part of the Industry White Paper program from The Manufacturer
Foreword and analyst comment
AMR's Gerald McNerney discusses several survey data highlights
Commentary: San Diego University
Dr. Stephen Starling, U. of San Diego, on a step-by-step route to world-class SCM
Objectives, methodology, and demographics
Details on our survey participants
A high level overview of the main research section
A detailed, graphic look at the results of the 2002 SCM study
Sponsor contribution: SAP
Supply chain planning with mySAP, plus a Dow Corning case study
Sponsor contribution: Sun
Is the adaptive supply chain a reality? Sun says yes
Sponsor contribution: Bristlecone
Avoid the killer gap: how to fix the disconnect between software promises and reality
Issued Fall 2002 Supply Chain Management Report 2002 1
SUPPLY CHAIN MANAGEMENT REPORT
SAP is the world’s leading provider of e-business software solutions. Through the mySAP.com
e-business platform, people in businesses around the globe are improving relationships with
customers and partners, streamlining operations, and achieving significant efficiencies throughout
their supply chains. Today, more than 17,000 companies in over 120 countries run more than 44,500
installations of SAP software. With subsidiaries in over 50 countries, the company is listed on several exchanges
including the Frankfurt stock exchange and NYSE under the symbol “SAP.”
mySAP Supply Chain Management, part of the suite of cross-industry solutions within the mySAP.com
e-business platform, transforms the sequential, linear supply chain into an adaptive supply chain network that
enables suppliers, manufacturers, distributors, channel partners, and customers to collaborate, share
information, plan, and coordinate activities across the network. Adaptive supply chain networks are designed to
improve business visibility and enable dynamic collaboration throughout all supply chain processes, from supply
chain design to material sourcing, from forecasting demand to scheduling production, managing warehouses,
and fulfilling transportation requirements. The “adaptive” capabilities provide improved flexibility and
responsiveness while maintaining control of business processes. The “network” element means that
information is shared and leveraged based on the knowledge and strengths of trading partners across a multi-
tiered supply chain network.
Since its inception in 1982, Sun Microsystems has grown to become a leading provider of industrial-
strength hardware, software, and services that really do make the Net work. Sun can now be found in
more than 100 countries and, of course, in cyberspace. It believes passionately in getting the right
products at the right time to the right customer- the ultimate goal of supply chain management itself.
In this arena, reduced costs, enhanced supplier relationships, and increased efficiencies of capital and
distribution are the underlying components. Toward that goal, Sun offers the choice of best-of-breed supply
chain solutions, systems compatibility, and scalability.
Bristlecone is a business process and technology consulting company with proven expertise solving
high-impact value-chain issues that involve the movement of information, materials, and money across
an extended enterprise. Backed by a focused, senior team, Bristlecone helps global industrial
organizations with complex and dynamic enterprises quickly optimize supply chain, demand chain, and CRM
solutions within an SAP-enabled IT environment. The company’s accomplishments include more than 40
complex projects with Fortune 500 leaders such as Analog Devices, Dow Corning, ITT Nightvision, Motorola
Semiconductor Products Sector, Nestlé USA, Nike, Palm Inc., Pennzoil and others.
2 Supply Chain Management Report 2002
BY JILL ROSE, EDITOR, THE MANUFACTURER
Although any data report is merely a snapshot in time, giving us a glimpse into constantly shifting trends, this report
contains a particularly interesting view of an area poised for enormous growth.
Currently, companies are conservative in their expectations of and spending on supply chain initiatives; nevertheless,
they’re aware they must be ready to take fast advantage of collaboration technology when the upturn comes. In
reviewing the survey data, Gerald McNerney, senior research analyst in AMR’s Supply Chain Service, said that
although people are cost conscious these days, and many companies are taking advantage of things they’ve already
purchased, the ability to continue to get real value there is limited. “We’re going to see an opening up of purchasing
in the not-so-distant future. But companies want to see some economic upturn first, so they can budget accordingly.”
In looking at the figures on barriers to collaboration, McNerney said he found the focus on cost interesting. “People
know and understand that collaboration is an important aspect, but the real barrier right now is that they don’t have
the budgeting available at this point to go forward on these types of projects,” he said.
At the same time, McNerney said he knows from talking with manufacturers that although their budgets are flat,
they’ve been quietly told that if there’s something they can identify as adding a lot of value to the company, money will
be made available to them. “It won’t be put in any structured budget for the new year, but good opportunities will get
a good hearing,” he explained.
One of those opportunities may be the ability to connect to the next level of suppliers.
“As the tier one players develop more of a collaborative aspect, the tier two and three players are going to be
connecting with a lot more of their suppliers,” said McNerney.
McNerney also took interest in the mixed bag responses on measurement of KPIs, payback, and total cost of
ownership (TCO). He believes measurement is becoming increasingly popular and important. “Companies are starting
to put a lot more emphasis on measuring themselves. The ability to take the data from your operations and
benchmark it against your competitors or even other divisions internally is becoming more important because it
allows people to get better control over their businesses.” However, he noted that many manufacturers are just
becoming familiar with the concept of measuring TCO. “It’s becoming a new mindset,” he said. “I think you’ll see
greater adoption in the coming year.”
Companies are carefully measuring payback, however, and expect to see it between 12 and 24 months. That matches
with a survey conducted last year by AMR, said McNerney. “The real value doesn’t start to show until about two years
into an SCM project.” Those companies that have not yet started SCM projects are putting the groundwork in place,
he said, “So that when the budgets become available, they can start to do projects.”
Supply Chain Management Report 2002 3
STEP UP TO WORLD CLASS
BY STEPHEN L. STARLING, PH.D., ASSOCIATE PROFESSOR OF SCM
SUPPLY CHAIN MANAGEMENT INSTITUTE, UNIVERSITY OF SAN DIEGO
In working with various manufacturing organizations, we have discovered that supply chain professionals are not
sufficiently engaged in the process of selection, development, training, implementation, execution, and maintenance
of e-commerce solutions for their respective supply chain.
