Mastering Supply Chain Initiatives

While more companies now appreciate that supply chain management (SCM) enables them to enjoy long term success in the market, there are still many misconceptions about its importance. Companies traditionally looked at SCM only as a way to cut cost. This puts SCM at a tactical, if not operational level of importance within a company. Besides lowering costs, companies are using SCM to ensure product availability to end customers and be responsive, flexible and adaptable to market changes.

Supply chain strategy involves many interlocking facets and hundreds of decisions, which taken together can make your supply chain unique and difficult for others to replicate. This is a major competitive advantage for companies.

Companies should see the period of economic slowdown as an opportunity to re-assess their supply chain capabilities, increase their supply chain strengths (staff training) and be ready for the next upturn.

Improving the supply chain

Besides having the head knowledge and understanding of SCM benefits, companies need to be able to translate such overall ambition into more concrete goals that can drive the performance of the supply chain. Here are some reasons why companies embrace SCM.

• Improve financial performance by lowering costs and increasing asset utilization

By working closely with customers and suppliers, a company can eliminate much redundant work and save more money. The company can most importantly reduce asset utilization such as raw materials, work in progress and finished goods in storage. The company can also better utilize its production assets. If the company does not know its supplier's schedule, it has to assume the worst and stockpile supplies in a warehouse.

Likewise if a supplier does not know the company’s production schedule, the supplies has to assume the worst and stockpile supplies in his warehouse. If the two companies synergize their processes and work together, they can eliminate most of that unnecessary inventory and eliminate much waste and cost, thereby improving their supply chain.

• Improve the supply chain to enhance business relationship

With much products and commodities, it is critical for one to have an easy working relationship and posing little operational costs to customers and partners. This can be achieved by adding value to the customers through the supply chain management, where a company can deliver more value, products and service to the stakeholders. The company will then be able to do more for the customer, which entitles it higher margins and greater market differentiation.

By working closely with customers and suppliers, a company can eliminate much redundant work and save more money.

• Meeting government regulations

Keeping food safe as it moves through the supply chain is a significant challenge. Perishable goods such as meat, fish, vegetables and milk can change hands five to ten times before they reach the consumer. This process presents many dangers along the supply chain for accidental or malicious mishandling that can lead to product contamination or spoilage.

The growth in the global food supply chain also has a major impact on the ability to protect consumer health. In response to consumer demand for year-round access to out-of-season and exotic products, fresh fruit and vegetables are now imported from many countries. The type of food imported is also changing. In the past, imported products were primarily food ingredients that were later processed into various types of food inside the countries borders in compliance with regulations to provide protection for consumer health. Today, many food items that are imported are ‘ready-to-eat’, from fruits and vegetables to seafood, thereby increasing the opportunities for contamination to enter the food supply chain.

In response to growing food safety issues, new government regulations have been developed to help protect food as it travels through the supply chain. While these regulations improve consumer safety, they also translate into a substantial increase in record keeping requirements for companies in the food supply chain. Achieving this level of visibility will require the collection of a massive amount of data. Radio frequency identification (RFID) tags, with its powerful and flexible automated data collection capabilities, could be used to compile the required data set financially feasible.

While meeting government regulations can be seen as a passive and simply necessary activity, companies are using the opportunity (including the new levels of information and detailed data generated) to improve their supply chain efficiency in order to protect their margins and profi ability.

Challenges

Improving the supply chain is no easy task. Here are some of the challenges.

• Companies typically face problems addressing broad supplychain processes such as order fulfillment, which crosses a number of functional organizational boundaries and several different information systems;

• Companies often find it difficult to define the complete set of required supply chain IT systems functionality and to evaluate the large number of vendors in the market who offer supply chain solutions; and

• It can be challenging to justify the expected return on such a signifi cant investment.

Companies interested to implement the latest supply chain management technologies and techniques often find it difficult to implement, especially in Asia Pacific, as companies tend to be more fragmented and less competitive than their counterparts in the US and Europe.

There are three main cultural barriers to supply chain efficiency in Asia:

• Trust

Trust is the foundation upon which information sharing and collaboration are built. However, trust, particularly between supply chain partners, remains a significant issue in Asia.

