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January 24, 2000

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Supply-Chain Modules Improve On-Time Deliveries
Analysis tools help managers make the manufacturing and delivery of goods more efficient

By Charles Waltner

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ack in 1995, Copperweld Corp., a steel and copper tubing parts manufacturer, was doing all the right things--except one. Its product quality and customer service were excellent, which appealed to its top customers, including Ford Motor Co. and Caterpillar Inc. But the 2,500-person company was sorely lacking when it came to on-time delivery, which hovered at 62%.

Realizing that such poor performance wasn't going to cut it in the age of just-in-time delivery, the Pittsburgh company turned to E-business provider i2 Technologies Inc. One year after installing the Factory Planner module of i2's Rhythm Supply Chain Management software suite, which improves factory planning by analyzing dozens of production factors, Copperweld improved its on-time delivery performance so much that new orders flooded in, making 1997 and 1998 record years for revenue and profits. The company now maintains a 95% on-time delivery rate, which keeps its customers satisfied.

Judi Malec-DiGioia, manager of commercial administration for Copperweld, says the application served as a "magic carpet" for understanding the best way to organize factory design, manage supplies, and set production schedules. "It's like you're floating over the factory floor and can see where everything is and how it works together," she says. "I don't think we would be where we are today without the i2 tool. It helps us find hidden pieces of capacity."

Companies are finding the new wave of supply-chain management tools can have a dramatic effect on their business. For years, supply-chain software focused on tactical and operations information for a single factory or distribution center. While this information helped business managers organize production and goods delivery, it didn't help them make better decisions about how to balance the resources of a company. The tools didn't affect the ad hoc nature of decisions by companies on what type and how much of a product they should be making and delivering from any factory or distribution center.

While decision-support tools for supply-chain management software have been around for several years, they've spread through the market and reached maturity only within the last 12 months or so. These new tools juggle the bewildering number of factors--throughout the enterprise and among business partners--that affect material supply, production, distribution, and demand. Business managers can turn to the tools to find answers to questions such as what products need to be made when and in what factories, how much expansion to plan for, which vendors to source, how much inventory to carry, and which transportation options to use.

Judi Malec-DiGioia Photo by Janet Adams Tom Harwick, a research director with Giga Information Group, says analysis tools for supply-chain management can provide exceptional returns on investment, ranging from 100% to 300%, with major benefits starting in the second year after deployment and reaching full impact in the third year. "This software now provides the information companies need to drive to their profit objects, and their effectiveness shows in the ROI results," Harwick says.

Supply-chain management software strikes at the heart of operations for manufacturers and distributors. At its best, the software revolutionizes the way a company does business. And most applications improve manufacturing or delivery efficiencies many times over.

The tools help improve on-time delivery rates through better scheduling and refining production to more closely meet product demands from retail partners and, ultimately, customers. They analyze such operations data as order entry, replenishment, purchasing, warehousing and inventory, and accounts payable.

The analysis tools can reveal patterns in the flow of production supplies, output rates, and customer demands while providing extremely accurate forecasts or estimates for events on many points in the supply chain, such as time to deliver, backlog levels, demand trends, and supply inventory.

The new tools have so much analytical capability that they they are working at the fringes of businesses intelligence--broadly leveraging existing data to learn more about one's business. While still narrowly focused on the supply chain, these new tools provide so much flexibility that companies can use them to analyze just about any aspect of the supply chain. They don't just help executives make day-to-day decisions about how to run their companies; they can provide a company with long-range vision for strategic changes. "These tools have come a long way in the last five years," says Wayne Eckerson, a senior consultant with the Patricia Seybold Group. "They have more functions, more power, more scalability, and better interfaces than ever before."

Harwick says niche vendors pioneered the market, but it should get a major boost next year as enterprise resource planning vendors start rolling out modules with robust supply-chain management functionality in their application systems. SAP and Oracle are leading the charge. But while they have their tools on the market, Harwick says, it will likely take at least a year for these tools to catch on. Meanwhile, traditional supply-chain vendors such as i2 and Manugistics Inc. will likely bring out second- and third-generation versions of their products.

Gary Tomczyk, project director for Mercury Marine, a boat-engine manufacturer in Fond du Lac, Wis., says trends in business practices and consumer shopping habits make supply-chain management tools necessary for success today. The conventional business model between suppliers and retailers was to push supply onto the retailers and let them worry about selling the product, he says. "I don't think that practice is acceptable anymore." Consumers have too many choices and are too well-informed to accept whatever a merchant has on hand. If a manufacturer can't provide the products customers demand, retailers simply turn to other manufacturers that can.

Mercury Marine is using supply-chain management tools from Logility Inc. and Industri-Matematik International Corp. to improve its responsiveness to retailer and consumer demands. While the company is still deploying the tools, the benefits are clear, Tomczyk says.

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