What Are the Benefits of Integrating ITV with Software Solutions

With increased visibility into the supply chain, an organization will improve its forecasting, planning, inventory, and overall service to its customers. Here is a list of benefits an organization is expected to achieve within its supply chain (see In-Transit Visibility):

1. Reduced transportation costs
2. Reduced inventory holding costs
3. Reduced depreciation costs
4. Reduced average lead time
5. Reduced lead time variability
6. Reduced vulnerability
7. Improved compliance
8. Improved on-time delivery performance
9. Reduced backorder costs
10. Reduced lost sales
11. Improved efficiency of succeeding processes
12. Increase speed of payment

When looking at the benefits mentioned above, a question arises: How will some benefits complement the information feeds into the software solutions used to communicate information throughout the value chain (providing inventory and material visibility inside and outside the organization)?

1. Lower transportation costs: This can be achieved by linking the transportation management system's (TMS) functionality with ITV for creating specific or modified routes based on delivery, location, driver, and equipment availability. ITV-facilitated procedures linked to TMS modules will most likely bring reduction in costly routes; use of cheaper routes (which does not affect on-time delivery performance); identification and resolution of bottlenecks beforehand (frequent updates from ITV can provide an ETA to arrange efficient methods of handling of goods without creating bottlenecks); and use of intermodal transportation (inbound and outbound shipments can be coordinated to reduce wait times of shipments and on-hand inventory). As well, by reducing the overall transportation cost organizations can bypass some of the associated links within the route to provide higher customer delivery rates.
2. Reduced inventory holding costs: With the use of ITV, organizations can update their TMS and warehouse management system (WMS) periodically to provide information about available material as well as information regarding freight mode (rail, truck, container or air cargo containing inventory). This will help the organization to reduce inventory holding costs by removing doubt from the transportation process. This means that organizations don't need to hold inventory on hand or create safety stocks for goods in order to deal with uncertainties in transportation. Organizations with highly-priced products or short product lifecycles will benefit because ITV will eliminate the tie-up of financial resources as well reduce the depreciation value of products.
3. Reduced depreciation costs: Having the ability to identify a freight that's going to lose product value is crucial for an organization's bottom line. The ability to connect ITV with quality management functionality will enable the dispatcher to work within the TMS and supply chain management (SCM) systems to identify new routes or delivery locations. It's necessary for sensitive or perishable products to be tracked through the transportation process. With the help of ITV, a product can be delivered through change-in-route processes or by realigning the delivery to a different customer location, and the goods won't lose their value due to environmental, temperature, and other issues. By identifying and quickly taking appropriate actions while the product is in-transit, an organization can reduce the depreciation cost of a product.
4. Reduced average lead time: A TMS helps in providing an average lead time for all the different routes and products being delivered. A TMS provides information to a CSR and dispatcher concerning transportation times from one location to another, withholding of goods at customs, and awaiting change in transportation mode. By creating a link between custom brokerage and a TMS, ITV can help reduce average lead time by providing insight to brokers about goods (inbound into customs) and creating appropriate channels to process paperwork without having to wait at the border or terminal. Also, if a shipment is arriving via a container, a truck can be at the port to receive the container without delay. With appropriate measures, an organization can use ITV to create better transportation lead times for products.

Why Is In-transit Visibility (ITV) in the Supply Chain Important

Picture this: a customer service representative (CSR) gets a frantic call from a customer asking about parts. In this scenario, the customer is waiting for the supplier to deliver critical parts for a product which is scheduled on the line in a few hours. The customer service department's initial step is to check the order status where the item will be identified as being delivered, en route for delivery, awaiting customs etc.

Usually, tracing the shipment to a particular order is more complicated than just opening up the order status screen. If a product is en route, the CSR should be able to connect the item with the delivery truck and provide an estimated time of arrival (ETA) at the customer's location. At times, it's very crucial for customers to have this information in order to figure out if they should reschedule a production line or just wait for the product. But the hurdle in answering this question is figuring out how far a truck driver is from the delivery location and if the inventory can be located in-transit with a third-party logistics provider (3PL).

More and more companies are trying to realign their supply chain due to competitive pressures, by identifying new areas for revenue and improving overall customer service by providing on-time delivery of products with fewer errors in shipments and fewer damaged goods. Usually an organization's supply chain creates the rhythm for the whole organization. Wouldn't it be great to see inside a truck at any given time during the transportation process to figure out which finished goods are being delivered and which items the organization will be receiving?

