Certainly, the retail landscape is changing, and the market is looking to differentiate through better tailoring the customer shopping experience and introducing private label products exclusive to their retail chains. However, bringing private label goods into the mix adds supply chain complexity, as retailers struggle to shorten the product life cycles in order to react faster to the latest fashion trends. The so-called retail balancing act of creating a superior consumer shopping experience (through better assortment, freshness, and relevance, and without stockouts) while simultaneously improving inventory productivity (optimized inventory levels to support profitable sales and lower supply chain costs) has only been aggravated.
As mentioned earlier, supply chains are getting longer. They need solutions that provide visibility from the early manufacturing process to the store shelf, with the ability to track merchandise throughout its entire life cycle and to reduce time-to-shelf, thus enabling better decision making capabilities during the selling season. In other words, the size and complexity of sourcing projects are increasing because such undertakings involve, in some cases, large teams operating at different remote sites. Moreover, the information itself that is involved in this process is more important than ever, comes in larger amounts than ever, and is more difficult than ever to manage manually with the speed and accuracy that is required.
Some retailers looking to gain a competitive edge in this area have been implementing the cycle time optimization solutions from certain savvy software vendors. Most recently, during its i2 Planet annual user conference in May of 2007, i2 Technologies (NASDAQ:ITWO), a prominent provider of supply chain management (SCM) solutions and services to various industries, announced the i2 Cycle Time Optimization (CTO) product, which was designed to reduce concept-to-store cycle time. The solution aims at creating capacity-constrained product plans to synchronize with in-store assortment plans; prepositioning key raw materials and optimizing inventory (finished and raw material) throughout the value chain; and reducing distribution and handling costs. The entire value chain becomes connected through the CTO solution using an integrated retail and supply chain planning (SCP) process.
Retailers can use i2 CTO to become more customer-centric by making assortment decisions (this is, reacting to fashion trends) closer to the selling season and keeping their private label products in tune with the latest global fashion trends. The idea is to reduce the risk in selection of style and quantity of purchase as well as to reduce inventory, distribution, and handling cost risks through cycle time reduction from store to store—all without sacrificing customer service levels. In addition to shortening lead times, by leveraging this solution, retailers also have the opportunity to optimize and manage spending across the supplier base by analyzing the sourcing spend, negotiating and selecting strategic sourcing partners, and allocating purchase orders to deserving suppliers accordingly. Further, the solution offers the capabilities of contract management to track consumption against contracts and associated SPM.
Can Information Technology Help, Then?
Many companies that have successfully deployed supplier relationship management (SRM) software tools have also discovered certain benefits related to the sourcing process itself, starting with reduced cycle times on sourcing projects. Instead of going through piles of request for proposal (RFP) documents and comparing a wide array of quotes, the software can actually help with bringing all of this data together into a simplified and unified selection process. Another way that SRM software can cut down on the time spent on sourcing is that sourcing projects can be saved and reused at a later time. Meaning, if the enterprise's needs recur frequently or come with small variations, this “copy from and to” capability can save a great deal of time.
SRM software tools also make it easier for companies to select suppliers, since not only can prices be compared quickly, but the software also allows buyers to add the past performance of vendors to the equation. For example, it may be enticing to instinctively choose a certain vendor on the basis of its lower price to deliver raw materials, but since that vendor's last shipment was delayed and of bad quality (which necessitated scrapping most of the parts), the buyer may want to change his or her mind this time around.
Another often-cited benefit is that SRM software makes it easier to standardize purchasing decisions and to instill the structure into the entire sourcing process. Again, most organizations do not have a clear basis for choosing their suppliers, but the software can make the selection criteria more readily apparent. Also, instead of having to deal with hundreds of separate suppliers personally, the software does most of the legwork for the buyers. SRM technology also accelerates communication between the buyer and the seller. Since the transfer of information can be done in real time, the vendor can check the buyer's inventory to determine whether new shipments are needed, and the buyer can instantly submit orders over the Internet without reducing overall productivity. Similarly, questions related to orders can be answered by checking details via the Internet, so no human interaction or human-related delays have to interfere with the work.
