Running the Numbers: April/May 2007

Compiled By Sarah Murray

Business Intelligence
Companies Have Room for Improvement in Business Intelligence

Ventana Research recently conducted a survey of companies, including Supply & Demand Chain Executive readers, to see how executives in the various functions of manufacturing and supply chain operations view business intelligence (BI) and the role it is playing, or should play, in their organizations.

Based on Ventana Research's own Maturity Model, which categorizes and evaluates BI maturity at four levels — Tactical, Advanced, Strategic and Innovative — survey respondents that practice or will practice supply chain BI were found to do so at either the Tactical or Advanced level. Only 9 percent of respondents' companies could be considered Innovative, using supply chain BI not only to manage their supply chain processes but also to help manage their demand-shaping activities.

The research also reveals that improved customer service and inventory visibility are the goals driving supply chain BI initiatives. Companies said they are looking to apply BI primarily to sharpen the accuracy of forecasting, reduce costs, reduce inventory levels and better understand the drivers of customer demand. Even so, the evidence shows that they are primarily intent upon using supply chain BI to improve forecasts and demand management.

Ventana Research offered some steps for any company using, or considering using, supply chain BI:

  • Assess your maturity and take steps to improve it. Compare the maturity of your organization to that of your industry, and use this benchmark to determine your strategy and steps to implement it. Determine the ability of your BI technology providers to add supply chain BI, and look for areas where you can leverage supply chain BI to extend the value of your investments.
  • Expand deployments beyond direct supply chain users. Ventana Research recommends that companies expand the scope of their supply chain BI to include members of executive management and Finance, Sales, Marketing, Engineering and Product Development. Companies should engage the COO, general manager or CFO as the primary sponsor of their supply chain BI initiative in order to improve the success rate.
  • Measure the performance of your processes. Expand use of supply chain BI to measure the effectiveness of the core supply chain processes. Your company can apply supply chain BI to transform itself into a demand-driven enterprise by making decisions about how the supply chain processes can make the company more effective (not just more efficient).
  • Use supply chain BI to improve your balanced scorecard. The best way to measure process effectiveness is to organize your supply chain BI measures according to a standard performance measurement reference model, like the Supply Chain Operations Reference model (SCOR), created by the Supply Chain Council (www.supply-chain.org).
  • Integrate plans, schedules and forecast data. Seek to improve your understanding of plan performance by using supply chain BI and analytic applications.
  • Use advanced BI technologies to improve decision-making. In addition to reporting; dashboards; and extraction, transformation and loading (ETL), also use the more advanced BI technologies, including ad-hoc search, multi-dimensional cubes, business rules engines, workflow, business activity monitoring and alert notifications. Applied in the right way, these technologies help to improve decision-making by automating the time-consuming task of analysis.

Manufacturing Outlook
Manufacturers Alliance/MAPI Index Points to Positive Trends for Sector

According to the Manufacturers Alliance/MAPI Survey on the Business Outlook, a leading indicator for the industrial sector, the March 2007 composite index of 58 is up from 54 reported in the December 2006 survey after three quarters of decreases. A composite business index above 50 indicates that overall manufacturing activity is expected to increase over the next three to six months.

Six of the 10 factors measured by the quarterly survey were higher than the previous report, foreshadowing a likely improvement in the industrial sector and providing a measure of optimism in the midst of mixed economic indicators for this sector. There were decreases in three indexes, and one remained flat. Importantly, however, the index measures the direction of change rather than the absolute strength of activity in manufacturing.

The March 2007 outlook marks a healthy turnaround from the December 2006 report in which seven of the 10 indexes were lower than the September 2006 survey.

"The survey results of this quarter are evidence of latent strength in most manufacturing industries and are a harbinger of renewed vigor in the latter half of the year," said Donald A. Norman, Ph.D., Manufacturers Alliance/MAPI economist and survey coordinator. "Most industries, with the exception of those businesses closely linked to the housing sector, should expand this year, although the rate of expansion is likely to be less than in recent years."

