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January 24, 2000

Supply-Chain Modules Improve On-Time Deliveries
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Before Mercury Marine implemented supply-chain management tools, business managers at the company more or less guessed what it should produce--and they often guessed wrong. Without data analysis, managers were ill-informed on demand trends. For example, the company once built too many 200-horsepower V6 engines for the spring boat sales surge, when customers really wanted more 150-horsepower V6s. The new supply-chain software reveals this type of demand before it happens.

Tomczyk says the new tools help his company produce the right products at the right time to anticipate customer demand. While Tomczyk hasn't generated any return-on-investment calculations--the tool is still under deployment--he says the company is already experiencing internal savings through lower product and material inventories.

While they deliver plenty of benefits, supply-chain management tools aren't cheap. A company with $1 billion in revenue might spend $500,000 to $1 million on a system, though pricing can vary greatly depending on the number of modules involved and other factors, Harwick says.

IS managers can expect to spend another one to three times licensing costs to deploy the applications. The biggest part of that expense is for business-process development and employee training, Harwick says, adding that the quality of the business process--having clear business objectives for using the tools--is the key to success. "You have to take development of your business process development a step farther to reach 300% return on investment," he says.

Integration can be another challenge. Most of the applications in the marketplace come from niche producers, so some custom programming is likely. And most IS managers say acclimating employees to these new tools and the process changes they bring is one of the toughest parts of deployment. "There are some people who embrace new technology and some who push back," says Gary Niemand, director of information technology at J&L Industrial Supply. "This is a huge cultural shift for a lot of people."

The Livonia, Mich., supplier of metal cutting and preparation tools to manufacturers is using a host of supply-chain management applications from HK Systems Inc., including the Enterprise Supply Chain software suite. The product taps into data from order entry, accounting, replenishment systems, purchasing, and warehousing. The tools let the company set supply limits and introduce overrides, such as during the initial rush on a new product. These override settings automatically terminate according to dates set by the managers.

The system also alerts managers to any spikes in demand or slowdowns in deliveries from suppliers. The application can also calculate for intermittent demand. For assessing trends, Niemand uses a rolling 24-month period for data on the company's 500,000 products, though the system can be set for any period. Managers can also weigh the calculations to emphasize more-recent data periods when determining average lead times. The software provides seven statistical forecasting models for calculating demand.

J.B. Hoyt Photo by David Joel Niemand describes the suite of applications as enterprise resource planning software for distributors such as his company. He says this more global approach to supply-chain management helps integrate various data sources in his company for more-comprehensive analysis. "I think ERP systems completely missed the boat on addressing the needs of distribution companies," he says. Like most companies that use supply-chain management tools, J&L Industrial Supply is drawing data for analysis from archaic legacy systems, which, for better or worse, still run much of its operations.

Niemand is clearly excited about the product. But he says it does contain its fair share of bugs because HK recently introduced much new functionality to the application suite. "The design is good, but we're working through some issues," he says.

Despite such shortcomings, IS managers express a general satisfaction with most supply-chain management software. Whirlpool Corp. in Benton Harbor, Mich., has been using i2's Rhythm Supply Chain Management solution for four years in Australia and 2-1/2 years in the United States. J.B. Hoyt, director of global logistics integration for Whirlpool, says before deploying the application, company managers went on a "gut feeling" when making production decisions, since little in the way of analytic data was available. Hoyt says this led to a homogenous "peanut butter spread" distribution approach: Whirlpool delivered the same amount of product to its partner retailers for every order cycle.

Hoyt says i2's application helps his company look at demand trends by any combination of time, geography, and product factors, a feature he hasn't found in other software on the market. Whirlpool can now anticipate the impact on demand for promotions, new model introductions, old model terminations, and other variables.

Hoyt also launched i2's Factory Planner application two months ago in the United States. It analyzes data regarding manpower constraints, internal manufacturing capacity, and supplier-capacity restraints. The application, for example, can factor the delivery schedule for a thermostat from an outside supplier into the final production date of a clothes dryer.

"We think it will give us a better tool to plan our own production and also help our suppliers plan for demand from us," Hoyt says. For Whirlpool and its partners, that should prove to be a more appetizing alternative to peanut butter.

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