Managing Automation - November 2008 - (Page 24)

T RA N S F O R M AT I O N Staying Ahead of Demand Changes Manufacturers are turning to more sophisticated inventory optimization tools for increased visibility and agility across their global operations. rowing demand variability and product complexity are forcing many manufacturers to rethink their supply chain strategies. Although inventory optimization software has been around for many years, the business landscape is hardly the same as when the technology debuted. Among the reasons for considering a change in incumbent supply chain software, the most obvious is a need to buffer against external factors, such as rising fuel costs and commodities prices. Also, ever-changing customer demand, sustainability commitments, and other internal pressures are driving manufacturers to more sophisticated global planning. And with a widespread trend toward demand- versus product-driven supply chains, manufacturers are re-evaluating their networks more frequently, requiring increased agility. “In the last year or so, companies have come to the realization that they need to inject the concept of risk or variability when they’re making supply chain topology decisions,” says Nadeem Syed, group vice president for advanced planning products at Oracle. To address these changes, manufacturers are increasingly seeking end-to-end supply chain applications that are standardized across the entire enterprise and encompass demand, supply, transportation, and even manufacturing. LSI Corp., a provider of semiconductors that recently transitioned to a completely outsourced manufacturing model with a highly distributed supply chain, is in the process of standardizing its ERP system following a merger. The company has selected a supply chain platform from E2open Inc., which it will use to consolidate demand forecasts and orders to produce unified instructions for multi-sourced jobs. “The system will allow us to help our trading partners maximize their setups and minimize their inventories,” says LSI Vice President Don Alvine. “Clearly, visibility and flexibility are important to be able to take our demand signal out all the way to the manufacturing base.” Because of the squeeze companies are feeling from the high cost of G fuel, in particular, the transportation piece of the supply network puzzle has taken center stage. Many manufacturers are reconsidering outsourcing decisions they made in the recent past, when the price of fuel was not a major concern. “If what used to cost them $2,000 to ship a container now costs $8,000, companies are rethinking how much they’re sourcing from overseas versus what they’re either building or buying more locally,” says Fred Lizza, chief executive of Optiant, a provider of inventory planning and optimization software. Hidden Costs Regardless of the vertical industry served, vendors of supply chain technology report similar feedback from customers forced to rethink outsourcing scenarios that no longer make good fiscal sense. “The original goal of outsourcing was to minimize the cost of manufacturing, but there are lots of hidden costs in a global supply network,” says Richard Howells, director of global solutions marketing for supply chain products at SAP. With the shift in the transportation equation, the importance of positioning inventory in the right place at the right time is greater than ever, experts say. “The ability to track and use different logistics costs in calculating your best inventory mix is getting to be more important,” says Lee Wilwerding, director of services at supply chain software provider i2 Technologies. While all manufacturers naturally want to keep inventories as low as possible, maintaining some degree of buffer stock is usually necessary in a global market. Specific pain points vary as widely as the industries themselves. One approach companies are taking to modern inventory management, particularly in highly discrete industries such as high tech, is to manufacture components in bulk and then package and finish products to order as near as possible to the end customers, experts say. “There is definitely what I call ‘globalization of inventory management’ happening today. People are asking, ‘How do I not just look at my business warehouse by warehouse or plant by plant, but how successful am I in taking dollars out across my entire supply chain, and how am I being smarter at it?’ ” Lizza says. If companies are able to stage a higher percentage of inventory at an incomplete stage, for example, they can remain more flexible when product demand changes unexpectedly. able to move that anywhere in the world.” On-demand ERP and quality systems are also enablers as they can move without much fuss compared with systems that run onpremises. “It’s about diversification of production, going to smaller facilities servicing a localized market. The name of the game is to be able to move production, depending on conditions,” Kukor says. IBM has been using this strategy for a number of years. With contract manufacturers and manufacturing facilities in dozens of locations worldwide, IBM now has the luxury of choice. Rather than having to produce an item at a facility designated for that purpose, IBM can enter a number of factors into its WebSphere-based system and quickly de- termine where the work should best be done, based on different priorities. “Maybe you don’t have the part at one plant, and you have issues with capacity at another,” says Tim Carroll, VP of global operations for “Everything we do is to drive as much flexibility and agility as possible.” — Tim Carroll, IBM IBM’s integrated supply chain. “Now, if an order comes in to the U.S. and we see that a plant is filled to capacity, we can toggle that order to Hungary and fulfill the order there,” Carroll says. The system saves cost by enabling freight optimization. “But we didn’t do it Photo courtesy: IBM ma November 24 2008

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Managing Automation - November 2008 Contents Take 1 At One-Year Mark, Wonderware President Focuses on Empowering Plant Operators Oracle Demos Fusio Apps, Reveals Delays Baan Founder Says BPM Will Replace ERP Emerson Talks Wireless at Annual User Group Event Merger Complete, Intercim Focuses on Collaboration Notes Cover Story: The New Supply Chain Reality Special Report: Keep Out Integration: The On-Demand Interchange Industries: Ending the Endless Waves of Paper Product Scan Advertiser Index Next

Managing Automation - November 2008

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