The process is often left to information technology professionals who are technically capable but not formally educated
in relevant supply chain management performance measures, techniques, tools, and philosophies. The result is often
less than satisfactory for containing costs and fostering synergistic opportunities between chain members that can
lead to competitive advantage.
Although supply chain professionals often complain they are left out of strategic decisionmaking regarding
e-commerce, we firmly believe that the onus for change is on supply chain professionals. Supply chain management
professionals often fail to perform crucial activities such as periodically surveying potential technologies,
benchmarking existing best-in-class implementations, and creating strategic roadmaps to guide the evolution of their
e-commerce systems to world-class status. Without research and roadmaps, there is little hope of impacting the
strategic direction of the e-commerce strategy of the firm or the supply chain as a whole.
Recently, we worked with fifty supply chain managers enrolled in our online graduate program in supply chain
management to develop a generic step chart to world class e-commerce management. The idea was to consolidate
most of the current practices and applications of e-commerce in supply chain management onto a single sheet (below
and right). The managers used the chart to aid in development of their own internal supply chain management
roadmaps. Although the chart is relatively exhaustive, only applicable e-commerce solutions were used in their
In addition to reading the following pages, we
encourage you to rate your firm on the 1-10 scale using • Transaction focus
• Web-based forms
the chart. Your analysis can then enable you to develop
• Electronic PO development
a roadmap to world class! • Electronic RFQ/RFP generation
• Electronic procurement of MRO and selected indirect materials
• Open-loop SRM systems
Clerical • Intranet disperses information
• Telephone • Price focused reverse auctions
• Fax • Disjointed use of electronic catalogs
• E-mail • Use public exchanges
• Partial electronic PO development • Electronically enabled internal order transfers
• No e-commerce strategy • Electronic date interchange
Roadmap to World • Partial electronic RFQ generation • Electronic identification of new suppliers
• Purchasing cards • Performance reviews of suppliers
Class E-Commerce • Company centric focus • Inventory tracking systems
Management from • Data not readily available • Forecasts are shared electronically
• Spot purchasing on Web • Little or no training is available for e-commerce
an SCM Perspective • Web used as search tool for new suppliers • Electronic supplier performance rating system
• No electronic enabled collaboration • Internal data warehousing
• Islands of information • Data is internally focused
1 2 3 4 5
4 Supply Chain Management Report 2002
SUPPLY CHAIN MANAGEMENT SURVEY
OBJECTIVES, METHODOLOGY, AND DEMOGRAPHICS
With much of the cost reduction in the manufacturing sector having been squeezed out of the operations phase,
companies have realized that the best way to reduce costs in their operations is to look beyond their four walls. Across
the country and across industries, manufacturers are looking to the extended enterprise to reduce overall operating
costs and working capital. Against that backdrop, The Manufacturer embarked on a research survey to determine the
extent to which supply chain management techniques and technologies are being used in manufacturing.
The questionnaire was developed jointly with The Manufacturer, a supply chain management consulting firm, and the
white paper sponsors. The survey was conducted using a combination of mail and telephone questionnaires. A total
of 159 responses was received, enough to be statistically significant. One hundred percent of respondents are in the
The survey respondents represent a broad cross section of industry, specifically in SIC codes from 20 to 39.
Responders range from companies of under $50 million to large multinationals with revenues of over $1 billion. On
average, respondents reported having over six years of supply chain management experience. The median number of
employees in these companies is 625.Over a quarter of respondents came from corporate or division management.
Another quarter came from production, operations, or
manufacturing management. Other significant responding
job functions include information technology, financial • Value trust networks are developed and maintained
management, and supply chain or logistics management. • Engaged in dynamic commerce
• Advanced planning and scheduling systems
• Private exchanges enable collaboration
• Open EDI utilized where appropriate
• Seamless communications via cross-chain information sharing
Proactive • Electronic catalogs include strategic data and design information
• E-commerce strategy exists • Designs are created electronically with key suppliers
• ERP backbone in place • Electronic generation of contracts
• Closed loop SRM systems • All payments are electronic
• Use private exchanges • Supply chain integrating knowledge hubs
• Use vertical e-marketplaces • Supply chain collaboration hubs
• Internal knowledge hubs • Wireless technologies enable real time information transfer
• Internal collaboration hubs • Forecasts and plans are shared in real time
• Aggregation and standardization of electronic catalogs • Collaborative design including suppliers occurs in real time
• Intranet is expanded to become an extranet • Total cost of ownership data openly shared
• XML-based content enables better connectivity • Firewalls allow collaborative data transfer while still protecting
• System facilitates internal sharing of design information critical information
• EDI used for more than tactical information • ERP fully integrated with other applications
• Multi-parameter reverse auctions • ERP systems in the supply chain are linked where applicable
• Inventory information is shared with suppliers (ERP2ERP)
• Inventory is visible via electronic means • Intelligent agents are leveraged
• Key system inputs are regularly updated • Relevant processes are documented and updated using
• Online negotiation is multi-parameter and strategic focused online interfaces
• Collaboration occurs internally and externally • Highly repetitive activities are electronically traced and managed
• Training in e-commerce is company-wide and centralized • Costs are accurately measured and dispersed across the
• Data warehousing is shared among selected suppliers supply chain
• Limited data is shared across chain • Proprietary data is exchanged
• Some process procedures are documented and updated using • Single Web portal for supply chain
online interfaces • Web centralized project management
• Electronically dispersed cost information is accurate and available • Inventory information is shared in real time across entire chain
for internal use • Training and education is conducted with supply chain members
6 7 8 9 10
Supply Chain Management Report 2002 5
BY STEVE GEARY AND KATE VITASEK, SUPPLY CHAIN VISIONS
Investment in supply chain technology will remain relatively unchanged in 2003, a positive development when
compared to the rampant budget slashing that took place in 2001 and 2002. The interesting insight lies not in the
spending level, but instead on how people are choosing to spend.
Before delving deeper into the investment trends that are beginning to emerge, it is worth noting that how companies
go about evaluating supply chain investments is changing—dramatically. Senior business leaders are demanding solid
payback in the near term, and they expect their supply chain managers to be able to prove ROI linked to revenue and
profitability growth, not inventory reduction.
