180 View (written by Lawrence Young) – This White Paper is based on a study done of 303 industrial distributors in October, 2009 by RBInteractive Research Group on behalf of Industrial Distribution magazine for Microsoft Dynamics. The purpose of the study was to learn more about industrial distributors’ current business goals, challenges and initiatives, and specifically what role technology will play in achieving business profitability and growth going forward.

The study cites the following key challenges facing today’s distributor:

1. Managing the realities of the current economic climate, which has led to intense competition and pricing pressure.
2. Dealing with excess inventory, as the same number of distributors compete for less business with more products considered commodities.
3. Retaining current customers and facilitating new client relationships.

Accordingly, respondents to the study are looking to improve efficiencies in their businesses that help to achieve their sales and profitability-related goals. Planned actions are focused in the areas of marketing, customer service and support, inventory forecasting & management, warehousing & distribution and e-commerce.

The number one action being considered or taken by respondents to prepare for the anticipated economic recovery is investing in technology (i.e. computer hardware and/or software applications). Whereas 2009 saw many of our prospects and clients putting technology-based projects on-the-shelf as they struggled to weather the storm of the recession, an increasing number of companies over the last few months have started to gear up for better times by evaluating and implementing new software tools and reengineered business processes.

However, we aren’t as sold on the study’s claim that 83% of respondents felt that the payback on their investment in technology would be two years or less (34% anticipated a payback of less than one year!). While we are not suggesting that the study misrepresented the responses of the respondents, we are concerned that the responses may not be reliable for several reasons.

First, only 46% of respondents even attempted to measure ROI, perhaps owing to the difficulty of doing so. As the study aptly points out, “There does not appear to be a “standard formula” used within the industry, with a wide array of views on what factors contribute to the measurement.”

Second, by definition calculating ROI ignores any benefit that cannot be sufficiently quantified so as to be measured (i.e. providing a better level of customer service will likely result in increased customer retention and therefore more sales and a better bottom line, but the calculation of ROI will ignore the value of this benefit unless the company is prepared to quantify the resulting improvement in profitability).

Accordingly, it is possible that some of the respondents to the ROI question may have used a method of calculating ROI that is not generally accepted and/or inconsistent with the method used by other respondents. Nonetheless, companies should consider using measures in addition to the ones included in traditional ROI calculations to justify whether or not an investment in technology is warranted. For example, these may include compliance to the requirements set forth by a dominant trading partner or regulatory body, such as internet portal or product traceability.

The article was sponsored by Microsoft and is somewhat self serving, but it does contain worthwhile information and it hopefully reflects that better economic times are around the corner.

180 View (written by Lawrence Young) – This article talks about why companies often seem to have poor supply chain processes, and the resulting effect on transactional processing costs and human capital efficiency.

Supply chain processes are those business processes that allow distributors and manufacturers to procure, receive, store, pick, pack and ship their products. These processes work in tandem with tools such as ERP software, shipping consoles from carriers such as FedEx and UPS, software-driven equipment such as packaging and labeling systems, etc.

As mentioned in the article, Michael Hammer’s and James Champy’s 1993 bestseller ‘Reengineering the Corporation’ gave dozens of examples of how a company’s existing business processes could be reengineered to drastically reduce time spent by managers and employees, while at the same time significantly reducing the number of errors that are made processing business transactions.

As a seasoned IT professional involved in the selection and implementation of new ERP software in hundreds of companies over the last 35 years, I regretfully must report that the majority of companies that invest heavily in new software and related professional services do not often invest proportionately in reengineered processes to work with the new tools. The result – these companies often land up ‘doing the wrong things better’, or as the article reports on a statement once made by Bill Gates “Automating bad processes just allows you to do the wrong things faster!”

To illustrate the importance of this phenomenon, consider the following tale – a lumberjack goes into Home Depot to buy a new axe to replace the one he broke. He tells the clerk he wants to buy the best axe they sell, one that can help him chop three trees an hour like the one he used before it broke. The clerk shows him a gas-powered saw that would let him chop 10 trees an hour, but it costs much more than the axe he was going to buy. But the lumberjack figures that the power saw would more than pay for itself if he could chop more than three times the number of trees each day.

