The brave new world of supply chain software
Today's warehouse management system and its close cousins are evolving into a new breed of integrated software that seems sure to profoundly influence how you manage each stage of the supply chain.
By Staff -- Modern Materials Handling, 10/1/1999
"Today, competition is won on price, quality, and delivery. Tomorrow, price and quality will be the mandatory entry chips. Market share will be won on competing supply chains and access to information."Such are the shifting dynamics of all marketplaces these days. Rick Wilkins of warehouse software supplier Robocom saw it coming over a year ago when he made that comment-before the first big e-commerce Christmas. And although Wilkins' tomorrow is not yet entirely here, there's no doubt it isn't far off, regardless of the products your company makes or distributes.
Fortunately for all of us, this is not going to be a sweat-of-the-brow, manual transition from the old to the new ways of managing supply chains. Software will be the driver, and the pieces are starting to come together.
Until most recently, six major classes of software helped to manage the supply chain from their individual silos.
Enterprise resource planning (ERP) works at the highest corporate level providing a planning and scheduling backbone for general administrative functions from financials to customer orders.
Supply chain planning (SCP) software (best known as advanced planning and scheduling) is an analytical tool that established its planning and scheduling reputation on the shop floor and is moving into warehousing and distribution.
Order management systems (OMS) validate and prioritize customer orders for the next three software classes that get the work done.
Manufacturing execution systems (MES) receive orders and dynamically manage resources on the shop floor from equipment and labor to inventory needed to fill those orders.
Warehouse management systems (WMS) direct and control in real time all activities and resources within the four walls of the warehouse.
Transportation management systems (TMS) focus on controlling costs and managing inbound, outbound, and intra-company movement of goods.
But just as companies are coming to view their interactions with suppliers and customers as part of an integrated supply chain, software suppliers are taking these six classes and integrating them as a cohesive supply chain management suite. The idea is to get beyond costly and time-consuming manual interfaces that are required now.
As the chart on this page shows, this is a long-term process for software suppliers as a group. Some companies are further along than others. At this point, only a small number are generally recognized as having broad-based integrated suites. But even those are early versions of what is to come.
On the users side, it's even earlier in the evolution. While thousands of companies use many of the individual software packages, stories are barely beginning to surface about users of broader, more sophisticated packages. But the success stories will be coming.
This really is a brave new world that will dramatically effect not only how you manage your supply chain but your business.
The DNA of SCM software
The six primary components of future supply chain management (SCM) software packages perform two primary functions. One is planning (forecasts and schedules) and the other is execution (dynamic management of activities) based on a plan.
ERP and SCP fit into the former category while MES, WMS, and TMS are on the execution side. OMS fits somewhere in between because it is both the last step in planning and the first step in execution.
Traditionally, each of the six operates in its own silo. In other words, each does the tasks it was designed for with little regard for a hand off of information to the software managing the next stage of the three key supply chains-business-to-business, retail, and direct-to-consumer (see below).
ERP is where it all starts for planning. This high-level backbone has traditionally focused on enterprise-wide integration of a company's financials, human resources, purchasing, payroll, order placement, and related administrative functions.
Many packages also include modules that address manufacturing. In fact, ERP is generally considered to be the evolutionary next step from age-old materials requirements planning (MRP) and manufacturing resource planning (MRP II) packages.
More recently, ERP offerings have added warehouse control as well as some order and transportation management capabilities. The result, however, has not been the integrated suite of the future. Instead, the software has been written by companies other than the ERP supplier and "bolted-on" to the backbone.
For all of this breadth, the generally recognized strength of ERP has been forecasting and management of corporate financials. And that is likely to be to ERP's advantage in the future. To be proficient on the financial side inevitably requires extensive databases, including costs, revenue, assets such as warehousing and manufacturing facilities, and liabilities including inventory
Those databases provide the information needed to analyze and evaluate orders and what it will take to fill them at the highest level. ERP can project costs to fill an order, determine sourcing options, and figure order profitability. When these and related factors for one order are evaluated against the same parameters for other orders, the ERP system ultimately forecasts the impact on the bottom line.
In the next planning silo is SCP. These packages are analytical tools that start with order demand and determine how and when that demand can be satisfied. They plan at an enterprise level or at a facility level. To make those determinations, some of the information will inevitably come from either an ERP system or some other form of centralized database..
Of late, supply chain planning, as a stand alone software package, has evolved into many new forms. Originally, SCP was focused on the shop floor and known as advanced planning and scheduling (APS). But like ERP, APS is a Trojan horse. It is made up of multiple modules including inventory planning, supply chain network design, manufacturing planning, demand planning, and available-to-promise, to name a few. While each module has its own niche within SCP, all are generally integrated to maximize planning efficiencies.
