Managing Your Supply Chain on the Rebound

In uncertain economic times, farsighted executives make the investments that will prepare their organizations to take full advantage of unexpected opportunities. Their readiness to take calculated risks assures the future success of their companies.

It's a daily reality for supply chain professionals that even their best-laid plans cannot account for fluctuations in supply and demand. Moreover, as the economy moves from slack demand patterns to an up tick in orders, this battleground is shifting from managing excess inventory write-offs toward managing constrained supply.

This article discusses the impact of an increase in demand on manufacturers and includes a case study on how net.com, a provider of service-creation platforms for broadband, Internet protocol telephony and multi-service networks, successfully impacted its revenue and on-time shipment performance in face of constantly changing demand.

By foregoing manual processes and implementing supply chain software that offered essential visibility across the company's supply chain to daily changes in demand, net.com was able to improve fulfillment of commitments made to customers and intelligently allocate inventory in shortage situations using pre-determined business rules, significantly improving order cycle times and on-time delivery performance.

In the end, this article describes the advantages of real-time collaboration between sales and supply chain operations, enabling companies to manage upturns in business and to use the wisdom from past missteps in a down economy to move toward a better future.

Changing Market Conditions

Although the recent upswing in business has been a welcome change, manufacturers still need to manage their supply and demand chains to prevent component shortages and to meet their revenue and market share goals.

Many companies already have felt an increase in demand and are struggling to hold down inventory levels without impacting customer commitments. However, with global inventory visibility and intelligent order fulfillment applications in place, businesses can operate successfully within an environment that enables rapid responses to fluctuations in demand and supply as they occur. net.com's experience illustrates this approach.

How net.com Met Its Latest Challenge

Since it was founded in 1983, net.com has sold networking equipment that telecommunications carriers, government and military agencies, and global enterprises have used as building blocks for high-performance, wide-area networks. With a base of over 1,750 customers in more than 75 countries, net.com is one of the first networking companies to deliver and promote service-creation platforms for broadband, Internet protocol telephony and multi-service networks.

Throughout its history, net.com has weathered several market storms, emerging successfully each time. Most recently, following the upheaval caused by the collapse of the telecommunications and dot-com markets, net.com expanded its technology and marketing focus to address the needs of two highly demanding customer bases: carriers and large corporate end users.

Such a move meant developing two separate product lines with significantly more complexity in design and production. net.com's product line includes packet gateways and switches sold as configured platforms with production outsourced to two key contract manufacturing partners. The company handles functional testing and systems integration in house.

At the same time, market conditions caused by the terrorist attacks of September 11, 2001, led net.com to experience an upturn in demand from its government customers, which now account for almost 70 percent of sales. However, doing business with the government requires an internal balancing act on a continuous basis. Once a firm accepts an order from the government, this order takes precedence over other orders in the queue. Without jeopardizing relationships with any of its partners, net.com wanted to meet all of its customers' demands, while maximizing revenue and margins by successfully managing its supply chain.

net.com said it needed to improve management of its order fulfillment process, and wanted to use a solution that would operate seamlessly within its Oracle enterprise resource planning (ERP) environment. At the time, the company was managing customer commitments manually based on a standard 20-day lead time. With these manual processes, employees spent most of their time expediting orders and responding to events, rather than anticipating supply and demand.

In an intense effort to meet demand at the end of the quarter, net.com sought a quick solution that would apply business rules that matched its corporate goals and objectives, while decreasing fulfillment lead times and setting balanced inventory levels. After considerable research, net.com chose the processes and operations supported by one supply chain software provider.

With 14 weeks to complete implementation and integration within the Oracle environment, net.com created a high-velocity supply and demand chain through real-time visibility, collaboration and execution. With interactive, what-if analysis, net.com said it is now able to identify potential shortages or delays and determine what orders to ship based on the business objectives and priorities the company has set. The result is that net.com has experienced improved results in customer service, order lead times and on-time delivery.

Taking Advantage of Supply and Demand Chain Visibility

Instead of managing orders with a standard 20-day lead time, today net.com provides promise dates based on the availability of materials and actual demand. Orders and supply data are pulled from net.com's ERP system into its supply chain software, and promise dates are computed using allocation rules for each customer as well as the best approach for the business as a whole.

net.com's operations scheduling team can perform what-if analysis to determine if required parts will be available by the commitment date. The prioritized orders then are fed back into the ERP system for shipment processing. net.com employees can review and revise allocations based on demand and supply fluctuations and share demand information more efficiently with contract manufacturers.

Specifically, when faced with a shortage, net.com uses its supply chain software to identify the highest margin customer orders that can be shipped with the available supply. Or the company applies a business rule to first ship the strategic customer orders or to maximize customer satisfaction or some combination of the two, running what-if scenarios to project the impact on revenue and margin.

Collaboration among various departments within the organization and with partners also has increased. The processes and data shared between sales, planning and operations have been made much more transparent. Now these groups have a much clearer understanding of what they are all doing at any given moment.

net.com also has been able to re-engineer its processes with contract manufacturing partners to share demand and other valuable information in real-time. Employees now are spending more time thinking strategically instead of reacting tactically. Efficiency has improved as a result, reducing the order cycle time and increasing the number of orders per quarter.

"Our goal was to maximize our potential. We had to focus on process change and get more involved in sales," said Jeff Range, net.com vice president of operations. "With ERP and supply chain software, we are meeting customer demand while maximizing revenues and margins."

The Results

net.com said it has experienced impressive results with significant improvements in customer service. The company's new supply chain software applies weights for orders based on business rules and contracts, enabling net.com to make solid commitments to customers on product information and delivery times.

The company has improved order-to-delivery by customer requested date by 58 percent and cut book-to-ship lead times by 25 percent. On-time delivery has increased from 60 percent up to almost 90 percent, which accelerated revenue 60 percent at order line level within the first month.

Conclusion

Supply chain software includes global inventory visibility and intelligent order fulfillment applications. Its primary advantage for business is the ability to rapidly respond to fluctuations in demand and supply as they occur.

With today's technology, any company can track global inventory across internal and external locations of the supply chain, as well as track actual demand and forecast consumption and product sell-through at multiple tiers and channels of the demand chain. Changes in either supply or demand can be instantly analyzed to identify problems and determine solutions. Excess inventory can be detected before it becomes necessary to write it off, and shortages can be identified before they result in missed revenue opportunities.

With ERP systems complemented by this inventory visibility and order fulfillment supply chain application software, a company can manage upturns in business and use the knowledge that was acquired during downturns. The result is a drop in excess and obsolete inventory, reductions in order cycle times and operations costs, and an increase in orders and revenue.

In uncertain economic times, farsighted executives make the investments that will prepare their organizations to take full advantage of unexpected opportunities. Their readiness to take calculated risks assures the future success of their companies.

About the Author: Satyajit Singh Mecker has served as president, CEO and chairman of the Board of the solutions provider Valdero since its inception. He is responsible for setting Valdero's strategy and vision, and overseeing all day-to-day operations. Singh has been at the forefront of supply chain solutions for over 15 years.

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