Quelle: CIO Asia
SUPPLY CHAIN AUTOMATION is one of the most difficult tasks a CIO hasto undertake. It is uniquely difficult because its complexity extendsbeyond a company's walls. Yet, there are companies that have automatedtheir supply chains and found their efforts worthwhile and downrightrewarding. CIO Asia speaks to the leading IT architects of winning SCMsystems, and unearths one common success factor: they are all organic,put together to be versatile, flexible and adaptable at the drop ofthe partner's or the customer's hat. They are all 'alive'!
Here are their stories.
From Benchwarmer To MVP
Just a year ago, General Milling Corp. (GMC), a manufacturer ofconsumer and industrial food products in the Philippines, supplied 20percent of the soybean oil requirements of its key customer, amanufacturer of mayonnaise and sandwich spreads. GMC was the supplierits customer turned to whenever the latter's main suppliers could notfulfil its needs, or, as Allen Bacallan, director of MIS at GMC, putsit: the benchwarmer, not the star player. Today, however, GMC is verymuch the most valuable player, or MVP; it is this same customer's solesupplier. And at a time when regional economies are contracting, salesis growing, says Bacallan. Credit for these achievements is due toGMC's series of supply chain enhancements, which began twoyears ago.
In 1999, when Bacallan joinedthe family business incorporated in 1958, the entire gamut of thesupply chain activities of the manufacturer of the Granny Goose lineof snack foods, as well as pasta, flour, animal feeds and soybeanoils, was executed manually. Its five manufacturing facilities locatedacross the Philippines operated distinctly from one another, eventhough there were overlaps in the products they made. Even internally,about the only technological sophistication came in the form of someExcel spreadsheets.
"Market conditions had changed drastically by then," says Bacallan."Till the late eighties, all we needed to grow was to be the biggestmanufacturer in terms of capacity, with which we gained economies ofscale in raw material imports, flood the market with our brands, andcustomers' choices would somehow be limited to our brands. But withglobalisation, new players were entering the Philippines market.Customers began to have more choices of products that were customisedto their needs, at prices that they perceived to be giving them valuefor money, and which were supported by bigger budgets in advertisingand promotions."
"In the days before globalisation, the way for management to analysecost and profitability was in terms of bigger picture numbers, such ashow much we were making in terms of sales in the feed business, theflour business or the consumer business. In the new economy, however,we need to mine information in greater detail. For instance, in thecategory of snack foods, where are we making money--is it in brand Aor B, on the 30-gram or 150-gram packs? We need to compete at adifferent level, which necessitates churning out more granular, morespecific data," says Bacallan.
The new economy has propelled this family-operated business away fromold school business rules. "We recognised that because we carriedlow-margin, commodity-type products, such as flour, soybean meal andsoybean oil, we needed to focus on cash turnover instead of margins.When sales are volume-driven, we cannot afford to have a high level ofinventory for raw materials on finished goods. From the demand orsales side, we also needed to have better relationships with ourcustomers so that we can push more products to them."
GMC first put its own house in order by implementing an ERP packagefrom JD Edwards in 1999. Through this common ERP system, itconsolidated its manufacturing operations from five locationsthroughout the Philippines. This alone had an impact on its supplychain: due to synergies gained from raw material complementation,inventories at the corporate level were brought down.
Having consolidated its internal operations, GMC began working on itssupply chain. Fully aware that ultimately the supply chain shouldimpact the revenue stream coming from its external customers, GMC setto the task of using its newly installed ERP system as a backbone forcollaborative commerce with key customers, such as the mayonnaisemanufacturer. Last year, GMC received an outstanding supplier awardfrom the latter for being its "100 percent supplier with 100 percentdelivery and quality performance."
Furthermore, GMC can take some of the credit for helping thatparticular customer grow from just being the biggest manufacturer ofmayonnaise in the Philippines, to being one of the largest in theAsia-Pacific region. "Because of our good relationship with them, theyactually shared with us that next year's orders would be tripledbecause they had been designated the regional source of mayonnaise andbread spreads. And we continue to talk in terms of [forging] acollaborative supply chain," says Bacallan.
