December 2002 | Commentary | IT Matters

If You Spend IT, Efficiencies Will Come

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While corporate departments such as operations are often high on the list for systems improvements, logistics departments are usually close to the bottom of the pecking order. As a result, many supply chain management systems are woefully behind the times.

This, however, doesn' t mean that logistics professionals have to or should accept this slight as permanent. Supply chain management systems deserve a bigger share of the IT budget for many compelling reasons. Here are just a few.

1. More money equals working capital. When dealing with people who create IT budgets, it' s best to speak the language they understand: potential savings.

A company that can take even a small portion of safety stock off its books can yield a potentially huge infusion of cash that might come in handy when buying other companies, starting new product lines, or investing in upgraded information systems. Few things have the ability to cut logistics costs more than quality IT systems.

Logistics professionals who have the best information about where their raw materials are—and where demand trends are headed—have the greatest chance of reducing safety stock and related inventory costs.

For example, a billion-dollar company might have as much as $100 million assigned to inventory carrying costs at any given time. If it could shave just 10 percent off these holding costs through improved IT capabilities, the company could save $10 million over a year.

2. Anticipate failure. Few professionals like to talk in terms of failure. However there is no such thing as a perfect supply chain. Even the best-orchestrated ones encounter circumstances beyond their control—political volatility, bad weather, or a bankrupt vendor—that can sabotage productivity.

Better systems will not necessarily help you avoid these pitfalls; they may, however, help you minimize them. As a rule, logistics professionals with robust information systems are more adept at identifying small contingencies before they become huge manufacturing or marketing problems, and nipping them in the bud with counteractive measures that can keep products flowing and business moving.

3. Fewer weak links. We' ve all heard the statement, "You' re only as strong as your weakest link." Accordingly, state-of-the-art logistics information systems can be the difference between supply chain success and failure.

Many freight management services systems can help manufacturers not only choose the most cost-effective carriers, but also pinpoint which ones are actually providing the best value for their money by delivering on time, billing accurately, and making your customers happy. Systems-based knowledge such as this makes it far easier for a company to weed out and replace any substandard performers, which could save both money and customers.

4. A safer supply chain. The further your systems can extend across your supply chain, the better you' ll be able to detect even minute discrepancies that may be indicative of theft or even possibly terrorist activity.

If you have a system that can trace product movement from the factory floor all the way to your own U.S. distribution center, any changes in product weight or quantity between two points, will likely trigger an alert. Strong systems also keep you abreast of where your products and raw materials are at any given time. This end-to-end visibility is an obvious benefit to companies with global suppliers.

Regardless, visibility is still imperative even if all of your products and raw materials reside "safely" within the United States.

Simply put, the earlier in your supply chain you monitor materials—and the more diligently you keep tabs throughout the whole process—the harder you will make it for thieves and terrorists to infiltrate your supply chain. You can' t do this without state-of-the-art IT systems.

A note to corporate management: you can' t do any of this without supporting your logistics department.

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