Knowing When to Upgrade Your Supply Chain Management System

10 Benefits For Upgrading Your Supply Chain Management System

Trying to measure the financial impact of upgrading Supply Chain systems is difficult, but nonetheless required before asking the C-suite to step up for a capital expenditure. In addition to hard tangible benefits, there are many soft benefits – such as retaining customers, positioning within the market and managing customer and supplier relationships. Some tangible benefits are going to be determined by the volume of activities automated with supply chain management systems while others will require deductive reasoning. The following 10 benefits can help you decide if you should take a closer look at replacing your SCM system.

1. Competing on Customer Values

If your supply chain systems have the planning and analytical tools to segment customers by their values, then you can develop and execute SCM policies that increase customer retention for each of your customer value segments. Otherwise, you'll find your company spending resources to retain market share, when those resources might have been used to compete for new business. In addition to planning and analytical tools, the software architect managing supply chain execution will need to support multiple customer value segments and keep up with those values as they change overtime.

2. Supply Chain and Your Values

Supply chain software should adapt to your company values such as optimizing efficiencies, being responsive to market changes, enhancing market leadership, staying within budget and aiding new ways to stay competitive. A supply chain that struggles to stay current with sales will consume most of the human capital while company values get ignored. If your managers are in the trenches, shepherding goods through rigid systems, with poor visibility to information and clumsy processes, then their focus is not tending to strategic goals and critical decisions. Systems that support SCM best practices can be setup to meet market demands and help promote important company values so that the managers can stay focused on the strategic direction of the company.

3. Inventories in Sync with Customer Demands

An integrated SCM system helps manage and forecast demand, optimize operational constraints and synchronize inventories to demand. An organization that can't effectively match their inventory to demand is at a disadvantage; they are losing sales, tying up unproductive working capital or both. The four basic types of demand to manage are random non-predictable, unpredictable variation, predictable and known. Although there are several other factors to managing demand, mastering the types of demand, along with effective operational strategies, is critical to synchronize inventories to demand. If your systems can't distinguish between the different demand types, then your competitors might have an advantage on sales, working capital or both.

4. Productive Inventory

Inventory turns, safety stock levels, gross margins and service levels are Key Performance Indicators (KPIs) used to measure how productive inventory is to the company's financial performance. SCM systems help improve inventory productivity by improving sales forecasting, improving inventory positioning within the supply chain and reducing procurement costs. Companies with the higher KPIs within their industry are rewarded with a competitive advantage over their competition and a higher return on stockholder equity.

5. Delivering Goods and Services

The perfect order is a standard Supply Chain Management measurement. The perfect order is delivered without any backorders, without any substitutions, with the correct quantities, without damages, delivered on the promised delivery date, and billed both timely and accurately. For every order that is not a perfect order, not only are your customers negatively impacted, but you are driving up cost and/or reducing sales. It always costs less to get it done right the first time. Also, if customers could depend on perfect orders, they are more likely to engage in honest collaboration, instead of gaming your systems to their advantage.

6. Trading Partner Relationships

SCM systems can help with understanding and managing the different dynamics that come into play with different trading partner relationships. A big question for a small business is: "Can the business be profitable doing business with larger trader partners?" Without the right systems and information, the small business most likely will not have profitable relationships with larger trading partners. The larger companies with robust systems have more options; they can set compliance standards, leverage their systems to help trading partners they choose or completely outsource product lines to trading partners they trust.

7. Logistical Costs

Transporting Management Systems (TMS) help to optimize equipment and resources, with route and load planning, along with 3PL management tools. Warehouse Management Systems (WMS) streamline the management of inventory storage and distribution. Electronic Data Exchange (EDI) reduces manual errors and provides accurate information for scheduling resources. Auto identification methods (bar code and RFID) reduce labor cost and increase inventory accuracy. Other areas where WMS, EDI and Auto Identification drive down costs include packaging, ticketing and product setup. These types of business applications and technologies are not just commonplace in modern supply chain systems, but are highly configurable, adaptable and generally provide a wealth of reporting and analytics.

8. Governance, Reporting and Visibility

Organizations and groups with special requirements effecting SCM include governmental agencies, trading partners, internal departments, executive management, shareholders and financial institutions. All have different requirements. A major strength of modern SCM systems is the ability to capture, store, format and automatically distribute information needed by each group. Other strengths include dashboards, visibility to real-time product movement and monitoring the supply chain's performance against goals and KPIs.

9. Streamlining SCM Processes

Systems that integrate planning with execution, demand with supplies, and responsibilities across organizational boundaries (both internal and external) will facilitate streamlined SCM processes and business process automation. And, the business process designers (aka workflow engines) are dynamic enough to support process and business rules changes in visual and simple to use tools, and without incurring software programming or modifying the system constructs. Systems should support Process Owners that manage processes across organizational and departmental boundaries.

10. System Costs

An increasing number of modern SCM systems are based on the Software as a Service (SaaS) deployment model using a multi-tenant architecture and delegating much of the systems management to third party experts. SaaS applications provide many dynamic features and are highly configurable for tasks such as the integration of different software modules, business rules, event managers, processing flows and web services. This cuts down on cost and time to deploy software applications, adapt them to changing needs, perform system integration with legacy systems and desktop tools, and perform upgrades. Another advantage is that the software vendor spreads the cost of research and development for new features across all their clients; allowing you to save money plus you get best in class SCM innovations at a more frequent pace.

Supply Chain Upgrade Conclusion

Making a decision to upgrade your supply chain management software system should begin with a gap analysis that considers current system capabilities and deficiencies, and then includes a cost-value assessment that delivers a measurable payback and forecasted ROI. The 10 supply chain benefits included herein can be morphed into a business decision framework and used to uncover hidden opportunity, align with the company's top strategic objectives and provide a basis for improvements to business processes via automation and business decision making via better information—and which in turn can be measured and forecast to achieve the projected ROI needed before any new capital expenditure is approved.

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 Author: Steve Heistand

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