable global demand plan provides the foundation for Sales and Operations Planning (S&OP), which helps CG companies better align daily operational activities with strategic corporate objectives; more effectively balance supply and demand; and make better-informed decisions that impact both the top and bottom line. After all, the best measure of supply chain excellence is meeting demand in a profitable manner.
What are some of the critical elements CG executives need to consider in their search for solutions to manage their supply chains?
A company should look for three key characteristics when choosing a supply chain solution partner. First, they should look at how well the application satisfies its current business requirements and how flexible the solution is to support changing requirements over time.
Second, a company should seek a partner that has an impeccable track record in its industry of successful, fast, high-payback installations.
Finally, a company should look for a solutions partner that is financially secure, and therefore organizationally stable. It is critical that the selected software solutions partner be able to support a company through the project and beyond. Too often companies that select an unstable vendor will find themselves limiting their ability to adapt to their own changing
business needs.
Where will CG firms Achieve the greatest ROI -- in managing their execution or in managing their planning?
Excellence is achieved through a combination of cost cutting, improved customer service and the agility to respond to unexpected market opportunities. However, the process of evaluating the most appropriate supply chain management initiatives, or opportunities, varies from company to company. Generally the greatest benefits are derived from reducing inventory and lowering warehouse and distribution costs. In the vast majority of our supply chain planning projects,
the key component --- or at a minimum, one of the top two key components -- is reducing the investment that the company has in inventory. An effective supply chain planning solution should provide better demand forecasting
and supply optimization techniques so companies can significantly reduce their inventory. In big or mid-size companies, reductions can result in tens of millions of dollars in savings, and in others, hundreds of millions of dollars in savings.
We also seek to help companies increase their customer service levels. We find that some companies have the correct inventory as measured in financial terms; they just have the inventory in the wrong place or invested in the wrong products. It is critical for companies to increase their customer service levels, while at the same time reduce their inventory, by getting the right mix of products and storing them at the right location.
Many CG firms are currently integrating enterprise systems with various point solutions. How can CG companies maximize the value of ERP and best-of-breed supply chain solutions within an organization?
It's critical to realize that ERP and Best-of-Breed systems can coexist, and in fact, coexistence may represent the easiest, and most beneficial, option for CG manufacturers. Companies have made large investments in ERP systems, which provide the transaction backbone of the enterprise.
However, in areas such as demand, inventory and replenishment planning, global sourcing, and transportation and warehouse management, Best-of-Breed providers offer deeper functionality that ultimately drives better financial and operational returns, both in the short- and long-term. Most CG companies agree that supply chain responsiveness offers a competitive advantage. The key is time-to-benefit and the questions a CG manufacturer should ask both ERP and Best-of-Breed vendors are: What's your average implementation time? Can the solution be easily integrated with my current ERP system? How many resources are needed to implement the system?
And, once it's up and running, how many people are required to maintain the solution? How well does the system satisfy my current business needs? How flexible is the system to adapt to my changing business needs over time? Do I have to upgrade the entire ERP system in order to take advantage of the latest innovations in supply chain technology?