April 2002 | Commentary | IT Matters

Real-Time Visibility Ensures Real Savings

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Cost control is an increasingly critical factor as companies fight to remain competitive. Simply put, if you cannot grow revenues, you must cut costs. Supply chain integration across business units is a leading cost-cutting measure, according to corporate managers responding to a recent Gartner Dataquest survey.

One problem with most installed procurement and logistics systems is that the technology does not support real-time visibility across the supply chain. Companies using mainframe-based legacy systems, with customized software for each step of the process, have fragmented data across departments. Because of compatibility and security issues, they are not connected directly with their suppliers. By the time information from these multiple sources is gathered, reconciled, and made available for analysis, the business intelligence might be weeks, or even months old.

E-Business Platforms

Today, many companies are implementing Internet-based supply chain management and e-procurement solutions to optimize inventory control, improve collaboration and time-to-market, and reduce operating costs. With a single e-business platform, purchasing and logistics managers can now analyze supplier performance, procurement opportunities, and spending across the enterprise.

An Internet-based system also lets companies take advantage of electronic data interchange (EDI), as well as automation and self-service, so that all business can be negotiated and transacted online. With multiple language and currencies support, global companies can speed and centralize procurement functions—such as sourcing, approval routing, and payments—into a single system worldwide.

Moreover, leveraging the efficiencies of the web, an e-business platform enables collaboration across the entire enterprise and between trading partners, using standardized processes and accurate data.

Data: The Lifeblood of the Supply Chain

To appreciate the scale of this issue, consider that the world's airlines spend an estimated $100 billion annually on aircraft, spare parts, and servicing. This figure does not include the hidden costs of fragmented data systems, which result in maintenance project delays because of no spare parts or available labor, or higher prices paid due to unforeseen demand beyond negotiated contracts. Data is the lifeblood of any supply chain system, and the ability to access, process, and analyze vast amounts of information quickly and accurately is critical to a company's bottom line and long-term profitability.

Another hallmark of web-resident supply chains is big gains in business and market intelligence. Real-time intelligence allows companies to access continuous and current information about their business to make better decisions and react more quickly to supply/demand changes.

Using advanced what-if scenarios and analytic tools, managers can base inventory and logistics decisions on fluctuating supply chain realities, such as demand, lead time, and supply variability. Instead of guesstimates, supply chain strategies are anchored by inventory postponement recommendations, time-phased safety stock policies, and investment in the most reliable and profitable procurement sources.

Demand-Driven Replenishment

Equally important, the real-time system helps companies deal with dips and peaks in demand. For example, a company calculates it will need a month's supply of 100 parts to meet demand. If 40 parts are used in the first three days, the system will automatically issue an alert. A line of business managers within the supply chain can then intervene, informed by the system that a shortfall is likely. With up-to-date information on preferred suppliers, that executive can quickly determine the product's availability, based on production, order lead time, and geography. This drives the decision whether to restock the part immediately or wait until the supply is further depleted, because of its ready availability.

The more visibility you build into your supply chain, the faster you can anticipate and react to change and stay competitive. Today's advanced software technologies make this revolution in managing supply chain business flows possible.

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