SUPPLY-CHAIN AND LOGISTICS MANAGEMENT

FOR CREATING A

COMPETITIVE EDGE PART ONE

A STRATEGIC ANALYSIS REPORT By

Plant-Wide Research Group ™ 860-319-9972

A PWR STRATEGIC ANALYSIS REPORT

12-24-12

SUPPLY-CHAIN AND LOGISTICS MANAGEMENT

FOR CREATING A COMPETITIVE EDGE

PART ONE

ABSTRACT: This is the first of a three-part series of reports on SCM (supply chain management). In today’s chaotic global market place, (SCM) is today’s promise and tomorrow’s new competitive battlefield. The issues are many and varied. ARE YOU READY TO COMPETE SUPPLY CHAIN AGAINST SUPPLY CHAIN? This series of reports is your guide to SCM success and collaboration. We present the facts and expose the fantasies, and our analysis, born of hands-on experience, of what succeeds and what fails. We focus on a high ROI and risk avoidance. And finally we discuss - what to expect and what to watch out for - in this emerging field of the next generation of supply chain management strategy.

SUPPLY CHAIN SYSTEMS DEMOGRAPHICS AND PRACTICES (And other SCM mysteries solved)

TABLE OF CONTENTS

SUPPLY CHAIN SYSTEMS DEMOGRAPHICS AND PRACTICES

WHY ARE TODAY’S LEADING COMPANIES TURNING TO SCM?

WHY ARE SOME LEADING COMPANIES REINVENTING SCM?

SUCCESSFUL MANUFACTURERS ARE “SUPPLY CHAIN MASTERS”

CONSIDERATIONS FOR ENHANCING SCM VALUE

YOUR CURRENT IT INVESTMENT MUST ALSO BE CONSIDERED

KEY ROI ISSUES

WHY CHOOSE A HOLISTIC APPROACH

CONCURRENT PLANNING MATTERS

LOGISTICS & SUPPLY CHAIN MANAGEMENT

SIMPLIFICATION, THE KEY TO MEETING EXPECTATIONS

DATA WAREHOUSE INITIATIVE

THINKING OUTSIDE THE BOX

A SIGNIFICANT INVESTMENT MUST BE CONSIDERED

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SUPPLY CHAIN SYSTEMS DEMOGRAPHICS AND PRACTICES

(And other SCM mysteries solved)

***

WHY ARE TODAY’S LEADING COMPANIES TURNING TO SCM? The 21st Century would better be called “the agile age.” Demand/supply volatility is a reality in many of today’s enterprises, from Discrete to Process to Defense industries. For example, in retail, businesses are serving ever more selective and distant consumers. Nowhere is this situation more apparent than in the fashion industry. In fact, all consumer goods industries are faced with volatile and ever changing consumer demand. This volatility is being passed on to manufacturers and distributors, especially at different stages in the value chain. A specific example is the F&B (food and beverage) industry, which deals with worldwide demand/supply value chains. This demand/supply experience, and many other factors, contributes to demand volatility across the industrial manufacturing landscape. Other factors include increased customer choices; product customization, rapid technological improvements, global competition and value stream supply fluctuations. From High Tech to Retail to Chemical to auto to energy industries, high volatility is a challenge faced by companies across all verticals. To tackle volatility, a proactive management stance in supply chain management, can be a cost effective program that can lead to significant benefits resulting in lower supply chain costs and improved customer service levels. More importantly, managing volatile demand efficiently can be a huge competitive differentiator for companies. As we move deeper into the 21st century, globalization makes us all move closer to competing supply chain against supply chain and the winners will be those that master the demand/supply challenge. Today’s manufacturers are global businesses; no matter their size. Businesses seldom “plan to go global.” As manufacturers compete with each other, globalization “happens.” Global companies have to deal with many stakeholders: partners, suppliers, employees and customers in many countries and many markets within a country. Soon, a manufacturer finds it is located around the world. According to recent research, high-performance businesses are particularly adept at using a wide range of information to make the right decisions at the right time. Compared to less-effective organizations, high performers, they:

Gather more and better information about their business and competitive environments.

Analyze that information more thoroughly, and make better decisions based on the results of their analyses.

Act more quickly and decisively on the acquired information.

Monitor their performance more closely.

Improve and innovate continuously.

Lastly, high-performance businesses truly understand the drivers of current and future value, and they translate those insights into differentiated operating models and business architectures.