So the lumberjack buys the power saw, but returns all frustrated and angry the following week, complaining that the power saw only let him chop four trees an hour, not 10 as promised. When the clerk powered up the saw to see what might be wrong, the startled lumberjack exclaimed “Hey, what’s that noise?”

While I admit that this tale is a bit of a stretch, you’d be as shocked as I’ve been to discover how many companies don’t ever adequately benefit from their investment in new technology because they never changed the way they process transactions and make decisions, notwithstanding that the new software they implemented could produce significant incremental improvement if only used properly.

All that is required is a commitment ‘from the top’ to reengineer the existing processes to work in tandem with the new software, plus the required expertise from the chosen software vendor and/or an internal or external resource to drive the appropriates process improvement.
Spend the time to examine your current business processes, and determine which processes should remain intact and which should change. As the article states, it starts with a decades-old management approach coined by Hewlett-Packard – Management by Wandering Around (MBWA). I assure you that the results will more than justify the cost and effort of the exercise.

180 View (written by Lawrence Young) – While we have heard the term “Inventory Optimization” mentioned often in software demonstrations and marketing collaterals, we have to-date seen very little new in the way of software offerings for mid-market distribution and manufacturing companies.

Most inventory replenishment models for mid-market ERP software still utilize the ‘min/max’ model which has serious limitations due to the static nature of the drivers of the model i.e. users are forced to periodically refresh each inventory SKU’s minimum and maximum values based on current historical usage, which can be challenging if the company has hundreds or thousands of SKUs.

A few software products utilize dynamic replenishment models that automatically recalculate each SKU’s optimal order point by automatically taking into account past usage as well as other factors such as seasonality, recent vendor lead time and delivery performance data, etc. These dynamic models are often based on proven methodologies such as Distribution Resource Planning and Gordon Graham. Unfortunately, the deployment of these models has historically resulted in limited user acceptance and success since the software was often perceived to be cumbersome to use and not overly user-friendly.

While we haven’t seen any significantly better inventory replenishment software in mid-market ERP software up until now, we can only hope that this much-needed tool becomes available soon. So for now, it’s ‘wait and see’. But remember, there’s always ‘Tomorrow’, as Little Orphan Annie sang!

In 1999, the MIT Auto-ID Center was born…The Auto-ID center vision was largely oriented on the consumer goods-to-retail supply chain. Parameters were developed for this more simple tag, which came to be known as the Electronic Product Code or EPC, with compelling visions for how this would transform the retail supply chain…

EPC activity in the consumer packaged goods arena, where it all started, is at a virtual standstill. The Walmart program is stalled, and its future uncertain…

On the positive side, EPC-based technology is being adopted in a large array of other types of applications, from aircraft manufacturing to an increasing number of distribution center applications, to asset tracking and more…”

180 View – There was a lot of hype when RFID was mandated by Walmart in 2003, and RFID seemed like the next big thing in technology. Conferences just on RFID were held to pave the way. But a funny thing happened along the way, and it was not the technology. There wasn’t a compelling business case for its adoption. But as the price of the RFID tags fall, that may change.

180 View (written by Lawrence Young) – In this follow up to an article published on May 7, 2009 in Supply Chain Digest entitled The Top Supply Chain Disasters of All Time, Dan Gilmore writes about the following eight key lessons that can be learned:

1. “Big Bang” go lives are risky business
2. Being a pioneer often leads to arrows in the back
3. Do not ignore early warning signs
4. Avoid hard cut-offs/transitions
5. Get some outside perspective
6. Beware of the ROI trap
7. Be brutally honest about your skill sets
8. Limit the number of moving parts

While the companies mentioned in the May 7, 2009 article are all large enterprises, the eight mistakes listed above are often relevant to companies of all sizes that are embarking on the implementation of new supply chain software.