Supply chain and technology managers who resist are met with skepticism and cynicism. Gone are the days of the
three-year IT implementations. Instead, the business people are demanding projects with less than two-year
paybacks. To achieve rapid payback, the approach is to maximize and leverage pre-existing IT infrastructure for more
productivity and usability. Additional functions or capabilities are “bolted on” or integrated into existing ERP systems.
For example, an advanced planning and scheduling system is added to the ERP core, or supply chain visibility software
or tools are integrated across partners.
Our research indicates that the supply chain community is dividing into two camps. Those who have their internal
house in order and have successfully completed internal integration projects are looking at 2003 as the year to roll
out extended supply chain and collaboration initiatives. They are building for the future on the strength of the
foundation that has been built. These companies are about one-third of the population.
Roughly two-thirds of all companies have less mature supply chain systems and remain in the struggle to let the left
hand know what the right hand is doing. Supply chain initiatives at these companies remain internally focused, and
their systems are a collection of inconsistently integrated capabilities. Leaders at these companies do not understand
why they are not achieving anticipated payback from supply chain investments and now view new initiatives with
suspicion. These companies are in danger of developing a significant competitive disadvantage.
The highest growth rate we expect to see during 2003 is in extended application integration, supply chain visibility,
portals, private exchanges, and vertical markets. Forget the hype we have heard over the years: our research indicates
that the leaders are rolling their pilots out of the closet and are getting ready to take them mainstream. These
initiatives are critical infrastructure when building an integrated, extended, collaborative supply chain. Those still
struggling with internal integration will be left behind.
The focus of supply chain technology investment is changing. Leaders are moving beyond the four walls, and actively
constructing the extended enterprise. Laggards are still getting their house in order, but time is running out.
2003 will be an interesting year to watch.
6 Supply Chain Management Report 2002
SCM 2002 RESULTS
SCM 2002 RESULTS
SUPPLY CHAIN MATURITY
How would you describe your supply chain?
6.4% Externally extended enterprise
26.8% Externally focused
There continues to be a disconnect between the sophistication of supply chains described by vendors or consultants
and the reality most practitioners face. Almost two thirds of the practitioners surveyed described their supply chains
as either functionally focused or internally integrated. Only about a quarter of the respondents describe their supply
chains as externally linked, and less than 10% describe their supply chain as being externally integrated or a
collaborative extended enterprise. This gap between typical practice and proven best practice highlights a continuing
opportunity for most organizations to realize significant advantage through the development of more robust externally
focused capabilities in their supply chain through active, structured, systemic collaboration in their supply chain
activities with both customers and suppliers.
Supply Chain Management Report 2002 7
What percentage of your suppliers What percentage of your customers
are currently integrated into your are currently integrated into your
supply chain? supply chain?
0-10 percent 51.3% 0-10 percent 44.2%
of suppliers 32.9% of customers 30.7%
14.7% 10-20 9.7%
20-30 20-30 9.3%
30-40 30-40 6.5%
40-50 40-50 5.3%
50-60 50-60 5.3%
70-80 70-80 6.7%
80-90 80-90 6.0%
0% 10% 20% 30% 40% 50% 60% 0% 10% 20% 30% 40% 50% 60%
Suppliers Now Suppliers 2003 Customers Now Customers 2003
Although EDI has been an accepted practice since the ‘80s, and newer approaches like UCC.Net/RosettaNet have
been gaining attention, today’s typical supply chain remains an island that does not take advantage of electronic or
Internet connectivity. Over half of our respondents report that they have less than 20% of their customer revenue
flowing from their customers through a system electronically integrated with their internal systems, and less than 10%
of their supplier base is integrated into their internal systems. This confirms the characterization of typical supply
chain capabilities as being internally focused.
However, rapid change is coming. By the end of 2003, on average, the companies surveyed are planning to have about
40% of their customer business flowing through an integrated system, while supplier integration will shift from just
over 20% to over 30% by the end of 2003. Clearly, there are companies who see competitive advantage in the pursuit
of a higher degree of maturity in supply chain capabilities, and those organizations who elect to do nothing run the risk
of becoming competitively disadvantaged.
What is most striking about the data is the size of the gap between best-in-class companies and the typical supply
chain. At the present time, only 10% of all companies reported having more than 90% of all customer revenue flows
through an integrated system, with about the same number reporting plans to have better than 90% of their suppliers
will be linked by the end of 2003. It is clear that industry leaders are emphasizing externally focused integration.
8 Supply Chain Management Report 2002
SCM 2002 RESULTS
BARRIERS TO COLLABORATION
What are the top inhibitors to more leveraged use of collaboration in your SCM processes?
6.8% Concern over releasing
2.8% Other sensitive information
8.7% Reluctance of management
to invest in IT initiatives 6.5% Availability of required
9.8% Payback is 5.7% Concern over the
not clear or believed security of our information
over public Internet
18.8% Overall 13.2% Lack of clear
business conditions vision and project plan
do not allow for
investment at this time
14.2% Need to finish
initiatives already under way
before starting something new
change management issues
Given the current economic climate, it is no surprise that business conditions are the most often cited inhibitor to the
introduction or more leveraged use of collaboration in supply chain management processes. The second most
frequently cited barrier is the need to finish initiatives already under way; no surprise given the current IT climate.
However, the data suggests that these rationalizations are red herrings, and there are more fundamental reasons why
businesses are shying away from investment in collaboration.
Once past the two most popular responses, we see organizational change management issues, a lack of clear vision
and project plan, and a general skepticism over the payback or IT initiatives in general as being the most often cited
barriers. The barrier is one of trust. Do supply chain professionals know what needs to be done, do they understand
the payback, and can they get it done? Given the wrenching experience of ERP deployment in the 1990s, combined
with the Internet implosion of 2000 and 2001, it is no wonder that senior managers who must sign off on supply chain
projects are cynical.
