Those same organizations are now using improved demand planning technology to uncover data buried in their systems and turn it into valuable information on sales and inventory trends. With this approach, many consumer goods organizations achieve better than 20 percent improvements in forecast accuracy when five to 10 percent gains were originally anticipated.
The businesses that are most proficient in this area are using the information to shape demand by structuring pricing and promotions to drive customer behavior. Organizations are selling what they have over produced when they were unable to accurately forecast what was actually required. An example of this is in the automotive industry where pricing discounts and premiums on specific color combinations are used to drive demand at specific dealer locations.
Reducing Inventory Levels
A struggling, albeit growing, economy, along with more demanding consumers driving shorter product life cycles and lower cost structures, has generated real concerns over the billions of dollars tied up in finished goods throughout worldwide distribution networks. Leading manufacturing organizations are taking action and seeing major improvements in reducing inventory levels across their supply chains.
This is being achieved by utilizing emerging technologies in areas such as transportation management, warehouse management and radio frequency identification (RFID). Enhancements in supply chain management (SCM) technologies have evolved to the point where there are now very effective tools for managing inventory levels and facilitating true collaboration. This very real ROI is one of the reasons that SCM issues are appearing in the general press, the analyst community, in print ads and even in a number of recent television commercials.
Many companies have tied demand planning and inventory reduction initiatives together. This aggressive approach benefits everyone involved as inventory is reduced from distributor networks by utilizing demand planning collaborative tools for ordering and improved inventory management techniques for execution. Overall reductions in the numbers of days that finished goods spend in the pipeline are finally being realized.
Fueling the momentum is the developing fact that the gap in inventory management strategy between the best and worst companies is growing dramatically and creating significant competitive advantage for those that are managing it best.
Unlocking the Value of ERP Implementations
Many manufacturing organizations have not yet realized the value that they had hoped to gain with costly enterprise resource planning (ERP) implementations of the past six to eight years. Most companies originally implemented these systems because they had Y2K concerns, needed to update legacy systems or were looking to create a common platform for future growth. Because of these drivers, the true value-enhancing aspects were typically left for future phases, to which many businesses never managed to get back around.
Those same companies are now heading back to the drawing board, recognizing that technology is simply a tool, and that without meaningful procedures it is challenging to gain the originally anticipated value. This awareness is leading companies to solicit external support as they look to enhance what they started by implementing process improvements and industry best practices around their already installed business systems.
These companies are now experiencing tremendous benefits from operational improvements across functional areas. Without process improvement, technology as a pure stand-alone is doomed to failure.
The Environment is Changing
It is apparent that things have changed dramatically over the past 18 months. As we look at the trends discussed above we can see a clear movement toward true collaboration. No longer are the majority of initiatives that are being embraced internally focused. Market conditions, technical developments and customer demands are prompting sweeping changes throughout industry. It is now clear that many, if not all, of these forces will continue to affect manufacturing. In such an environment, new business models are certain to emerge.