In summary, the purpose of SRM technology is to streamline the processes between an organization and its suppliers, and to make these processes more effective. Such software tools have automated many of the business processes that structure supply chains, and with this automation typically comes cost reduction and increased efficiencies. To that end, various SRM products are available from a number of vendors, and a review of the descriptions of SRM products offers a broad spectrum, but not quite a clear consensus yet.
Many vendors refer to themselves as SRM providers merely because of their solutions' Web-based sourcing and e-procurement (over the Internet or intranet) capabilities. While these are significant components, some other common SRM software capabilities include catalog management; service procurement; strategic sourcing; supplier rating and performance management; supply analytics; contract management; collaborative supply management and collaborative planning, forecasting, and replenishment (CPFR); vendor managed inventory (VMI); etc. According to the APICS Dictionary (11th edition), CPFR is a process through which supply chain trading partners can jointly plan key supply chain activities from production and delivery of raw materials to production and delivery of final products to end customers. VMI is a means of optimizing supply chain performance in which the supplier has access to the customer's inventory data and is responsible for maintaining the inventory level required by the customer.
Indeed, by better managing interaction with suppliers, an enterprise can have greater control and visibility of the supply chain, improve product and service quality, and drive additional savings through more effective and streamlined processes.
TradeStone Software, a provider of unified sourcing and PLM solutions for retailers, reports many midsized and large North American, European, and Asian companies that have adopted the strategic sourcing approach suggest that a business can reduce expenses by 10 to 30 percent. Eqos touts similar responses from many supply chain managers at the largest North American and European retailers, which indicates that the use of foreign suppliers will nearly double in the next five years. Offshore suppliers are expected to account for nearly a third of the typical company's total supply base by 2008. Most companies have been able to reduce material and service costs up to 35 percent (and thus improve profit margins accordingly) by sourcing from low cost country suppliers.
With strategic sourcing, major manufacturers, retailers, governments, and financial institutions can achieve significant savings while strengthening ties with suppliers that offer the best quality products and customer service. When approached properly and executed meticulously, global sourcing can also result in improvements in time-to-market, customer value, and innovation (via private labels and direct imports), as well as reductions in inventory, stockouts, etc. Last but not least, strategic sourcing can also allow small and medium-sized businesses to compete against larger companies for major contracts.
The Allure Comes with Some Inevitable Hurdles
Competing in supply networks that cross borders inevitably adds many problems when compared to doing business in a single, local market where competitors have to play by the same rules, invoice and pay in the same currency, communicate in the same language, and pay about the same rates for labor wages, indirect supplies, and direct materials. For one, the savings from global sourcing comes with the possibility of steep expenses elsewhere, since a company must prospect regulatory climates; find qualified factories; solicit bids; place purchase orders; inspect factories; monitor quality; handle logistics, customs, and duties; and so on, all on its own—which is no small feat.
All merchants nowadays have to manage numerous details on how private label brands are sourced, produced, and delivered, which can be quite a daunting task, especially when trading partners are scattered all over the world. The momentum of private labels in the retail industry (from grocery stores to major apparel stores) is driving even more opportunistic contracting with small and unknown suppliers in remote countries. This type of contracting is contrary to the concepts of strategic sourcing, as it requires buyers to take their chances when ordering from unfamiliar suppliers, with the hope of keeping total landed costs to a minimum.
What is also required with global sourcing is a mindset change with regards to timing given that most issues with domestic suppliers can be resolved right away (or at least within a week in a worst case scenario). Internationally, though, even with bordering countries, it might take a more special purchase order up to several weeks to be confirmed, let alone be processed and delivered over the ocean and through customs and duties, and multiple intermediaries.