The responsibility for overcoming this barrier to collaboration rests clearly with the supply chain leader. They must
quantify payback, substantiate collaboration with hard data, commit to delivering specific results, and prove it. The
days of justifying supply chain investments with pretty slides and without data are gone.
Supply Chain Management Report 2002 9
4.3% Ability to attract
BUSINESS CHALLENGES and retain qualified
What are the most significant 1.5% Other employees
challenges facing your company?
Supply chain professionals understand that the most significant overall business challenges faced by their
organizations are issues directly related to supply chain effectiveness. Revenue growth, profitability, and competition
are issues that can be addressed by a core supply chain strategy. Collaborative approaches are recognized as best
practices that deliver results in these areas. To justify investment in collaboration, the supply chain innovator must link
initiatives back to key business challenges.
SUPPLY CHAIN METRICS
What are the top KPIs that you rely 1.9% Cost of shrink and obselescence
on to measure success of your 3.8% Labor (inventory write-offs as a % of gross revenue)
supply chain operations? 3.8% Total supply chain 0.6% Other
4.5% Cash to cash cycle time
4.5% Return on
net assets (RONA)
8.3% Fill rate
57.1% On-time delivery
Days of inventory
Almost 60% of all respondents cited on-time delivery
as the most important metric. The second most often
cited metric (15.4%) is inventory. Clearly, the emphasis is on
delivering customer focused results in the supply chain as a means of
achieving revenue growth, profitability, and competitive advantage, not inventory reduction.
However, a frequently used justification for supply chain technology investment is to achieve payback through inventory
reduction. If the emphasis is on the customer, as it should be, inventory reduction as a justification misses the point
that matters to senior management. If it is about the customer, then construct the ROI model to demonstrate
improved returns through enhanced reliability and customer service, not inventory reduction. It is important to capture
the natural tradeoffs that exist between key elements such as inventory costs and service levels.
10 Supply Chain Management Report 2002
SCM 2002 RESULTS
STATE OF THE MARKET
Do you currently have an integrated supply When considering an SCM solution, what
chain management software application type of solution do you currently favor?
suite implemented in your organization?
62.9% best of breed 60.9% Module in an
No already deployed integrated
To what extent do you believe Do you feel that today's offering of
optimization software is needed? optimization applications are too complex
for your needs?
27.7% 25.3% Not sure
Logistics & 55.3%
Pricing & 35.7% No
0% 10% 20% 30% 40% 50% 60% 70% 80%
Very Critical Somewhat Critical Not Critical
One-third of the respondents report they have an integrated supply chain management software application suite
deployed in their organization, which provides an interesting backdrop to discussions about externally focused
collaboration. These companies, who have already resolved the challenge of internal integration, are now free to take
the next step. They can leverage their internal foundation to drive horizontal flow.
Those companies who have not resolved the issue of internal integration will face increasing competitive pressure, as
the gap between haves and have-nots grows. Those who are now moving toward external collaboration will gain
competitive advantage, based on their solid internal infrastructure. Those who continue to struggle with internal
integration will be saddled with an inability to capitalize on technology to strengthen relationships with trading partners.
Optimization software has gained credibility in the supply chain. Over 60% of the respondents believe optimization to
be very critical in planning and scheduling, almost 50% believe it to be very critical in pricing and revenue, and a shade
over 25% believe it to be very critical in logistics and freight. However, almost 40% find that optimization applications
are too complex, and 25% are not sure. Again, we find the same ratio of approximately one-third (35%) who have
dominated their optimization application and do not find the application too complex, leaving others playing catch-up.
Supply Chain Management Report 2002 11
SUPPLY CHAIN INVESTMENT
Does your company currently have a If yes, when will it start?
budgeted or planned supply chain
7.6% Within the next
Not sure 6 months
6-12 months 9.5%
54.8% No 12 months
at this time
0% 10% 20% 30% 40% 50%
What change in SCM information Up greater
technology are you anticipating,
Up 10-30% 10.7%
comparing 2003 to 2002?
Up 0-10% 18.1%
No change 53.7%
Down 0-10% 2.0%
Down 10-30% 4.0%
0% 10% 20% 30% 40% 50% 60%
Almost 40% of the sample indicates their organizations have budgeted or planned supply chain initiatives. Similarly,
of those who answered affirmatively, the median budget was $450,000, with the range of answers spanning the
spectrum from $10,000 to $100,000,000. Most companies are tending to stay with smaller projects, but there are
significant numbers of companies who are spending far more than the median. In other words, most companies have
moved away from the big budget, large-scale projects of the past, but there are still some risk takers who are still
investing heavily in supply chain technology to achieve competitive advantage. Almost 40% plan to increase spending
for IT technology in 2003. Less than 8% expect to spend less, with an overall increase of 5.2%. This favorable outlook
indicates that the days of slashing budgets are over.
This does not mean that there will be a rush to spend money to incorporate new technologies: nearly three quarters
of all respondents plan on spending in 2003 to be within 10% of 2002’s number. We believe the projects and initiatives
will be well thought out and scrutinized to ensure high ROI. We also see indications that companies will place more
emphasis on successful execution-focusing on the critical few projects.
12 Supply Chain Management Report 2002
SCM 2002 RESULTS
MEASURING SUPPLY CHAIN INVESTMENT PAYBACK
Do you measure total cost of ownership for your supply chain management software
16.5% Not sure
What is the required payback period for the Do you audit the payback (ROI) from your
SCM investment your company makes? SCM investments?
3 months 2.8% 4.3%
3-6 months 2.8%
6-12 months 27.0%
12-18 months 24.1%
18-24 months 31.2%
>24 months 12.1%
0% 5% 10% 15% 20% 25% 30% 35%
Only one-third of the sample measures the total cost of ownership for supply chain management software
investments, and only two-thirds attempt to audit the payback. Small wonder that there is skepticism in the corner
office when it comes to these sorts of initiatives: if the supply chain professional cannot say what it will cost, and may
not be able to prove the payback, on what basis should the investment be made?
