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Chuck Schaeffer How Supply Chain Management Software Can Boost Profits

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 By Chuck Schaeffer

Combining Strategic & Operational Planning For Bottom Line Impact

Forecast error correction algorithms and warehouse slotting optimization schemes are two examples of how Supply Chain Management (SCM) software with accompanying best practices can deliver bottom line impact. But SCM software vendors have recently taken on efforts to deliver even more advanced strategic and operational planning best practices. This is having a transformative impact on the ability of organizations to compete and boost profits. Advancements in SCM best practices are focused on exploiting demand to its full potential, while minimizing cost, optimizing capital and mitigating risks.

Demand Management

Most Supply Chain Management software vendors provide the features and automation to approach demand management with a four prong strategy of segmentation, forecasting, shaping and fulfillment.

Instead of only using advertising and marketing demographics, SCM software should also be configured to manage and prioritize customer segments based on the contribution to the organization's competitiveness. Examples of values that contribute to competitiveness are growth, profits, cash flow, prestige, economies of scale and trade knowledge. Segmenting customers based on competitive value allows for better allocation of scarce resources and improved alignment of SCM strategies with the organization's business goals.

Forecasting based on quantitative methods is mature and robust. The problem is that the forecasts are too often driven by historical trends. Quantitative methods don't take into account other drivers that impact demand. To look forward, forecasting needs better visibility of the other drivers affecting demand. For example, the economy, innovation, technology obsolescence or pricing for flat screen TVs can cause a major swing in demand that cannot be detected from last year's demand. Forecasting systems should track events affecting other demand variables and allow for "what if analysis" and predictive modeling to be included into the forecasting process.

Historically, companies use demand shaping to gain market share, sell off excess inventory and promote new products. Supply chain software is integrating demand shaping into the planning, forecasting and execution processes. This insures that the whole organization is onboard to coordinate and execute demand shaping strategies.

Fulfilling customer orders and inventory requirements are critical processes in optimizing demand. With perfect forecasting and inventories, all that is needed is a good execution plan and follow through. However, since we cannot count on perfect forecasting and inventories, SCM software should also incorporate valuable planning functionality to manage fulfillment priorities and commitments.

Exploiting demand to its full potential should be an SCM software deployment objective. Providing feedback to the product planning team so they can better meet the needs and requirements of the organization's customers is another benefit of demand management best practices—and effective in increasing repeat business, growing customer share, improving up-sell and cross-sell campaigns, and aiding top line revenues.

Balancing Cost, Capital and Risks

So do you outsource manufacturing to reduce cost and capital investment? The benefit must be weighed against the down side of increasing inventory levels to support longer lead times, as well as hidden costs and new risks born from outsourcing.

After careful analysis and number crunching, outsourcing may make sense. In one scenario, SCM software with fully integrated planning that crosses long, mid and short term timelines may effectively manage a new operating model. But if it is decided that the costs with associated risks of outsourcing manufacturing outweigh the savings, or otherwise pose risks beyond acceptable mitigation, then the strategy turns to optimizing the current model. Again, SCM software with fully integrated planning remains a critical feature.

Modern supply chain systems collect reams of data which if unstructured can be overwhelming and paralyzing to the planning and decision making process. But the software vendors are also integrating SCM data with planning functionality. Along with reporting and monitoring tools, organizations have unprecedented access to quality information. To enable better planning and decision making, SCM software is providing greater visibility to product and information flow, key metrics, performance results, exception events and variance analysis with projected versus actual figures.

Incorporating collaboration into the planning and forecasting process is an area where SCM software vendors are improving the quality of the planning process. Some examples of this would include: coordinating transportation with 3PLs, collaborating on forecasts with trading partners, and joint planning among sales, operations and finance. The software not only facilitates the collaborative planning process, but is able to track progress and results thereby providing the input for future planning.

Because of the strategic and operational planning that is being integrated into supply chain management software, organizations are better equipped to execute their strategies. SCM software features are facilitating efforts to drive down cost across the supply chain by optimizing resources and coordinating efforts. Inventories can be managed at lower levels while at the same time increasing service levels. Risks are mitigated by tracking the flow of goods from the factory floor through all modules of transportation, storage locations and handling of goods. Full robust planning enables management to maintain the optimal balance of cost, capital and risk.

The Supply Chain Software Bottom Line

To achieve ongoing and sustainable improvements to competitiveness, supply chain management has to have the flexibility and means to optimize relationships, market demands, and supplies. This requires an organizational model capable of deploying SCM processes across department and organizational boundaries while maintaining some centralized command and control. Correctly deployed, SCM software that facilitates advanced strategic and operational planning will clearly enhance competitiveness and boost profits. End

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Exploiting demand to its full potential should be an SCM software deployment objective. Providing customer feedback to the product planning team so they can better meet customer needs is another benefit of demand management best practices—and effective in increasing repeat business, growing customer share, improving up-sell and cross-sell campaigns, and aiding top line revenues.


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