Supply-Chain Economics - InformationWeek

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3/5/2004
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Supply-Chain Economics

Replacing aging homegrown systems lets companies improve supply-chain-generated bottom- and top-line results

Brunswick Corp. began life in 1845 as one of America's first manufacturers of high-quality tables for playing pocket billiards, then an entertainment enjoyed exclusively by the upper class. The company took a big step in a different direction in 1956 with the introduction of Brunswick Automatic Pinsetters, which mechanized bowling and helped popularize the sport. In 1960, Brunswick got into the sporting-boat business with the acquisitions of Owens Yacht Co. and Larson Boats. Today, Brunswick is a $4.3 billion-a-year maker of boats, marine engines, fitness equipment, bowling and billiards equipment, global positioning systems, and even business-integration and content-management software.

With so many different product lines, Brunswick is eager to simplify its manufacturing operations. To do so, the company is looking at upgrading and improving its various supply-chain systems. It uses several homemade warehouse-management systems in various parts of the company, as well as i2 Technologies Inc.'s Factory Planner software in its outboard manufacturing plant. Brunswick admits the situation is less than 100% efficient--but not unusual. "The vast majority of companies are like us and have a kludge of systems," says Chris Lemnah, director of strategic sourcing at Brunswick.

Supply chains are, by definition, a kludge of systems, comprising software for manufacturing, warehousing, inventory control, planning, shipping, and logistics. And that's just the internal systems. They also involve intimate relationships with suppliers and partners, and, on the front end, an increasing dependence on the input of customers.

That's why companies are determined to build a better kludge. With off-the-shelf options improving, many see a chance to replace aging homegrown systems that run pieces of their supply chains with state-of-the-art software that incorporates cutting-edge features, such as business analytics, and even integrates with other parts of the IT infrastructure. They're doing so because they see the chance not only to squeeze out costs but also to use efficient and effective supply chains to bump up sales.

Supply-chain software is a well-established market that tops $5 billion in sales annually--with room to grow, according to current market research. "It's still, believe it or not, immature," says John Fontanella, an analyst at AMR Research. That's because companies haven't nearly exploited the potential inherent in supply-chain technology. "The [majority] of companies I talk to still feel that they haven't gotten control over their supply chains," Fontanella says.

The products are generally of two types: supply-chain-execution software, which addresses particular segments along the supply chain, such as warehouse management or transportation management; and supply-chain-planning software, which helps companies decide which products to build and when, based on forecasts, orders, capacity, and resources. Together, the two types are sometimes referred to as supply-chain-management software.

The supply-chain-execution market, which incorporates many small and midsize vendors, will grow from $3.3 billion last year to $5.2 billion in 2008, according to an ARC Advisory Group study. Contrast that with the supply-chain-planning market, represented by just a few high-profile vendors such as i2 Technologies and Manugistics Group Inc., which ARC estimates will grow only from $1.9 billion to $2.2 billion in the same time frame.

That's a change, because in the late 1990s, supply-chain-planning software was the hot-ticket item. But a few problem cases, such as the public spat between sports-shoe maker Nike Inc. and i2, and a reputation for complexity and long-term payback slowed its momentum. "People bought more of [the supply-chain-planning apps] than they should have," says Steve Banker, an ARC analyst. "There were folks that were burned, promises that weren't kept, and folks that bought a bigger solution than they needed."

Now most companies are pragmatic when it comes to supply-chain software, looking more for quick fixes and short-term returns. Another factor is that many companies are overdue for supply-chain upgrades. Only about 30% to 35% of companies have bought best-of-breed apps for warehousing, even though warehousing software has been around since the early 1990s, AMR Research's Fontanella says. "The rest have legacy systems that were homebuilt or are using systems that are 10 to 15 years old or don't have anything at all."


Dennis Hernreich, executive VP, chief operating officer, and CFO for Casual Male

Casual Male is overhauling an old warehouse-management system, CFO Hernreich says

Photo by Bob O'Connor
Casual Male Retail Group Inc. is more than a year into an overhaul that involves replacing a 15-year-old mainframe warehouse-management package written in Cobol. "It's antiquated, inefficient, can't use the latest scanning technologies, nor does it provide for the use of EDI," says Dennis Hernreich, executive VP, chief operating officer, and CFO for the retailer, which specializes in clothing for big and tall men.

Casual Male is implementing Manhattan Associates Inc.'s PkMS warehouse-management software and integrating it with its point-of-sale systems and JDA Software Group Inc.'s merchandise-management software. That means when an item is sold at one of its 600 stores, the sale will automatically register with the inventory systems at its 600,000-square-foot distribution center in Canton, Mass. For example, point-of-sale data will flow into an inventory application and also be used to generate customer-demand reports that influence buying decisions. Purchase orders will be fed automatically to the warehouse-management system, which sends alerts when orders are filled and shipped.

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