Corporate under-achievers often have one thing in common – a slow supply chain response. That is because they have demand/supply systems designed to be push-driven. The transition to becoming pull-driven or demand-driven is slowly occurring in many industries. Managing volatile demand efficiently in a demand driven environment is a significant challenge and requires companies to employ robust supply chain strategies. Often the focus tends to be on one area of the supply chain (e.g., inventory optimization) without consideration of all aspects of the supply chain, often resulting in sub-optimal results. In this strategic Analysis Report (SAR), we outline comprehensive supply chain strategies that companies can adopt to manage volatile demand efficiently. This report also examines the reasons that one such tool often employed to meet synchronization and followup of this diverse need is optimum supply chain management, a business process that still is viewed by too many, “as a cost center” rather than a means to extend company wide efficiency and “enhance profitability.” The reality is that the benefits of superior supply chain management initiatives greatly transcend cost savings. More than ever before, leading companies are using the supply chain management to enhance differentiation, increase sales, and penetrate new markets and channels. Based on PWR’s (Plant-Wide Research) market research and observations by our project manager’s in the field, the role of supply chain management is a key to building and supporting a “high-performance business.” This SAR’s focus is providing a path forward in reinventing your SCM system, providing does and don’ts, and helping to make a direct connection between a companies’ supply chain performance and their bottom lines. We also provide guidance in the vertical markets of A&D, Automotives, and other verticals. The SAR also looks closely at practices that can make you a market leader, through positioning your supply chain as a vital contributor to business success. WHY ARE SOME LEADING COMPANIES REINVENTING THEIR SCM? According to recent research, high-performance businesses also are particularly adept at using SCM information to make the right decisions at the right time. The research also found that supply chain management, a management process that still is viewed by to many as a cost center; in reality can be a significant Profit Center. The research also confirmed that the benefits of superior supply chain management initiatives greatly transcend cost savings. The report notes, “More than ever before, leading companies are using the supply chain to enhance differentiation, increase sales, and penetrate new markets and channels.” Based on Plant-Wide’s hands-on project management in the field, the business role of highly successful supply chain management is as a high-performance competitive tool.

SUCCESSFUL MANUFACTURING COMPANIES ARE “SUPPLY CHAIN MASTERS”

NOTE: as supply chains become more global and dynamic, companies are looking to increase their SCM capabilities. 30% of automotive, and 40% of aerospace and defense companies are seeking a stronger partnership with their ERP vendor and/or best-of-breed supply chain vendor to create new innovations for their supply chain program. 70% of companies with revenue of over $1 billion plan to spend more than $250,000 in 2007 for new supply chain technology projects. Top areas of technology investment included supply chain visibility, order management, supplier collaboration and inventory management.

Most senior decision makers have come to acknowledge that supply chain management is an essential contributor to operational excellence of the firm and a key management tool to help at the top line (new revenue) and bottom line (cost reduction) at the same time. The SCM masters are also planning masters. Key planning elements are:

Balanced schedules between demand and supply (push/pull)

Proper levels of inventories (matching supply to demand)

Proper inventory buffers (safety stock) based on value chain performance

Use of capacity buffers where and when practical

Multi-enterprise collaboration strategies

Cycle time reduction on a continuous improvement program

Mitigation of risk strategies (lead time, terrorism, political, customs) While demand volatility is a reality faced by companies across many industries, by employing the right supply chain strategies companies can reasonably and efficiently handle volatile demand. All strategies outlined here may not apply to all companies selection of the right strategies to adopt will vary. Adoption of the strategies should be based on a careful consideration of supply chain attributes, supply chain costs, competitive considerations and implementation costs. This has been documented many times, most recently by an international study team staffed by researchers from Accenture, INSEAD and Stanford University. Results gleaned from that effort show that the supply chain is “very important” even “critical” to nearly 90 percent of an executive survey population. Backing up those statements, a nearly equal percentage has increased their supply chain investments in recent years. But what is the actual relationship between supply chain mastery and business success? Can it be proven that supply chain leaders are also business leaders? Does supply chain success equal financial success? As part of their investigation, our research team set out to quantify the relationship

between companies’ financial success and the depth and sophistication of their supply chains. To establish this linkage they analyzed corporate disclosure data from 636 Global 3,000 companies in 24 industries. For

Factoid: The cost of upgrading SCM is exponentially proportional

to the complexity of the business.

each company, three supply chain performance variables were measured: inventory turns, cost of goods sold as a percent of revenue, and return on assets. Two distinct time periods—1995 to 1997 and 1998 to 2000—were used to associate gains or slips in supply chain performance with improvements or deterioration in financial performance. For the purposes of the research, superior supply chain performers were defined as those whose supply chain execution was ranked in the top third of their industry for two of the three variables (inventory turns, cost of goods sold and return on assets). Companies were assessed according to these criteria for each time period and placed in one of four categories:

Leader: Superior supply chain performance demonstrated across both time periods.

Transformer: Supply chain performance migrated into the superior range over time.

Decliner: Supply chain performance deteriorated over time, from within the superior range to below it.

Laggard: Superior supply chain performance was not achieved during either time period.