With global sourcing, the challenge has become how to communicate with a factory that is in the wilderness of the Far East or Africa (though we by no means want to sound derogatory toward any third-world region) from a swanky, domestic office in a G8 country, and how to assimilate and communicate multiple data points effectively into a unified operation on a single screen. In the manufacturing process, communication must take place among retailers, manufacturers, brand managers, contractors, agents, brokers, and logistics providers—and many still share product information either over the telephone, via e-mail or faxes, or by other means of physical communication.
As mentioned earlier, supply chains are getting longer. They need solutions that provide visibility from the early manufacturing process to the store shelf, with the ability to track merchandise throughout its entire life cycle and to reduce time-to-shelf, thus enabling better decision making capabilities during the selling season. In other words, the size and complexity of sourcing projects are increasing because such undertakings involve, in some cases, large teams operating at different remote sites. Moreover, the information itself that is involved in this process is more important than ever, comes in larger amounts than ever, and is more difficult than ever to manage manually with the speed and accuracy that is required.
Some retailers looking to gain a competitive edge in this area have been implementing the cycle time optimization solutions from certain savvy software vendors. Most recently, during its i2 Planet annual user conference in May of 2007, i2 Technologies (NASDAQ:ITWO), a prominent provider of supply chain management (SCM) solutions and services to various industries, announced the i2 Cycle Time Optimization (CTO) product, which was designed to reduce concept-to-store cycle time. The solution aims at creating capacity-constrained product plans to synchronize with in-store assortment plans; prepositioning key raw materials and optimizing inventory (finished and raw material) throughout the value chain; and reducing distribution and handling costs. The entire value chain becomes connected through the CTO solution using an integrated retail and supply chain planning (SCP) process.
Retailers can use i2 CTO to become more customer-centric by making assortment decisions (this is, reacting to fashion trends) closer to the selling season and keeping their private label products in tune with the latest global fashion trends. The idea is to reduce the risk in selection of style and quantity of purchase as well as to reduce inventory, distribution, and handling cost risks through cycle time reduction from store to store—all without sacrificing customer service levels. In addition to shortening lead times, by leveraging this solution, retailers also have the opportunity to optimize and manage spending across the supplier base by analyzing the sourcing spend, negotiating and selecting strategic sourcing partners, and allocating purchase orders to deserving suppliers accordingly. Further, the solution offers the capabilities of contract management to track consumption against contracts and associated SPM.
Can Information Technology Help, Then?
Many companies that have successfully deployed supplier relationship management (SRM) software tools have also discovered certain benefits related to the sourcing process itself, starting with reduced cycle times on sourcing projects. Instead of going through piles of request for proposal (RFP) documents and comparing a wide array of quotes, the software can actually help with bringing all of this data together into a simplified and unified selection process. Another way that SRM software can cut down on the time spent on sourcing is that sourcing projects can be saved and reused at a later time. Meaning, if the enterprise's needs recur frequently or come with small variations, this “copy from and to” capability can save a great deal of time.
SRM software tools also make it easier for companies to select suppliers, since not only can prices be compared quickly, but the software also allows buyers to add the past performance of vendors to the equation. For example, it may be enticing to instinctively choose a certain vendor on the basis of its lower price to deliver raw materials, but since that vendor's last shipment was delayed and of bad quality (which necessitated scrapping most of the parts), the buyer may want to change his or her mind this time around.
Another often-cited benefit is that SRM software makes it easier to standardize purchasing decisions and to instill the structure into the entire sourcing process. Again, most organizations do not have a clear basis for choosing their suppliers, but the software can make the selection criteria more readily apparent. Also, instead of having to deal with hundreds of separate suppliers personally, the software does most of the legwork for the buyers. SRM technology also accelerates communication between the buyer and the seller. Since the transfer of information can be done in real time, the vendor can check the buyer's inventory to determine whether new shipments are needed, and the buyer can instantly submit orders over the Internet without reducing overall productivity. Similarly, questions related to orders can be answered by checking details via the Internet, so no human interaction or human-related delays have to interfere with the work.