Another customer GMC continues to satisfy as a result of its supplychain enhancements is a company it appointed as the marketer of itsanimal feed products. "We realise that our strengths are not inmarketing feeds, but in manufacturing. We share up-to-the-minuteinformation about our current cost of raw materials and inventorylevels with our marketing partner, while they share sales andmarketing data with us," says Bacallan.
He adds: "Animal feeds are peculiar because the major customers do notbuy the off-the-shelf kinds. They go for customised formulations. Abig hog or chicken farm may need a different formulation from another,and the formulation can change when prices and availability change. Wetherefore have to share with our marketing partner how much rawmaterials have been bought and their availability at any point intime, because that becomes the tool for them to price the product andmake quick business decisions on the sale of the product to the bigfarms."
"Animal feeds are a worthy business case to nurture and improve [insupply chain collaboration] as it contributes more than 30 percent ofour business turnover. We are also exploring how other farmintegrators can share with us their requirements," Bacallan says.
Software for All
Aside from its SCM software from JD Edwards, GMC uses businessintelligence (BI) software from PowerOLAP to churn out drilled downsales data. In addition, its ERP system provides an adequatere-por-ting tool for measurement of performance metrics such asproduct delivery, quality and price.
What it doesn't use is forecasting technology. Bacallan explains: "Weuse your usual average-growth-over-last-year andover-last-three-months projection methods. My personal view is thateven if you have the tools, you can't expect them to generate thenumbers for you. At some point, once the numbers are generated, humanintervention is still required. If 80 percent of the time is spentqualifying machine-generated numbers, we might as well not have thetool. What is more important is to train marketing and salespeople toadopt the mindset of better forecasting."
Bacallan has plans for an even greater degree of information sharingwith key customers such as the mayonnaise manufacturer. "At thispoint, our systems are not really collaborative in terms of being ableto talk to each other. I want to explore poking into their BPICSsystem and have them poking into my JD Edwards system."
Chain Challenges
Like many CIOs before him, Bacallan believes change management and theunwillingness to share information are the two most difficult threadsin massive supply chain projects. "It took us more than a year to getour operations and logistics people to think in terms ofcustomer-driven supply chains, and of their contribution to corporatebusiness growth, rather than stick with their compartmentalised viewsof their work. Change has to be championed by management. And everyonehas to be drawn into the process of change, including HR to executebehavioural programmes, training and team building programmes, andoperations to convince people it was the way to go."
The other difficulty was internal and external unwillingness to shareinformation. Bacallan had to deal with people who did not want toshare numbers with those below them for fear of losingconfidentiality. "They had to be convinced that they had to look atthe big picture, and that the appreciation of the numbers would leadto better work," he says.
Another issue was convincing suppliers to share information. "In acollaborative supply chain, there has to be that common understandingof the minimum level of information that partners need from eachother. In the case of the mayonnaise maker, they were open in terms oftheir own inventory requirements and their stock situation, and to alesser extent, sales information. But when they did provide us withsales information, it became add-on data that enabled us to appreciatethe growth of their own business, the better to calibrate our owngrowth to service them. On our end, we gave them information aboutproduct quality and anticipated facility shutdowns."
Although eSCM is part of GMC's plans for collaboration with bigsupermarkets, the latter are still "snooty" when it comes to sharinginformation. "To me, it is better to be collaborative on this: if theyare able to share with us their movement of stock, sales and turnover,we can better plan our production schedule. At this point in time, Idon't see that relationship happening. But it's evolving as there arenew players in the retail industry that are moreprogressive."
Bacallan believes the CIO has a role to play in SCM. "I am not therejust for technology's sake, but for the overall strategy of thebusiness to look into collapsing the supply chain. The solution maynot necessarily be technological but procedural. IT people should movefrom being glorified technicians to being technical specialists thatinfluence business processes in sales, inventory management andmanufacturing. I've evolved my department's role from people that getcalled whenever PCs conk out, to being part of the strategy-makingteam."
