Monday, March 26, 2007

The IT Factor

The globalization of commerce has made it necessary for companies both large and small to have a world view – a big-picture, global perspective that helps them see the possibilities for their business in their entirety. It’s particularly essential for manufacturers whose markets demand that they source from overseas.

A U.S. apparel company might source fabric from China, manufacture garments in Vietnam, send them to Italy for customer design work, then ship final product to a stateside warehouse for retail delivery. There’s no pulling off that complex, unbelievably urgent piece of multi-party commerce without a world view – and some fairly sophisticated logistics technology.

Pulling it off in an economical way – and I mean economical in every sense – comes down to far more than technology. It comes down to having a world view of the supply chain. A view that extends well beyond the physical means of moving products and considers the impact the supply chain has on corporate finance.

Technology is a good place to start, though. The need for advanced IT solutions may seem obvious, but The Aberdeen Group’s research suggests that a surprising number of companies still have a long way to go when it comes to having the kind of sophisticated global supply chain technology that can help them make crucial and timely financial decisions.

According to EyeForTransport’s 2006 Fortune 500 Supply Chain & Logistics Challenges Report, many Fortune 500 companies report their global supply chain technology is inadequate to provide the kind of timely information required for budget and cash flow planning. They’ve got cargo visibility but no fiscal visibility, if you will.

The global supply chain has been relatively ignored because it traditionally has been a small part of a company’s business mindset. The world has changed, though, and companies now realize that neither their IT systems nor their fiscal models are set up to support globalization.

With international sourcing growing at a rapid clip, companies have been caught off guard and are now scrambling to close the technology gap. Without fiscal models to account for costs throughout these systems, and, in most cases, without additional staff, global supply chain managers face the daunting task of managing this activity using makeshift systems, faxes and phones.

Because the supply chain technology void affects logistics managers’ ability to deliver crucial financial data, some CEOs and CFOs have noticed and are now joining the technology crusade. This may open a window of opportunity for logisticians who can tie technology investments to a business case outside the supply chain in order to secure needed funding for global commerce tools.

After a company decides to invest in technology, the next question is whether to develop solutions in house or partner with a technology or logistics provider. According to The Global Institute of Logistics Global IT Council, organizations are increasingly choosing to forego proprietary solutions and seek outside help.

Upfront investment and implementation costs are primary factors. Maintenance is another. So is speed to market. Most supply chain departments don’t have the budget to buy external technology, and multi-party, collaborative practices are not a core competency. They also can’t be confident that the technology solution they build today will support their needs five years from now. They need to be able to combat supply chain inefficiencies now and into the future.

How do they do it? By having fiscal visibility within their supply chains.

It’s unrealistic to try to solve every problem at once. For most organizations, achieving fiscal supply chain visibility should be both the immediate and ultimate goal, and it can be accomplished in steps.

First, pinpoint the area of the global supply chain that can benefit the most from a quick technology upgrade and make that change. Keep in mind that technology is not the magic fix for global logistics problems. Technology for technology’s sake is nothing. It has to be accompanied by skilled people and efficient processes in order to work. That may make it a larger investment, but it will reduce risk and improve return.

The next and most important step is to fiscally account for the total supply chain – not just international inbound or domestic distribution, but every aspect from Purchase Order to Point of Purchase (PO to Pop). Fiscal visibility, from PO to PoP, is the essence of supply chain efficiency. It quickens cycle times and reduces inventory investment. It also draws interest and excitement from CFOs, who invariably come knocking on logisticians’ doors asking, “What’s next?”
The edited version of this was published in the Journal of Commerce this the March 26, 2007 edition. Thanks to Scott R and Brian N for the guidance/support/editing of the original post. Chris Brook of the JoC also deserves a thank you as well...he was the guy that gave me the shot to do this.
So, what do you think?


Blogger hln said...

Web services is what I think. Whether a company offers a supply chain product with multiple facets and purposes or, like mine, simple software that supports just a piece of the process, web services are by far the best way to go.

Feed me x (with rules), I give you y. That model supports everything from intracompany messages to notifications to and from carriers. Purchase functionality from providers as your individual company requires. I think in the future more companies will offer these types of services piecemeal versus big, clunky software packages where only a fraction of each is used.

One of your other articles touches on XML being superior to traditional EDI. XML payloads (governed by schema) coupled with web services ensures that so much of the data payload in either direction is in the format that the data receiver is expecting. In development, this saves both time and money.

I could go on and on, but work calls. Thoughtful blog you have here.



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