It’s not enough to have a great product to be successful. Companies also need an effective supply chain to be competitive. Ranga Bodla, director of vertical marketing, and Roman Bukary, vice president and general manager of Manufacturing and Wholesale/Distribution Industries at NetSuite, took a moment to discuss supply chain management and how manufacturers can leverage it to be successful.
MBT: Talk about some of the biggest trends happening in supply chain management right now and what’s behind them.
Ranga: I’ll start off with the increasing complexity of supply chains. Years ago it was not uncommon for a large company to have a fairly far-flung supply chain with sourcing in Asia, design in the U.S. and manufacturing and distribution in different locations around the world. Now we see that happening for companies of all sizes. The notion that the world is flat is gone, so regardless of company size, supply chains are becoming more complex systems. It enables smaller companies to be more competitive. There can be a two person company now that has a supply chain that reaches the entire world. While there is increasing complexity in the supply chain, it also increases the reach of much smaller companies.
What that’s striving to is the need for companies to have flexibility in how they manage all of the different elements of their supply chain. The big thing that we preach at NetSuite is that the cloud provides that flexibility to manage that increasingly complex supply chain. Companies can leverage the best and lowest cost suppliers that enable them to deliver their product, while at the same time be efficient and have visibility into all of that.
Roman: I will start off on a slightly different point-of-view. I would say that I personally hate the notion of the supply chain. I’m sure you’ve heard this before. It’s not really a chain — which implies a linear relationship of one-to-one connectivity. Really, we’re in the age of the supply network. Everything is interconnected. The notion of a preferred, tier-1 supplier having a direct linkage, while it’s critical, is insufficient. What companies need to be able to accomplish here is to manage a dynamic network of suppliers, big and small.
You can see what happens when a chain really operates as a chain. When the natural disaster struck Japan, a number of electronic industries were shut down because of single-source suppliers. What companies really need here is flexibility. They need massive extensibility to be able to bring on and take off suppliers while incorporating seamless information and data sharing. The modern supply network at its core is a gigantic data flow of information.
Ranga uses an interesting term that I like and I hate at the same time, and that’s Best Supplier. What’s the definition of a best supplier? Is it the one with the maximum capacity, lowest cost, highest quality, best on-time record, or some other set of these attributes? I can’t tell you what the answer is. It really comes down to business strategy and therefore the fundamental transformation of the modern supply chain network. That strategy, at a corporate level, drives decision-making around procurement and collaboration. The critical and successful supply networks are the ones where information is shared bi-directionally and where information flow is done in the fastest, most seamless way possible. Companies have suppliers engaged in the design process, but now they must also have suppliers who engage in redesign and optimization processes. Suppliers who are a part of not only a forward feed of products from the manufacturer through the distributor, down to the retailer and to the consumer, but in fact, in a bi-directional flow.
This bi-directional flow helps companies deal with product variables like warranties, service, enhancements, product lifecycle and so on. When you’re doing all of this, the other thing that’s driving modern manufacturing is that batch size, by and large in most manufacturing sectors, is shrinking. Smaller batch sizes shrink lead times as well, so there’s a need for closer interconnection. What you have going on here is a tectonic shift in how collaboration is happening in manufacturing around the world.
MBT: Can you list some of the things that manufacturers are struggling with in terms of supply chain management?
Ranga: Lack of visibility comes along with increasing complexity within the supply chain. I think that’s one big thing that we see in terms of managing the supply chain. Global companies source materials in one location, manufacture in another, and distribute in yet another — managing all of that complexity is one of the biggest challenges happening in supply chain management. The low cost is the main component enabling more and more people access, but at the same time it has increased the complexity. It comes down to decreased costs and increased complexity. Companies are trying to figure out how to manage that increase in complexity, because at a certain point they have to determine if they’ve actually gained anything. Of course they gain something, but if they can manage that complexity they put themselves on an even playing field with much larger organizations to compete more effectively.
Roman: Absolutely, complexity is the No. 1 problem, especially since the supply chain network suddenly makes things 3D. Problem No.2 is that companies need to have a full sense of their business. By-and-large, historically COOS would look at how their company is doing by looking at the direct cost of goods and labor and then stop. The old technology and infrastructure didn’t give them the ability to have that entire view of things. Different decisions get made when there is true understanding of the financial consequences of decision making. It sounds so trivial. Of course a company understands the finances, and yet the truth in the matter is that the modern manufacturer cannot simply look at the cost of direct goods. That is an incomplete view of their operations. Yes, Ranga and I work for an ERP software company, so you would expect us to say this, but that’s not what I mean.