Fulfilling Impossible Demands
Just some weeks back, Edward Keller Ltd, a trading powerhouse in HongKong, was called into a "town hall" meeting by its major customer,Hong Kong's biggest supermarket, Park 'N Shop, as were 500 of thesupermarket's other suppliers. There, a bombshell was dropped on them:the supermarket wanted them onboard its next phase of supply chainenhancement. All suppliers had to send their invoices to Park 'N Shopvia EDI instead of hardcopy, to allow it to reduce manual work inreconciling invoices against the thousands of POs it receives dailyvia EDI. And suppliers had to be ready in three months or lose itspatronage.
While some suppliers scrambled to figure out how to fulfil theircustomer's latest mandate, for Edward Keller, it was just another dayin its business life. Being squeezed in the middle of a supply chainresided by customers at both ends, it has to be ready for any supplychain tweaks and yanks at their whim. The distributor serves, on oneend of its supply chain, big supermarkets such as Park 'N Shop andhospitals managed by the Hong Kong Hospital Authority; and on theother, Fortune 1000 principals such as PepsiCo and Merck.
Out-of-the-way customer requests are no problem for Edward Keller,thanks to its early deployment of integrated supply chain software.Edward Keller uses JD Edwards' ERP and SCM software running theOneWorld release, which was implemented in 2000 in replacement of anAS400 mainframe system. It also maintains an open infrastructurestandardised on Microsoft's technology. It has a reporting system thatsends sales inventory and procurement data daily to 25 principals viae-mail or programs written in-house.
Zoltan Peter Szabo, CIO forGreater China at Edward Keller, says early investment in SCM isproving to be worth its while. "The majority of our IT investments inthe past three years almost exclusively revolved around supply chaintechnology such as EDI and reporting infrastructure. Our customers arenot shopping for a set of wheels and four walls to store theirproducts. We play a proactive role in enabling their products to flowdownstream in the supply chain and enable the information to flowupstream. Our systems not only have to transact with customers andsuppliers but channel information," he adds.
Tough Collaboration
Although technology platforms are ready for collaborative commerce,Szabo feels the latter exists more in theory than practice, due to alack of understanding of the benefits of collaborative commerce. "Inour highly competitive industry, people are also keeping their optionsopen, one of which is not to share information with partners so thatthey are free to go anytime," he adds.
But sharing information with customers is more widespread today thanbefore due to the economic recession. "Suppliers realise they have toincrease efficiency by showing customers their inventory levels.Customers, on the other hand, are not buying weeks before consumptionbut want delivery within 72 hours, and the only way to fulfilon-the-spot demand is through information sharing," saysSzabo.
"The market is shifting and we see more and more people opting to notsit on their information and guarding it with their lives, butsqueezing higher profits from it," he adds.
Edward Keller maintains an open-minded approach to real-timevisibility. "Any partner who wants to view our inventory levels can doso. Our major applications are Internet-enabled, and they do notrequire special configuration on the client side. With a browser theycan log into our key reporting and ERP software and see informationbesides inventory," he says.
To overcome partners' resistance to share, Szabo says the firm triesto explain to them that better information could only help them do abetter job. "Sometimes we have to couple this with financialincentives," he adds. "Fully integrated commerce will never happen,but we expect we can reach a 60 to 70 percent penetration ratio in twoto three years' time."
One Step At A Time
Szabo agrees that supply chain projects are an extremely difficultgame, and advises people to do it step-by-step, module-by-module:"Naturally when people buy software they expect all the features to befunctional from day one. I think this is probably going to kill theinitiative. The bigger the scope, the higher the risk offailure."
However, the phased approach may be difficult in practice becausepeople don't like change. "It requires an enormous amount ofindividual discipline to continue to have the feature set of theproduct you have in hand. The key is to go slowly, be very determined,and do it piece by piece," he advises.
This was exactly what Edward Keller did. It first implemented its SCMsoftware within the company to fulfil the basic needs of order taking,inventory management and stock taking; and then it slowly built upmore functionality like EDI and integration with other systems andcustomers. The modules also went "live" division by division. EdwardKeller is currently focusing on increasing its adoption rate ofadvanced planning software and getting away from manual processes inplanning, as well as on e-procurement initiatives with customers, suchas issuing POs via the Internet. "The next level is to focus on VendorManaged Inventory, as requested by one of our major customers, theHong Kong Hospital Authority. This means they will send us informationon their inventory level on a regular basis, and when we receive it,our system must digest it and recommend replenishments whenever stocksare below the safety level, for their approval before shipping thegoods to them," says Stephen Cheng, IS Manager, EdwardKeller.