Suffice it to say that Supply chain excellence clearly has the potential to drive—not just influence—business performance. But most supply chain managers still see “greater efficiency” as their principal mission. As a result, they propagate an inward focus on cost control, rather than spearheading supply chain strategies that seek to improve overall business performance. Senior executives often fall into the same trap: Few think about how they might position supply chain mastery as an engine of differentiated market positioning and sales growth. Companies that put the supply chain center stage when defining, enabling and executing business strategies are the most successful in entering new markets. More often than not, these are the leaders and transformers identified in the previous section. And in all probability, they also practice many—if not all—of the following supply chain behaviors:

1. Recognize the strategic possibilities that innovative supply chain strategies and operating models do enhance shareholder value and competitive differentiation.

2. Embrace end-to-end process integration—across firms, systems and people—as the key to aligning demand and supply.

3. Execute supply chain initiatives selectively using common processes and technologies to achieve uncommon results.

4. Challenge the status quo regularly and aggressively to drive supply chain and business strategy innovations within and across companies.

Researchers found a strong and consistent relationship between supply chain and financial performance.

CONSIDERATIONS IN ENHANCING SCM VALUE Some very confusing IT terminology surrounding SCM has been bandied about in the media recently; issues like capable-to-promise, collaboration, life-cycle management, customer relationship management, and supplier management, to name just a few. These management techniques are competing with each other for your attention, but be aware that they are all part of a successful SCM initiative. However, these terms take different forms and mean different things to different users, even in the same market vertical. How do we deal with these differences? What are the best practices in each area? Should they be treated independently? The answers to these and other issues are very important to your success and your company’s success. This is an introduction to those and other issues in a general discussion of a responsive Supply Chain Management program. Today, the reality for emerging SCM programs is dealing with change and making sure expectations are realistic. The measures of executive success are meeting the key

business drivers through profits, asset growth, agility, risk avoidance, and improved collaboration. High risk or disruptive initiatives are to often not on the executive radar screen today. Mastering risk, improving collaboration, and being agile are a continuous way forward and not simply a destination. Achieving operational excellence never ends; there are always new challenges. The focus then is always

on the way forward and requires attention to the entire supply chain of interaction with customers, factory and supplier. Before reviewing Supply Chain Management (SCM) or any an e-business initiative, it is very important for the reader to know what business components drive their business. This initial step is most important and is needed to help discover the differences between executive management thinking and the architectural design objectives of ERP (enterprise resource planning) and SCM. There are five basic business drivers. Every executive activity in your company can be boiled down to satisfying one of the following CXO and middle managerial business drivers – you need to know each driver’s level of importance to your businesses success:

COST PRICE TIME TO MARKET QUALITY FLEXIBILITY

POINT: SCM in the Aerospace & Defense industry is different than the Retail Industry (and other supply chain mysteries

revealed)

POINT: More than ever before, leading companies are using SCM to improve differentiation, increase sales, and penetrate new markets and channels.

Based on our most recent research, only a very few well run companies are able to compete on all five business drivers simultaneously. It is usually too costly to focus on more than three of these drivers at the same time, though there are, of course, a few exceptions (GE comes to mind as an example of a corporation focused on all five). It is important, therefore, for the SCM project leader to know specifically which of these business drivers are the key to meeting the mission(s) of his business executives so as to insure identification of the value chains of information necessary to drive the right competitive SCM value chain application components to insure the right focus, level of expectations, and highest return on investment (ROI) from any major SCM initiative. We would suggest that once the basic value chains are identified that each be modeled. YOUR CURRENT IT INVESTMENT MUST ALSO BE CONSIDERED Your company has placed a significant investment in its overall IT program. A review and documentation of the applications software (CRM, ERP, MES, and FAS) and business practices necessary for the SCM initiative will point to areas of improvement and help spot many opportunities. Thinking out side the box would help identify further opportunities for improvement as a part of a continuous improvement program. Enhancement of core systems via an opportunistic business process re-engineering (BPR) first is recommended and is an important part of the process for improvement in profitability. We also recommend tighter integration for supporting the real-time aspects of e-business strategies. We suggest the use of a pilot project to help bring together current IT projects in support of the e-business initiative…they cannot be conducted exclusive of one another. Current IT projects should not operate independent of an e-business program. Remember, the emphasis is on bringing new ideas into play, the extended use of current systems to run the business, and a focus on meeting the new e-business goals. KEY ROI ISSUES Key ROI issues that must be focused on are:

1. Efficiency: To be competitive, every company must be as efficient as possible in each of the appropriate business drivers chosen to compete tactically and strategically within their chosen market place(s). Let us also acknowledge that there is a price to pay for being too efficient. 2. Collaboration with customers, suppliers, and company employees is of the utmost importance today requiring competition in a real-time rather than batch planning and control environment. You are competing supply chain against supply chain in real-time.

POINT: Why is this business driver identification initiative important? It is to ensure alignment and prioritization of corporate and SCM strategies at the highest business level.