The interest in reshoring, or onshoring, are the consequences of people taking a cold, hard look at the true cost attached to the offshore movement. The fact of the matter is that for a manufacturer working with a global supply network — regardless of their employee size or product portfolio — the key component here is to understand what is driving their success. Are they achieving profitable growth or are they a recipe for disaster? People realize that offshoring may be saving on labor costs, but when they look at their total cost of the product, the time and latency attached to design and manufacturing, and expense of shipping small batch orders, all of a sudden people started to rethink the equation.
Problem No.3 is that the information flow usually isn’t comprehensive, in real-time and bi-directional. Companies need to be willing to share their data with the supply network and not just blindly order 50 widgets from a supplier at $5 a piece or less. They actually need to share with suppliers what they’re trying to accomplish and ask them to help work through the problems. That’s a different mindset. It’s not about being warm and fuzzy. It’s about the cold reality of doing business. We’re all interconnected and companies need to share their information and objectives with their supply network.
MBT: How can companies address these issues to improve their business processes? And what role does software play in improving supply chain efficiency?
Roman: The key issue here is that this is an executive undertaking. You don’t need to solve all of the problems at the same time. You don’t need to fix everything that is wrong with the world, but you need to realize that there are ways of running modern manufacturing that require a transformation.
Ranga and I were at an event called Smart Manufacturing with 150 to 200 CEOs and executives from mid-market and large U.S. manufacturing companies. Alan Mulally talked about the transformation that he drove at the Ford Motor Co. and innovation involving the CEO all the way down to the most junior, junior. He drove collaboration, information and data sharing, and shrinking the time that the supply network takes to share information from one end of it to the other.
Ranga: Mulally talked about flexibility. He talked a lot about how, from a Ford perspective, they had taken on complexity in their organization — this was their biggest challenge with all the brands they were trying to manage and many plants with unused capacity. Mulally said efficiency comes from questioning the complexity within an organization. Sometimes that complexity is self-imposed rather than helping to drive anything in terms of innovation within an organization. In the end, it all came down to instituting change to reduce that complexity and maximize that flexibility in an organization.
Roman: So what’s the role of software? Well, it depends on how far you want to reach out to the bleeding edge. At the extremes of the bleeding edge there’s now talk in the industry of software-driven supply chains. If you think of the supply chain as really a network then you can imagine that, just like how modern technology has changed communication, you would have the same kind of thing in your supply network. Suppliers would get the relevant information and requests based on certain, pre-defined or optimized rules.
A company can give a job to Supplier A knowing they can produce it at $5 per widget. If the company gives it to Supplier B they’ll charge $5.50, but they’ll deliver it faster. Just as this issue of multi-variable optimization comes in, this is where software-driven supply chains or networks comes in. But again, you don’t have to go out to science-fiction land to do some very basic things.
How many companies today have supplier KPI or dashboards? How many companies today have supplier portals where a supplier can login and see the information? Companies can request the widgets they need while offering the CAD files, version control, contact information for pertinent internal people, and sales forecast information so suppliers can start to think about their capacity motivation. So KPIs, dashboards and supplier portal — those I think will become the first and early successes that a modern manufacturer can have.
Obviously modern manufacturers run ERP so within the supply networks themselves, they can track and manage their inventory in transit. The ability to deal with their product, not only when they receive it and ship it out, but also throughout the supply chain — software is invaluable in making that happen. Companies can see how many widgets they sold and see how they’re performing. It becomes part of the manufacturing mindset, not something they do once during the initial build. Companies can really track the full lifecycle of their product.
MBT: How can companies stay on top of supply chain management efficiency going forward?
Ranga: The biggest thing companies can do is look at the elements they can deploy in their supply chain that enable them to compete more effectively. I think sometimes people can get excited about the latest shiny new toys — and that might be the right thing for their business — but they need to ask themselves if the new edition, element or technology will add an additional competitive advantage over their competitors. Will it enable them to be more successful than the guy next door? I think that’s really the way to stay ahead of those things.
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