Dan’s message is that many of the top supply chain disasters could have been avoided, or at least minimized through damage control, by applying the above eight lessons in a timely fashion.
Our decades of experience has taught us that implementing business software is indeed tricky business-lots of unknowns and certainly some issues that are substantially out of one’s control. However, the same experience has proven time and time again that most implementation problems are substantially if not totally avoidable if one simply develops and monitors a well-conceived implementation plan that takes into consideration, among other things, the above eight lessons.

Costly and painful problems can often be avoided by simply asking the chosen vendor the right questions at the right time. For example, extreme caution is well advised for any company who is considering being the ‘guinea pig’. And as the article states:

Step one is first understanding whether or not you are that guinea pig, which sometimes, in software at least, isn’t always so easy. A long time software executive once told me: “Every new version of software has a “beta” customer [the first company to implement the software]. The question is whether they know it or not.”

180 View (written by Lawrence Young) – This article talks about Warehouse Management Systems, and the increasing role that they play today in managing a company’s inventory and related logistic processes.

A Warehouse Management System, or WMS, consists of software and hardware designed to increase the accuracy of the perpetual inventory counts reported by an ERP system, and to increase the efficiency of the handling of inventory items from receipt to shipping. A WMS is used for inventory planning and management, and can usually have a material effect on the dollars a company has invested in its inventory i.e. a better inventory mix of Stock Keeping Units (SKUs), better minimum and maximum targets for each SKU, etc.

WMS software deals with the receipt of stock and returns into a warehouse and the management of stock within the warehouse, including the putaway, picking, packing and shipping functions. Manufacturers will typically deploy a WMS to manage all SKUs, including raw material, work-in-process (WIP) and finished product, whereas distributors typically manage only finished product (unless they do some light manufacturing such as kitting, in which case the WMS would also manage raw materials and components).

Warehouse management systems often utilize Auto ID Data Capture (AIDC) technology, such as barcode scanners, mobile computers, wireless LANs and potentially Radio-frequency identification (RFID) to efficiently monitor the flow of products. Once data has been collected, there is either batch synchronization with, or a real-time wireless transmission to, the ERP system’s central database. The database can then provide useful information about the status of every SKU located in each warehouse and, for manufacturers, each factory.

WMS software can be deployed as a stand-alone module, but most times maximum benefits are realized by integrating the WMS to the ERP system. For example, the WMS module can be integrated to the Purchasing and Order Processing modules, and in some cases can electronically interface with external supply chain applications of some of your trading partners i.e. suppliers and customers.

If your company is a manufacturer or wholesale distributor, a WMS might be a good investment. The first step to take would be to do a cost-benefit analysis to see if there is a sufficient business case for deploying a WMS in your company. Sometimes a WMS makes good sense, but at times it can be overkill. Depending on your ERP system (or old legacy back-office system as the case may be), making some custom software changes to your currently installed Inventory Management module may be the best way to go.

180 View (written by Lawrence Young) – This article will help you identify if your company may be able to reduce its outbound freight costs.

If your company is a manufacturer or wholesale distributor, and is considering the installation of new ERP software, there is very affordable software that can not only reduce your outbound freight costs, but at the same time help improve your customer service level.

For example, if you use mainstream carriers like UPS, FedEx or Purolator to ship product to your customers, many ERP software products will seamlessly link your ERP system shipping and invoicing functions to the carrier consoles used in your shipping department to generate bills of lading and shipping labels. Once linked, the carrier’s console will upload the waybill number and freight cost to your ERP software, which can then send an order acknowledgement to your customer and post the freight cost to the invoice, all without any human intervention.

Some of the more robust ERP software available today can even link to Carrier Management Systems (CMS), available from software vendors such as Scancode Systems Inc. ( www.scancode.com ). This is when significant cost savings may be able to be realized. In addition to the benefits noted above, the CMS will also suggest which carrier is the least expensive for each of your shipments. It accomplishes this otherwise laborious task based on each shipment’s destination, weight and cube which is downloaded from the ERP system to the CMS, and using the up-to-date rate tables that it maintains for every leading carrier in the marketplace.