As APS has expanded into the warehousing and distribution realm, new modules have come along. These include supply chain inventory visibility, collaborative planning, forecasting, and replenishment, as well as others.
In its various forms, SCP has a noticeable impact on operational efficiencies. Manugistics, one of the leading SCP suppliers, offers these three real-world results.
- Chemical giant Rohm & Haas increased on-time shipments from 85% to 96%.
- Yogurt maker Dannon increased inventory turns 30% and reduced inventory levels 25%.
- Pharmaceutical supplier Glaxo Wellcome increased customer service levels from 97% to 99.5%.
Sitting between planning software and execution software is OMS. An order management system takes orders and determines inventory availability on an enterprise-wide basis to complete the planning side of the equation. The software then does some execution-type tasks such as prioritizing and optimizing orders for hand off to the MES, WMS, and TMS. Links to the customer service department are also common because OMS can develop expected shipment and delivery dates based on availability of items.
Just as do ERP and SCP software, an OMS generally resides on a corporate host computer.
An OMS is probably the perfect example of the need for integration between planning and execution software. If it doesn't have access to database information upstream, it can't make many decisions. And if it isn't connected to the execution software downstream, its decisions don't go anywhere that they can do some good.
On the execution side are MES, WMS, and TMS. For an operations manager, these three software packages are where the action is. All three are focused on filling orders from their particular perspectives. For instance, an MES gets parts built. A WMS then manages handling of those parts within the four walls of the warehouse. And a TMS picks up where the WMS leaves off in the shipping department and gets orders out the door on the most suitable carriers. Use them all, and most key execution steps are then under soft-ware control.
Manufacturing execution systems control the shop floor. To fill orders, an MES manages all resources (equipment, inventory, and labor) needed to create a finished product in time for when it is needed by the customer. Capabilities include allocating, reserving, scheduling, and dispatching those resources as needed.
Making this happen requires dynamic control using real-time data. This allows MES to deal with changing conditions unlike its predecessors, MRP and MRP II. For instance, the software is able to compensate for machine downtime by re-routing work pieces and resetting priorities. Similarly, inventory availability can be factored into the work plan and production goals adjusted to reflect reality, a critical step when trying to balance sometimes conflicting customer requests for finished goods.
Users of MES enjoy a range of benefits. According to the Manufacturing Execution Systems Association, these include:
- Lead time reductions in excess of 20%
- Manufacturing cycle time condensed by 35%
- A decline in work-in-process levels of more than 30%.
Once products are built, the WMS takes over. Much like an MES, a warehouse management system provides real-time control over resources needed to fill orders. It manages inventory, people, and equipment from receiving to shipping.
That means inventory is put away at a particular location because the WMS selected that spot. Orders are picked in a particular sequence by specific individuals using selected lift trucks or other equipment because the WMS determined that was the most efficient way. And in the shipping department, the WMS manages detail down to the level of matching carton size to an order for maximum cost efficiency including cartons and carrier charges.
Benefits of a WMS include shorter order turnaround times, higher inventory accuracy, increased order fill rates, and improved shipment accuracies. Payback periods of less than 2 years are common.
The final stage of a company's supply chain is under the direction of a TMS. Beyond operational efficiencies, the real potential of TMS use is considerable cost savings. It is generally estimated that more than 70% of a company's logistics costs are transportation related. With a TMS, shipment inefficiencies, unnecessary costs, and excess labor are minimized on a regular basis for the typical shipment.
This happens because the software automates the shipping and carrier selection process. Functionality includes load planning as well as carrier selection, rating, and pick-up scheduling. Other capabilities are shipment consolidation, freight payment, and claims management.
A new element is also introduced by a TMS-flexibility. With it, companies can make adjustments on the fly in the shipping department as priorities and carrier costs shift.
Working toward integration
Bringing all of that together is a major undertaking. But getting it done is essential.
"As quickly as the Web is changing, the supply chain is changing even faster," says John McCarron, senior vice president and general manager of the interBiz supply chain group. "It's not how much information you have. It's what you do with it. The supply chain tells you to solve this problem or we're going to punish you. This needs to be answered with software products," McCarron adds.
The potential for those products is huge. According to the market research firm AMR Research, there will be a 48% compound annual growth rate for supply chain management software between now and 2003. That will put annual sales of these integrated suites at nearly $19 billion (see chart).
A major portion of these sales will be to the thousands of companies with ERP already in place. AMR Research says many will be looking to extend those systems down to the manufacturing and warehousing level.
In a survey released late this summer, 13% of corporate enterprise application IT budgets are devoted to SCM software, says AMR Research. Leading industries are high tech and pharmaceutical, devoting 28% and 20% respectively of their enterprise application budgets to either ERP or SCM software.
