Supply-Chain Economics

Whirlpool's increasing investment in SAP, instead of a wide variety of vendors, is strategic. "We can get more leverage, we have a say in upcoming products, and it makes everything easier in terms of maintenance and training," Sagar says.

Whirlpool isn't the only company giving the bulk of its supply-chain dollars to an ERP vendor. Pella Corp., the privately held maker of custom windows and doors sold both directly and through big home-improvement chains such as Lowe's Cos., chose Oracle for much of its supply-chain and enterprise software. Pella began rolling out Oracle E-Business Suite in 2000. Already the company is using Oracle's financials, procurement, marketing, sales online, order-management, configurator, and mobile supply-chain software. Pella is extending its use of Oracle's advance planning and scheduling tool and is working closely with the vendor to obtain capabilities not available in previous versions of Oracle's software.

Oracle introduced transportation-planning and warehouse-management applications in the fall of 2002. One of Pella's developers spent much of the last nine months with Oracle to help build a new version of the transportation-planning module. The software should be available in early summer, and Pella plans to put it into production before the year is over. Pella also is awaiting sequencer software that will help it simplify and optimize production and the flow of parts on the assembly lines.

Turning to ERP vendors for supply-chain software may mean waiting for capabilities that could be obtained elsewhere. But that doesn't bother Pella--because using different systems can be as painful as waiting.

Two and a half years ago, Pella installed RedPrairie's warehouse-management system, before Oracle's warehouse-management software was available. Pella's Oracle software supports manufacturing and invoicing processes and works off of an inventory generated by that system. The RedPrairie system manages picking, packing, and shipping of finished goods and works off of a finished-goods inventory established during those processes. At the end of the day, the two systems' inventories must match, or transactions will error out. If that happens--and it does--Pella has to manually reconcile the inventory reports generated by each system and wait to make adjustments when there are no transactions occurring. "Trouble is, you never have a time when nobody is doing transactions," says Rick Hassman, Oracle project manager for Pella.

That's why Pella is determined to standardize on a single platform. "We want to have the architecture in place, the applications in place, and the tools in place to get that seamless view of the supply chain," says Steve Printz, VP and CIO. "We went into this knowing full well where the gaps were. This is a journey for us, and we don't expect this to happen overnight."

Another factor driving re-evaluation of supply-chain systems is the accelerating interest in RFID technology. To respond to RFID mandates from Wal-Mart Stores Inc. and the Department of Defense, companies are looking for middleware that takes information from RFID readers and translates it into something meaningful to warehouse-management systems, ARC's Banker says. Many of the warehouse-management vendors, such as Manhattan Associates and RedPrairie, have introduced tools to help companies begin integrating RFID data into their systems.

That's the short-term fix. Several years out, companies that want to exploit RFID to improve their supply chains will look for event-management and analytical apps, Banker predicts. The ERP vendors are likely candidates for such applications, and both Oracle and SAP recently unveiled their RFID plans.

Most companies want supply-chain software that helps them collaborate, or at least share information, with their suppliers and customers. Whirlpool, for example, plans to extend its SAP planning app to the retailer Ikea in Europe as part of a vendor-managed replenishment initiative. The extension will let Whirlpool model Ikea's distribution centers in the planning software, effectively treating them as if they were Whirlpool's. The appliance maker will continue to receive point-of-sale, receivables, and inventory data via EDI, which will be fed into the planning software so it can more closely align the stock Ikea has on hand with forecasts and demand. The initiative will help Whirlpool meet Ikea's in-stock rate of 98%. "Ikea likes to be a very lean organization, and this is service that Whirlpool can provide to help them achieve that," Sagar says.

Companies are catching on that controlling the supply chain can affect both the bottom and top lines. "We've managed to move supply chain from a back-office operation to a front-line, customer-oriented service," Electronic Arts' West says. "If our supply chain is executing really well, then we can start focusing on ways to help retailers sell. And then we can start looking at optimizing revenue."

No wonder, then, more companies are moving in the same direction.

Photograph by Bob O'Connor