Enhancing Margins In High-Tech Manufacturing, Part 2

The high-tech industry will face numerous challenges in the next few yeas, which must be met head-on with aggressive mitigation strategies.

This article is the second edition in a two-part series. To read the first part, go here.

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Collaboration

"In the long history of humankind those who learned to collaborate and improvise most effectively have prevailed." - Charles Darwin

Vast networks of global trading partners, the spread of warehouses and distributors across the globe, demand and supply from various quarters of the globe, completely outsourced design, manufacturing and logistics in some cases make successful collaboration an imperative for the flow of continuous information across extended supply chain. Capacity management being one of the most critical factors for company's long term success, collaborative planning, forecasting and replenishment is a must to reduce the bull-whip effect. Lack of established process with external entities, ad-hoc collaboration through mails, and lack of scalable collaborative tools which can enable the flow and visibility of goods are the hurdles preventing increasing collaboration across the supply chain. Deploying IT-tools across geographies and across all partners of supply-chain is a big challenge because of the huge costs of integration involved.

Oracle Applications supports collaboration with multiple supply chain partners using tools such as Oracle B2B -- an extensible, standards based tool to define, configure, manage and monitor the exchange of information, electronically, between two or more enterprises. HTML/XML formats are supported for easy transfer of information across supply chain.

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Collaboration with following key players of the supply chain can lead to increase in the performance of the supply chain:

Vendors:

Collaboration with the supplier is more important in high tech industry owing to the high level of competition, shorter product life cycle and pressure to swiftly respond to the customer and market. Multiple sourcing being the norm of the day to ensure best bargains comes with the pain-point of communicating with multiple vendors. Partnering with supplier instead of treating vendor as 3rd party improves relationships but poses a challenge in terms of "how" and "what" to share with the supplier.

Oracle iSupplier Portal enables organizations to collaborate online with their suppliers by providing real-time access to supply-side transactions and by providing real-time information of shipment. Status of in-transit shipment aids in production scheduling. Invoicing through iSupplier portal reduces error in the invoicing cycle. Suppliers carrying out Outside Processing (OSP) can view and update the status of work orders on the portal thereby providing the company with seamless view of the supply chain.

Uncertain demand coupled with high service levels and focus to reduce inventory carrying cost encourages the usage of consignment model which reduces lead times and increases inventory turns. Maintenance of this system manually through manual reports and maintaining data in spreadsheets, is time consuming and prone to errors owing to the unavailability of real time consumption resulting in loss of revenue.

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Ownership transfer and payment process can be automated using Oracle iSupplier Portal and features of inventory management. Real-time inventory levels in terms of balance of on-hand stock, in-transit quantities, open requisitions and purchased orders and planning information such as forecasts can be shared with iSupplier for the VMI items, thereby providing close collaboration with the supplier. Replenishment process can be automated using Oracle Collaborative Planning for such VMI items.  Oracle iSupplier Portal can be combined with Oracle Collaborative Planning to provide a unified portal to the supplier for single point of entry for planning and execution.

Ship and Debit functionality in Oracle Trade Management, provides robust claim processing and collaboration between vendors and distributors. It provides capability to allow the distributor to sell products to specific end customers at pre-determined rate below the distributor acquisition cost and then debit the supplier for the difference in procurement price using claims.

Customers:

Supply chain constituents and their customer used to work in silos resulting in poor sharing of information and duplication of effort and infrastructure such as warehouse and transportation systems. A high degree of collaboration with customers is critical to minimize costs and improve customer satisfaction.

Customer forecasts: Customer forecast sharing was the first step in firms getting a more accurate picture of demand. Trusting these forecasts was a bigger step that had to be taken. Loading of customer forecasts and usage in planning is a key requirement for high tech organizations. Demantra allows uploading of customer forecast data in staging tables for use in creating the forecasts in the system.

Consignment inventory: Owning inventory at the customer's location making it available to the customer for ownership and consumption as per their manufacturing process is another common practice in the high tech industry. It is essential for systems to be able to define multiple locations holding inventory at the customer's location and have specific consignment sales orders to track consumption of the same.

Invoicing: Disputes and rebills can be minimized if purchase orders, sales orders and invoices can be shared electronically between high tech organizations and their customers. This can be achieved through B2B interfaces between the organization and its customers.