3. Complexity: SCM and any attendant e-commerce costs are exponential in proportion to the complexity and speed of implementation. The more complexity involved, the more the cost surges. Consequently there are a number of areas where the firm could benefit from a bit of opportunistic business process re-engineering such as establishing a simplification and/or integration program. Major BPR is another issue and should be part of a continuous improvement (Kaizen) program after initial SCM initiatives. 4. Real-time Business: The most important point for us to emphasize in this SAR is that SCM implies the adoption of real-time business strategies. That is why we focus on the necessity for tightly integrating existing systems. The depth of that integration is also a factor of the complexity of the e-commerce initiative. The implementation of an e-business initiative is usually a journey, not a destination. 5. Integrated Systems: What to look for - (a) better utilization of current systems, (b) a tight real-time integration of current systems, and (c) the simplification of the way you currently do business. A CPM (corporate performance management) initiative may be a part of an SCM initiative. Thus, the simpler and better-prepared current systems are to support the e-commerce tasks, the easier and less costly implementing an e-business initiative will be. 6. Low-hanging Fruit: Plant-Wide suggests you reinforce the importance of targeting “low-hanging fruit” in the beginning since achieving early success in any e-business initiative is paramount to support and success. Nothing encourages management support and project enthusiasm better.

One important management initiative to consider as a part of an SCM program is long term strategic planning as well as short term tactical planning. It is important to investigate the potential and value that the use of the Internet can add to provide a competitive advantage and ROI. This requires “thinking out of the box.” Why do we suggest thinking outside the box? Here is one possible consideration; your company might possibly be able to expand your sales horizons. For example, you may want to leverage your managerial skills and infrastructure to support and resell other products than your own in your field of specialty. Farfetched? Maybe not, you may find outsourcing some selected production and reselling other complimentary goods from another company is a viable option. A singular outstanding example is Proctor & Gamble. This initiative is not recommended without a careful risk analysis. Costs of running out of inventory:

Loss of customer/sale

Bad reputation

Disruption in supply chain Cost Analysis:

Can a less expensive material/components be used while maintaining quality?

Are the costs reasonable?

Is a standard item in the market a suitable substitute?

Can the weight of the item be reduced?

Can the packaging be redesigned to reduce costs?

Are the correct costs being allocated to the project?

Have the correct activity based costing methods been used?

Is the product over engineered? Could a lower quality product be substituted?

Are other suppliers making a comparable product? Once the economies and benefits of supply chain management are fully recognized within your company, this and other possibilities for adding new business to the top line are worth considering. Why not leverage the rich sales, marketing, and management capabilities your company has developed? This could fill-in sales during a period of seasonal demand fall off, or outsourcing some production may dramatically reduce manufacturing costs. Thinking outside of the box is a practical step to reviewing SCM strategies.

Note: There are many opportunities to think outside of the box with exchanges in support of an SCM initiative. For example, there is a concurrent e-commerce and SCM initiative. Taking advantage of multiple e-commerce capabilities allows examination and exploitation of complimentary product exchanges outside the specific vertical you are part of. What is the objective here? The objective is enhancing the overall business process. E-commerce is one component of doing so, but it should never become an end in itself. While we are on the subject of extended thinking, why limit our thinking to e-commerce or SCM? Be sure to carefully examine the opportunities for each of the five business drivers. As a reminder, they are COST, PRICE, TIME-TO-MARKET, QUALITY, and FLEXIBILITY.

WHY CHOSE THE HOLISTIC APPROACH? The best approach to establishing a SCM e-business initiative is to take the holistic approach. Holistic efforts starts by identifying the key business drivers noted above, and then focus immediately on the entire set of issues concerning product life cycle management (PLM) and processes required for success. There is, of course, always the threat of attempting to tackle too much at once in a holistic approach, which can result in “analysis paralysis.” Don’t take on too much at one time. This must not be allowed to occur. We recommend cutting the project into 3 pieces – (1) low hanging fruit first, (2) intermediate objectives properly prioritized, and then (3) longer-term objectives

after a solid SCM foundation is built. The latter should be setup as a closed loop continuous improvement program. Accordingly, SCM initiatives require a dedicated team made up of knowledgeable personnel who are given appropriate responsibility and commensurate authority. With respect to using multiple concurrent teams (often attempted by larger firms), using multiple concurrent teams will often fall into the trap of breaking up an SCM initiative into too many smaller projects requiring too many extra layers of project management, or conversely, trying to swallow the SCM initiative whole can cause far too much complexity to permit effective results; both may even become a never ending struggle achieving nothing but frustration. That is because, as often noted by experts, the cost and complexity of SCM initiatives is exponential to the size of the effort. Too many large projects are also focused on the wrong payback areas. When outside consultants from the big three are used, they often hype up as a panacea achieving the highest ROI focusing on the areas of “customer care” (CRM Extended), e-procurement (often with exchanges), and supplier management (VMI, Etc.). However, we must point out that current trends indicate that these not only cannot be mutually exclusive projects, they should not even be areas of initial SCM focus other than a part of identifying the value chains of information in each; the “AS IS” model to compare to the “TO BE” paradigm. CONCURRENT PLANNING MATTERS In a holistic SCM strategy, there are three initial areas that must receive concurrent planning attention. The initial plan should also include:

(a) The entire order management process through to delivery (b) Stakeholder collaboration strategies throughout the information chain including

cost and financial controls, and (c) Supply/demand controls governing the current product manufacturing processes

This is because, as noted, it is essential that an SCM initiative be comprehensive but built on a carefully thought out framework of realistic expectations right from the beginning. It can be very costly to retrogress or add one of these components later on. Further, the ERP system applications architecture on which an SCM e-business initiative is to be integrated must be carefully considered. For example, SAP’s mySAP was established to support a “role-based” operational premise while Oracle Apps supports the more traditional “functional specialization” style of management strategy. IFS use the Plant-Wide preferred “component” architecture model. These are major structural application differences. Each style of ERP or methodology is a significant factor in SCM planning, integration, and interoperability issues. Just as important, all SCM initiatives require “people” consideration. That is, a SCM initiative is going to be a cultural change, especially if aimed at the suggested initiatives: simplification, the incorporation of real-time activities, and the extension of management and product design responsibilities (PLM) – product lifecycle management - into the supply chain. Such competitive strategies require the “empowerment” of employee

activities. While it is important to let the computer make as many decisions as possible (under carefully selected business rules), people are the most important ingredient of an SCM initiative. Take the first strides toward an integrated supply chain solution with a step-by-step program:

An initial workshop to determine the processes to be analyzed

An assessment workshop to develop plans for optimizing business processes with advanced planning and costing analysis

A prototype configuration based on defined scenarios

A feasibility assessment

Project objectives

Next-step project planning

A systems architecture, sizing, and security plan LOGISTICS & SUPPLY CHAIN MANAGEMENT When it comes to choosing a holistic approach to SCM, there is often confusion between an SCM initiative and the role of logistics. Here are the boundaries and relationships of Supply Chain Management as adopted by the Council of Logistics Management: "Supply Chain Management is an integrating function with primary responsibility for linking major business functions and business processes within and across companies into a cohesive and high-performing business model. It includes all of the Logistics Management activities, as well as manufacturing operations, and it drives coordination of processes and activities with and across marketing, sales, product design, and finance and information technology." The Definition of Logistics: Logistics management is that part of the Supply Chain Management process that plans, implements, and controls the efficient, effective forward and reverse-flow and storage of goods, services, and related information between the point of origin and the point of consumption in order to meet customers' requirements. These are the boundaries and relationships of Logistics Management adopted by the Council of Logistics Management: "Logistics Management activities typically include inbound and outbound transportation management, fleet management, warehousing, materials handling, order fulfillment, logistics network design, inventory management of third party logistics services providers. To varying degrees, the logistics function also includes sourcing and procurement, production planning and scheduling, packaging and assembly, and customer service. It is involved in all levels of planning and execution -- strategic, operational and tactical. Logistics Management is an integrating function, which coordinates and optimizes all logistics activities, as well as integrates logistics activities with other functions including marketing, sales manufacturing, finance and information technology."

The Definition of Supply Chain Management: Supply Chain Management encompasses the planning and management of all activities involved in sourcing and procurement, conversion, and all Logistics Management activities. Importantly, it also includes coordination and collaboration with channel partners, which can be suppliers, intermediaries, third-party service providers, and customers. In essence, Supply Chain Management integrates supply and demand management within and across companies. Logistics and Supply Chain functions overlap. Different companies define them in their own ways. Logistics is generally concerned with strategy and coordination of transportation and distribution. However, it cuts across many functions within Supply Chain. Supply Chain tends to be a focus of purchasing and procurement, but not always. It often includes materials, inventory, and production planning. There is also Demand Management, which focuses on forecasting, but it may be included in either logistics or supply chain functions. Logistics, however, is the overall strategic glue that crosses multiple functions including demand chain and supply chain, physical flows, information flows and the systems that support them. A state-of-the-art, modern transportation management and shipping application is a must in a successful SCM program, For example, CMS WorldLink is a web-based, multi-carrier shipping system enabling management of multiple distribution centers located virtually anywhere in the world such as Singapore, the Netherlands, United Kingdom, United States and many other international locations to execute and complement a successful proactive supply chain initiative. SIMPLIFICATION, THE KEY TO MEETING EXPECTATIONS Almost all of today’s businesses are made up of a number of mission critical software products, often including ERP and specialty solutions. This sharply increases the level of complexity of any SCM initiative because each system is designed differently, may not integrate deeply, and most are proprietary. It is not unusual for a business to have a CRM (Customer Relationship Management), ERP (Enterprise Resource Management), and MES (Manufacturing Execution System) or FAS (Factory Automation System) all from different vendors operating in the same manufacturing environment, but not much more than interfaced together. These are not interoperable for the most part. Such disparate software automatically increases integration, education, and maintenance costs through extended complexity and layering. The key to controlling success in complex software is managing expectations, and of course, proper education. But there is a huge opportunity to lower the cost of buying and implementing a newer fully integrated mission critical software solution with interoperable supply chain management solution on a SOA platform. If you already have a functional ERP solution you might consider a “best of breed” solution with attendant interfacing capability. If you already have both, an ERP system with SCM (or

