Supply chain management in Australia – Part 2

Parking the Rolls

If supply chain experts can spend so much time and effort improving efficiency and still have more work to do, how are smaller companies meant to get their supply chains right? It’s not as if they have been standing still: CIOs at FMCG organisations and other companies of all sizes have long focused on using high-end supply chain management solutions to trim fat from their company supply chains. Many embarked upon massive enterprise resource planning (ERP) implementations a decade ago as they stared down the end-of-life of existing systems and the spectre of the Y2K bug. Yet while their intentions were good, the same can’t be said for the methods of resolution.

“Australia is a small market in the global sense of things,” explains Jonathan Dutton, CEO of the Chartered Institute for Purchasing Supply Australasia. “Many of [organisations] putting in ERP have put in big-company solutions, and many professionals are saddled with ERP systems that are Rolls-Royce solutions to fairly small distribution problems. The next tier down of companies are now getting into ERP, and they’re struggling with ERP systems that call the shots.”

Read Part 1 of Supply Chain Management in Australia.

When supply chain management is executed well, however, even small companies see the benefits. One such firm is SEAGA Group, a distributor of specialised printing and manufacturing equipment that replaced its 20-year-old business application with a hosted stock and business management system from Netsuite.

Stock accuracy was about 60 per cent before the new system and jumped to nearly 99 per cent soon afterward, says managing director, Tony Foley.

“It saved my life,” he recalls. “It has made our structures and stock control far more accurate, and we can integrate other packages and services — for example, for counting stock or barcoding. When you’re managing assets worth $1.5 million, it’s absolutely crucial that your supply chain is right.”

Foley chose the hosted solution after being quoted up to $60,000 for an internal system based on a server that would have required ongoing maintenance and a higher degree of skill than was available in-house. With plans to move the business into online ordering and Netsuite’s hosted service already online, it made sense to extend the company’s supply chain in that way.

Incremental revenues from the convenience of online ordering are already paying most of the cost of the supply chain management solution, while integrated capabilities like built-in Web services and customer relationship management features are helping Foley drive the business in new directions.

Low resilience

Supply chain management isn’t a panacea however; even in those cases where an ERP project has been successful, its efficiency has been problematic for many companies because it has worked too well.

Excess inventory may have been reduced, but lean-and-mean supply chains have in many cases suffered from what Dutton calls “the fragility of perfection” — they have no buffers to help survive the ravages of natural disasters and other unexpected happenings.

“Supply chains are too good, too mean, too lean and therefore a bit fragile,” Dutton explains. “When tsunamis and earthquakes strike, we’re finding out that supply chains are a bit more fragile than you might think. The cost of supply chain failure is dramatic, and people are now looking at supply chain vulnerability as a key issue.”

Read more in Supply Chain Management 101.

Such assessments extend far beyond the systems CIOs are charged with keeping running. They require ongoing relationships with business managers; healthy relationships with alternative suppliers that can be called upon in times of crisis; proactive use of stock and sales analytics tools to predict and order for spikes in business; and similar efforts. CIOs may be responsible for implementing the systems to support these sorts of changes, but they also need to make broad efforts to ensure management has a plan in place to ensure business continuity when the next volcano erupts.

And while niceties such as online ordering have been implemented to varying degrees in different companies’ supply chains, they also run the risk of exposing to partners the effects of fragile supply chains. If you’re out of a key product and customers can tell just by looking at your online system, there are few forces compelling them to stay with you. You may be their primary supplier, but it is relatively easy to shop around with competitors online who have the product they need. After all, they too are working to ensure the continuity of their own supply chains.

GS1 noted that Australia’s internal supply chain costs are more streamlined than in the UK, but that Australian companies are more affected by out-of-stocks than their European counterparts. The total cost of these stockouts: $675 million annually, according to GS1. This is hardly a surprise to Dutton, who notes that despite years of improved ERP solutions, many companies are still doing stock forecasts and management using Excel spreadsheets.