Manufacturers:

Companies are interfacing with multiple manufacturers with their diverse product mixes and various ERP systems and IT infrastructures. Earlier supply chain processes used to rely on buffers of both manufacturing and inventory, demand driven market of high tech companies have redefined inventories into semi-finished and raw materials. Companies need to use the demand data intelligently and pass it on across the value chain to deliver orders on time.

Oracle provides manufacturing collaboration through integration between Oracle Work in Process and Oracle Purchasing and by leveraging the strengths of Oracle Workflow and Oracle iSupplier Portal. Easy to use portals and automated approval routing and shipment notifications provide interaction with manufacturing partners to support end to end process in case of outsourcing. Oracle Work in Process provides integration tools and APIs to bring shop floor data in from third party execution systems.

Freight-forwarders:

Supply chains are expanding across the globe though focus is maximum customer service levels with minimum working capital which pose huge dependence on freight forwarders and increased usage of 3PL. Challenges faced thereby are Track and Trace, real time integration among the supply chain partners in terms of data flow, limited visibility into in-transit shipments, Generation of Shipping documents, freight settlement and Cost allocation to line items.

Oracle Transportation Management (OTM) provides a single platform for shippers and Logistics service providers and creates Information Bridge across functional silos, geographic regions and business units. It integrates and streamlines transportation planning, execution and freight payment. Its unique security model enables companies to collaborate with any trading partner across supply chain-suppliers, customers, brokers, etc. It has the capability of integration with disparate systems of Contract manufacturers, Third Party Logistics Provider and external order management, purchasing, warehouse and other systems thereby managing transport demand.

The Infosys "OTM in a Box" solution is based on pre-configured business processes and has been chosen as the Accelerate solution for Oracle Transportation Management.

Banks:

Collaboration with banks is critical to ensure accurate cash forecasts, reduced short term borrowings and minimal reconciliation issues. Due to large volumes of transactions for multiple parts, it is also necessary that an organization has systems to support this with the minimal amount of manual intervention.

The following are the key banking tasks that are required to be supported.

  1. Loading of bank statements: Bank statements can be received in flat files or sent through EDI or other B2B interfaces.
  2. Reconciliation of bank statements: The lines in the bank statement have to be reconciled with cash transactions such as payments and receipts existing in the system. During reconciliation, miscellaneous transactions also need to be created to account for charges and interest. The transactions eventually need to be cleared and a report used to review the reconciliation.
  3. Accounting for clearing delays: Clearing accounts need to be used in case of any delay in clearing of payments by banks and accounting should be appropriately generated.
  4. Cash forecasting: An organization should be able to accurately forecast cash requirements based on receivables and payables so that credit requirements from banks can be identified.

Oracle Applications provides an interface through which bank statements can be loaded and these can then be automatically reconciled. Payment delays can be held in a clearing account and reports can help identify reconciliation issues and take corrective actions. Cash forecasting using data from all modules also enables accurate cash forecast.

Conclusion:

The high-tech industry will face higher competition, higher customer expectations and increasingly shorter product lifecycles going forward. These challenges will need to be met head-on with aggressive mitigation strategies. Process improvements and automation in inventory optimization, pricing and collaboration with supply chain constituents will prove to be critical to reverse the ensuing squeezing of margins. These will span all functions, processes and systems within the organization and usage of multiple ERP functionalities will help provide the platform to meet these challenges. As the ERP implementation will involve process reengineering, post implementation monitoring of business outcomes and responses to the same will be critical to success of the initiative.

References

  1. www.oracle.com
  2. http://www.tompkinsinc.com/publications/competitive_edge/articles/0610a-high-tech-top-issues.asp
  3. Inventory Optimization -- A Necessity turning to urgency -- Greg Scheuffele and Anupam Kulshreshtra
  4. AMR Research Custom Executive Summary in Collaboration With Model N -January 2010

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Shruti Johri is a Lead Consultant with Oracle Practice at Infosys Ltd. Shruti has around 9 years of experience in IT with domain expertise in Distribution, Logistics and Costing areas. She has worked on large ERP transformation projects in Hi-Tech domain and has been instrumental on solution design & development.

Siddharth Ravi is a Senior Consultant with Oracle Practice at Infosys Ltd. Siddharth has over 7 years of industry and consulting experience and has worked on a host of ERP transformation projects in Order management, Distribution and Costing in the Hi-Tech and discrete manufacturing domain.

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