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Supply Chain Transformation in the Cloud

By November 6, 2012Article

End-to-end supply chain visibility and responsiveness are prerequisites to success if you are in the business of manufacturing discrete products. But understanding where the challenges and opportunities reside — and how to tackle them — is daunting, especially as cross-functional teams across finance, operations and technology attempt to cooperate to find solutions. Why? Because today’s global supply chains are increasingly complex, reside largely outside the four walls of the organization and represent inherent risks that can negatively impact a company’s financial position. Cloud computing for the supply chain changes all of this.
The following significant trends are driving a major shift in supply chain solutions.

  • The changing face of retail. The Internet has radically changed retail, and today’s new omni-channel delivery model requires advanced, hyper-responsive supply chains. Amazon’s push towards same-day delivery, consumers using smartphones to view “showroom” products and the use of RFID to drive store inventory accuracy all have profound impacts all the way back to the start of the supply chain. Inside the store, retailers are competing to deliver a unique in-store experience to lure shoppers. Consumers today, especially those in their teens and 20s, need a compelling reason to go to the store. Otherwise, they’re shopping online.
  • The rise of a new middle class. Demand for goods by the new middle class in China and India is consuming much of the production capacity in those nations, and the rest of the world is feeling the impact. As a result, factories are being built elsewhere in emerging sourcing regions. This rising middle class is also putting pressure on commodity supplies, such as copper, steel, soy and corn. And as tens of millions move into the middle class and purchase cars, there is a major impact on oil demand.
  • Emphasis on sustainability. The movement toward sustainability and ethical sourcing is driving the need for a completely different level of visibility requirements and transparency in the supply chain. Brands and retailers are taking more responsibility to ensure the production of goods is not harming the planet or any workers in their factories. Suppliers are acknowledging the importance of compliance. And in places like Sri Lanka, they’re using it as a competitive differentiator – providing “Garments Without Guilt.”
  • Return to regional manufacturing. Several factors are pushing manufacturing back to the Americas. In addition to the rising manufacturing costs in China, rising transportation costs are making near sourcing more cost effective. New technology such as digital imaging on clothing and robotics is taking cost and time out of the manufacturing process, making American labor rates less prohibitive for some products.

Re-inventing how supply chains are managed
Winning companies in this new world will be the ones that not only get the in-store and on-web experience right but also build and manage agile supply chains to support rapidly changing consumer expectations. Without the right stuff in the right place at the right time, it doesn’t matter how cool your store or website is. And the only way to deliver against these expectations is with cloud-based solutions.
Here is how leading companies and their trading partners are using cloud technology in supply chain management:

  • Obtain visibility and transparency into transactions
  • Strip costs out of the supply chain, not just move them around
  • Connect to new trading partners in emerging sourcing hubs
  • Run agile supply chains that can help keep up with fickle, fast-changing consumer preferences and shorter fashion cycles.

Cloud technology is a fundamental building block of the modern supply chain. For some organizations it addresses the costly and painful aspect of sourcing goods. For others, it’s an opportunity to drive competitive advantage.
Supply chain innovators like Toyota and Dell spent years, if not decades, focusing on ways to implement and run leaner, just-in-time supply chains that deliver greater speed to market, superior efficiencies and higher quality. Today, running lean and just-in-time isn’t good enough. In fact, running too lean can turn around and bite you, as we witnessed with the recent earthquake and resulting tsunami in Japan.
Today supply chain innovators are striving to become truly demand-driven: fast enough to deliver the right goods to the shelf on time in order to capture full price, yet agile enough to shift production and distribution as buying patterns or market conditions change. This requires tight communication and collaboration across multiple parties and multiple transaction layers. Forecasts, data, orders, invoices, amendments and shipment notices flow faster and in greater volumes than ever before. The probability of errors is substantial — and it increases exponentially with each spreadsheet and email that gets exchanged along the transaction life cycle.
The advantage that today’s corporations have over Toyota in the 70s, 80s and 90s is the transformational effect of today’s technology, particularly cloud technology for the supply chain. In essence, this technology can seamlessly connect all parties in a transaction across time zones and roles.
There is already much innovation underway re-inventing how today’s supply chains are managed. Leading-edge practitioners realize that cloud-based supply chain technology extends traditional back-office systems. These technologies form the glue that connects the ERP, warehouse and PLM/design systems with the world beyond the four walls of the enterprise to create a truly extended enterprise.
A cloud-based platform can serve as the single system of record for a transaction, ensuring everyone is always on the same page. Whether a company is producing a knitted sweater within a pull model supply chain, or manufacturing an iPad in a push model, this single repository is essential for connecting the dozens of parties involved in the ordering, production and delivery of goods.
Furthermore, cloud-based solutions deliver their supply chain capabilities without the major headaches and costs associated with traditional enterprise software. With a cloud-based solution there is no investment in hardware. No licensed software. No maintenance fees. No painful and disruptive upgrades involving complex data migrations. All trading partners are always on the latest (same) version of the software.
The ability to connect multiple trading partners on a social media platform allows companies to collaborate and transact with their supply networks to address their most pressing challenges and take advantage of their most profitable opportunities including:

