Hello, my name is Jim Tompkins. I’m the CEO of Tompkins Associates and Tompkins International. I’m pleased to be with you today to present our seventh part of our third series of the Global Supply Chain Podcast.
This third series is on the topic of supply chain cost reduction. We’ve been working our way through the major costs of the supply chain, and today we turn our attention to the information technology opportunity for cost reduction.
To help us out here, I am pleased to welcome back the Tompkins thought leader on information technology, Matt Wilkerson.
Matt:
Thank you Jim, I’m glad to be here today.
Jim:
In the current market, what IT solutions are getting the most “play time” for evaluation and implementation?
Matt:
In certain industries, such as public sector, medical products distribution, logistics service providers, we’re seeing a steady stream of concentration on core supply chain IT solutions for operations such as transportation management (TMS) and warehouse management (WMS). In many of the other industries, we’re seeing that past investments in these core applications have resulted in a good position relative to the ability to address needs in the warehouse and on the road. For these industries, we are seeing:
- A heavier concentration on bolting systems together more tightly for greater synchronization and visibility.
- We’re also seeing investment in centralized “expert applications” such as demand planning, centralized transportation planning, & global trade management. These applications typically require a lighter capital investment and when deployed skillfully, require little disruption to operations.
- Third, we’re seeing exploration of low-initial-investment opportunities for core IT supply chain applications for operations. Several solution providers are expanding their alternate licensing alternatives to minimize initial software investment requirements for their customers. SaaS or software as a service and expansion of technology providers’ ability to address this marketplace is receiving much attention.
Jim:
For those who fall in the category of making improvements based on past investment, what are the main opportunities in establishing tighter integration?
Matt:
Many companies who have implemented core supply chain operations IT over the past few years found themselves doing so while making compromises to system design, either because of trade-offs between projects competing for budgets and implementation resource availability, or because of pressure to meet schedules for system availability.
In taking short-cuts around implementation, we’ve found that one of the more common areas has been the integration amongst the applications - such as an ERP or merchandising system integrating with a WMS. Sometimes it’s moving away from an intended real-time or near-real-time integration to a batch system, process-based design. Integration among systems is sometimes the most complex area of IT system deployment and is one of the more likely areas where compromises were made during the initial implementation.
Re-evaluating the systems integration model and making improvements for more relevant and timely information exchange can yield powerful results for folks who have made those core initial investments.
Another area we see which presents an opportunity in this area is one that is not supported by the traditional business case for supply chain IT. That’s the area of a specialized supply chain visibility and event management platform. Justification for these solutions is difficult to define for many folks in terms of labor savings, warehouse efficiency or transportation savings.
The primary purpose of these solutions is to ease the burden of answering, “where is my stuff?” and provide the ability to manage the exceptions, rather than wading through the details. One very positive byproduct of implementing this type of solution is that they provide both the mechanism for tight integration among supply chain applications, and they also allow for a more effective basis for upgrades and replacement of various systems involved in a supply chain.
Introduction of an effective visibility and event management platform provide the ability to conduct an overhaul of the supply chain synchronicity without taking on a huge capital investment.
Jim:
In the areas of demand planning, transportation planning and global trade management, where do the primary opportunities lie?
Matt:
For all of these areas, if an initial investment has already been made, the opportunity is largely related to updating configuration to achieve lower costs or better-optimized inventory. In a very dynamic business environment with significant loss of revenue in certain areas, and the potential for significant gain in others, the configuration of these systems to better match the current environment needs make re-evaluation of configuration worthwhile.
This can mean an end-to-end review and the update of inventory policies and updates to demand planning and procurement practices as a result. This can also mean an end-to-end review of the transportation network, optimization opportunities and updates to transportation planning and global trade management practices as a result.
These are low-cost methods which often yield very tremendous benefits. If an investment in these supply chain planning applications has been limited in the past, now is an excellent opportunity to work with solution providers to establish an updated planning model.
The supply chain software environment is extremely competitive now. Product sales consultants are sharpening both their skills and their negotiating flexibility. One key additional consideration is that the marketplace has a great deal of talent looking for work in these areas and ready to support updated operations needs.
Acquisition opportunities for bringing this talent on-board has never been better. Also, these are typically centralized applications, where their implementation typically has a lower risk of disruption to operations with their implementation. Updating these solutions and the staffing to support often yields a return on investment well within one year when implemented effectively.
Jim:
Matt, for companies thinking more along the lines of taking advantage of the weaker economy in gaining an edge against the competition, what are some of the key thoughts on how to address the supply chain IT marketplace?
Matt:
As with the supply chain planning applications just mentioned, the marketplace for supply chain operations applications is equally competitive. Software companies across the board are under extreme pressure, and the competitive environment means an opportunity to have the solution providers demonstrate their capabilities on your terms. As with any software selection effort, starting with a definitive, prioritized statement of your needs should be the starting point. Then, ensure the selection process makes no compromises in allowing for a comprehensive side-by-side comparison as is relevant to your needs.
Jim:
Matt, one last question. What are the implications of software as a service (SaaS) for supply chain applications?
Matt:
SaaS has its origins in applications not requiring a high degree of custom configuration or custom integration needs. These applications were those typically centralized in a corporate headquarters function with a somewhat standard systems integration framework.
Many of the solution providers offering XML-based integration in addition to proprietary flat-file integration were able to adapt and provide very robust offerings. In the early stages of SaaS, large companies had already invested significant capital in IT infrastructure to support self-hosted applications either developed internally or purchased by a business software vendor. Control, system performance and data security were all the additional concerns which prevented most mid-to-large firms from participating in the SaaS experiment.
Human Resources and Purchasing were the first corporate functions to utilize the SaaS model for deployment. As the SaaS experiment gained supporters, many of the concerns regarding control, security and performance were addressed, with improvements as the broad range of customer needs were met, with the appropriate use of R&D funds for these software firms, and energy by the software firms committed to SaaS.
Supply chain presents a unique environment for SaaS. For one, it is the area of most firms which has the most highly-customized requirements and requires the most highly-customized IT systems configuration. Another is that supply chain operations is the least centralized function for many firms, involving field operations, vendors, customers, international trading partners and several other parties.
Add to this the custom data integration needs with ERP systems, custom planning systems, hardware in the distribution centers, hardware on the trucks and material handling systems - the needs are staggering for a software vendor willing to establish a deployment model which satisfies a broad customer base.
Despite the complexity, there is a solid business case for the use of SaaS to satisfy critical supply chain needs under the right conditions. We’re seeing solution providers expand their capabilities at addressing the needs of the marketplace.
We’re also seeing some new and interesting solution offerings which are getting great exposure. We’ll be watching this area of the software marketplace closely as it continues to evolve.
Jim:
Thank you Matt. I’ve really been excited about this series and now, with only two more segments, I feel really good about the content that we’ve shared with our listeners.
Stay tuned – in two weeks, we will cover cost reduction in logistics outsourcing.