Having the ability to identify, change, and monitor shipments from origin to destination gives an organization reliability, flexibility, and transparency within the entire supply chain. With the use of in-transit visibility (ITV) capabilities an organization will be able to meet the challenges of rapidly increasing fuel prices and changes in regulatory requirements, and provide customers with premium services without increasing the total cost of operations.

To further explore ITV, it's beneficial to understand the origin of the concepts. The ITV concept originated from the U.S. Department of Defense (DoD) in the early 1990s. It was mainly used by the DoD to achieve better visibility to track goods within the supply chain in war zones. Now, the ITV concept is being adopted by many transportation companies to provide extended visibility for their customers and used for an organization's internal operations.

A technical report written by Asvin Goel on In-Transit Visibility provides a complete overview, defines the concept, and answers the following questions: How is ITV achieved? What value does ITV create for the organization's supply chain? How is value created by ITV's implementation to the overall performance of the organizations supply chain measured? In the next two sections, our main focus will be on the overall concept of ITV. We will examine how an organization's transportation operation benefits from ITV and how it can be integrated with software solutions.

How a TMS Can Help Manufacturers: An Example

Let’s look at a concrete example to see how a TMS can help organizations optimize their entire value chain. Because the manufacturing environment is now global, this example will involve China, Canada, and Spain as parts of a manufacturer’s complete value chain. Consider the following scenario:

A manufacturer of cellular telephones has one DC in China, another DC in Vancouver, two manufacturing plants in China, one retail location in Vancouver, and another retail outlet in Spain. Thus, this manufacturer’s supply chain is highly complex for many of its suppliers and distributors to navigate. Figure 1 depicts the process, or flow, for moving product throughout this supply chain.

Figure 1. A value chain model.

Because products must be moved across many countries and via several transportation systems, three scenarios are possible:

1. The manufacturer will send the cell phones directly from the DC in China to the retail location in Spain. In this case, planes and trucks (air and ground methods) will be the chosen modes of transportation.
2. The manufacturer will have the cell phones moved through the DC in China to Canada (either by ocean or air), transported to the DC in Vancouver, and on to the retail location.
3. The cell phones are moved from China to the DC in Canada, but they are sent back to the China DC because of product defects. In this case, the DC in China sends the cell phones back to the manufacturer in China, which either repairs the defects or sends the phones back through its supply chain.

All three of these scenarios involve heavy TMS functionality. The scheduling and routing, cubing for the cell phone boxes, consolidation for cross-docking in different loading zones, dealing with geographic setups, and scheduling all types of transportation modes are critical to this process. If one of the DCs or manufacturing plants does not deliver its products on time, the TMS will adjust the scheduling or find an alternative route.

Because TMS solutions can optimize the loads put onto different vehicles or other modes of transportation, managers in this example can determine how much the fuel to deliver product to the different DCs will cost, and they can know when product is to be delivered and the optimal amount of goods to deliver to the appropriate location. The TMS incorporates the appropriate information into the routing optimization tool. This gives individuals within the supply chain the best information on how to save money and time by knowing what products to send and how to send them. This knowledge saves a company money on fuel and time, and ultimately increases the manufacturer’s bottom line.

Given the growing need to move products inland and the increase in fuel prices, TMS software is a vital tool for today’s logistics industry, and the need for this enterprise application will only increase in the next five years.

As manufacturers’ supply chains continue to expand, developing networks and using different modes of transportation (truck, rail, air, and boat) can be quite a challenge. Networks and the use of these transportation modes need to be optimized. Otherwise, the following basic questions will be exceedingly difficult to answer, leading to serious visibility problems for the manufacturer:

* Where are the goods now?
* When and where are the goods to be shipped?
* What mode(s) of transport should be used to ship the goods?

So, what exactly is a TMS?

A TMS is designed to manage the different modes of transportation used to move products, whether finished or semi-finished. Transportation modes consist of ground, air, rail, and sea transport. A TMS determines the optimal path to transport products based on distance, location, and route.

The Anatomy of a TMS

A TMS’s basic functionality is comprised of the following:

Lane set-up: This has to do with multimode types of transportation. If moving a certain product requires three types of transportation methods (for example, rail, truck, then rail again), the system will be able to schedule all three of these means of transport.