Senior management is demanding accountability for investment far more aggressively than has been the historical
norm. Our research indicates that the median payback for an investment is a little over 12 months, and over 85%
require a payback of less than two years. This is in sharp contrast to the multi-year ERP roll outs of the mid-1990s.
Today, senior management is demanding more manageable, smaller scale, more measured and justifiable projects.
Supply Chain Management Report 2002 13
What capabilities are you currently using within your supply chain?
What capabilities do you plan to deploy in 2003?
Advanced Demand Planning/Forecasting 45.9% 19.5% 65.4% by year's end 2003
MRP/MRP II 68.6% 14.5% 83.0%
ERP/Integrated Financials 54.7% 20.1% 74.8%
Advanced SC Planning & Optimization 17.6% 16.4% 34.0%
Product Life Cycle Management 20.1% 17.6% 37.7%
Advanced Transportation & Logistics Mgt 17.6% 13.8% 31.4%
Warehouse Management 40.9% 13.8% 54.7%
Inventory Optimization 32.7% 15.1% 47.8%
Supply Chain Network Design 13.8% 11.9% 25.8%
Supplier Relationship Management 31.4% 18.9% 50.3%
Customer Relationship Management 41.5% 22.6% 64.2%
Exented App Integration/SC Visibility 10.7% 20.1% 30.8%
Portals, Exchanges, Vertical Markets 10.1% 11.9% 22.0%
Analytics 28.3% 17.0% 45.3%
Human Capital Management 32.1% 8.8% 40.9%
RFID 11.3% 8.8% 20.1%
Wireless technology 47.8% 13.2% 61.0%
Pricing/Revenue Optimization 41.5% 11.9% 53.5%
0% 20% 40% 60% 80% 100%
Now Add in 2003
The companies sampled are taking advantage across the spectrum of supply chain related features—from supply
chain planning and optimization through to RFID and wireless technologies. However, external integration is striking
in its prevalence through the data. Extended application integration, supply chain visibility, portals, exchanges and
vertical markets are the fastest growing segments in our sample, with a growth rate in use from 2002 to 2003 of 125%
to 165%. Advanced demand planning and forecasting is projected to become far more prevalent in 2003, moving from
the fifth most commonly cited capability to the third most commonly cited capability.
14 Supply Chain Management Report 2002
SCM 2002 RESULTS
When asked about their preferences for supply chain management software solution
providers, respondents selected the following companies (listed in order of selection):
3. J.D. Edwards
4. Microsoft Great Plains
Supply Chain Management Report 2002 15
Supply chain planning with
by Dr. Stefan Theis, SAP AG
s part of mySAP Supply Chain Management (mySAP SCM), the Promotion planning is performed to include marketing
A Supply Chain Planning solution—with its key capabilities for
collaborative demand, supply, and distribution planning—offers a
activities, offering further collaboration possibilities with
retailers or distributors.
complete suite of tools for strategic to operational planning. It is A demand plan is created using all available information.
part of the SAP APO (Advanced Planner and Optimizer) and Freely definable macros enable any kind of calculation on the
includes collaboration and integration functionality. planning grid. This especially enables any kind of data check and
The considerable flexibility of the mySAP SCM Supply Chain the triggering of alerts for planners.
Planning solution allows you to set up company-specific You refine the demand plan in one of two ways: by
business processes and planning rules. This enables you to collaborative supply and distribution planning within SAP APO
reduce your time to value. or by using SAP R/3 to execute the approved plans. SAP BW is
mySAP SCM Supply Chain Planning includes three main used for reporting of, for example, forecast accuracy
scenarios that represent the basic planning needs within the measurements or market trends.
supply chain. These are:
• Collaborative demand planning Collaborative Supply and Distribution Planning
• Collaborative supply and distribution planning With collaborative supply and distribution planning, partners
• Sales and operations planning within the supply chain can concurrently plan procurement,
manufacturing, and transportation, while integrating all supply
Collaborative Demand Planning chain partners for collaboration.
Using collaborative demand planning, you can leverage all Based on the demand plan, Safety Stock Planning is carried
available information to drive forecasting, promotion planning, out first. It enables you to assign optimal safety stock and target
and demand planning. Historical data is consolidated in stock levels to all inventories throughout the supply network.
SAP R/3 and can be imported to an SAP Business Information The system bases safety stock calculations on lead times,
Warehouse (SAP BW) InfoCube. mySAP SCM Demand Planning forecast and supply variability, and customer service levels.
uses this information to create forecasts and carry out lifecycle Supply Planning tries to satisfy the demands and safety stock
planning. For this, a catalog of methods exists, including: requirements in an optimal way, makes decisions about sourcing,
• Statistical methods, like exponential smoothing or linear spreads production among resources, explodes the bills of
regression material (BOMs), organizes the procurement of semi-finished
• Causal analysis of influencing factors (like price or climate goods or raw materials, and creates allocations for customers and
conditions) using multiple linear regression channels. You can choose between three basic approaches:
• Composite forecasting to combine different forecasts into • The Supply Planning heuristic calculates requirements for the
one overall forecast sources of the products while taking quota arrangements,
The various methods can be assigned automatically to lead times, calendars, and lot-sizing rules into account. You
different data subsets. can execute a capacity check after the infinite requirements
Valuable information from any partner can be added via the planning run is completed. This allows you to quickly
Internet so you can come to agreement on a shared forecast. determine how planned orders affect your resources and
16 Supply Chain Management Report 2002
whether or not your plan is feasible. Capacity leveling can to SAP APO and can be taken into consideration during
eliminate resource overloads. collaborative demand, supply, and distribution planning. By
• The Supply Planning optimizer generates a feasible supply reviewing alerts and key performance indicators, you can
plan with minimal costs, considering all resources and consolidate the sales plan and then re-plan marketing activities
constraints in the supply network. It uses linear optimization accordingly. By using the simulation functions of SAP APO, you
and multi-integer linear programming techniques based on can evaluate a variety of scenarios using the available sales and
simplex-based algorithms and branch and bound methods. marketing plans.