At the same time as suppliers integrate the six main components of SCM software, they are also talking about frameworks that will integrate the various stages of the supply chain.
At some time in the future, a company might have the latest integrated SCM software to manage its own operations, but how supply chain efficient is it really? The answer is, of course, not as efficient as it could be if it had links to its customers and suppliers.
"What we're trying to do," says Paul Albright, president and CEO of VIT, "is improve information accessibility across the supply chain and collapse the total time needed to fill an order."
Commonly known as visibility software, these packages provide a framework that allows one company in the chain to share data with other companies regardless of the operating system in use at any location. As a result, the inventory and orders are visible to all across the supply chain.
Several versions of visibility software are under development today with some more commercial than others. In any regard, visibility appears to be the next important wave.
Clearly, we are entering a supply chain-centric world. As today's silos are broken down, the supply chain will be more able to cope with the demands put on it. Clearly, this is going to be an interesting ride.
What's in a name?
We may use the name supply chain management software in this article, but not everyone does. In fact, there are several names in use. The list below includes some of the more prominent ones:
- Supply chain optimization software
- Global commerce management software
- Enterprise management software
- Logistics execution systems
- Supply chain execution systems.
It's worth noting that suppliers may say there are distinctions between some of these names. However, all are chasing the same rainbow-an integrated flow of supply chain information and decision making.
The evolution of supply chain software
1998-2001 Current development efforts are focused on linking and integrating each of the six software types. The intent is to create packages that deal with the supply chain as a continuum rather than in individual stages. For instance, last year there was considerable focus on connecting WMS with TMS packages. The next phase is building links between OMS and WMS. Additional integration is underway too. Despite these efforts, each of the six is maintaining its pre-existing identity.
BEYOND 2004 The ultimate goal is to create fully integrated supply chain management software packages. They will perform all key planning and execution functions needed to take time, cost, and labor out of the supply chain. As such, they will be complex and costly, some even think as challenging to install as ERP is today. Nevertheless, leading companies will likely find them to be essential to maintaining or improving their market position.
PRE-1998 Until last year, there were six major types of stand-alone planning and execution software. The six are enterprise resource planning (ERP), supply chain planning (SCP), order management systems (OMS), warehouse management systems (WMS), manufacturing execution systems (MES), and transportation management systems (TMS). Each deals with the supply chain from its own silo with few if any links to other types.
2001-2004 Once all six of the current software types have been initially integrated, their names are likely to still be in use. In part, this will be a reflection of the level of integration actually achieved. It will also be a result of the relative strengths of various packages. In any regard, it will only be a short term phenomenon.
What the six software types do best
ENTERPRISE RESOURCE PLANNING ERP is the backbone planning and scheduling software system for major corporations today. Standard modules include financials, purchasing, payroll, human resources, and other administrative functions traditionally handled by the corporate host computer. Central databases are a common component of ERP systems, allowing them to link and manage communications between the planning and execution subsystems.
SUPPLY CHAIN PLANNING Originally used to plan and schedule manufacturing operations, what had been called advanced planning and scheduling recently moved into the distribution and warehousing world and is now known as supply chain planning. It is an analytical tool used to deploy inventory at the right price and right time to the right jobs. Modules range from demand and inventory planning to supply chain network design.
ORDER MANAGEMENT SYSTEM This system essentially manages the relationship between your company and your customer. They receive, validate, process, price, prioritize, expedite, and even invoice customer orders. An OMS is really the bridge between planning and execution, acting as the last step in the former and the first step in the latter.
MANUFACTURING EXECUTION SYSTEM This software integrates the flow of materials and work-in-process with the production process. It does this dynamically in real time, compensating for shifts in production machine availability, inventory levels, order priorities, and labor. MES accepts data forecasts, costs, and planning information from ERP and SCP systems. Then the software balances this with what's really happening on the shop floor, making on-the fly decisions.
WAREHOUSE MANAGEMENT SYSTEM While an MES resides in the world of production, a WMS operates within the four walls of the warehouse or distribution center managing inventory, order fulfillment, materials handling equipment, and labor. The software dynamically directs and controls all activities from receiving to shipping. Information collected by the WMS is used to update central databases, initiate billing, and build EDI messages for customers.
TRANSPORTATION MANAGEMENT SYSTEMS The primary goal of a TMS is to manage a company's transportation network and reduce shipping costs. Primary functions include labor management in the shipping department, load planning and building, and shipment scheduling. The software manages inbound, outbound, and intra-company shipments with an eye on the lowest possible cost without sacrificing customer service or trading partner requirements.
Who supplies SCM software?
For a listing of suppliers of the various types of supply chain management software, visit www.mmh.com. The list also includes a guide to more information that can help you in finding the right software package for your needs.
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