• Win-lose perspectives

These are common in Asia, particularly when dealing with suppliers. A survey by Accenture found that most companies want their suppliers to add Internet capabilities (to help them obtain product prices, search and compare product features and conduct online price negotiations). However, few plan to add such capabilities.

• Respect

In Asia, respect often refers to the importance of “minding one’s own business”. Asians are generally expected to stay within their boundaries and avoid challenging the way others do business, especially when the relationship involves superiors. This mindset discourages change and the development of new approaches, which can undermine a company’s pursuit of greater supply chain efficiencies.

There are no universal best practices in supply chains and they work under certain business conditions and in certain industries. It is best to select the best practices that fit a company’s strategies and its goals.

SCOR goals

One of the most widely used and most comprehensive frameworks for improving a company’s supply chain is the supply chain operations reference model (SCOR). It is a methodology to design, manage and improve a company’s supply chain operations. The basic foundation of the model is based on five key processes – plan, source, make, deliver and return (Figure 1).

Figure 1: SCOR Model 9.0 and its five major processes.

SCOR is the product of the Supply-Chain Council, an independent, not-for-profit, global corporation. The model provides a framework that links business processes, metrics, best practices and technology features into a structure to support communication among supply chain partners and to improve the effectiveness of supply chain management and related supply chain improvement activities. Using SCOR, companies can also benefit from the “best practices”, which are proven ways of improving a supply chain (or certain parts of it) and they prevent companies from reinventing the wheel. However, there are no universal best practices in supply chains and they work under certain business conditions and in certain industries. It is best to select the best practices that fit a company's strategies and its goals.

In addition, certain best practices that work well in the high labor cost environment of the West may need to be adapted to the Asian environment. For example, many initiatives involving automation (either through software or hardware) have very different ROI results and can often be surprisingly unprofitable in the Asian environment due to its lower labor cost. Here are some applicable best practices

Asian manufacturers can adopt:

• Implement sales and operating planning (S&OP) to improve the planning process and align the sales and marketing plans with supply and operations plans;

• Improve the forecasting process; and

• Adopt an activity-based costing approach to accurately identify supply chain costs.

Conclusion

While SCM can mitigate the impact of the global recession on a company’s operations, but to merely see it as a quick way to cut cost and ramp down production would underutilize its capabilities. Companies should realize that SCM is not just about managing upswings but they need to be prepared for decline in demand as well.

This would make companies better adjust to the current economic environment, while remaining profi table and seeing this period of economic slowdown as an opportunity to re-assess their supply chain capabilities, increase their supply chain strengths (staff training) and be ready for the next upturn.

www.icognitive.com

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Savings through eCommerce

An Australian family-owned meat company uses eCommerce standards in its business and enjoys significant efficiencies and real savings.

BY MARY RIEKERT, FOODMAG AUSTRALIA

Meat and Livestock Australia (MLA), a producer-owned company promoting the quality, safety and nutritional value of Australian red meat, in Australia and globally, is working to develop a competitive advantage for the industry through the red meat supply chain.

To this end it has initiated a number of projects with the industry, endorsing the use of eCommerce standards and the uptake of the GS1 System. Collectively, these projects cover cattle production, meat processing, transport, domestic and export distribution. The premise of the GS1 System is that by introducing standards to supply chain identification and communication, all trading partners will understand the standards used – essentially everyone will speak the same language.

The GS1 System identifies trade items or products using Global Trade Item Numbers (GTINs) based on global standards. These are internationally unique numbers assigned to each different variant of an item, which are then represented in the barcodes consumers are most familiar with at the checkout in retail stores.

In fact, however, these numbers, or globally unique identifiers, can be used in many more ways to provide trading partners with an accurate and quick way of keeping track of, and managing, their products all the way along the supply chain. In the meat industry, where traceability and maintaining the cold chain is critically important, this can give businesses a competitive advantage.

By switching product codes to the GS1 numbering system and using the system for eMessaging, companies could significantly reduce the number of paper documents processed.

MLA partnered with the Australian Meat Processor Corporation (AMPC) and Nolan Meats to apply the GS1 System in the red meat supply chain and eliminate paper-based systems. AMPC is the national body representing all processors active in the red meat processing industry and Nolan Meats is an Australian, family-owned company and an integrated producer, wholesaler and distributor of beef. The company owns feedlots, a processing plant and off-site cold storage.