Here’s more good news-you likely can benefit from the above software even if you want to keep your existing back-office software. There may be some incremental integration costs to enable your existing software to be integrated to off-the-shelf CMS software, but the ROI identified by a professional well versed on this topic may more than justify the investment.

So if one or more of the 10 indicators discussed in this article describe where your company is at or where it’s heading, now may be the time to investigate how you can use out-of-the-box and affordable software to cut down on your freight costs.

The presentation was on how rapidly many areas of technology are advancing, often still below the radar for most of us, and the wide ranging impacts these changes will have on our lives, our supply chains and our businesses. It was fascinating – and scary (in a good sort of way)…”

180 View (written by Lawrence Young) – This article provides some interesting insight on how emerging technologies will help distributors and manufacturers realize operational improvements in both internal processes and throughout the supply chain.

The continual increase in computing power at a lower cost will certainly continue to spawn the development of applications software that would have otherwise been too costly for most companies to deploy. For example, the article states that “This kind of affordable computing power, for example, now enables one retailer to complete a complex, store-level, replenishment optimization run in just a handful of seconds, a process that used to take almost a full shift in the past.”

Over the past few years, it is this affordable raw computing power that has enabled many of my clients to benefit from software tools such as Business Intelligence, Executive Dashboards of Key Performance Indicators, and Advanced Planning Tools for applications such as material procurement and production planning.

The fact is that applications which would have required computing power that only Fortune 500 companies could afford a decade ago are now available to companies of all sizes that recognize the significant benefits of deploying these new tools and business processes.

But caution is required before merely jumping on any new technology bandwagon. As one reader who provided feedback to this article stated: “All too often companies get seduced by the technology ’silver bullet’ that will solve all of their supply chain problems. Unfortunately supply chains are more complicated than that. The solution to the problem, whatever it may be, will invariably require investment in people, process change and physical infrastructure as well as technology. Beware of any technology vendor that says otherwise!

So what to do? As the article concludes: “be vigilantly aware of these technologies, and understand the threats and opportunities they provide”. And consider engaging an independent and objective subject matter expert who can help you deploy the right technology at the right time in a cost-effective manner.

180 View (written by Lawrence Young) – This article is chock full of ways you may be able to ‘squeeze the fat’ out of your supply chain – a great idea in good times, and a must during these tough times.

The author has collected ideas expressed by numerous industry pundits and corporate executives and managers on ‘what you might be doing now to manage better during this period, or to sow the seeds of success for the recovery that, Yes, will surely come’.
Some of these ideas to weather the storm ahead include:

1. Improve working capital/cash flow by reducing your inventory levels. Consider pruning product portfolios, but avoid using a ‘meat cleaver’ approach which could have a big negative impact on customer service levels
2. Re-examine your routing guides for internal (freight-out) and supplier (freight-in) shipments
3. Increase your level of vigilance and security to counter the increased risk of fraud and theft in supply chain operations
4. Collaborate with your suppliers to eliminate unnecessary costs
5. Get creative on the sell side of your business i.e. prepare a substitution list for all SKUs and suppliers
6. Optimize your distribution and fulfilment processes by bringing your company’s creative minds together and brainstorming the heck of your operations i.e. can you develop a cross-dock process to ship backorders more quickly and less expensively?

To benefit from these ideas you will almost assuredly need to commit some energy and resources, understanding that there may be some ‘short-term pain for long-term gain’. For starters, you will need to closely examine your existing business processes and tools, and make prioritized changes where justified.

For example you may need to enhance the functionality of your existing business software to achieve backorder cross docking or substitute part numbers. In some cases, now may be the ideal time for your company to select and implement new software in order to turn prospects and quotes into customers and orders, improve customer service, and reduce operational costs.
Similarly, reengineering your existing business processes may produce incremental benefits well in excess of the cost of the reengineering exercise. An assessment by a trained professional of the effectiveness of your current processes may reveal many opportunities for more control and efficiency at a lower operating cost.