• Capable-to-Match matches a large set of prioritized customer
demands (forecasts or orders) to a set of categorized supplies, Conclusions
taking into account the current production and transportation By using mySAP Supply Chain Management to manage the
capabilities in a multistage production environment. Capable- complex and changing flow of information, and by performing
to-Match is based on constraint-based propagation techniques timely collaborative supply chain planning, you can achieve
and goal-oriented programming. several benefits. Changes in market requirements can be
Distribution Planning consists of deployment, which absorbed by leveraging a partner network and adjusting
considers the available products and satisfies the real demands business processes quickly and easily, affording more flexibility
based on flexible rules, and the transport load builder, which fills to planners. Supply chain partners gain insight into demand,
transport vehicles in an optimal way. Deployment uses push and inventory, and capacity information across the extended supply
pull logic to recommend transports when the available-to-deploy chain network, delivering increased visibility. Optimal plans and
quantity can adequately cover the demand. If demand exceeds operational schedules based on collaboration can be created.
supply, deployment uses fair-share logic to fulfill the open sales Supply chain activities can be synchronized internally and
orders, safety stock, and forecast requirements in an optimal externally with plan- and order-driven, real-time execution of
way. The transport load builder uses the results of the supply chain activities.
deployment run to create transport orders for multiple products.
It ensures that your transportation vehicles are filled to their
maximum capacity (regarding volume, weight, and number of
pallets) and that no transportation vehicle is dispatched unless it
is filled to at least its minimum capacity.
Sales and Operations Planning
The point of origin in this scenario is the creation of a sales plan
in SAP Strategic Enterprise Management (SAP SEM), part of 3999 West Chester Pike
mySAP Business Intelligence (mySAP BI). The sales plan allows Newtown Square, PA 19073
you to create marketing activities in the SAP Customer
Tel: (610) 661-1000
Relationship Management (SAP CRM) Marketing Planner to www.sap.com
support the fulfillment of these plans. The results are transferred
Supply Chain Management Report 2002 17
End-to-end supply chain
management at Dow Corning
ow Corning is a global leader in the production of silicones. introducing a state-of-the-art IT infrastructure that would give
D To enhance planning and execution of production and
logistics, the corporation has installed SAP R/3 and SAP’s Supply
them greater control over their supply chain and improve
Chain Management solution, with the SAP Advanced Planner Dow Corning’s legacy IT systems, primarily mainframe-based,
and Optimizer at its core. This powerful combination has were hitting hard against the limits of their capabilities,
enabled Dow Corning to respond faster and more flexibly to the especially in an area vital to the competitiveness of a
ever-changing pattern of market demand. manufacturer: supply chain management. A major obstacle was
Operating in Europe, Asia and the US, Dow Corning has lack of integration, coupled with system redundancy. In many
approximately nine thousand employees in 25 countries around instances, it was simply not possible to access and analyze
the globe. Annual sales are $2.6 billion. In order to maintain and much of the data needed for effective planning. This hampered
strengthen their market position, Dow Corning has embarked on decisionmaking across the entire extended enterprise.
18 Supply Chain Management Report 2002
SAP: CASE STUDY
It became clear that more powerful client/server hardware and processes with far greater ease, matching production to market
cutting-edge software were needed if Dow Corning was going to requirements on a global scale. The company expects to realize
improve data transparency and, ultimately, responsiveness. major savings, particularly in the area of materials management
costs, when all supply chains are enabled.
Integration Through SAP APO and SAP R/3 One of Dow Corning’s major objectives was to raise the
SAP software offered Dow Corning the functionality, flexibility, and quality of customer service. Here as well, mySAP Supply Chain
tight integration it sought. The first step was to create state-of-the- Management has brought tangible improvements. Providing
art ERP backbone, based on SAP R/3. The second step was to customers with reliable delivery commitments, evaluating new
introduce SAP’s Solution for Supply Chain Management, with SAP market share with confidence, and supplying on-time all
APO at its heart. This created an end-to-end environment, contribute to overall customer satisfaction. The Supply Planning
seamlessly linking all key processes from order generation, capabilities of SAP’s Supply Chain Management solution enable
production planning, warehouse procedures, and transportation the corporation to rebalance and optimize demand forecasts
moves through to delivery and billing. The SAP APO solution according to various criteria, including transportation costs,
enables the SCOR model: Plan, Source, Make, Deliver. order destination, etc. Dow Corning can now deliver more
SAP APO provides manufacturers such as Dow Corning with precisely what their customers need, when they need it.
analysis, planning, and simulation tools that can draw on up-to- The remaining 25 supply chains across the enterprise have
the-minute data from diverse internal and external sources, been impressed by the improvements in costs-effectiveness and
increasing transparency while decreasing errors and costs. ease of use and are naturally anxious to gain the same benefits.
What’s more, the SAP environment allows those plans to be put The supply chains are “pulling” the need for this enabling
into action. toolset. In the longer term, the corporation intends to take
Implementation of the SAP APO pilot solution in a targeted advantage of the other enabling components of APO, as well as
supply chain took just nine months from design to deliver. In a other complementary solutions, such as CRM, to round out their
collaborative effort by a team of SAP consultants and Dow end-to-end supply chain solution.
Corning employees, business requirements were transformed into
system requirements and design. Six of the nine months were
spent on installing the enabling tools, prototyping, stress testing,
and the supply chain environment went live without a hitch.
Increased Efficiency and Customer Satisfaction
Since then, SAP’s cutting-edge software has increased efficiency
across the entire supply chain. Dow Corning has been able to 3999 West Chester Pike
establish a structure that enables supply and demand to be Newtown Square, PA 19073
balanced around the world for this pilot.
Tel: (610) 661-1000
With access to global, real-time facts and figures, www.sap.com
decisionmakers can now coordinate people, plants, and
Supply Chain Management Report 2002 19
The adaptive supply chain
ost manufacturing leaders have heard about the concept of Supplier Portal: Provides a primary business communications
M the adaptive supply chain. It’s a great vision. We all want to
save time and money today and be able to quickly change to
channel connecting Sun and its suppliers to reduce operating costs
and drive improved business performance through real-time
meet tomorrow’s challenges and opportunities without access to information, data, and applications. Using Sun One Portal
technology getting in the way. Can this vision become reality? products, over 1,500 users and 49 suppliers are enabled to date.