it is available from the vendor), and have not activated it, do so. And finally, if you have an ERP system and non-integrated SCM product, determine the ROI of interfacing them. Here is a brief explanation of what each discipline is designed to do:

Older legacy systems (prior to ERP) were separate financial, inventory (order point) or factory management (automation) solutions that were mainframe based and batch oriented. The various material, capacity and demand constraints were all usually considered separately and in relative isolation of each other. They were focused on controlling finance, materials, capacity, or transportation planning. IBM’s mainframe “PICS” system was a forerunner of ERP focused only on rudimentary coordination of material with production. A few had basic planning front-ends. Some are still used, are green screen, but some have been upgraded to Windows GUI (Graphic User Interface). Some have limited multi-currency and language support.

MRP (Material Control Systems) introduced the first use of bills of materials (BOMs) and order (customer, production, and purchasing) specifications compared to inventories. MRP first came into existence in 1970 (APICS sponsored) and emerged as the first significant computerized software tools about 1975 concurrent with the introduction of departmental (mini) computers. The first IBM’s “Mapics” (manufacturing applications planning information control system) was the forerunner of today’s ERP solutions. MRP systems focused on inventory and cost control and replaced order point applications. MRP proliferated in the 1980’s and grew more feature rich and by the 90’s became complex enough to support enterprise-level business management activities. MRP systems were mainly single plant systems.

ERP (Enterprise Resource Planning) emerged in the late 80’s and early 90’s enriching current MRP features and growing beyond material control to include shop floor scheduling based on a BOM explosion adding capacity controls, finance and asset management, human resource management, and advanced inventory planning techniques. So by 1995, ERP solutions are much more functionally rich, and focused on all four-resource planning (material, machines, manpower, and materials) and all running in close-to-real-time. Almost all have a Windows GUI. ERP systems could be either single plant or divisional oriented solutions. The introduction of an ERP system to replace two or more independent legacy applications eliminated the need for external interfaces previously required between systems, and provides additional benefits that range from standardization and lower maintenance (one system instead of two or more factories or businesses) offering easier and/or greater reporting

capabilities (as all data is typically kept in one database). Optional modules began to emerge including CRM and SCM.

ERP II (Extended Enterprise Resource Planning) resulted from intense upgrading of ERP solutions in the late 90’s many adding capabilities to support the emerging Internet emerging concurrent with the Y2K issue. By the early 2000’s, ERP II solutions offered B2B (business to business) functionality, provided in-depth order tracking, infinite/finite scheduling, and optional CRM, SCM, Asset, Human Capital, and PLM modules. ERP II systems all contain advanced planning, multi-currency, multi-language, multi-taxation solutions. They have fully integrated real-time reporting and extended ad hoc and specialized reporting systems, which operate in pseudo real-time. ERP II systems are all on proprietary platforms and many have been upgraded for Internet use. Most have rich language, currency, and taxation functionality. Many have on-line tutorials; provide tailorability, and offer multi-company capability. Generally the term is typically reserved for larger, more broadly based applications. Large scale enterprise-level ERP II solutions are usually complex, expensive, difficult to implement, and interoperable, but offer a rich field of tightly integrated applications - often vertical market focused - tightly bundled for maximum ROI, specialized for upgrade, and deliver richer functionality across the entire spectrum of management requirements. All offer significant language, regional taxation, currency, FASB, Sarbanes-Oxley and CRM other specialized capabilities.

SCM (Supply Chain Management) Older SCM solutions are off-line solutions (non-ERP integrated) based on advanced planning solutions simultaneously considering demands, capacity and material constraints (usually mutually exclusive) focused on the factory floor in the order management subsystems. They may provide visible maps of the entire supply chain showing where problems are, and offer some limited corrective action possibilities (what-if analysis). Often do not integrate with MES solutions, but may interface with selected ERP systems. Newer Supply Chain solutions offer a combined platform structure for most of your business process requirements and interface with newer versions of ERP systems sometimes in a two-way communication configuration needed to satisfy the demand of goods and services. These may be in pseudo real-time or real-time. They usually start with the demands of the raw materials and end with supply to the final consumer. Most of the larger systems offer Internet access.