While there’s no denying that these are indeed difficult and challenging times, those companies that take a proactive approach to improving their tools and business processes, with the help of outside professionals when required, will be able to ‘make lemonade from lemons’.

180 View (written by Lawrence Young) – Investing in supply chain software and business process reengineering may be just the solution for wholesale distributors, importers and manufacturers to eliminate waste in one or more operational areas of their company.

But all too often we’ve seen companies invest heavily in new technology and related professional services without achieving the anticipated Return on Investment. From our experience, this is often due to the decision process that was used to justify the investment, which is exactly what this article addresses: ‘the failure of many companies to well consider supply chain and operations input often leads to decisions that ultimately do not deliver expected results’.

Our many years of experience selecting and deploying technology validate the article’s five suggestions to help companies make good supply chain decisions. Clear accountability, learning from the past, keeping the big picture in clear focus, transparency, and risk management will collectively go a long way to ensuring that avoidable mistakes are not made.

And while ‘no company or supply chain organization ever bats 1000’, we agree wholeheartedly with the article’s conclusion that ‘adopting the principles articulated can ensure your supply chain is consistently at the top of the batting average leaders’

180 View (written by Lawrence Young) – Let’s face it – these are difficult economic times for everyone. Economists are telling us, and history has taught us, that with rare exception, this recession will take its toll on virtually every company in business. Regrettably, our clients are not likely to be an exception to this economic forecast.

Many of our clients are wholesale distributors, importers and manufacturers. But unlike the banks and automakers, they cannot merely ask the government to bail them out during difficult times. So what can they do to stay above water when sales are dropping and operating costs are rising?

The bad news is that some things are simply outside of the control of a company’s management team. But the good news is that there are plenty of steps that many companies can take to weather the storm, steps that simply involve eliminating waste in one or more operational areas of the company.

For example, distributors and manufacturers may be able to eliminate a significant portion of their material handling costs by deploying techniques that will reduce picking costs and product touches.

This article published in Supply Chain Digest reviews various proven models for ‘low touch/low picking activity’ material handling processes, such as Cross-Docking and Flow-Through.

Are these and other logistics models right for every distributor and manufacturer? Of course not! Unfortunately, there is no one silver bullet that applies to every type and size of company that handles material. And while putting these models to work in a warehouse or factory can yield appreciable benefits, there are tools and processes that are required to deploy these models.

Can these and other proven models help your company eliminate waste and slash material handling costs? Very possibly! The first step to finding out will require you, perhaps with the help of experts in the field, to examine your current material handling processes and tools. Who are your trading partners, and how do you transact business with them? Can your current physical layout, software and processes easily deploy models like cross-docking? If not, can they be adapted or upgraded to do so cost-effectively?

Getting the answers to these and other relevant questions may indeed reveal that your company can significantly reduce operating costs and save money that is now being wasted each and every day!

180 View – There are a few tidbits that would interest logisticians such as “The majority of logistics departments are currently tracking their inventory through their carriers’ websites. In addition, roughly one out of four either utilizes an internally-developed tracking tool or maintains inventory visibility through their ERP solution.” It’s hard to believe that only one out of four has inventory visibility.

In the market, we see many professionals and organizations making decisions on which techniques to use and how to structure the management of their supply chains influenced only by those preconceived judgments. Few, however, actually base their decisions on a sound analysis of their business practices and requirements. This paper explains why Push and Pull cannot be automatically associated to one or another technique and describes other factors that have a critical influence on how to configure the supply chain…”

180 View – If you find this interesting, we suggest you subscribe to the Wight Line Newsletter at http://www.oliverwight.com/wightline.asp.

This column was spawned, in part, from a panel discussion I moderated more than a year ago on Best Practices. It went in a direction I don’t think the panelists or the audience expected. By the end, we were discussing not Best Practices per se, but whether the concept was really meaningful. Somewhat to my surprise, neither the panelists nor audience, at least in this case, thought it really was. One consultant on the panel at one point near the end went so far as to say “Best Practice is baloney.”

