SUPPLY CHAIN - From head down to bottom up
Of all the niche markets, the supply chain has seen the most radical changes as a result of computerisation. What opportunities are there for resellers involved in this industry and what does it take to succeed?
Ten years ago, managing a supply chain entailed monitoring the flowl changes as a result of computerisation. What opportunities are there for resellers involved in this industry and what does it take to succeed? of products from supplier or manufacturer to customer through all the intermediaries, including distributors and logistics operators. Today, the direction is reversed.
Supply chain management now means an emphasis on the flow of information from the customer back up to the manufacturer or assembler, rather than smoothing the path downwards. Supply chain management today primarily entails controlling information rather than goods.
For resellers, it is not a quick and easy sell. Supply chain systems do not come shrink-wrapped - they require considerable pre and post-implementation support.
As Kevin Fitzgerald, a director with NovaSoft, a document management and workflow software vendor, says: 'Just implementing a supply chain system is the easy part. The hard bit is working with the customers for several months beforehand to establish what their existing processes are, and then afterwards, making sure their business practices change to take full advantage of the benefits that IT can bring.'
But the hard work may be worth it. Like any sale of a package that requires more than simply installing hardware and software, the financial rewards to the reseller can be considerable.
Although it is not an easy sell, it is one with a high success rate and a growing reputation, which makes it easier for resellers to introduce the idea to potential customers. According to independent research carried out by Softworld at the Supply Chain show in Birmingham earlier this year, 58 per cent of companies that have implemented a supply chain application say it has improved their reporting. More than 40 per cent claim it has increased their ability to meet delivery promises, while 61 per cent indicated that they expect supply chain software to provide a seamless integrated business - hinting that they are open to wider changes within their organisation than just streamlining their route to market.
But Chris Turner, director of management training and consultancy firm Oliver Wight, warned in his keynote speech at the show: 'The success of supply chain applications depends almost entirely on the successful integration with core business processes. Only then can it be effective in improving the planning and control of the supply chain. In many businesses, the supply chain is still seen as a logistical issue rather than a competitive weapon.'
The markets which resellers should be looking at are manufacturing and retailing. The former embraces all manner of assemblers and distributors, as well as all types of factories and products. Retail includes food outlets, clothing shops and superstores, to name but a few.
The retail sector is already familiar with supply chain computerisation, but the manufacturing industry is more resistant. As Fitzgerald points out, manufacturers and engineers are traditionally the most resistant to change.
'If any group is going to say, "I've always done it like this and I always will do it like this", it is going to be engineers. But we have to respond to that by saying to them: "If you want to keep making things that way, fine - but if you want your business to survive in the future, you really have got to move forwards".'
A good supply chain application empowers the suppliers that adopt it, allowing them to be enormously more reactive to customer needs and trends.
It allows them to rationalise their product lines, streamline their manufacturing and distribution, and cut back on products which do not sell well.
Sundeep Tungare, president of demand planning at i2 Technologies, which provides supply chain applications globally, says the move from 'making product-push strategies' to 'consumer-pull strategies' effectively reduces the need for raw materials, work in progress, finished goods inventory and excess capacity.
'The overall effect is to reduce the cost in the manufacture, production and delivery-to-customer process, which is extremely attractive to customers,' he adds.
But there is also a downside to supply chain software. For the customer, it can mean less choice. You've probably been in supermarkets where a lot shelf space is given over to a single product. What has happened is that the IT system has told the buyer that certain lines are best sellers, so there has been a management decision to focus on those lines to the exclusion of all others. This gains extra discount for volume but gives the customer less choice.
Supply chain software can also stifle research and development for the same reason that it is successful - because it allows customers to shape product selection and manufacturing strategy. Unless customers are allowed to express some kind of wish-list about how they would like the products to evolve, it is easy for the manufacturer to sit back and allow customer buying patterns to drive future product growth.
For this reason, NovaSoft's Fitzgerald says supply chain applications have to be embraced by and disseminated through an entire organisation.
'It has to be linked to all departments of a business - including R&D and marketing - otherwise the improvements will not be as dramatic as they could be. Product development is inhibited and will not be innovative.'
Supply chain applications are far easier to sell if there has been a successful implementation of IT in the past. Fitzgerald argues that many manufacturing organisations - which are the natural target for resellers selling supply chain software - have had their fingers burnt in the past with product distribution management packages. As a consequence, they are reluctant to adopt a supply chain system.
Joel Gay, a supply chain consultant with Ilog, based in Paris, says supply chain sales can be a natural follow-on from enterprise resource planning systems (ERP), but only if it is successful.
'Any organisation that has already implemented an effective ERP system is going to be more receptive to resellers selling supply chain management software,' he points out.
Gay believes that, despite the risks of poor integration with core processes and a focus on current products rather than exploring R&D into new ones, the improvement to businesses delivered by being more reactive to customer needs makes it a tempting sale.
He says: 'Resellers can tell potential customers that they will be significantly more responsive to customer needs, promise shorter delivery times and give an overall better customer service. These are the things that all manufacturers and suppliers are looking for, which is why sales of supply chain products are expected to increase dramatically.'