Emerging enterprise-level SCM solutions offer “across the entire enterprise” views in real-time with real-time suggested solutions or capabilities to determine the best solution to bottlenecks providing both on-line or off-line in real time updates, portals, dashboards, and a rich assortment of Internet access and pre-capable real-time capabilities. The

ERP vendor solutions provide richer integration of ERP applications to SCM applications and are interoperable. The newest SCM applications have two parts – planning and execution. Some offer VMI (vendor managed inventory) and other specialty capabilities.

CRM (Customer Resource Planning) Standard CRM (customer relationship management) is, of course, a strategic tool for instant communications and customer order tracking process and the older versions are a “best-of-breed” product (specialty sub-systems to back-office solutions). Hence, there use is usually external to the ERP and other solutions. Newer CRM solutions have the tracking of customer information performed in real time and integrated with the planning system. This may require some restructuring of solutions as older ERP systems are mostly batch processing oriented. These newer specialty systems may also interface with selected MES (factory floor manufacturing execution systems) software which is generally event driven were as ERP is usually not, factory automation systems (FAS) generally do not talk to CRM, PLM, or ERP systems, and so on.

In a legacy information technology initiative, more often than not, the components are isolated. What is of concern in those situations is incompatibility of the components. If there are a large number of mixed solution environments (possibly as high as 60-70% of mid sized businesses are still like that) the chief concern in such cases is that each product does not contain the same data types and/or content or even programming conventions. This makes SCM exceptionally difficult to integrate and the use of a data warehouse may be in order. We will discuss data warehousing in the next segment. That is the worst of all environments in which to establish a supply chain management initiative. In multiple ERP solutions, the least complex step may be to implement a single instance of one ERP solution across the enterprise is the best approach. To help in even that environment, many SCM initiatives use a data warehouse platform with a supplemental ability to “scrub” information to insure its quality and accuracy. DATA WAREHOUSE INITIATIVE With respect to the use of the data warehouse initiative, this is a key component of the overall SCM initiative and requires careful investigation before developing an overall strategy. Data warehouse is the main repository of the organization's historical data, its corporate memory. For example, an organization would use the information that's stored in its data warehouse to find out what day of the week they sold the most widgets in May 1992, or how employee sick leave the week before Christmas differed between California and Quebec from 2001-2005. In other words, the data warehouse contains the raw material for management's decision support system. From an SCM standpoint, the latter – a decision support system is the foundation for business intelligence and SCM monitoring.

While operational systems are optimized for simplicity and speed of modification (online transaction processing, or OLTP) through heavy use of database normalization and an entity-relationship model, the data warehouse is optimized for reporting and analysis (online analytical processing, or OLAP). Frequently data in Data Warehouses is heavily de-normalized, summarized and/or stored in a dimension-based model but this is not always required to achieve acceptable query response times. The use of a dedicated SCM warehouse has its advantages and disadvantages so education and training is an important aspect of selection, development and use: More formally, Bill Inmon (one of the earliest and more influential practitioners) defined a data warehouse as follows:

1. Subject-oriented, meaning that the data in the database is organized so that all the data elements relating to the same real-world event or object are linked together;

2. Time-variant, meaning that the changes to the data in the database are tracked

and recorded so that reports can be produced showing changes over time;

3. Non-volatile, meaning that data in the database is never over-written or deleted, but retained for future reporting;

4. Integrated, meaning that the database contains data from most or all of an

organization's operational applications, and that this data is made consistent While choosing a data warehouse software product seems pretty straightforward, as it relates to the use for integration and information initiatives, this is generally not the case. Issues vary including data management via data cubes though the reader must also recognize the complex issues with respect to normalization of data and multi-language issues. In a data warehousing project, too much emphasis goes into technical issues and too few into business issues. What are the key business issues in data warehousing? The key business elements for substantial SCM savings that most companies should initially consider when adopting an SCM initiative are the areas of supply chain management collaboration, order management control, and engineering support initiatives. These areas are usually more beneficial as efficiency tools promoting SCM savings. Further, we advise the reader that the extension of these areas into the business include such important components as:

Supplier/buyer back-end integration (open or closed market)

Supplier/buyer directory (proprietary)

Transportation management (proprietary)

Collaboration strategies (tactical and strategic)

Supply/demand control (SCM synchronization)

Fulfillment/apps planning (master planning/delivery)

Life cycle management (time to market, throughput, flexibility, ROI )

