On-Demand Supply Chain Management

Now Enterprises of All Sizes Can Compete

InfoManagement Direct, June 2006

Edward Lewis

Supply chain inefficiency is one of the most prevalent issues facing organizations today, especially the small to mid-size enterprise (SMEs) market. Supply chains are also a key factor in business success, as the race to provide products anywhere in the world quickens while economies become more global.

The SME market has been behind in the race for many years and continues to struggle to find ways to improve their supply chain. At the same time, these organizations are competing with larger enterprises that have the capital to invest in sophisticated supply chain management systems.

Regardless of the size of the enterprise, the supply chain inefficiency problem rears its ugly head in a few ways:

• Bloated inventories and risk of obsolescence;
• The growing manual effort required to manage the process;
• Customer service levels are unpredictable at best; and in the worst case,
• A gap in supply to meet customers demand.

SMEs also feel increased pressure from their customers and partners. Today, they demand:

• Increased visibility. The Internet has changed the way trading partners share information. Customers have realized the benefits of visibility and now require it.
• Accurate and timely information. Customers have built their processes around information availability. Delays are not an option.
• On-time delivery.
• Customer cost-cutting initiatives mandate continuous improvement or risk loss of business.

All enterprises, especially SMEs, face pressures from competitors, many of which have already implemented global supply chain management (SCM) solutions.

How does an enterprise improve SCM processes when they do not have millions to spend? What are your options if you are reluctant to add further IT costs and are not convinced that the investment is going to render the projected return?

The Rise of On-Demand Supply Chain Management

Historically, companies were required to buy, build and maintain their own IT infrastructures, including supply chains, despite exponential costs. These costs and the necessary technology expertise often excluded SMEs from competing on a level plane with larger enterprises. Supply chain management processes included many workflow spreadsheets and difficult technology integration.

These market conditions and cost concerns are fueling the demand for an alternative: an on-demand SCM solution. This on-demand model is also called software as a service (SaaS).

Salesforce.com has helped the on-demand model to make headlines in recent years, but much less has been said about the on-demand model for the supply chain realm. That is about to change.

The on-demand model for the SCM market provides economy of a shared infrastructure across multiple companies and the convenience of a service provided completely over the Internet. Now, c ompanies can plug in and subscribe to services built on world class infrastructure via the Internet.

In 2006, analyst firms like the Aberdeen Group are predicting a vast increase in the on-demand model for supply chain management.¹ The market curiosity is fueling more vendors to offer some on-demand component to their SCM solutions.

There are several reasons why enterprises are becoming increasingly attracted to the on-demand model:

• The model requires fewer IT resources to implement and operate;
• Companies are seeking faster implementation and ROI;
• The model enables support of unique business processes for selective product categories, customers or channels; and
• It enhances better trading party collaboration because of shared applications and platforms, allowing a common view of data.

The Aberdeen Group noted that on-demand applications shine in a number of ways when compared to traditional license and install SCM applications.¹ The study found that the on-demand model outperformed the traditional model in three key areas:

• Ease of the upgrade process,
• Return on investment, and
• Implementation time and effort.

The report also noted additional benefits. Nearly half of the on-demand SCM users surveyed stated that they receive better customer service from their on-demand vendor than from their traditional supply chain vendor. Other benefits cited in the study include a reduced dependency on IT staff for supply chain management functions, stronger partner connections, the ability to exploit new functionality and technical capabilities due to constant and automatic upgrades, and a low exit cost if the system fails to deliver on the set expectations.

On-demand solutions can help enterprises to create a true end-to-end supply chain for a cost far below any available in the traditional IT environment of single instance. Because the enterprise's demand on computing resources can vary drastically from one time to another, maintaining sufficient resources to meet peak requirements can be costly. Conversely, if the enterprise cuts costs by only maintaining minimal computing resources, there will not be sufficient resources to meet peak requirements. On-demand solutions provide the resources exactly when they are needed, effectively leveling the playing field in supply chain management.

On-demand SCM help enterprises connect offices, warehouses, suppliers and clients. On-demand solutions strengthen trading partner relationships, increase total sales opportunities, enhance operational efficiency and dramatically slash costs.

A real-world example of the benefits of on-demand SCM can be found in the case of Mitsui Steel, Inc. (MSI). The company is a major sheet steel supplier to the automotive industry that experienced difficulty managing their supply chain due to lack of visibility and control.

MSI's extensive supply chain runs from Japan to Mexico and encompasses three months of manufacturing lead time from the mill, one month of transport time on the ocean as well as one week transport time on rail. Complex customs regulations required significant track-and-trace capability in order to get the steel to its ultimate destinations, which include several bonded locations in Mexico. To add even more complexity, some items require processing into blanks or stampings at third party subcontactors prior to delivery to the production facility. Additionally, actual delivery to the auto production facility is in a just-in-time fashion, and often occurs several times a day.

Page 1 of 2.