Geographic set-up: This will link geographic locations together, as well as set up the service levels between different parties along the logistics chain.

Carrier and contract details: Whether the company using a TMS solution is outsourcing some of its transportation needs or managing transportation methods itself, the system will research the best rate of each carrier (transportation or logistics company), and select the carrier with the best price. Sometimes however, if a carrier has received three strikes against it (for example) for not delivering product on time, the system will not consider it an option, even if it offers the best price; the TMS solution will select another carrier that will fit the needs of the client, even if it’s more pricey to deliver. As well, sometimes the carrier with the best price is not in the appropriate range of location; thus, the TMS will not select it.

ERP System Constraints in the Process Industry

For lack of an available solution designed for their needs, some process manufacturers have attempted to implement an ERP system for discrete manufacturing. As there are several fundamental differences between the operations and practices of process and discrete manufacturing, opting for such a stop-gap measure is not always effective. Process manufacturers have no doubt noted the constraints that are placed on their operations as a result of using a system that was not designed for their needs.

The nature of the process manufacturing business is such that it is difficult to manage inventories and profits. Process manufacturers experience large quantities of finished product in transit and of raw inventory. The products often have low yields with substantial scrap (fine chemicals, pharmaceuticals, or plastics).

Business dynamics is putting demands on ERP systems to help with

* maintaining a lead over competition
* simplifying the product lines
* responding to shorter product life cycles
* providing mass customizations (car options, computer system accessories, etc.)
* complying with regulations compliances

In an attempt to meet these demands, many manufacturers have looked at ways to improve supply chain optimization by re-examining manufacturing processes, relocating closer to markets, and looking at cheaper energy, transportation, and labor. The businesses' needs are such that an ERP system must be powerful enough and diverse enough in functionality to do more than simple process manufacturing.

Specific Requirements of an ERP System for the Process Industry

1. Conversion process capability
In the process industry, the bill of materials (BOM) used in discrete manufacturing is replaced by the master product formula, or simply the formula. The formula requires a conversion table for measures, such as weights from grams to pounds, and must have the ability to record liquid units of measure, in both metric and US-standard. The formula must also record specific information related to product characteristics that can affect manufacturing processes. For example, in the blending process, the system can record product information such as percentage calculations of raw materials, and the effective specific gravity, potency, density, and number of reactives of those raw materials.

2. Interface to other modules
The master formula can also be linked to submodules like quality assurance (QA), procurement, inventory, and accounts payable (A/P) for government compliance and safety issues. Also, the manufacturer must be able to trace products in order to manage dating of inventory lot control and the amount of inventory available at the distribution level. Furthermore, there are government and regulatory concerns that deal with the nature of the materials, as there may be a controlled substance with specific shipping, handling, and storage regulations. Or, the manufacturing process may emit hazardous by-pr
A process industry ERP system must also have a formulation-balancing operation based on the premise that the QA group tests random samplings of production batches. The system needs the ability to adjust, through a program logic control (PLC) interface, any variations in materials used and external factors such as humidity, temperature, cool-down speeds, etc. Also, the material flow and consumption is recorded back into the ERP system. The system's routing functionalities reflect those capabilities as a requirement or not, depending on the user's specifications.

Process Industry Manufacturing Challenges

Manufacturers in the process industry are at a difficult crossroads. Although the industry is not facing any imminent substantial decrease in its overall profit margins, there is concern in the industry according to a recent study by the Canadian Manufacturers and Exporters Association, which cites the following issues:

* increased global competition
* foreign currency fluctuation
* changing patterns of customer demand
* escalating business costs
* problems in implementing new technologies
* competitive business pressures
* shortage of skilled workers

To address these issues, process industry manufacturers and distributors must manage the following key activities, and ensure they use an enterprise system that supports these activities:

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Planning production for both materials and capacity—to develop a production plan, manufacturers must ensure that there are sufficient available resources and materials, production capacity, and labor.
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Inventory tracking and controlling work-in-process (WIP)—monitoring material consumption and tracking work order progress is the basis of manufacturers' being able to meet sales order, demand, and delivery dates.
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Replenishment and demand planning—the ability to review variances between forecasted and actual sales is the basis of managing vendor lead times and raw material replenishment.
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Managing the supply chain for order fulfillment—reviewing the global supply chain provides manufacturers with the ability to coordinate logistics and operational activity to meet customer order fulfillment expectations.