  • The sourcing team collaborating and transacting with dozens, if not hundreds, of suppliers by leveraging automated workflows and compliance engines
  • The logistics group gaining complete transportation visibility
  • The finance department seeking to eliminate the overhead to support manual vendor and freight payables
  • Enabling strategic initiatives such as direct ship, DC bypass and cross docking
  • Cost-effectively meeting new Homeland Security, SOX and other compliance regulations
  • Streamlining inefficient import documentation reconciliation and payment processes
  • Enabling first sale import programs

Case study: a retailer’s cloud strategy for multi-enterprise supply chain collaboration
A significant advantage exists today for companies that set out to partner with not only their tier one suppliers, but also with their level two and three trading partners, all the way back to raw materials sourcing.

An apparel retailer I work with spent years — and significant dollars — investing at the front of store to get closer to customers, improve forecasting and leverage demand signals and data to become more demand driven. The retailer more recently turned its attention to the other end of the supply chain, leveraging the cloud to do things like:

  • Engage in collaborative supply planning
  • Share forecasts and plans with suppliers prior to the purchase order
  • Book capacity and raw materials early

This retailer set out to establish multi-party communication prior to the purchase order to ensure common visibility into plans and expectations. Here’s how it works in the cloud:
The retailer shares its projected demand with its manufacturer. The manufacturer reviews capacity available across three factories and confirms that it can handle 75 percent of the projected volume. The retailer reaches out to an alternative supplier to confirm that it can fill the remaining 25 percent. All parties confirm and the buyer issues a purchase order, all handled in a single cloud-based system.  As production is performed, the retailer has real-time visibility into the status and can actively manage as demand changes. It’s like having a mission-control center for your entire global supply chain.

In the scenario above, the retailer collaborates with multiple parties to ensure factory capacity in advance. There’s a single system of record that confirms the transaction details for all parties. The same can be done to reserve raw materials in advance to lower materials costs, shorten lead times and reduce markdowns. The right stuff to the right place at the right time is all made possible by a cloud model.
Traditionally, transaction confirmations and communication have been manual and time-consuming processes. Email, spreadsheets and phone are prevalent. Today, all this can be done online, in an automated environment. Instead of point-to-point communication, cloud platforms connect all trading partners in one place, to one version of the data, and — as a result — a single version of the truth. Total visibility and automation enables true multi-enterprise collaboration with all parties working together.
The road ahead: all global supply chains move to the cloud
Supply chain strategies built around cloud computing eliminate many of the risks and costs that often come with supply chain investments including:

  • Reducing or eliminating the need for direct presence overseas
  • Cutting the time and costs incurred integrating systems across multiple departments
  • Reducing the time spent enabling and connecting with dozens or hundreds of trading partners around the world

Most importantly, cloud technology enables entire groups of companies to collaborate as a single enterprise, as opposed to acting as discrete organizations with different priorities. When all 25 trading partners that “touch” a knitted wool sweater from sheep to shop have clear direction — and have the opportunity to communicate early and often about specific objectives as well as obstacles — the right goods arrive at the right place and time at the lowest possible total landed cost and can be sold at the greatest possible margin. That’s the power of the supply chains in the cloud — nothing short of transformational.
Kurt Cavano is founder, chairman and chief strategy officer at TradeCard, Inc. He has over 25 years’ experience helping corporations improve business performance through intelligent application of technology. Prior to founding TradeCard in 1999, he was vice president at American Management Systems, an international business and IT consulting firm, and managed the Corporate Banking Practice of AMS’s Finance Industry Group. He is a frequent speaker and writer on international trade and global supply chain management.

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