Radio Frequency Identification
Passive RFID Smart Label Markets Seen Rewarding Patience

Despite continued doubts about whether passive radio frequency identification (RFID) will have a payoff for the retail supply chain, ultimately these technologies will reward patient companies willing to make the necessary investments, and some sectors already are reaping benefits from rollouts, according to a new report from ABI Research.

Some media commentators have begun talking down the market for passive RFID tags within the retail supply chain. They cite slower-than-predicted progress by the two mighty drivers of RFID adoption, the Wal-Mart and U.S. Department of Defense mandates, and they suggest that major vendors — Motorola and Intermec — may be reordering their priorities away from the compliance mandate-based commodity tag market.

These and other passive UHF Gen 2 tag players have adjusted their near-term strategies to focus more on "specialty" tag form factors and non-retail supply chain compliance applications. But ABI Research, while acknowledging that passive label markets have grown more slowly than hoped, has reiterated that they will ultimately reward those who have patience.

Why has the development of this retail supply chain market been slower than expected? "End-to-end deployments based on passive UHF RFID tags do involve technological and physical challenges," said Michael Liard, the firm's research director for RFID says. "Price, too, has always been an issue despite significant reductions in recent years. Shipment volumes are rising: eventually they will trigger further price drops, although at the moment many vendors are running on slim margins."

ABI believes that to reach volumes in the billions, further label cost reductions must be achieved, particularly for low-cost retail item tagging, where tag price points remain too high for many products to justify the cost of RFID.

Outside the retail consumer packaged goods (CPG) market, however, end-users are finding strong value positions for high-volume passive UHF item-level tagging at current price points. This includes item-level pilots and limited deployments within pharmaceuticals, fashion apparel, consumer electronics and asset pooling/management markets. The tagged objects in these application scenarios are often high-risk, high-value items that provide a strong ROI at present price points.

How is cost being driven out of commodity-like passive labels? "In both the passive HF and UHF label markets, we see innovation in terms of IC (integrated circuit) size reduction, new antenna materials and designs, and manufacturing processes," Liard said. "But we do not expect migration to some of the newer materials and methods in the immediate future."

Express and Parcels Industry
Express, Parcels Industry Set to Undergo Drastic Transition

The European express and parcels industry is set to undergo drastic transition as several factors work to transform the industry, according to a report published by independent market analyst Datamonitor.

The firm reports that the industry in nine European Union countries will grow at a compound annual growth rate of 4.1 percent to $55.1 billion by 2010.

Pooja Khazanchi, express analyst with Datamonitor and author of the study, reports that express operators are now focusing on enhancing road services with improved features and standards. For example, TNT has started investing and developing its road networks in Europe to facilitate its express and parcel business in the region. It has invested more than $18.7 million in expanding and upgrading its facilities at the Duiven hub in Holland.

Datamonitor also reported that consolidation in the global express industry is being driven by larger players expanding their networks outside their domestic markets. Express operators are investing in emerging markets, a knock-on effect of which has been an increase in consolidation activity.

Consolidation is not limited to just the major express operators, as some of the national post operators such as Austrian Post, Finland Post and Swiss Post expanded their networks across Europe by acquiring smaller express companies.

Deregulation of the postal market by 2009 in Europe also will affect the competitive structure, services and prices in the market, according to the analyst firm. Deregulation will promote competition among players mainly in the mail reserved area, which was dominated by national operators until now, Datamonitor projects.

Finally, international express and business-to-consumer parcels delivery volumes will be the driving force of the express industry, Datamonitor writes. Global e-commerce activity has grown rapidly, mainly as a result of the increased penetration of broadband Internet. Although the business-to-business (B2B) segment dominates with majority values generated from the segment, B2C is set to experience faster growth with growing e-commerce. According to Datamonitor, B2C will become one of the key driving factors for growth in the European express and parcels delivery market.

Khazanchi concludes: "The international express and B2C parcels delivery volumes are the driving force of the express industry. Both of these are expected to remain the fastest growth sectors over the coming years. Overall Datamonitor expects the express services market in the EU 9 (Germany, France, UK, Spain, Italy, Belgium, Netherlands, Sweden and Poland) to reach $55.1 billion by 2010."

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