Roadmap to the Flexible Supply Chain

ESYNC | TranSystems White Paper

Roadmap to the Flexible Supply Chain

ESYNC | TranSystems3232 Central Park West DriveSuite AToledo, OH 43617 419.842.2210 www.esync.com www.transystems.com

Improving supply chain performance.TM

Roadmap to the Flexible Supply Chain 3

2007 ESYNC | TranSystems. All Rights Reserved.

EXECUTIVE SUMMARY The supply chain encompasses the infrastructure of facilities, transportation networks, systems and people that enable and facilitate (or impede) material flow from source to consumption. The goal of the supply chain is to provide shippers and consignees alike with timely, secure, error-free order fulfillment, delivery and visibility at the lowest possible cost. Put another way, customers expect to receive their orders in the right condition, at the right place and at the right time. That said, smaller, more frequent orders are placing enormous pressure on supplier warehouses and transportation networks and, most customers are unwilling to pay a premium for service they believe can be obtained elsewhere. Today, American industry is spending well over $1 trillion annually or almost $.09 of each sales dollar on the supply chain, with half of that amount attributable to transportation costs (Establish, Inc./Herbert W. Davis & Company 2006). The opportunity to contain (indeed, reduce) these costs though significant, pales when compared to the opportunity for growing market share and revenues and maintaining competitive advantage by leveraging supply chain execution systems (SCES). This paper examines these systems and provides a measured approach for assessing their potential and crafting a roadmap for deployment. It has been prepared for newcomers and old hands alike. For the former, it is a call to action; and, for the latter, a suggestion that the time is ripe for revisiting legacy approaches to supply chain management and execution and examining new opportunities for improved performance to deal with landscape changes including acquisitions, new or more agile competition, expanded customer requirements and extended networks (e.g. offshore manufacturing, etc.).

Roadmap to the Flexible Supply Chain4


BACKGROUND Have you ever jumped on a plane, arrived at a hotel, unpacked and found yourself missing an important file, laptop power cord, belt, appropriate shoes, toothpaste or reading glasses? Wouldnt it be nice if we had access to:

A system that monitored trip inventory status and, when queried, alerted you to shortages in time for you to do something about them?A utility that could be voice-triggered to automatically retrieve and deliver to your packing area the right clothing, accessories and suitcase or garment bag for a given type and length of trip?A module that automatically verified luggage content and printed a packing list for double-checking before departure (that could also be archived for insurance purposes in the event of loss or damage while traveling)?A voice-triggered system in your automobile that on command quickly runs through a checklist to assure that you have your laptop, tickets, glasses and luggage, while simultaneously checking your fuel gauge, flight status and the traffic on the way to the airport?

Far-fetched? Not really. In warehouses and distribution centers across the globe, similar questions and more like them are being answered by advanced supply chain management and execution systems (SCM and SCES). Why? Because the implications of analogous omissions are far more serious for those charged with processing orders for customers who expect them to be delivered complete, undamaged and on time.

Admittedly, taking an SCES into your home is beyond the financial reach of most travelers. And, even if you showed up at a meeting without the right shoes, the impact, though discomfiting, might add an entertainment component to the session. On the other hand, theres no entertainment value to missing inventory, short shipments, overloaded or half empty trailers, damaged materials, excessive costs or orders lost because of erratic supply chain performance and even less when your system cannot identify the recipients of suspect products in the event of a recall.

SUPPLY CHAIN EXECUTION SYSTEMSClearly, all companies can benefit from systems that facilitate improved planning and scheduling based upon an accurate, timelier view of operations status and market behavior. The best decision-making is executed on the basis of events as or before, not after, they occur. Responsive systems provide discipline and control, based not only upon plans and performance goals, but also upon the dynamics of actual operations. A better view

Supply Chain Industry Spending Today, American industry is spending well over $1 trillion annually or almost $.09 of each sales dollar on the supply chain, with half of that amount attributable to transportation costs.

Herbert W. Davis & Company/Establish, Inc., 2006



of inventory status at each point in the supply chain permits better response to demand through adjustment of production schedules, inventory redeployment and replenishment. The key to the equation is real-time material and data flow synchronization. Every time an order or item moves, data on its identity and location should be captured, validated, archived and disseminated to your supply chain stakeholders.