Yes, says Sun Microsystems, Inc.
Sun is a $12 billion company with procurement spending eSupply Planning: Keeps suppliers in the loop, providing the
levels that run at about 50% of revenue. While Sun develops the company with improved material supply plan accuracy and
network computing architecture and solutions for delivering the responsiveness to forecast changes. This initiative enabled Sun
adaptive supply chain, its manufacturing side drives forward its to cut its planning cycle from three weeks to one week.
own supply chain operations. With this eOperations initiative,
Sun is implementing an adaptive supply chain to create a eFulfillment/eSupply Execution: Enables delivery directly from
competitive advantage through fast, cost-effective delivery of supply points to Sun’s customers. This initiative allows demand
goods and services to its customers. The results are significant, replenishment with all suppliers, automated work orders, improved
and they illustrate the importance of basing your supply chain fulfillment velocity and predictability, and lower inventory costs.
solutions on the right architecture.
eCustomer Fulfillment: Uses third-party logistics providers to
Sun’s eOperations aggregate and deliver orders. This initiative helps speed
Kurt Doelling, Sun’s vice president for strategy, worldwide deployment through automated order signaling to the global
operations, says the eOperations initiatives focus on integrating supply base and allows delivery directly from supply points to
business process and systems across the extended enterprise. Sun’s customers. This has eliminated one transit day.
“The primary challenge for the supply chain manager is to make
product available for the customer when the customer wants it eSourcing: Provides Internet-enabled private auctions. This
without risking excess inventory or write-offs. Taking care of dynamic bidding environment has absorbed $1.2 billion in
your customers while taking care of your shareholders is the annual sourcing for Sun and resulted in nearly double normal
big challenge.” savings. Today, 80% of core sourcing decisions are made via
“We are focused on driving supply chain collaborative dynamic bidding, and the eSourcing cycle time has been reduced
capabilities that deliver compelling business value-connecting from 10 weeks to under a month.
and integrating data with our suppliers. The point is not to drive
technology for technology’s sake, but to support the value Doelling says: “We’ve accomplished so much already. We’ve driven
resulting from optimizing business processes and engage our hundreds of millions of dollars of cost out of the supply chain, and
suppliers in collaborative decisionmaking.” we’ve cut our customer lead times in half. The future’s even brighter.
The eOperations framework is secure and scalable, and it There are applications out there people haven’t even dreamed of yet,
provides true business-to-business links. eOperations has and the Sun One architecture and ‘services on demand’ will be the
yielded solid business value for Sun through several initiatives: key to unlocking the potential of the supply chain.”
20 Supply Chain Management Report 2002
Architecture is Critical for easy expansion when the economy turns around. The operating
“The key is the architecture,” said Dermot Duggan, Sun’s environment should deliver high levels of scalability, availability,
director for supply chain management. “You need the agility to manageability, and the robust security that is critical to deploying
rapidly adjust to market changes faster than your competition. Web services. Networks need to be robust and secure. Finally,
You also need visibility across multiple touch points in the businesses need to be able to choose the applications that best fit
supply chain and beyond. This means you want a computing with their needs—whether developed inhouse or from multiple
environment that makes it easy to tie these pieces together and vendors, they need to be able to work together.
makes it easy to grow. And how you proceed is important.” Sun recommends to its customers a simple philosophy: use
Indeed, industry wide, supply chain management focus best-of-breed software solutions and proven, open technologies.
continues to reach toward integrating more participants, An ideal system takes advantage of investments suppliers have
providing real-time exchange of information and enabling already made (in EDI, for example) while driving future plans for
interactive processes between companies and outsourced XML. This makes it possible to share information with suppliers
suppliers, logistics partners, and customers. As a result, the via secure Web pages and Web-enabled applications in less time
underlying business systems and architectures are being and at minimal incremental supplier expense.
examined for their ability to absorb the increasing complexity “We have to assume that we will not know what the supply
involved. A common focus is faster response to market changes. chain landscape will look like in a few years. Therefore, we have
According to Duggan, “The adaptive supply chain vision is to build solutions using architecture that is agile enough to adapt
about increased visibility, increased agility, and enhanced to any future direction,” said Henry Wong, a Sun system
collaboration. To achieve this, you need to effectively link architect. “Such adaptive supply chains will take into account
together applications, facilities, and people. This must be done existing business practices and technology, as well as new
within a community, not just within a company. Key objectives streamlined processes and technology. In addition, they need to
include keeping the cost of entry for suppliers to a minimum, be architected to allow growth, change, and added functionality
providing a solution that makes use of suppliers’ existing with minimal disruption so that you remain competitive. That’s
infrastructures, and reducing time to deployment.” where we are headed—an architecture that is ‘future proof.’”
“We believe that the adaptive supply chain must be built on a
solid foundation, designed using an adaptive architecture. This
allows businesses to add on new functionality or services by
implementing small point solutions without disrupting their
computing environment. Likewise, businesses can change business
partners with greater ease, since they are less hampered by
technology lock-in costs. Finally, new business models or strategies 4150 Network Circle
can be added without re-invention of what already works.” Santa Clara, CA 95054
From a business perspective, all of the functionality must
Tel: (800) 555-9SUN
leverage industry standards to ensure interoperability. The www.sun.com
hardware platform must be scalable and flexible enough to allow
Supply Chain Management Report 2002 21
killer app or killer gap?
hen GM’s parts plant rolled out sophisticated new supply of a technology’s capabilities. To cross this gap, two things must
W chain software, news of it spread throughout the industry.