THINKING OUTSIDE THE BOX We have all heard the term, “Think Outside the Box,” but what does it actually mean in SCM initiatives? One of PWR Consulting’s customers has supplied a concept that may entice you to understand just what it means to Think Outside the Box. Thinking-out-of-the-Box refers to the capacity of individuals and businesses to see any situation from fresh and new perspectives. This is what sets the SCM Masters apart from competitors in today's extremely demanding way of global business. Thinking-out-of-the-Box is not a luxury it is a necessity! Moreover, it refers to the capacity of individuals and business to act highly effectively on these fresh and new perspectives. A major re-invention of your SCM strategies in today’s global markets requires thinking out of the box. However, this is not a one-time exercise. Thinking-out-of-the-Box requires individuals and businesses to continuously challenge and expand their way of thinking. Thinking-out-of-the-Box provides ways to generate and implement innovative ideas and solutions to address difficult (and even not so difficult) situations. For example, we are in a time of disruptive events; political, competitively, technically, and functionally. Terrorism is a realistic possibility from both inside and outside the country (and your business). Thinking-outside-the-Box can be used to ensure optimal effectiveness in Decision Making, Problem Solving, Strategic Planning, Personal Growth, New Product Development, Conflict Resolution to Artistic Inspiration to name but a few. In effect, it can be used for every conceivable (and inconceivable) situation. The reality is that everybody can cultivate and improve their Thinking-outside- the-Box skills. Recently, many Canadian businesses had their SCM programs seriously challenged due to a strike against the Canadian National RR. Several industries were seriously impacted including automotives, chemicals, and consumer goods manufacturing. Many were not prepared with alternative sources of supply, delivery, and services. A SIGNIFICANT INVESTMENT MUST BE CONSIDERED Their methods may vary, but IT executives who calculate return on investment (ROI) before launching major technology projects say they reap benefits that make doing the math worthwhile. The most obvious payoff is getting resources to do the job, but the ROI process also forces IT to explain to corporate management what's going on. This can provide buy-in for a particular project. It also enforces two-way communication between the CIO and other company executives about IT's overall role in the company. The rewards of being a supply chain master are sometimes over advertised – here are a couple of types of expectations that may or may not apply to your business:

“Research has shown that companies with best-in-class supply chain operations typically enjoy supply chain costs 40% less than average

companies (Source: PRTM). That might well represent a potential saving of £5 million per £100 million of turnover for the average company; not something to be ignored in the current business environment. Supply Chain Management is now recognized as a critical business process for companies manufacturing or distributing products.” “The challenge of getting it right gets even tougher – yet the rewards for those companies that do so are significant:

Profit margins are 73% higher for manufacturers who excel in SCM, as compared to companies with poor SCM performance.

84% of companies with turnover >$200m rated themselves as poor at SCM. Source: Survey of 600 companies by Deloitte & Touche.

SCM, therefore, is a hot topic these days. This is because customer demands for most products are ever more demanding – in response time, in choice (e.g. customization) and in seeking more competitive prices – and thanks to globalization, customers can choose from an increased number of suppliers. In response, companies have outsourced elements of their manufacturing to lower cost offshore suppliers. The result is an extended, global supply chain, seeking to provide on-time delivery of products, at competitive price, in ever increasing variety and with shorter product lifetimes. As a general rule, major SCM investments should go through the ROI wringer just like any other business investment -- even more so, because IT investments have a questionable history. One side benefit to ROI scrutiny is that it can identify pet projects that need to be examined, like the customer relationship management (CRM) initiative launched because the marketing vice president is a golf buddy of a guy selling a CRM product. Doing the math is especially important for projects that have million-dollar price tags. But, we must point out that on the other hand, an ROI analysis (especially using the Balanced Score Card methods) would be overkill for projects so small that the ROI exercise would be more expensive than the project itself. Even ROI calculations need an ROI. Occasionally, an IT project might deliver such a mind-blowing competitive advantage that crunching the numbers seems unnecessary. There will always be a middle ground between what PWR calls the "just do it" and the "by the book" methods. But in the case of SCM, the complexity and possible high cost of an initiative requires a sound business cases, but an ROI analysis incorporates a mix of common sense, professional judgment, quantitative modeling and strategic perspective. That is why a financial-only ROI process, is only part of many factors as part of its overall evaluation of any new technology. First is how mature the technology is and whether it represents a continuation of the company's existing skill set or a totally new direction.

Every company must also look at the market position of the SCM vendor—not just its financial strength when doing a cost analysis, because in the current software market, many technology providers are struggling. Instead, if the product or service has the lion's share of its market, it will continue to be offered, even if another ultimately acquires the vendor. The last step is viewing the project in the context of the firm's overall strategy. "Not the written strategy or whatever people are paying lip service to, but the things that are really important to the executive team. After all these factors are gathered and given a numerical weight, costs, skill sets, market position and how the project fits with the company’s overall strategy. ____________________________________________________________________

For more about this topic read Part Two of SUPPLY-CHAIN AND LOGISTICS MANAGEMENT FOR CREATING A COMPETITIVE EDGE – Part Two

Disclaimer: Plant-Wide receives no revenue or compensation of any kind from any vendor

mentioned in this report nor does it endorse any product herein.

For more information about PWR Consulting and its Supply Chain Management capabilities and projects visit www.Plant-wide.com