To achieve these objectives, flexible and responsive supply chain execution systems feature:

A network architecture that enables effective trading partner collaborationProvision for real-time visibility of inventory, order and shipment status that assures timely response to exceptions for improved customer serviceIntegration and data sharing across applications to maximize the efficient use of all resourcesOptimization tools that drive cost out of the supply chain through improved workflow scheduling and the elimination or reduction of non-value adding tasks

The following systems, which fall under the supply chain execution umbrella, link material and data flow and provide the functionality that separates the supply chain winners from the also-rans.

OMS -- Order management systems (OMS) permit real-time prod-uct sourcing on the basis of inventory availability and warehouse or distribution center proximity to the customer. More robust OMS monitor sales by customer on a regular basis to provide input to planning systems for adjustment of manufacturing schedules to build the products actually being purchased.

SCES Supply Chain Execution Systems (SCES) manage inven-tory, space, material handling equipment, labor and transportation resources in real time to assure timely, error-free fulfillment, deliv-ery and visibility of order status throughout the supply chain. SCES include:

WMS -- Warehouse management systems (WMS) provide a bridge between enterprise-level purchasing, manufacturing plan-ning, manufacturing execution and customer service systems and the warehouse or distribution center. With an accurate view of available inventory, equipment and staff, the WMS directs the operations that feed components and raw materials to produc-tion in the manufacturing environment and fill customer orders in wholesale and retail distribution. With bar code, voice data entry, RFID and radio frequency data communications technology, WMS transform conventional warehouses by improving efficien-cy and productivity. WMS add levels of control that permit users



to better plan and manage resource and inventory allocation in both conventional and automated operations, while providing management and corporate systems with real-time visibility of actual performance.

With up-to-the-event inventory status by discrete location as well as an accurate profile of available labor and equipment resources, the WMS issues and manages tasks and monitors performance across the primary functional areas of receiving, storage/put-away, inventory management, order processing and shipping.

LMS A robust WMS time and date stamps every task issued to and completed by warehouse operating personnel. A labor management system (LMS) uses this data to establish standards and monitor individual and team performance. Further, historical performance data is also used to match available labor and equipment to the anticipated warehouse workload to prioritize and schedule those resources and to:

Monitor warehouse operator activity to establish realistic performance standards.Match standards to planned activity for optimal scheduling and staff deployment.Monitor team and individual performance for pay and incentive purposes.

TMS While WMS and LMS optimize the use of available space, handling equipment and staff for order fulfillment, the supply chain job is not done until customer deliveries have been completed. Transportation management systems (TMS) optimize the use of transportation resources to manage inbound, outbound and internal shipments at the lowest cost consistent with customer service standards and trading partner requirements.

SCV Supply chain visibility (SCV) systems link SCES to other corporate systems to provide enterprise-wide (and, in some cases, trading-community-wide) visibility of demand, inventory availability by location and order status. These systems provide access to the data companies need to manage logistics opera-tions and respond to hiccups as, not after they occur. This vis-ibility is critical to fine-tuning production schedules, inventory deployment, performance monitoring, event-driven exception handling and, more fundamentally, to customer service and protection of the companys investments in the supply chain infrastructure. And, finally, the same visibility tool can be used to provide a window for customers to obtain updates on order status up to final delivery.



Now, lets take a look at how SCES are being deployed to achieve higher levels of supply chain performance and service.

As illustrated above, the tightly integrated advanced supply chain management system monitors sales by customer and feeds that data to the planning system (1) that adjusts manufacturing and warehouse replenishment schedules to assure availability of the products customers are actually buying. New orders then flow through an OMS (2) that sorts and sources fulfillment based upon customer delivery requirements, inventory availability and ware-house or distribution center proximity to that customer.

Once prioritized, the orders are passed with required delivery dates to a TMS (3) for load planning, freight rating, carrier selec-tion and scheduling at the lowest cost consistent with customer promise dates. From the TMS, the orders move to a WMS (4) that allocates resources and prioritizes order picking tasks based upon actual workload while directing value-added processing as required to meet scheduled carrier pick-up times. Once shipped, the TMS monitors carrier performance and provides periodic updates until delivery sign-off by the customer.