An Analyst's View of Process Industry SMB Challenges

The process industry provides many of the products we use in our daily lives for food, shelter, and health. Such products are created as materials and transformed through the use of energy resources and chemical products. In addition, the process industry manufactures products that are essential to advanced industries such as computing, biotechnology, telecommunications, automotive, scientific, and space exploration.

These industries are facing major pressures not only to meet the present needs of our global economy, but also to do so without compromising future generations by ensuring that processes

* meet environmental guidelines
* optimize energy resources efficiently
* result in products that are safer, more reliable, and more functional
* provide features that meet both industry and consumers needs

This article focuses on how enterprise resource planning (ERP) vendors are helping the process industry meet both the needs of today and deliver on anticipated functional requirements that will help meet the needs of tomorrow.

Tip Four: Master the Demand Forecasting Process

Too many companies fail to give demand forecasting the attention it deserves, and this is often the undoing of even the most aggressive lean supply chain project. If you think of a demand forecast, the more accurate it is, the better position you are to supply to the market with what the market needs. Conversely, basing a lean supply chain effort on an inaccurate demand forecast is like building a house on a foundation of sand.

If you can increase demand forecast accuracy, you can decrease your inventory and increase your level of customer service at the same time. Unfortunately, most companies divide responsibility for the demand forecast among multiple departments. Sometimes, the process is owned by the sales department, and they tend to be too optimistic, because optimism is in their nature and they want to avoid disappointing a customer by being out stock. At the end of the day, no one is specifically responsible for forecast accuracy, perhaps, in part, because the company lacks the proper tools to develop an accurate forecast. It is not surprising that, as a result, this crucial role tends to “fall between chairs” in many enterprises. It is imperative that a manufacturing enterprise assign demand forecasting to an independent party within the company that has more of a holistic point of view than would sales, manufacturing, or any other specific department.

Technology Tools to Look For

There is no technology or enterprise application that will, all by itself, deliver lean supply chain benefits. However, as you embark on your lean journey, you will be much more successful if your enterprise software supports and streamlines your lean efforts instead of preventing barriers to the adoption of lean supply chain practices. Here are five things to look for in enterprise technology to help you make sure that your new enterprise environment is helping and not hurting.

Tip Three: Run Parallel MRP Processes

For instance, many companies operate with one single MRP process. Consider that company that manufactures in a make-to-stock (MTS) mode, whose executives feel that this single MTS enterprise system is adequate for their needs. This attitude is fine—if a manufacturer has a stable, predictable demand for all of its products. But in reality, few manufacturers have the luxury of flat demand. More often the rule of Pareto is applicable. This rule suggests that 20 percent of products have a stable demand, and you can manufacture them efficiently in large quantities. But the other 80 percent of a manufacturers' part numbers are ordered less frequently, and therefore need to be treated differently in the company's processes, systems, and scheduling. This is why virtually any MTS manufacturer should run in multiple manufacturing modes. Most MTS manufacturers would gain from a parallel make-to-order (MTO) system. This will avoid the stockpiling of a large number of items that are more effectively handled in MTO mode, freeing up both capital and production capacity for other products, all without sacrificing responsiveness or customer service. By continually analyzing demand patterns and inventory turns, the point of postponement can be changed over time to achieve the optimal balance between efficiency and responsiveness.

A modern, agile enterprise application will include all of the necessary tools to handle these multiple modes. Apart from ensuring that they have the proper enabling technology, manufacturers will need to carefully analyze the demand patterns for their finished goods and divide them into MTS and MTO.

Click to enlarge

Figure 2. Demand Planning—Minimize the forecast error and improve customer service without sacrificing inventory turns.

Tip Two: Extend Systems to Suppliers

Once the basic problem of aligning manufacturing schedules with demand is taken care of, the greatest bottleneck to improved supply chain efficiency is often the disconnect between internal scheduling processes and those of external suppliers. Companies that are vendors to major original equipment manufacturers (OEMs) know that large manufacturers are working to eliminate this bottleneck, and are often working with suppliers on a proactive basis to help them become more responsive.

Technology can play a vital role in eliminating this constraint. In the case of our paint and coatings manufacturer, one of their main bottlenecks was packaging. They outsourced printing on the cans their product was shipped in, which meant that the supplier cannot finalize their own can production schedule until they know the exact product numbers that will be filled. Their packaging actually took longer to produce than the manufacture of the product itself. Even though the cost of the packaging is low in comparison to the actual product to be filled, the scheduling of the packaging supply is one of the most critical and difficult parts of production planning.