But there was a gap in the big picture: because of poor service
happen. First, corporate education must go beyond how to use the
tools and focus on the business and operational theory behind
on the part of dealers, GM received the lowest customer them. For example, the typical manufacturing supply chain
satisfaction rating among US automakers.1 planner has a bachelor’s degree, and although he or she is not
Unfortunately, this is not the only example of technology tested for competence in advanced math concepts or operations
missing the mark. Too many enterprise solutions are theory, this person must work with complex tools rooted in
implemented in a vacuum. Because of this and other factors, sophisticated operational research and advanced mathematics.
industry pundits estimate that only 10% of enterprise software Second, software vendors must offer solutions that are easier
projects actually meet the target goal and come in on time and to understand, and therefore more trusted and better used. For
meet budget expectations.2 What’s more, many solutions are example, planning managers often override seemingly
purchased and never used. According to AMR Research, billions unreasonable solutions recommended by advanced planning
of dollars worth of software is just gathering dust. software (i.e., exceed your normal order by 10,000 barrels of oil)
This is insanity. The whole industry—vendors, users, and because they are not presented with the contextual information
consultants—must stop worrying about the next “killer app” and behind it (our customer base has grown by 45% in the last 18
instead abolish the “killer gap.” months, plus a horrible storm is anticipated for next month).
The killer gap is the disconnect between what an organization
expects to achieve with new software and business processes, 2. Planning and operations must come together
and the reality of actually getting them to work. Closing this gap The planning and operations sides of a business often have
requires careful planning, flexibility, a little intuition and, above different agendas and have historically been sold IT solutions
all, a willingness to compromise along the way. There are three skewed to one side or the other.
critical elements to eliminating the killer gap: Operational managers are concerned with concrete
transactions and bottom line costs. They want to know:
• Companies must better prepare technology users with
comprehensive education and technical training, while • What are we assembling today, and when will parts ship
vendors must make solutions more usable and intuitive. to dealers?
• Companies, vendors, and consultants must mitigate the • What is the cost of holding five months of safety stock?
philosophical wall between the planning and execution sides of • How many black cars did we sell last quarter?
business, so that more executives understand and work
toward the big picture. Planners, on the other hand, are more involved in the how,
• Organizations must precisely identify their big-picture goal, yet what, and where of a company:
be more flexible on how the goal is achieved.
• How satisfied are customers with after-market service?
1. Better preparation, increased usability • What regions need to create an artificial demand for green cars,
Despite advanced capabilities, most companies use less than half and how might that impact our ability to move other car colors?
22 Supply Chain Management Report 2002
• What are potential revenues if we hyper-spike demand customer commitments through an available-to-promise (ATP)
next winter? planning capability, found in several of today’s advanced
planning and optimization (APO) software products. The
Even among companies that claim to have integration, the company might be tempted to begin a full-scale APO
reality is that true integration is often marginal, at best. implementation that would involve a complete overhaul of their
To cross this gap, organizations must push executives to planning infrastructure. But the simpler (and less disruptive)
become more familiar with the start-to-finish business processes— solution would be to link only a new ATP piece to their existing
from the art of demand forecasting and supply planning, through advanced planning engine.
production, fulfillment, and post-sales relationships. More than Another important point to remember is that the concept of
having visibility into customer orders and automated order perfect is a fallacy. Companies that spend a year revising
fulfillment (classic transactional capabilities), line managers business processes and another year tweaking software to
need to understand, for example, which customer orders to fill match them will only find that market conditions will have
on-time, every time versus when to postpone order fulfillment changed by the time the software is working. The irony is that
based on a customer’s history. In essence, they must be your new “perfect fit” solution is no longer suitable.
empowered to make educated assumptions and take calculated There is no one-size-fits-all answer to bridging the killer gap,
risks. That can only be accomplished when both processes and but there are several constant rules. Be flexible. Get educated.
solutions for analysis and planning are tightly connected to Break down the barriers that keep technology and processes
operational, bottom-line information. from serving the needs of the entire organization—from the
employees on the factory floor on up to the corporate
3. Keep your eye on the big picture boardroom. And most important, keep the ultimate goal in mind.
The final step to abolishing the killer gap is to keep the big
picture business goals in mind when selecting new software and
Source: Warren Hausman, “Supply Chain Performance Metrics,”
Stanford University, June 2002
deciding how to implement and integrate it with other solutions.
Leading organizations navigating across the killer gap are 2
Source: The Standish Group
finding a common technique: be firm in defining and
aggressively pursuing the ultimate business goal, yet be open to
shifts in exactly how the goal is achieved.
First, what really is the goal? Faster inventory turns? More
accurate supply chain planning and forecasting? If you can’t
answer this question, even the most seamless software
implementation in the world won’t help. 2200 Laurelwood Road
Next, organizations must be flexible about how the goal is Santa Clara, CA 95054
achieved. Is the goal to implement an advanced planning system
Tel: (408) 588-1400
from Vendor X, or is it to achieve a business benefit? For www.bcone.com
example, a company might want to improve its ability to meet
Supply Chain Management Report 2002 23
Clearly, there is much change ahead in the supply chain management arena. As companies continue to take
advantage of business-to-business opportunities, and invest in the technology to support them, the SCM landscape
will expand and transform.
To keep our readers informed on the direction of these changes, The Manufacturer will be repeating our SCM survey
and white paper next year. This will give us a marvelous opportunity to benchmark the data contained in this white
paper with that of a year from now. Questions relating to the inevitable new crop issues will, of course, be added.
We will also be producing an Annual Manufacturing Report white paper in 2003, a broad survey on the state of
manufacturing in the US. Manufacturers in this country continue to be challenged by global economic issues, low-
cost facilities in the Far East, and the high costs of infrastructure, insurance, health care, and labor. Nevertheless,
manufacturing remains vital to the viability of our economy. As a country, we must be aware of the challenges faced
by manufacturers. At The Manufacturer, we are doing our part by exploring the issues, giving manufacturers the tools
and information they need to successfully meet these challenges.
In 2003, the editorial coverage in The Manufacturer will expand to cover such topics as supply chain management,
logistics and distribution, and product lifecycle management in even greater depth. As part of that, we are in the planning
stages of a white paper covering product lifecycle development and management that may be published in 2003.
For more information on Conquest Business Media white papers, please contact Vince Cavaseno at (978) 299-1204
24 Supply Chain Management Report 2002