In summary, the purpose of SRM technology is to streamline the processes between an organization and its suppliers, and to make these processes more effective. Such software tools have automated many of the business processes that structure supply chains, and with this automation typically comes cost reduction and increased efficiencies. To that end, various SRM products are available from a number of vendors, and a review of the descriptions of SRM products offers a broad spectrum, but not quite a clear consensus yet.
Many vendors refer to themselves as SRM providers merely because of their solutions' Web-based sourcing and e-procurement (over the Internet or intranet) capabilities. While these are significant components, some other common SRM software capabilities include catalog management; service procurement; strategic sourcing; supplier rating and performance management; supply analytics; contract management; collaborative supply management and collaborative planning, forecasting, and replenishment (CPFR); vendor managed inventory (VMI); etc. According to the APICS Dictionary (11th edition), CPFR is a process through which supply chain trading partners can jointly plan key supply chain activities from production and delivery of raw materials to production and delivery of final products to end customers. VMI is a means of optimizing supply chain performance in which the supplier has access to the customer's inventory data and is responsible for maintaining the inventory level required by the customer.
Indeed, by better managing interaction with suppliers, an enterprise can have greater control and visibility of the supply chain, improve product and service quality, and drive additional savings through more effective and streamlined processes.
TradeStone Software, a provider of unified sourcing and PLM solutions for retailers, reports many midsized and large North American, European, and Asian companies that have adopted the strategic sourcing approach suggest that a business can reduce expenses by 10 to 30 percent. Eqos touts similar responses from many supply chain managers at the largest North American and European retailers, which indicates that the use of foreign suppliers will nearly double in the next five years. Offshore suppliers are expected to account for nearly a third of the typical company's total supply base by 2008. Most companies have been able to reduce material and service costs up to 35 percent (and thus improve profit margins accordingly) by sourcing from low cost country suppliers.
With strategic sourcing, major manufacturers, retailers, governments, and financial institutions can achieve significant savings while strengthening ties with suppliers that offer the best quality products and customer service. When approached properly and executed meticulously, global sourcing can also result in improvements in time-to-market, customer value, and innovation (via private labels and direct imports), as well as reductions in inventory, stockouts, etc. Last but not least, strategic sourcing can also allow small and medium-sized businesses to compete against larger companies for major contracts.
The Allure Comes with Some Inevitable Hurdles
Competing in supply networks that cross borders inevitably adds many problems when compared to doing business in a single, local market where competitors have to play by the same rules, invoice and pay in the same currency, communicate in the same language, and pay about the same rates for labor wages, indirect supplies, and direct materials. For one, the savings from global sourcing comes with the possibility of steep expenses elsewhere, since a company must prospect regulatory climates; find qualified factories; solicit bids; place purchase orders; inspect factories; monitor quality; handle logistics, customs, and duties; and so on, all on its own—which is no small feat.
All merchants nowadays have to manage numerous details on how private label brands are sourced, produced, and delivered, which can be quite a daunting task, especially when trading partners are scattered all over the world. The momentum of private labels in the retail industry (from grocery stores to major apparel stores) is driving even more opportunistic contracting with small and unknown suppliers in remote countries. This type of contracting is contrary to the concepts of strategic sourcing, as it requires buyers to take their chances when ordering from unfamiliar suppliers, with the hope of keeping total landed costs to a minimum.
What is also required with global sourcing is a mindset change with regards to timing given that most issues with domestic suppliers can be resolved right away (or at least within a week in a worst case scenario). Internationally, though, even with bordering countries, it might take a more special purchase order up to several weeks to be confirmed, let alone be processed and delivered over the ocean and through customs and duties, and multiple intermediaries.
With global sourcing, the challenge has become how to communicate with a factory that is in the wilderness of the Far East or Africa (though we by no means want to sound derogatory toward any third-world region) from a swanky, domestic office in a G8 country, and how to assimilate and communicate multiple data points effectively into a unified operation on a single screen. In the manufacturing process, communication must take place among retailers, manufacturers, brand managers, contractors, agents, brokers, and logistics providers—and many still share product information either over the telephone, via e-mail or faxes, or by other means of physical communication.
No comments:
Post a Comment