The solution was to set up a supplier portal, so that the packaging vendor and other suppliers could look into the production plan and prepare their own schedule accordingly. This eliminated a lot of the manual and administrative work involved with interfacing with a supply chain partner in real time, removing all manual intervention and administrative delays. Portals of this nature can also provide a longer view of anticipated production so that vendors can manage their own inventories and plan their own capacity according to anticipated demand.

Click to enlarge

Figure 1. A supplier portal eliminates administrative waste and integrates the supply chain in real time.

Nine Ways to Use ERP to Make the Manufacturing Supply Chain Lean

Lean in a supply chain context is about a holistic view of procurement, manufacturing distribution, and sales order processing. This means that some level of enterprise technology is necessary to view the organization in an integrated context instead of as functional islands. However, before technology can facilitate the lean supply chain, manufacturing executives need to start thinking in lean supply chain terms. We will be reviewing those terms and sharing the key concepts that are the foundation for the lean effort. In short, we will discuss:

* Four tips to help you bring lean supply chain improvements to your manufacturing operation.
* Five technology tools that help automate these lean supply chain practices.

We'll use a few practical examples along the way to illustrate these concepts, but our main goal will be to define the specific things manufacturing executives can do to make their supply chain lean.

Tip One: Resolve Conflict Between Manufacturing Efficiency and Customer Service

One company that I have been involved with from a lean supply chain perspective, is a manufacturer of paints and coatings. After implementing their new enterprise application, they wanted to use the new-found visibility of their operations to implement a lean supply chain program. They found that before you can lean an organization, you have to have a good idea of what your current operations and processes really are. Then, once you know what you are doing, you can decide on process changes and then measure to what extent those changes have reduced non-value-added work.

What became immediately apparent is that like most manufacturers, this company faced the same conflict between the need to be efficient in production and the need to be responsive to customers. The manufacturing department tended to schedule for maximum efficiency by producing very large batches. This enabled efficient purchase or raw materials , maximum return on machine set-up time, manufacturing personnel, and other costs. Large batches are simply a good way to minimize the cost per produced unit. Low cost-per-unit is attractive, but it is in conflict with the goals of the sales organization. While manufacturing is rewarded for efficiency, the sales department is rewarded for serving the customer, which in turn leads to increased revenue and commissions. If manufacturing commits production capacity to large runs that are not immediately tied to customer demand, it might be difficult to meet the needs of customers as those needs change and fluctuate during the year. An item that is requested might not be in stock and may not be scheduled for production at a time when immediate capacity is committed due to the high-volume production schedule. Moreover, these large production runs mean that large amounts of capital are tied up in finished product inventory long before any revenue can be realized.

In the case of food and beverage and some other process industries, these large production runs can also result in spoilage as the effective life of raw materials and finished goods is spent sitting on the shelf.

The paint manufacturer did the obvious thing—decrease its batch sizes. Going forward, manufacturing would not be making unilateral decisions about batch sizes and production schedules, circumventing their natural tendency to focus on manufacturing efficiency. Instead, they would now be obliged to produce only enough to cover a certain period of time based on the sales projection. That means that every product will now be produced more frequently and in smaller batches. To encourage this behavior, other metrics and key performance indicators (KPIs) can be introduced that are more holistic and based on customer service levels and inventory turns, rather than just production output.

Example of Supply Modulation towards Demand

A high product volume/mix CPG company in the southern United States had chronic problems with perfect order rates and operating cost overruns, typically caused by constant changes to the master production schedule, which in turn trickled down to an increased number of production changeovers and labor material mismatch. After years of running segmented processes and focusing on pushing volume out the door (without being able to deliver on the above critical objectives), the company started to look beyond its walls, and formed cross-functional sales-manufacturing teams to realign the supply process.

The team focused on two fronts. The first was tracking and understanding true consumer demand patterns of core products across all channels. This was followed by restructuring batch sizes to develop additional flexibility and minimize impact due to demand variation. By partnering and proactively communicating with retailers and other distributors, the sales team started funneling demand intelligence such as in-store promotion plans and (in some cases) POS information. Additionally, order fulfillment metrics were redesigned and customized across all channels to measure exactly what was important to these customers.