The company is also looking at providing Web reporting for its majorprincipals. "Our principals want to know what is happening to theircompanies in Hong Kong in terms of profit and loss figures andinventory levels, and they want to see it on one page and have itdelivered in two days," Cheng adds.
On the CIO's role in SCM, Szabo believes CIOs have to be the continualeducator. "We need to show people the promise of SCM and explain tothem what they are missing if they are not looking at and carefullyanalysing what initiatives they should implement," he says.
Reaping Millions
Cementhai Chemicals Co. Ltd., a subsidiary of Siam Cement, operates inone of the world's most speculative markets. The supply chain of themanufacturer of major chemical products including olefins andpolyolefins is both supply- and demand-driven: in an upcycle, whereprices are increasing, its supply chain has to be demand-driven; in adowncycle it needs to be supply-driven. In its manufacturingprocesses, having the right materials at the right time and in theright quantities is a key differentiator--and to achieve this it needshighly effective supply chain optimisation software.
Last October, Cementhai installed software from Aspen Technology Inc.to optimise its supply chain planning. This has revolutionised itsbusiness by increasing the responsiveness of its supply chain planningprocess, says Thamasak Setha-udom, e-Business Manager at Cementhai."In the past, we operated on the produce-to-stock model; today we areveering towards the produce-to-order model," he says. "Before weinstalled the software, it took us one week to plan our productionprocesses, and another one to two weeks to make adjustments to thesupply chain. With today's technology, it takes only three hours. In abusiness where demand patterns change every day, we no longer need tokeep huge stocks of inventory to cover these variations."
Before it installed supplychain optimisation software, its production processes were optimisedmanually. This meant that adjustments to production models could bemade only once a month--but now they can be done every day. "Now thatwe have modelled the supply chain, whenever there is a change indemand conditions, only the parameters need to be changed. In thepast, we had to co-ordinate every single activity in the supply chain,from informing the different parties to getting out built-up physicalinventory," he says.
ROI 2002
The company expects ROI to be achieved in 2002. By the end of theyear, it expects to reduce working capital by US$13.6 million. In thesix months since the installation of the software, Cementhai hasalready saved US$1 million in inventory holding costs, and by the endof the year it expects savings of more than US$2 million."
It is also reaping intangible benefits, among them the ability to bemore responsive to its suppliers and customers. "We collaborate withour supply chain partners using the new Web ordering system from AspenTechnology. This provides us with a history of customer orders that isused for demand forecasting. In the event of a plant shutdown, or anyother unforeseen events, we are able to estimate the impact toindividual customers in advance, and come up with a joint plan tohandle the situation better."
Initial attempts to get its customers to share information with itselfhave been difficult. Thamasak believes a "win-win" situation must becreated. "Customers must get some benefits for sharing informationwith us. For instance, in our industry, the most critical informationthat needs to be shared is delivery date. Since prices change daily,most customers prefer to wait and tell us the date just one day inadvance. In the past, there was no incentive for them to share, butnow we have configured a "Capability to Promise" engine, which canlock the production order and guarantee them delivery by the datedesired."
Thamasak says technically, his SCM project did not cause much pain."We had the best people-- more than 50 of them from around theworld--including consultants from IT One, an Accenture and the SiamCement Group joint venture. The great pain was effecting theorganisational change required. People had to learn new skills andchange--and how to drive that became key. We tackled this throughsurveys, assessments, group interviews and training. It involved thewhole organisation, including HR, with support from top management. Weare fortunate our organisation is a young one with staff averagingjust 27 years old," he says. It took Cementhai almost six monthsbefore the system could deliver organisational capabilities,he adds.
Cementhai Chemicals is not the only business unit under the SiamCement Group that has embarked on a supply chain reengineering effort.The forward looking Group, one of Thailand's largest conglomerates,has also installed supply chain software from i2 Technologies at itsDistibution business unit for a year. The Group also plans to increasesupply chain planning and optimising capacity at two additionalbusiness units--Cement and Building Products--with i2's SCM solutions.The project is in its sixth month of roll-out.