Closed Loop Replenishment Systems

The new Holy Grail: Closing the Loop

o Closed-loop replenishment systems will be the new holy grail, as organizations struggle to tie the demand-side more closely to the supply-side. As the focus moves more and more from supply chain issues to the needs of the final consumer, organizations will strive to become more demand-driven in a bid to maximize net revenue optimization through lower delivery lead times, cross-docking, lower buffer stock, vendor managed inventories, simplification of logistics using Information Technology, shorter cash-to-cash cycles and so on.

o Customers will look for solutions that can aid the transformation to an On-Demand Supply Chain, as well as smooth out lumpy flows. This will translate to the demand for advanced versions of collaborative demand technologies, particularly in complex sectors such as the semiconductor industry, where small miscalculations in demand forecasting can leave one saddled with obsolete or over-valued inventory! And, of course, customers will increasingly expect SCM vendors to integrate - into their solutions - the ability to forecast the impact of planned marketing strategies on future demand.

o Supply Chain analytics, accelerated demand sensing and simulation will find rapid acceptance, as the technology-enabled advances by the early movers in supply chain optimization get nullified by competitors catching up rapidly through the adoption of similar technology at a far lower cost. Predictive analytics, spurred by initial successes, will move towards lower levels of detail; however at the lower levels of detail, 'noise' will amplify, distorting the simulation-based decisions, which might lead to temporary disillusionment with this technology, until more finely refined models develop!

DDSN: Outsourced solutions

o Demand driven supply networks (DDSN - a term coined by AMR Research) will work in tandem with analytics to allow manufacturers to produce smaller lots of what customers are demanding at the moment. Nothing new in this; companies such as Procter and Gamble and DELL have been doing this for years; however more of the brick-and-mortar manufacturers will jump on this bandwagon as they understand that the increased production overheads due to smaller lot sizes will be more than offset by the cost efficiencies achieved in inventories and holding costs.

o Not just the SMB's, but also the larger players will prefer to outsource Demand Driven Supply Network implementation. For instance, one of the early movers in this domain, Cisco has partnered with D.W. Morgan Company to provide advanced supply chain and logistics planning through their DDSC (demand driven supply chain) Solution, which will facilitate the convergence of worldwide resources in almost instantaneous response to customer requirements.

o Similarly, Oracle projects integration and automation of all key supply chain activities through its E-Business Suite SCM family of applications. SAP too has combined its advanced planning and optimization component with other modules that allow DDSN implementation, right from standardization of processes, integration of other business applications, as well as inclusion of the suppliers and customers in the extended corporate network!

Supply Chain Info-Sharing: Fear of Exploitation

o To enhance homeland security, regulations are going to make obligatory the sharing of more and more information with Government agencies. However Data Security will remain the largest concern, as most companies will remain extremely uneasy about having information of their customers and supply patterns (who was supplied what, and when) available on a common database that uses entry level username-and-password type of security for user authentication!

o While the benefits of real-time demand sensing have been obvious for many years now, implementing this, and transforming the business from a push-based system to a pull-based system is far from simple, as this involves not just the application of analytics to point-of-sale (POS) data and improved supply chain visibility, but also collaborative information sharing through the supply chain.

o And it is in this collaborative information sharing that the greatest challenge lies: One the one hand is the difficulty of making the paradigm shift - from the earlier stance of guarding data considered proprietary - to free sharing of this data through the supply chain. For instance, from the point-of-view of B2B buyers, the vendors may not want to share information about the other players involved in the movement of goods through their supply chain. And then again, companies have to get over their mind-set of trying to extract every possible penny out of their supplier network: unless this changes, companies cannot expect to develop peer collaboration within their supply chain!

The next post will be up on April 11th 2007! Please keep writing in with your feedback at scm.primer@gmail.com