Now, in fairness, this was a discussion centered around distribution center operations, and I think processing in a DC tends to be pretty situation specific, making (perhaps) the use of Best Practices less clear. To further think through this, we decided to get the opinions of a number of supply chain and logistics experts.

Ralph Drayer, ex-Chief Logistics Officer at Procter & Gamble and who now runs Supply Chain Insights, thought I was batty for even questioning the concept of Best Practice: “Shame on you! Of course there is such a thing as Best Practices,” Ralph told me. “The fact is that every situation is NOT really that unique, and believing so only adds to unnecessary complexity, cost and consumer value erosion.”

“That’s why the consumer goods to retail industry pulled together under ECR [Efficient Consumer Response] and the Global Commerce Initiative to develop and publish Industry Best Practices for common processes,” he added. “P&G did the same thing internally as we globalized our operations. A Best Practice is developed by a group of expert users who share their knowledge and experience to define the best method of operating a common process.”

There is strong merit in that perspective, to be sure. If a process is common across a company, then surely there is a “best way” to do it most of the time within that enterprise. And if a process is common across businesses generally, it would seem there is an opportunity for Best Practice – or is that commoditization?

Gene Tyndall, well-known consultant and SC Digest Contributing Editor (and a friend of Drayer’s) had a somewhat different view: “The term “Best Practices,” and the relentless pursuit of them, has caused more trouble than benefit. Everyone believes they need to find them, but then they cannot even define one, much less adopt it,” he said. “Even if you find one, it will change very soon, as someone else tops it.”

He added: “The trick, when you find one, is to “adopt and adapt” the practice to your unique situation. This is what people struggle with. I have argued for years that Dell and Wal-Mart (and others) do indeed have some, but others cannot adopt and adapt them. High-techs have struggled to do so, and K-Mart failed miserably. Others just say that their business models are different, which is a cop-out.

He also stressed the role of metrics: “Best Practices without performance measures, or metrics, are useless. Just like benchmarks, which without practices or processes are also useless.”

Jim Tompkins of Tompkins Associates, whose company runs a benchmarking consortium, agreed with Tyndall’s last point, focusing on the “result” aspect: “A Best Practice is a process that produces the best benchmark for a specific task,” Tompkins said. “So, if the task being considered is inventory accuracy and one determines that 90% of the companies like my company, which have a benchmark of 99.8% or higher for inventory accuracy, utilize cycle counting, then cycle counting would be a best practice for my company. Furthermore one could look into the specifics of the best practices of cycle counting to gain more insights into how to best perform cycle counting.”

Ed Marien, well-known to many from his supply chain leadership at the University of Wisconsin and on-going consulting work, also focused on using benchmarking and metrics right. “The problem with many Best Practice comparisons is that they forget the metrics side,” he said. “The problem with many benchmarking studies is that the focus is upon the metrics, which may not be defined the same across companies or industry comparisons are made based upon metrics only, without considering the How To’s.”

I think I will make a “Part 2″ of this column in a few weeks, incorporating some of your feedback. Netting it out here, though, I like the simple way Stephen Craig of transportation consultants CP Consulting answered when I asked him about whether there was such a thing as Best Practice. He answered: “I don’t know if there is Best Practice, but there is clearly Good Practice.”

SCDigest Technology Editor Mark Fralick took a similar tack, and maybe even summed it up best. In working with clients, he said, “I don’t worry so much about Best Practice as I do in eliminating Bad Practice.” Now that’s something I think we can all agree on.

180 View – We often hear the vendors offering “best practice” to their prospects. This article backs up our long-held belief what’s good for one company could be a disaster for another. It’s a great idea to know how others are doing it and compare metrics to benchmarks, but every company has uniqueness. If nothing else, the people are different with different motivations, which could have a huge impact on efficiency and effectiveness.