On the manufacturing side, the batch sizes of random medium- to low-volume products were reasonably increased to prevent schedule changes, and the batch sizes of steady high-volume products were reduced and sequenced back-to-back in tune with actual demand, so that batches could be added or removed quickly without causing major changeovers. This raised the short-term quantitative capacity flexibility, and hence responsiveness. Initial results of this process redesign was a sustained 9 percent increase in perfect order rates and a 20 percent setup time reduction due to a lower number of changeovers. Additionally, by slowly gaining trust, the company even began to influence the replenishment plans of large retailers.

Characteristics of the Demand-focused Approach

This approach encourages holistic design of all supply processes and information flows, in order to take care of end consumer demand rather than only the upstream requirements of factories or distribution systems.

Instead of asset-focused supply chains, the demand-focused approach fosters constant communication and correction of deviations between demand, supply, and product processes.

It requires change management and significant rethinking of the way process execution happens, in order to address continuous improvement of business-critical objectives like perfect order rates, operational efficiencies, and overall cost control. Table 1 depicts the differences between the two approaches.

Traditional	Demand-focused
Excessive focus on cost	Balanced multiple objectives
Continuous replenishment	As-needed on-time replenishment
Big batch, high-volume manufacturing	Flexible shorter batches in tune with demand
Information gaps or segmented processes	Fully integrated for complete demand visibility

Table 1. Traditional versus demand-focused approach within linear supply chains.

Using Demand to Drive Supply Networks

Until recently, CPG companies have adopted ad hoc initiatives to control costs and improve service levels, and over time many of these initiatives have been exhausted. Now is the right time to look beyond traditional practices and transform existing supply chains into illuminated and informed supply networks. Companies must start focusing on all forms of demand inputs from retailers, distributors, channel partners, and even end consumers, and use these as a guiding light to steer supply in the right direction and to enlighten its entire supply network with timely information.
In any dynamic system like a supply chain, variability is inherent. Sensing the variability in time and formulating strategies, innovative processes (and the technology to respond quickly to these variations) sets progressive companies apart from the competition. Using demand to regularly modulate the supply process is the new generation of SCM that integrates demand, supply, and product processes across the network of customers and suppliers to balance revenue against cost. It is a system of tightly linked processes and technologies, which not only responds to demand, but which can also reshape demand through solid collaboration with value chain partners in the market place.

Limitations of Traditional CPG Supply Chains

As explained above, CPG companies continue to face pressure on multiple fronts, and are not able to deliver efficiently and flexibly, due to the inherent limitations of the existing supply chains.

Internal silos and closed-loop activity
Instead of taking a holistic view of the supply chain, most companies are more concerned about local metrics and local departments; they lack of broader participation and commitment during critical phases such as forecasting and sales and operations planning. The mind-set is still of firefighting and knee-jerk reactions. Typical examples include manufacturing pushing for volume to keep their metrics of cost per unit and capacity use in control; and sales going out independently and striking promotion deals with retailers and distributors, without properly understanding the supply constraints. The infamous hockey stick effect (see figure 1) is prevalent in many CPG companies, and indicates low supply orientation and disparate management within their own supply chains.

Figure 1. The hockey stick effect.

Lack of flexible processes for dealing rapidly with change
Typically, traditional supply chain management (SCM) strategies and systems work best during steady states, but respond poorly during new product ramp-ups, surge demands, or a short lead time promotion. With shrinking product lifetimes and increasing product mix and distribution channels, traditional supply chains are slow to match the requirements of dynamic product portfolios. Excessive focus on asset or labor use, along with a lack of proactive constraint management practices and dynamic information feedback, combine to slow response times to the inevitable changes in the market place as well as with internal processes.

Traditional supply chains do not consider essential demand signals
The traditional demand indicator of forecasts frozen ahead of time can be too distorted, and does not take into account recent changes in actual demand. This practice, in conjunction with inherent uncertainty in forecasts, can add costs and unwanted inventory for manufacturers.

Increasing power of retailers

By leveraging geographical spread and strong consumer relations, retailers are able to demand more and more from suppliers in terms of lower costs and higher service levels. As with the CPG companies, the retailers are also chasing the twin priorities of constant shelf availability (by synchronizing stock flows to the store) and reduction of excessive in-store stocks and labor, in order to cut total retail supply costs. In spite of a strong focus on reducing out-of-stocks at the shelf, the numbers below indicate an opportunity to bring this metric up, without which both retailers and CPG companies stand to lose business. Channel- and account-specific requirements such as new labels and pallet size, diverse ways of sharing point of sale (POS) data, and (most recently) radio frequency identification (RFID) of products mean extra time, resource, and cost pressures which the CPG companies cannot resist.

