PROCESS MANAGEMENT Process Integration – The key to sustainable cost reduction

New Zealand firms embrace business process improvements. But, says Acumen Services director and supply chain consultant Keith Robinson, too many of them take an ad-hoc approach to bolting-on “the goodies” without fully understanding how supply chains should be managed. “We tend to throw in the clever technology stuff before the underlying rationale is fully evolved,” he adds.
The end result, according to Corporate Logistics director and supply chain consultant Walter Glass, is tantamount to DIY disaster. Big dollars are spent on the latest labour-saving technology, but little thought is given to integrating it with other business processes. Consequently, companies miss out on the real firepower that comes from having internal processes communicating with external suppliers.

The integration
Management finds itself preoccupied with thinking about the need to integrate the back-office supply chain with front-line activities. This lack of integration between the supply chain and marketing leads to costly mistakes, says Glass, such as overspending on inventory. “Even some fast-moving consumer goods firms still stuff-up when nobody tells warehousing that planned ‘special’ will trigger sudden increase in demand.”
The ability to transact via the internet (or EDI) gave supply chain management quantum nudge forward. In recent years, for instance, automated track and trace systems have become standard within most transport and logistics operations.

Collaborative commerce
But “collaborative commerce” is the next frontier in managing the supply chain, according to Greg Woolley, managing director with solutions provider Certus Consulting. This working together with suppliers in business merchandising and promotional planning is already well established in the United States. It is common practice for retail behemoths like Walmart to electronically synchronise their own master file inventory with that of their suppliers.
Kiwi firms aren’t quite so sophisticated, says Drew Broadly, logistics manager with DHL NZ. What they are looking for is internal cost efficiencies, more sophisticated key performance indicator (KPI) reporting, and greater diagnostics. But, he says, growing interest in partnerships that extend beyond standard warehousing solutions suggests Kiwi firms are moving progressively toward integration.

Integration software
The clearest evidence of this trend is, according to Woolley, the rapid uptake in the adoption of supply chain integration software. Companies now recognise that catering for warehouse management systems through their accounting packages is not always enough.
At the application level, the market for warehouse management software continues consolidating as key vendors like Manhattan Associates and Red Prairies acquire competitors. In the ‘Enterprise’ space, software like SAP, JD Edwards and Microsoft’s ERP suite Great Plains, appeals to accountants who want the numbers.
But what they lack is the functionality of more integrated systems, like IBM’s cornerstone product WebSphere Business Integration. “We’ve witnessed big change in management’s thinking in the last 12 months,” says Woolley, whose company is premier partner with IBM. “Companies are adopting this sort of middleware that connects applications together across the supply chain because they can see the benefits.”

Middleware benefits
Middleware, like WebSphere, provides vertical templates for business processes while supporting long-running transactions that need human intervention. For example, it immediately communicates supply shortfall if an order for 100 parts is supposed to be delivered, but only 92 turn up. The other benefits of integration software include:
* Allowing systems from different businesses to communicate and operate effectively.
* Supply chain processes integrated end-to-end in real-time.
* Enabling businesses to set the human intervention level, depending on requirements.
* Increased agility and responsiveness.
While integrated software speeds up processes, Acumen’s Robinson says the key to managing the supply chain is developing relationships with both internal and external suppliers. “The supply chain is an ecosystem where everything’s inter-related. If the supply chain isn’t seen as continuum, it won’t deliver the ultimate goal, sustainable total cost reductions.”

Onesource’s dilemma
According to Walter Glass, new technologies that improve information flow from remote locations back to headquarters mean more of the well-established supply chain management theory can be put into practice. For instance, the clever use of personal digital assistants (PDAs), radio frequency (RF) and bar-coding technology gave birth to whole new generation of applications for copy machine seller/servicer Onesource.
Earlier processes lacked the accuracy over daily usage and parts signoff by service technicians, says the company’s logistics manager Ross Fearan. Technician stock levels were high and much of the stock was in the wrong place. Long supplier lead-times meant catering for unexpected demand cost the company thousands in airfreight. And customers felt the pain as technicians constantly returned to jobs after waiting for parts.
The solution hinged around three major projects: Bill of material (BOM) creation, automatic replenishment, and fully connected mobile service technicians (operating with PDA scanners). Bar-code labelling parts on receipt into the national warehouse helped technicians record parts used on jobs.
Each technician was established as ‘a location’ with set level of stock, depending on the BOMs they carried. The BOMs were designed with overnight replenishment in mind. This meant parts used during one day were available again for technicians early the next day. Allowing the technician up to 4pm each day to sign off their parts used, the company’s operating system would generate orders to the third-party warehousing provider for picking. RF scanners were used to ensure accurate stock picking.
Finally, Onesource partners with transport and courier company willing to meet the 8am delivery deadline to all major centres. Replenished stock is automatically receipted into the technician’s location. The technician receives picking slip with the delivery plus report detailing the parts sent to back order.

Integrated wireless
Onesource technicians now operate (PDA) handheld devices with wireless data cards and scanners communicating directly with the back-end service system. Through this integrated wireless solution, technicians receive immediate visibility of all the jobs in their territories. They can accurately complete their service requests, and directly update the service management system from the customer’s site.
While onsite, the service technician swipes the bar codes on all parts used to ensure that the correct items are costed and billed to the customer. “At the press of button, all of this information is communicated, completing the call process. This also triggers the overnight replenishment process,” says Fearan.

Payback
The more predictable demand has cut monthly costs of airfreighting urgent spares by 30 percent. Other efficiency improvements include:
• Ten to 20 percent improvement in supply chain costs.
• Twelve percent improvement in equipment reliability.
• Seven percent saving in petrol costs.
• Ninety-five percent first-visit completion rate by technicians.
• Improved stock-take variances by 29 percent.
National stock levels have also dropped 20 percent and the number of machines serviced in the field has increased markedly. Meantime, the average number of back orders has been slashed by more than 75 percent. “Technicians are virtually guaranteed to receive the right part from national storage every time. That means less enquiries on customer service,” says Fearan. “All parts are now signed off accurately resulting in billing and job costing accuracy and quicker replenishment.”

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