Data on all of these transactions as well as inventory status throughout the supply chain is accessible to the companys man-agement team through an SCV and event management system. The SCV provides real-time order and inventory status throughout the enterprise.



SCES BENEFITSSuccessful Supply Chain Execution Systems:

Support corporate goals and operating strategy Reflect the culture of the operation and user readiness for ownershipLink material and information flow Meet throughput, accuracy and reliability goals Support timely communications with customers/suppliers Accommodate expansion and change Meet schedule and financial objectives

Although the benefits of successful SCES deployment will vary from user to user, those most frequently cited include:

REDUCED IMPROVEDDamage/Shrinkage Inventory Accuracy

Misplaced/Lost Stock Space Utilization

Search Times Throughput

Inventory & Safety Stocks Order/Lot Tracking

Outside Warehousing Stock Rotation/Inventory Turns

Paperwork/Forms Customer Service

Human Error Workload Planning/Scheduling

Direct/Indirect Labor & Overtime Costs Resource Allocation

Deadheading/Equipment Costs Labor Utilization & Productivity

Utility Costs Equipment Productivity

Transportation Costs Performance Measurement

Expedited Service Costs Backorder Handling/Crossdocking

Cash-to-Cash Cycle Time Return on Assets

MOVING AHEADIs it time for you to take a closer look at the readiness of your supply chain to handle increasingly complex market demands? Most companies supply chain networks and trading partner requirements have changed over the last five years. Further,



technology and systems have evolved to permit far more adaptive and flexible response to future changes and demands. What is the competition doing? Is there an opportunity for you to gain (recover or sustain) your competitive advantage? The question, of course, is How?

Many supply chain management initiatives emphasize the information systems component of the solution with too little attention paid to fine-tuning the physical infrastructure. Clearly, advanced supply chain management cannot exist without information technology and systems. However, information systems cannot be designed in a vacuum. Where do you start? It begins with fine-tuning the business model, network and infrastructure!

Network and Inventory OptimizationTo address supply chain demands cost-effectively, management must consider both the channel that supports the physical flow of products and the information systems hierarchy that facilitates (or impedes) communications with trading partners.

Excellent tools are available to address these issues. Questions to be answered include:

Are plants, warehouses and distribution centers optimally located to support rapid, low cost deliveries?Does inventory deployment mirror geographic and demographic demand?What are the financial trade-offs between network configuration, inventory location and quantities, delivery costs and service levels?Are warehouses configured, equipped and staffed to minimize rehandling, facilitate value-added processing and speed throughput?Are facilities sized properly and in the right locations? Will they be in five years? Seven?When and where should additional plant and/or storage capacity be added?What transport modes and lanes should be used to move products through the network?Which sites should be served from each facility? What about construction/lease costs, the local labor market, wage rates, utilities, access to carriers, etc.?

Warehouse and DC OptimizationThe best supply chain technology installed in operations with ill-conceived material flows and processes will only enable users to do things badly - - - faster! Launching a supply chain initiative without a hard look at facility layout, handling systems and methods will almost certainly produce a sub-optimal

Information Week on Technology

Random infusions of technology will merely leave the enterprise in great disarray.

James Borck

Information Week2001



implementation. LOOK at process flow as well as the efficiencies that might be realized in terms of space, layout, equipment and people. Indeed, minor changes to facility configuration, material flow, storage and picking procedures will often produce benefits before a system is introduced and, indeed, enhance the contribution of the system, once it is installed.

Other ConsiderationsAll too frequently, the most severe effects of technology have come from applying it too late rather than too soon. There have been dramatic SCES advances during the last several years with improved data capture technology and the emergence of open systems, integration and object-oriented design tools as well as Service Oriented Architecture (SOA). Undoubtedly, there will be further refinements as SCES continue to evolve. Now as then, however, the challenge for users will be avoidance of the trap implicit in romancing current problems with tomorrows solutions -- and drawing from the existing arsenal those tools that will address todays problems today.