Rising inventory
Consumer fragmentation has also driven CPG manufacturers to have wide assortments within categories. With higher service level expectations, most manufacturers have a tendency to build finished goods inventory to be able to respond better. Combined with a "make to plan" business process, inventories of raw materials and work in progress are also at higher levels. While most industry segments have reduced inventory levels gradually with improved supply chain processes, the CPG industry is still saddled with higher inventory and the associated inefficiencies.

Business Challenges in the CPG Vertical

With pressure coming from diverse sources, the limitations in existing CPG supply chains can lead to severe challenges that highlight certain fundamental areas for improvement. But those are not the only difficulties. CPG companies also face specific challenges inherent to the industry.

Decreasing profitability and market share
The one-strategy-fits-all approach within linear supply chains has not been adaptable enough to meet rapid operations that switch between requirements for low-cost/high-volume commodity products and low-volume/high-cost premium products. Typical asset- and cost-focused arrangements have diverted attention from anticipating and responding to unique and niche market requirements, leading to reduced growth and profitability. Also contributing to lost market shares is the intense competition from private label products. Furthermore, some low-growth local brands became targets for acquisition by stronger regional (as well as national) brands, leading to extended supply chains and hence added complexities and cost.

Effective management of promotions and new product introductions
Lack of communication or wider collaboration with retailers and distributors (as well as with internal teams) are significant factors in the less-than-stellar performance of CPG companies with respect to promotions and new product introductions. A number of CPG companies do not have formalized internal stage-gate processes to justify and effectively drive new product demand. Also, companies tend to focus more on initial new product sales (for example, for the first two quarters) and ignore subsequent demand, which then provides only partial insights into product failure or success factors.

Added costs due to regulatory compliance requirements
Regulatory bodies, including the United States Department of Agriculture (USDA), tightly regulate the packaged food and beverage sectors on the following mandates:

* Hazard Analysis of Critical Control Points (HAACP) regulations—quality control records and manufacturing data access
* Occupational Safety and Health (OSHA) requirements—material safety data sheets (MSDS) maintenance, good manufacturing practices (GMP), and safety programs
* country of origin labeling requirements

Using Demand to Modulate Consumer Packaged Goods Supply Networks

The success of consumer packaged goods (CPG) supply chains in profitably delivering the right products, to the right place, at the right time, has largely remained theoretical. The focus is still to make planned products at the right times, as opposed to just the right products. This implies a "push" culture, and constitutes excessive focus on volume and capacity use. For too long, linear supply chains have fallen short—in many ways—in terms of delivering the flexibility and customer response needed to achieve superior bottom line results.

CPG companies have also realized that branding strategy alone is not enough, as consumers are more concerned about cost and quality in many categories (particularly for commodity products) than brand. Superstore retailers have developed strong consumer relations, and with their purchasing power are compelling suppliers to deliver higher levels of service. Additionally, the proliferation of store brands is cutting into the sales of traditional brands: gone are the days of the trade-offs where CPG companies sacrificed cost for service, as the need now is to balance and hit the multiple yet important objectives of cost, service, inventories, and quality.

A key area that has the potential to boost enterprise performance, as well as dynamically support new product introduction for customer retention, is the way the company supplies its customers. Gaining visibility and agility across supply channels is vital. Other survival requirements in today's competitive market place include knocking down internal silos; transforming closed-loop supply chains into illuminated open-loop supply networks through unflinching focus on demand; and fostering collaboration with consumers as well as with value chain partners.

Supply Chain Management Audio Conference Transcript

I'm going to begin with an overview of problems and solutions relating to technology selection, starting first with the problem:

According to our research, over 80% of enterprise technology evaluations run over time and budget, and once completed, over 50% of the implementations fail to meet functional and total cost expectations. There are three main reasons that project teams run into trouble.

1. They have no effective way to identify the critical vendor and product questions necessary to successfully initiate the evaluation process.

2. They have no ability to prioritize the different criteria, once identified, relative to one another. As a result, final priorities are often more the result of internal political agendas than true needs and requirements.