To carry out the project Nolan Meats needed to implement GS1 Numbering and Bar Coding, and implement electronic messaging (eMessaging) systems within its operations as well as with its trading partners. The project was based on three stages:

• A review of the company’s systems and determination of benchmarks;

• The implementation of existing systems and equipment to use GS1-compliant numbering systems; and

• The implementation of eMessaging systems based on global standards.

Moving forward, Nolan Meats implemented GS1 Numbering and Bar Coding and electronic messaging (eMessaging) systems within its operations as well as with its trading partners.

Nolan Meats directory, Tony Nolan, said the audit of the company’s system (in which communication between trading partners was largely paper based), identified areas needing improvement, particularly the double entry of data. As part of the process, the time and costs that would be saved at each data point were identified to give a framework to the improvements that could be expected.

The company was using its product codes on products, but by switching to the GS1 numbering system and using it for eMessaging, they could significantly reduce the number of paper documents processed. “The GS1 System demonstrated the potential to combine National Vendor Declarations, Meat Standard Australia declarations and National Feedlot Accreditation Scheme declarations into one electronic format,” says Nolan.

“It can also notify consignors of the receipt of cattle electronically, send producer feedback, generate electronic Meat Transfer Certificates, send consignment information to major customers and distributors, and receive notification of receipt of goods by customers.” The audit identified that the GS1 Bar Codes needed, would be signifi cantly larger than the existing product codes and that the GS1 Numbers and old product codes, would need to co-exist in the system for a period of time. This necessitated the need for equipment and data systems to be able to handle both simultaneously. Consequently a number of issues needed to be addressed:

• Labels needed to be redesigned to provide for the larger GS1 Bar Codes;

• New labels would be required for both slaughter floor (hanging labels) and boning room (carton labels);

• GS1 Global Trade Item Numbers (GTINs) needed to be allocated to products;

• Software needed to be modified and upgraded to handle the new GTINs and the co- existence of the original product codes and new GTINs;

• New printers were required to print the new labels; and

• Staff training in the new systems and product identification would be required to ensure a smooth implementation.

With the GS1 Bar Codes, systems and labels in place Nolan Meats then moved on to implementing eMessaging and communicating between different sites and with other companies.

With the GS1 Bar Codes, systems and labels in place the company then moved on to implementing eMessaging and communicating between different sites and with other companies. The goal of the new system was to allow Nolan Meats to replace the paper-based system with a wholly electronic system. To do this, a number of documents needed to be redesigned to fit the new systems and provide traceability for the product through the supply chain.

With their decision to implement eMessaging, Nolan Meats found the flow of information to be much faster, allowing data to be sent ahead of loads, removing double data entry from the supply chain. The system of eMessaging is based on email, giving it a simple and universal interface, while requiring very little bandwidth. This makes it suitable for communication with rural producers on dial-up lines.

Nolans Meats found that implementing these systems not only reduced operating costs and eliminated paper documents, but improved the accuracy and timeliness of data internally as well as the company’s interaction with suppliers and customers. It says benefits derived include the timely arrival of accurate data, standard descriptions and numbering between organizations, reduction in data input errors, and reduction in use of paperwork and forms.

www.foodmag.com.au

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The Touch of IT

IT solutions can improve the supply chain and aligning operations across global networks, says an Oracle personnel.

BY SHEILA WAN, EDITOR

Sheila Wan speaks to Jasbir Singh, general manager, ASEAN Enterprise Accounts (MRD Industries), Oracle on his views on the current uptake of IT solutions in Asia’s F&B manufacturing scene.

The supermarket boom in China is a factor in the high deployment of IT solutions in food plants. The retail chains often have considerable buyer power, which forces down the prices that food producers can obtain.

AFJ: In terms of IT infrastructure and solutions, what do you think of the manufacturing efficiency of Asian food plants?

Singh: Food plants that are run in Asia by multi-national companies and companies with large export operations are comparable in terms of manufacturing efficiency to those in the US and Europe. As providers of mass market products, they have to achieve high levels of efficiency to remain profitable in the face of cost pressures from both retailers and value-conscious consumers.

