A systematic approach to supply chains

A few years back it might have been unusual for the glowing references for supply chain technologies to have come from retail chief executives. But not any more.

Supply chain optimisation has been high on the boardroom agenda for the past year or more due to the downturn – a trend that’s set to continue throughout 2010 and likely to be supplemented with some supply chain projects to try and drive a little differentiation.

So what kind of projects are catching the boss’s eye?

Etailer M and M Direct’s chief executive Steve Robinson is a believer in the power of supply chain systems, having already introduced a warehouse management system to Tesco Direct during his time at the company.

He adds that supply chain and supply chain technology projects are of interest to chief executives, as particularly at the moment, retailers are trying to get the operational side of their businesses in order.

Robinson says: “As ecommerce becomes more prevalent, I do think that systems become a much more integral part of the business. For me it is all about systems, where as if you have stores you can do things like just flood them with stock.”

Steve Smith, senior vice president for EMEA at supply chain system provider Manhattan Associates, agrees that supply chain remains a topical item on the boardroom agenda, and for any online retailer is mission critical.

Market share retention activity – basically the proliferation of promotions – has created pressure on supply chains. Smith says that warehouse management systems and transport scheduling applications are the two types of technologies being used to tackle the capacity problems that promotions create.

M and M Direct has invested in a warehouse management system from Manhattan this year, not just to improve how it operates at the moment, but also so the supply chain will not stifle future growth in the business.

Robinson explains that M and M Direct was running a legacy application across its business until recently, including within its warehouse. When he joined he decided that a dedicated warehouse management system was required, and it needed to be one that was designed for the size of business that M and M Direct has ambitions to become.

Prior to the introduction of the Manhattan Associates’ warehouse management system in July this year, all stock movements within M and M Direct were paper based. Robinson says that they were manually calculated and processed and then sent for manual data entry input.

“Stock movements were not keeping up with the speed of the business – so we now have a much more accurate stock balance,” he says.

“It’s holding up pretty well,” Robinson adds, in relation to how the system is coping in the run-up to Christmas. He adds that these type of systems always need fine-tuning from the standard vanilla version, but now the retailer has got its warehouse management system “humming”. “Once you get them working they don’t tend to go wrong,” he says.

“What we’ve done is put the first building block in place – but lots of other tools would help, then we would be more efficient.”

He says that plugging other supply chain applications into the warehouse management system is really easy, and explaining how simple the system is to build on, adds: “If I wanted to do voice picking I could have someone turn up tomorrow and trial it.”

Up and running

In the run-up to Christmas this year, M and M Direct has been able to receive stock in to its business and put it away in the warehouse quicker than ever before, and because paper-based processes have been minimised so have errors. “You can’t afford for things like that to take longer than it needs to,” he adds.

The etailer ran its old and new warehouse management systems in parallel for a time, which led to some frustration among staff that had to do things twice; but it led to a clean handover when the old system was turned off, and meant there was no impact on customers.

Robinson says that while he doesn’t have a massive team of staff who can work out exactly what financial benefits the new system has achieved, he is sure that both stock accuracy and the speed that product is made available to customers has improved.

However, a model was created for how the system would pay back the investment being made in it. “We do focus on cost as we are private-equity owned. It stacked up from a business case perspective on the options it would give us.”

Once M and M Direct gets through peak trading and can analyse in more detail how the warehouse management system has performed it will start to think about the applications it can layer on top of the foundation it has created.

“I think that we would have a good look at what constraints the operation has with its current resources, and see if technology can get us through those constraints,” Robinson explains.

However, Robinson, is open to the idea that technology is not always the right solution. “If we need more product next year we could put a mezzanine floor in the warehouse, or buy a warehouse planning tool and be more clever about it.”

Another trend Smith sees is improved supply chain visibility, so retailers can understand their supply chain decisions, see stock in the supply chain and react more quickly to demand.

Tesco is working with Inovis to get thousands of grocery and non-food suppliers up to speed with the electronic trading system it wants them all to use. Such retailers are increasingly mandating suppliers to deal with them electronically to maximise the amount of information that is shared between the two sides, and to ensure that it is in a format that is useful to the retailer.

Co-operative Group is also investing in this area, introducing a technology platform to improve communications with suppliers for its food stores. The Axway platform will automate critical business processes and documents – such as orders, advanced shipping notices, dispatch notes and invoices – but crucially will also provide business activity monitoring (BAM).

The first stage of the project, which has enabled the platform in relation to store provision and replenishment, has already been implemented.

Co-op director of food retail information services Mark Hale expects the investment to assist in the retailer’s endeavours to reduce costs and improve supplier relationships while it continues to grow.

Axway director of customer solutions Michael Elling explains that business activity monitoring allows a retailer to become more responsive in relation to the information it gathers through improved supply chain visibility.

For instance, if the platform sees that an order has been placed with a supplier, the next step should be a confirmation from the supplier that they are happy with the order and delivery date. If this doesn’t arrive in the time that the retailer would like, BAM will raise a flag, leading to either an automated response to the supplier requesting it confirms the order, or will escalate the situation to someone within the retailer for them to look at and potentially seek an alternative supply.

Elling adds that many retailers have talked about the nirvana of collaborative planning, forecasting and replenishment, but the sticking point has been that they have a number of different supply chain systems and a legacy architecture that makes this difficult. Creating a single platform for supplier collaboration overcomes this.

“The concept is management by exception,” he says, adding that if you want to get buy-in from staff asked to work this way then the system must update on problems in a way that’s useful to them – such as to their mobile device – and give them suggested options for how to solve problems as they arise.

With forecasting difficult through turbulent economic conditions, and the other pressures on retailers’ supply chains increasing, this kind of system takes supply chain operations to the next level.

Smith concludes: “Most retailers have done their bit with regard to cost reduction, now they need to be a bit more innovative if they want to differentiate themselves from the competition.”