3. And finally, project teams have no ability to gather objective, validated, updated data on the vendor alternatives. As you may well know, vendors have a tendency to exaggerate product, service, and corporate capabilities if it enables them to move to the next phase of the deal.

The solution is to create a structured, repeatable process for evaluating technology solutions and the vendors that provide them. Best practices drawn from our clients that have completed internal technology selections suggest that project teams should examine five key categories of criteria. The first two categories examine product specific capabilities, while the remaining three investigate the software vendor's overall corporate capabilities.

So let's review these criteria categories.

Number 1: Product Functionality - Product functionality is the most obvious evaluation criterion and plays a dominant role in supply chain management software selections. Simply put, this evaluates the features and functions delivered by the product as it currently exists. Together with technology and architecture, product functionality often makes up over 90 percent of the overall importance within IT selections, but this is probably too high. Other criteria such as service/support, corporate viability, and strategy should make a stronger contribution.

Number 2: Product Technology - Product technology defines the technical architecture of the product, and the technological environment in which the product can run successfully. Sub criteria include things like application architecture, software usability and administration, and platform and database support. Relative to the other evaluation criteria, best practice selections place a lower relative importance on the product technology criterion. However, this apparently lower importance is deceptive, because the product technology criterion usually houses the majority of an organization's mandatory criteria, which usually include server, client, protocol and database support, application scalability and other architectural capabilities. The definition of mandatory criteria within this set often allows the client to quickly narrow the long list of potential vendors to a short list of applicable solutions that pass muster relative to the most basic mandatory selection criteria.

Number 3: Corporate Service and Support - This criterion defines the capability of the vendor to provide implementation services and ongoing support. Repeated industry surveys have identified this category as the single largest differentiating factor among potential selection options, as well as the greatest indicator of ultimate user implementation success and long term vendor viability. A proper professional services and support evaluation should include both subjective, qualitative measures validated by current product users, and objective, quantitative criteria within both the professional services and product support categories. Service and support includes categories such as consulting, systems integration, project management skills, geographic coverage, language and time coverage of the vendor help desk, and delivery mediums.

Number 4: Corporate Viability - Corporate viability is a critical, yet often overlooked category that examines the financial and management strength of the vendor. Given the huge number of dollars spent on IT procurements, not to mention their strategic importance, the financial stability of the vendor simply can't be stressed too much. The vendor viability category in WebTESS combines quantitative Wall Street ratio and metric analysis with qualitative management and corporate evaluations. Only by combining the two components can IT executives accurately assess the risk and benefit of corporate investment in a specific product and vendor option.

Number 5: Corporate Strategy - Corporate strategy evaluates the corporate road map and strategy of the software vendor with regard to specific timelines of how the product will be developed, sold, and supported within the supply chain management market. This is the most strategic and long term set of evaluation criteria, and rates how effectively the stated vendor's three to five year product, support and sales strategy maps to the overall market direction. Any dissonance between the stated vendor direction and market direction is a cause for concern, and should be rectified by the vendor through either a shift in corporate policy or a detailed and market validated explanation for the discord.

Ways of Finding Software Vendors: The Pro's and Con's

The most frequently asked follow-up question to my article, Software Selection: An Approach, was How do I find potential software vendors? Obviously, this is a critical question if the objective is to identify the best software solution to satisfying the business requirements of your company. The good news is that, before the Internet, you could go blind performing a search of the literature. The bad news is that, even with the Internet, you could still be searching for the proverbial needle in the software haystack. This article discusses four sources and methods for identifying software vendors and the pro's and con's of each approach. These methods are the Internet, the competition, industry trade groups, and selection services. While there may be others, this group of methods should give you plenty to think about and allow you to draw some logical conclusions as to which method works best in your situation.

Assuming that you already have access to the Internet, an Internet search is the quickest and cheapest way to find potential software vendors. Well, that's it for the pro's. Let's face it, who controls what you read or find to the Internet? Typically, it is the information contained on the vendor's website, which is placed there by the vendor. Then, you have to contend on strategies employed by the search engines in ranking the results. Even with vendors being identified, you must sift through the rhetoric and over-hype to determine what is relevant to your company.

At best, an Internet search will provide some idea as to how daunting of a task lies ahead of you. But you still have much work to do before qualifying a vendor to address your company's critical business needs. Use the results of the Internet search to help you plan and scope out the level of effort that will be required to complete the software selection project.