Food plants that focus on local markets tend to have relatively less efficient manufacturing processes. With smaller scale of operations, it is more difficult to justify large investments in IT infrastructure to improve efficiency. Small scale and niche manufacturers should look to other competitive advantages such as plants that produce high quality or organic food in order to sell their products at premium prices. They will also be able to successfully differentiate their brand and taste. Manufacturers can look to IT solutions that can scale with their business growth and more importantly, have built-in functionalities for the food industry.

AFJ: Which Asian countries are more advanced in deploying IT solutions in their food plants?

Singh: China has one of the fastest growing food industries. As a result, multi-national companies have increased investment in the country and formed partnerships with local players, contributing both resources and expertise in improving manufacturing processes. The supermarket boom in the country is another factor in the high deployment of IT solutions in food plants in China. The retail chains often have considerable buyer power, which forces down the prices that food producers can obtain. To maintain better profit margins and lower costs on the products, producers need to invest in production equipment and IT solutions.

Australia has a mature and well developed food and beverage industry with high levels of consumption. Food plants in Australia must contend with increased competition from imports, as well as cope with relatively high operating costs. Hence, these plants spend a signifi cant amount on IT solutions to address the need to improve manufacturing efficiency and to keep track on costs.

Jasbir Singh, general manager, ASEAN Enterprise Accounts (MRD Industries), Oracle.

AFJ: Similarly, which Asian countries are the least advanced in deploying IT solutions in their food plants?

Singh: The food industry in India has been targeted by foreign food companies due to its large and increasingly affluent population. However, there is an absence of high forecasts in food consumption growth owing to gaps in disposable income and the strength and prevalence of traditional food consumption habits. These result little impetus for food plants to ramp up on production and improve on manufacturing efficiency.

Moreover, India’s distribution infrastructure remains an impediment, particularly to producers of perishable items. The government legislation designed to protect the independent grocery retail sector also represents a barrier, adding to the challenge of fragmented distribution networks to the supply chain.

The relatively new food industry in the Philippines has resulted in a low take-up rate of IT solutions. Food plants are still being developed, aside from some conglomerates that dominate the industry. The industry is also experiencing structural problems such as poor storage and distribution, as well as a generally low uptake of processed food products among of the general population.

There is also a shortage of high-to-middle-end IT professionals with niche specialization skills needed for this industry. This impedes the take-up rate of IT solutions, not only in the food industry in the Philippines, but in other sectors as well.

AFJ: What are the barriers to Asian food plants investing in IT solutions for efficient operations?

Singh: While there are structural problems such as poor logistics and distribution infrastructure that cannot be solved by plants, many are looking at improving manufacturing efficiencies by concentrating only on automation of equipment but they neglect the improvement to their IT systems.

By focusing on IT solutions such as an integrated product lifecycle management (PLM) solution, plant managers can improve the supply chain in predicting market requirements, innovating in response to volatile market conditions, and aligning operations across global networks.

It is only by better managing product lifecycles that food companies can react quickly to market changes. This also helps preserve or increase revenues and profit margins. An integrated PLM solution enables companies to better manage product development across departmental functions, to better manage their portfolio and increase visibility enterprise wide, and to optimize results across all projects.

Asian food plants that are run by multi-national companies and companies with large export operations are comparable in manufacturing effi ciency to those in the US and Europe.

PLM solutions empower food companies to:

• Develop and launch products more quickly to reach the market faster;

• Manage projects across functions and geographic locations via a web-enabled platform;

• Access aggregated project metrics to make sound portfolio-level decisions;

• Improve the success rate of new products; and

• Increase return on investment for product development.

AFJ: How can Asian food plants move forward?

Singh: Some of the challenges companies face are retail consolidation, ineffective innovation processes, increasing regulatory requirements, empowered consumers and complex supply chains. While the focus in the past has been to reduce business costs by investing in ERP solutions to reduce back office costs, Asian food plants now need to invest in all aspects of their business in order to move forward.

Companies should prioritize product innovation. Asians are increasingly turning to healthier products with options such as low fat, low salt and high fiber. They are also looking for environmentally friendly packaging that is more intuitive and convenient to use. Companies need to listen to their customers and invest in new products in order to meet their needs.

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