December 2001 | Commentary | IT Matters

Creating a High-Velocity Supply Chain

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Performance improvement over the past 10 years has been largely based on internally focused enterprise systems that integrate functional processes and promote internal efficiencies. With ERP and various flavors of supply chain planning and transportation management tools, manufacturers and distributors have been successful at achieving a first level of benefit, but often at the expense of the broader trading community.

To realize the next level of competitive advantage and extend the ROI of existing enterprise systems, companies need to look outside their four walls for solutions that embrace the trading community and synchronize the supply chain to increase service levels at a lower delivered cost.

Disconnected Processes

With the high investment in internally focused systems, management of supply chains suffers from disconnected processes and a lack of real-time information. Fax and e-mail correspondence with suppliers and limited visibility to product in-transit keeps many logistics organizations on the defensive, reacting to supply chain issues often after the fact, and expediting delivery at higher transportation costs. Excessive time spent expediting also inhibits the logistics team from dealing with more strategic issues.

The concept of supply chain visibility has become a reality over the past three years as advances in Internet technologies and new, innovative business models have been proven. With cutting-edge visibility solutions and established business networks of transportation service providers providing near real-time supply chain status, questions that would take days to answer can be resolved now in minutes. Proactive decisions based on accurate supply chain information systems enable high-velocity fulfillment.

Challenging the Status Quo

Today's competitive environment challenges the supply chain status quo with accelerating product life cycles, make-to-order strategies, and international sourcing programs that reduce total landed cost. Old processes that are, for the most part, based in isolated, four-wall systems, rely on manual communication methods and cannot easily handle the complexity and speed required to synchronize fulfillment across a global trading community. Slow, inaccurate logistics processes not only drive higher supply chain costs, but also often hinder customer service and lead to lost sales.

Leading companies today realize the need to electronically connect all business partners and transportation service providers in a trading community to reap larger benefits and get more out of their supply chain programs. In addition, many understand that there are extended benefits realized when they have visibility to inventory in transit to improve service levels and reduce inventory investment costs.

The question, however, that all companies considering the investment of a new supply chain application ask is: "how much can be saved?"

Supply chain visibility solutions deliver exceptional ROI with both top- and bottom-line benefits. Exception management and fast response improves order fill rates by resolving supply constraints early and proactively addressing supply-demand imbalances. Higher order fill rates improve customer service and loyalty, building both revenue and margin improvement. Customer retention and top-line growth are key objectives for survival in today's economy.

On the cost side, supply chain visibility solutions reduce inventory investment and transportation and warehousing expense. Speeding information cycles, reducing lead-time variance, and configuring inventory management systems with more accurate lead-time assumptions reduce inventory investment in safety stock and obsolete products.

Transportation costs are reduced by better service provider management and tight control of expediting through accurate ETA projections, shared across all enterprise functions. Better visibility to inbound shipments reduces warehousing expense through more efficient inbound receiving and outbound fulfillment planning. In total, businesses can expect to reduce their overall supply chain costs by six to eight percent with a supply chain visibility solution, achieving payback within the first year.

Can your business afford to pass on the performance improvement of a high-velocity supply chain in 2002?

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