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Integrate Physical and Financial Supply Chain

Supply chain globalization, increased complexity, rising costs, and the need to respond rapidly to customer demand changes and supply chain disruptions are forcing companies across industries to re-think their old approach to supply chain management. The evolution of today’s multi-tiered supply and demand networks is driven by the need to reduce costs and achieve long-term competitive advantage.  Enough reason to integrate Physical and Financial supply chains

It is important for companies to understand that the production and distribution of their goods and services need to be synchronized with the flow of data and finance. The availability of credit and working capital to support supply chain operations represents another dimension of complexity in the multi-tiered supply-demand networks.

The available time shrunk for multi tiered supply chains to balance supply and demand. With a economic downturn and demand under pressure, the need to control the total cost of Supply chain becomes even more prominent. More focus on the financial flow in the supply chain and reducing the capital flow, can improve the narrow margins. Cash to cash cycle time, controlling the total landed cost are important metrics for companies when evaluating the Total Operation Cost. At present the C2C varies from 30 days up tot 66 days as were the Average accuracy of total landed cost forecasting(actual versus estimated costs)for Best in Class 97% and Laggers at 78%.

Strategy for improvement
Increase the collaboration with business partners and increase the shared responsibility to lower the TOC. Cooperation at strategic and operational level, allows to increase the visibility of the supply chain. Not only for the physical flow of goods, but also for the related information and financial impact. furthermore, it allows the partner in supply to evaluate the risks across the supply chain.

The cooperation can be enabled by installing integrated and standard methods of information exchange. Suppliers and customers should share application interfaces and develop a supply chain wide technology that effectively supports the supply chain strategy. Business Intelligence across the supply chain. Applying SaaS technology with the right API for local support can improve the realtime exchange of information and increase the supply chain visibility.

Drawbacks
Despite the fact that companies have been focusing on supply chain improvement initiatives for the past decade or longer, supply chain visibility still tops the list of their priorities for improvement in managing their supply chains. The ability of companies to integrate there business partners in there network is still rather weak. The focus stranded at the areas of direct control, which is often the internal supply chain.

Integration of supply chain also implies long term relationships with business partners. Such strategic relationships are often hindered by short term trade offs such as price competition. These day to day considerations prove to be a major drawback. The pay off with strategic alliances can not directly be monitored in the monthly financial P&L sheet.

Another pitfall is the internal facing of departments and employees. Each employee can contribute to improve the overall supply chain visibility and improve the overall results. But to often, employees and department which are not directly involved, prove to have a certain disconnect. “. For example, internally-facing supply chain employees are twice less likely to recognize that the company is facing increasing supply chain risk exposure (security / environmental / financial instability or other risks) – 26% versus 52% among externally-facing employees.”

Requirements for success
Companies that are successful prove to have an executive sponsor or champion for supply chain collaboration. Integration demands a high level strategic approach, which need to be supported by the various board of directors across the supply chain. Only then a integral supply chain vision can be developed and executed across the companies. It enables companies to  accurately forecast demand across multiple channels and tiers and trade partner data into internal processes. Business Intelligence can be adapted to analyze data and mitigate possible risks.

Such strategy also requires a central supply chain organization. The organization will then be able track accrued supply chain costs at line-item level at all stages in the supply chain. Timely information about forecasts, change in demand and the ability of partners to adjust to changing demands and forecasting.

Network Business Intelligence.
It is important for companies to develop their information strategy to effectively address the multi-enterprise complexity of today’s supply chains. Best-in-Class companies have made more progress in aligning information management with the needs of their multi-tiered supply chains. There is a need for organizations to evolve from traditional enterprise focused business intelligence towards network-wide intelligence capabilities that unite performance management with execution capabilities. In other words, the analytics and reporting capabilities should be coupled with workflow management and event management to allow the users executing the business processes to respond rapidly to market events.

5 steps

  • B2B integration. Enabling B2B integration within the enterprise first and then into the extended enterprise is the first essential step that needs to be taken.
  • Data management. Only 15% of respondents indicated having the ability to get timely access to supply chain partners’ data needed for analysis / decision making, when this information access did not need further improvement
  • Process collaboration. Companies that have moved to process collaboration report that they have been able to speed up their planning and execution cycles and can reshape and react to demand much faster than before.
  • Network intelligence. There is a need for organizations to evolve from traditional enterprise focused BI towards network-wide intelligence capabilities that unite performance management with execution capabilities.
  • Look beyond the ERP. ERP systems were not architected to solve the multi-enterprise supply chain problem. There is a new class of solutions available in the marketplace that now allow planning, execution and performance management to be performed on the same platform.

Sources:

Global Trade Management in Retail and Consumer IndustriesReducing Total Landed Costs December 2008 Viktoriya Sadlovska. Aberdeen Research

Integrated Demand-Supply Networks Five Steps to Gaining Visibility and Control
March 2009 Viktoriya Sadlovska, Nari Viswanathan. Aberdeen Research

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