When looking for a WMS solution, a high level feature list should include:

Accurate, timely data collection, neither symbol nor device dependentHigh-speed, high-availability Open Systems platforms Data base independence User-configurable, easily modified software Graphical user interfaces for day-to-day operation as well as accommodation of modifications to product files, location files, storage/picking strategies, etc.User-friendly report writers Clean, reliable external communications interfaces

Luck has nothing to do with supply chain excellence and, yet, the number of companies that leave performance to chance continues to amaze. Successful deployments are not fortuitous accidents. They are the result of solid preparation, clear articulation of project goals and operating performance improvement targets, painstaking attention to detail and an organizational commitment from the time of opportunity identification to and through installation and acceptance.

Assess the risks associated with introducing or deferring the introduction of new technology or systems into your operations before you implement them. Investigate what could go wrong, the probabilities, options for eliminating risk and the related costs. Match those costs against the costs you would likely invite in the event of problem occurrence. We are reminded of the Fortune 200 food company that delayed rollout of a bar code lot tracking

Weigh Your Options Carefully... We are reminded of the Fortune 200 food company that delayed rollout of a bar code lot tracking system because of its $2 million price tag. A $5 million recall two months later changed management's position in a hurry...



system because of its $2 million price tag. A $5 million recall two months later changed managements position in a hurry.

Make sure that you prepare your team for proactive handling of unexpected glitches. The concept of developing plans for addressing anomalies is not new, but the number of companies that do not have the requisite procedures is shocking. Primary areas to regularly investigate include infrastructure, processes, technology, systems and people. Conveyor, lift trucks and tractors break. Bar codes and RFID tags dont always read. Key workers come down with the flu. Carriers miss pick-up appointments. Storms interrupt power, shut down computers and close trucking lanes. How will you react? Involve your workforce in the assessment. Document procedures and make sure that your team knows how to execute them.

For some companies, realization of the benefits of continuous replenishment, channel and supply chain integration and trading partner collaboration are not so much technology constrained as they are stymied by the inability of the organization to logically and cost-effectively implement them. Clearly, success with SCES is no longer technology constrained. Isnt it time to get started?

ESYNC | TranSystems3232 Central Park West DriveSuite AToledo, OH 43617

419.842.2210 www.esync.comwww.transystems.com

About The Author - John M. Hill, PrincipalESYNC | TranSystemsDuring the past thirty-five years, John has spearheaded the deployment of over 100 AIDC (bar code, RFDC & RFID), warehouse (WMS) and transportation management (TMS) systems for DoD and firms in aerospace, appliance, automotive, basic metals, consumer goods, electronics, food, lumber, medical services, pharmaceutical, steel and miscellaneous manufacturing industries. His accomplishments include: Co-founder of the Automatic Identification Manufacturers (AIM) Trade Association and a charter member of AIDC 100, former president of the Material Handling Education Foundation, Inc. and the Material Handling Institute, Inc. , member of the Board of Governors of the Material Handling Industry of America (MHIA), co-founder of MHIAs Supply Chain Execution Systems & Technology Group, recipient of the 1997 Norman L. Cahners and 2004 Reed-Apple awards for contributions to the material handling industry and material handling education, inductee into Modern Material Handling magazine's 20th Century material handling Hall of Fame and named to DC Velocity magazines 2003 roster of Logistics Rainmakers. Widely published, he has given over 300 seminars and presentations for corporate clients, trade and professional societies in North and Latin America, Europe, Asia and Australia. John is also a faculty member of The Logistics Institute at Georgia Institute of Technology.

About ESYNC | TranSystems ESYNC | TranSystems is a strategic supply chain consulting, integration and implementation services firm that helps clients achieve bottom-line results by bringing the real world experience, methodologies and seasoned resources necessary to meet their supply chain challenges. The service offerings facilitate development of supply chain strategies, optimize logistics networks and operations and, when appropriate, deploy technology and software systems. ESYNC merged with TranSystems in April of 2007 and is now part of the management and supply chain consulting services group of TranSystems.

Contact ESYNC | TranSystems today for more information.

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Roadmap to the Flexible Supply Chain

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