But Fitzgerald warns that resellers can encounter a wide variety of barriers to supply chain application sales, including a lack of appropriate technology within the organisation, a lack of top management commitment, an inappropriate organisational structure and a low level of commitment from trading partners.
'We are seeing a growing number of larger retail organisations insisting that their suppliers have electronic systems and this, in turn, is forcing many factories to computerise.'
It may not be the best driver for change, Fitzgerald adds, but it is an effective one.
Customers can sometimes be disappointed if the introduction of supply chain products does not immediately lead to a reduction in logistics costs - and in some cases inventory levels can rise. Only in very rare cases do consumer prices fall.
Overall, the various enabling tools and technologies which together comprise supply chain products will lead to an improved efficiency, giving a better general understanding of a business and its market, enabling members of senior management to feel in greater control.
Companies that have implemented supply chain products successfully are able to use valuable management techniques, such as key performance indicators, supply chain benchmarking and activity based costing in their decision making processes. But the resellers delivering the products also need to be able to talk in these terms.
Mike Briercliffe, business development director of UK distributor Sphinx CST, believes the critical factor that will enable resellers to successfully move into this growing niche software market is their employees.
'Those resellers that have sales staff who understand business practices, who can go to a potential customer and persuade them of the benefits of adopting the software in business terms, and who can work with the client in the long term to help them change their processes to get the optimum benefit from the product, are those who will do well,' he says.
'It is not a step for the faint-hearted. A reseller really has to get a grip on the calibre of people it is hiring if it wants to move into the supply chain market.'
But, he adds, if the reseller does that, the market is wide open. 'There is a huge demand for supply chain applications, and many resellers are ready to take the plunge.
Their strength is their knowledge of a specific niche market. If they can link that knowledge with the products of supply chain systems, they will be on to a winner,' says Briercliffe.
Today - and in the future - the key to successful supply chain implementation will be utilisation of the internet and the ability to embrace existing and legacy systems and processes.
As Hugh Aitken, managing director at Sun Microsystems, points out: 'Supply chain systems will only be successful if you can transfer information back and forth rapidly. To do that, organisations need an IT infrastructure and architecture that can cope with different systems and environments, combined with software that can be completely integrated.
'There are many different approaches to supply chain management and resellers are going to find that their customers have very varied demands and expectations.
To deal with these variations and volatile movements, they must have a completely flexible, scalable platform to run the software on,' he adds.
With this approach, Aitkin believes resellers will be able to take the plunge into supply chain specialisation, and feel confident that they can offer their customers the most flexible, future-proofed application.
PARTNERSHIPS ARE KEY
Some of the best-of-breed supply chain packages come from small vendor companies and resellers have to integrate them to create complete applications.
Leading players include Kalamazoo, Baan, SAP, IBM, Kewill, Symbol, Intentia, Fraser Williams, Unisoft and Tetra.
Most, if not all, are looking for specialist resellers and Vars who have 'domain experience' in specific niche markets to partner with. Fabrizio Tellarini, president of European Logistics Consultants, says suppliers of supply chain products are becoming more active in adopting a collaborative approach to small and medium resellers, for mutual benefits.
'Generally, the vendors have some of the products which go towards building a computerised supply chain, but not all, and they need the niche market expertise and local market knowledge that resellers can provide. Partnerships are key,' he says. 'Many vendors started by trying to sell direct but are increasingly recognising that they have to partner with other vendors, resellers and consultants to make sales.' Supply chains cross national, industry, business and cultural boundaries and many different small and medium resellers have a role to play in the implementation of a single system.
Tellarini says there is a growing need for IT and business consultants to partner with product specialists. 'Many resellers know about the technology - how to put in networks and install devices and so forth - but successful supply chain implementation requires business expertise.' 'For customers to get full advantage of their investment, resellers have to work with business consultants, or have them on their staff.' The key, he adds, is the ability to fully integrate a range of different software into the core processes of an organisation.
Simon Pollard, director of business development, corporate product and industry marketing at software house Baan, says: 'It is the complexity of supply chain applications that puts most resellers off. It is not a quick and easy sale, but it can be a most rewarding one. It is the balancing of the technology, the people and being able to manage complexity and innovation seamlessly.
'To do this, you need resellers who can collaborate internally and with their suppliers and customers. All parties need to be focusing on one common plan.'
WHAT'S IN A NAME?
Software products known as supply chain applications include:
- Manufacturing management
- Shop floor data capture, process control, CAM/CAE, quality control and inspection, product planning and scheduling.
DISTRIBUTION AND PLANNING
Warehouse management, stock inventory planning, vehicle routing and scheduling, satellite and radio communications, tracking, fleet management, import and export, handheld data terminals, barcode scanners, document process management, document process management.
RETAIL APPLICATIONS
E-commerce, EDI, customer loyalty and care systems.
FINANCIAL APPLICATIONS
Ledger management, order processing, sales and marketing information and sales forecasting.
BUSINESS APPLICATIONS
Human resources, systems integration and demand forecasting.