March 1999 | Commentary | Supply Chain Technology

Optum Inc: SCM Execution Solution

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We used to talk about warehousing as a place; now we talk about it as a process. New supply chain strategies and technologies are capturing this process.

The architecture of logistics information systems is changing as different software applications take possession. For example, MRP II's replacement, ERP, functionally provides a suite of applications that handles extended manufacturing transactions and processes. Advanced Planning and Scheduling (APS) has become the most robust planning tool for worldwide enterprise planning. And, Supply Chain Execution (SCE) has taken on a grittier role as it interfaces with the storage, delivery, and selling cycle in ways to which the customer relates.

One supplier of Supply Chain Execution software—Optum Inc., (originally called American Turnkey), White Plains, N.Y.—has grown up with the changing demands of manufacturing, distribution, transportation, and customer service.

In 1998, Optum merged with Metasys, which specializes in transportation optimization that concentrates on carrier bids, scheduling, post-ship analysis, and EDI payment. The company uses an intuitive interface—Geographic Information Systems tools—which allow users to graphically analyze shipment trends and carriers.

Optum concentrates on Supply Chain Execution, which it defines as demand fulfillment execution. This part of the supply chain has, over the years, been the least automated and least optimized. Optum's concept transforms the enterprise's planning activity into optimized action. Its SCE manages the fulfillment of the demand process. It does this within the context of an ever-changing distribution network, offering the opportunity to satisfy demand for goods, products, and value-added services.

Optum's view of today's manufacturing business is that mass custom assembly will increasingly replace mass production. Many enterprises are using the computer industry model of collecting parts from a host of suppliers through a network, then assembling custom-configured products and shipping them directly to customers.

A second aspect of Optum's perspective is the growing dominance of the supply chain as the principle strategy of manufacturing and distribution. The company sees goods being shipped not so much by orders but by prearranged contractual schedules. In this new mode, factories are becoming warehouses and vice versa. Optum refers to these new warehouses as demand centers.

To facilitate these demand centers, Optum has introduced two basic products—ResponseNET and Response Center. ResponseNET offers real-time visibility, and integrates automation at the tactical level through connections between ERP and APS. Response Center gives enterprises an optimization tool for hour-to-hour and day-to-day response to customer demands.

"ERP has been internally focused. It is like a good calculator; it doesn't do anything without good data," says John Davies, Optum's vice president of product marketing. "In contrast to a planning system, which optimizes over a longer period of time, Optum's software works on a less than 72-hour window.

"Our SCE is about action; it makes the plans look good," he says. "Eighty percent of the plans will go correctly and the user will want to be able to optimize for efficient operations. But with the other 20 percent, the user will need to be able to be responsive and take action that allows the plan to look good.

"Companies want to be customer focused. One way they can be is by executing the delivery of goods, services, and information," Davies adds. "Transportation, warehousing, and distribution are the systems that touch your customer because they involve how products are configured or packaged, and how timely delivery has been. ERP focuses on making the enterprise efficient, but it is not necessarily focused on customer issues of timeliness and responsiveness."

Optum products use the paradigm of the Internet, according to Davies. "Whether large or small, every company has its own requirements. We call that customer-centric fulfillment. Enterprises are serving a number of supply chains; there's not just one," he says.

"Someone once said customers are in control even when they are totally out of control," Davies notes. "This desire for almost instant gratification drives successful industries. An obvious example is e-commerce and companies such as Amazon.com. But years ago the model was shifting with businesses such as home shopping networks. A screen displayed products and customers just happened to use the telephone to order them.

"With the increased velocity of business, response becomes more critical," he says. "The goal becomes meeting the customer's desires and needs, while reducing the overall inventory in their supply chains."

For more information on Optum, see www.optum.com

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