September 23, 2003

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Think globally,
build regionally,
act locally

It’s a supply chain principle that has been around for awhile, but one companies frequently forget, although it’s more important than ever in today’s global, highly competitive supply chains. Matching supply and demand for most companies today should be undertaken with a global view, along with global coordination of supply chain networks and assets. Supply chains, however, must be built to meet the demands of specific regional markets, with flexibility and authority at the local level to innovate and meet individual customer needs.


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What is Your Order Commitment Model?

With the popping of the e-commerce bubble, we don’t hear quite as much as we once did about “available to promise” (ATP) and “capable to deliver” (CTD), when it was really pushed by the supply chain planning vendors like i2, Manugistics, Numetrix (now part of JD Edwards), and others.

Still, all the trends (higher velocity supply chains, lower inventories, smaller shipments, etc.) require more precision in order promising and actual delivery. SAP finally delivered basic ATP capabilities in version 4.6c, and other vendors are announcing new capabilities. While no one really seems to be doing on-the-fly schedule changes based on new orders as was once envisioned, we do seem to have increasing use of quasi-real-time ATP.

Forgetting the technical aspects of achieving ATP, it is a very valuable exercise to really analyze your company’s order commitment model. Do you really know how your company commits to customer deliveries today, and how that stacks up to the competition?

I ask that question a lot, and find executives and managers often don’t know the answer. Here are some of the key variables to determine: do you provide an accurate order promise or not (e.g. use a standard lead time)?; what is the length of time to commit to shipment when an order is placed or requested? (it’s often longer than you think); is the promise based on shipment or delivery (much trickier)?, what is the geographic scope of the capability (local, regional, national, global)?. And of course, what percent of the time do you deliver as promised?

Georgia-Pacific consumer products division, for example, is doing some interesting integration between transportation planning and SAP’s ATP function. Yet overall, I think most companies still have a large way to go, especially as more companies attempt to move to build-to-order models. But of course the right place to start is with the customer’s needs, and seeing how improving your commitment model and process can provide competitive advantage.

Are we making real gains in order promising? Give us your thoughts. Click here.


This Week:
ISM/Forrester study finds on-line buying of direct production materials continues to increase

Raising privacy concerns over future path of RFID

If technology doesn’t do it, a recession will, as business inventories hit an all-time low

Summary and comment below.

  Supply Chain Investment News
Supply chain stocks followed the market upward this week, with positive numbers for most charts in our index. Biggest gainers were Vastera and Aspentech, while Oracle was down 3.51% for the week. (Logistics-related stocks covered in Thursday's issue).


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Getting Suppliers On-Line
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The most recent quarterly study by the Institute for Supply Management and Forrester Research found for that for the first time, the percentage of direct materials purchased by the survey group surpassed the percentage of web-based indirect materials spend, though just barely.

The researchers surveyed 290 companies and found that for Q2 2003, the group purchased 11.7% of direct materials over the Internet, versus 11% for indirect materials. As one would expect, the respondents have more ambitious plans for web-based procurement, though the process now appears evolutionary not revolutionary, as we may have envisioned a few years ago.

One of the problems with this type of survey is that the “how” of the web-based materials purchase is really the critically important question. It also needs to look at other automated methods, such as EDI. Perhaps most interestingly, 29% of manufacturers in the survey claimed they had bought some direct materials via an Internet auction in the quarter.

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Is RFID Really Big Brother?
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For years there have been concerns by some fringe groups that bar codes were Big Brother in disguise. Anyone seen the image of the man with the bar code tattooed on his forehead that used to show up on windshield flyers?

Information Week reports that a privacy group is pressing the California legislature to limit use of RFID tags to supply chain and inventory applications, and to de-activate all tags at Point of Sale.

This does bring up some interesting questions. Retailers/manufacturers may want the tags permanently attached for returns, warranty, and service purposes. Do you as a consumer want that? There has been talk about refrigerators telling Coke when you run out of soda based on RFID tags… not sure this is a good thing, even if it saves a few trips to the store. RFID will move more slowly than many think, but it will raise a series of issues we all need to think about. Agree?

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Business Inventories Hit All-Time Low in July
The Federal Reserve reported last week that U.S. industrial production rose a scant .1% in July, following much stronger gains in recent months. Production was up strongly in technology sectors, and down in metals and motor vehicles.

Perhaps most interesting, inventory levels continued to fall, so that the inventory-to-sales ratio across the economy stands at only 1.36, which Morgan Stanley believes is an all-time low.

We seen wave after wave of supply chain technologies promising to reduce inventories. Evidence is that a combination of technology and process change (e.g. lean production) have substantially lowered raw materials and work-in-process inventories over the past decade, but finished goods have been continuing to pile up. But nervousness about customer demand obviously has the ability to drive down inventory levels. The question is weather these historical low inventory levels are leading to stock-out and fill rate problems, and if the relative shortness of inventory today will drive more robust growth later in the year as business gain confidence in the recovery.

Have we reached a point where we are we stretching inventories too thin, or has the economic slump simply exposed pockets of excess inventory? Give us your thoughts.

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