SCM: Managing Supply Chain Logistics

The channel is looking to supply chain management to help cut the costs of logistics

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By  Mark Sutton Published  March 12, 2003

Introduction|~||~||~|After all the hype surrounding the Internet bubble, it seems that many in the Middle East channel came to regard any sort of e-business as a great concept to use to sell to customers, but a waste of money when it came to implementing themselves. However, with margins for broad based business in this region continuing to slip away, more and more channel companies are looking at ways to cut the cost of doing business, and for many of them, greater efficiencies of logistics and inventory management are proving to be one of the best areas to make savings. And one of the best ways of gaining these efficiencies is through automation of the supply chain.

For companies in the US and Europe, supply chain management (SCM) has become yet another major enterprise application to be plugged into their systems, on top of ERP and CRM. SCM goes beyond the simple warehouse and logistics management functions to be found in many ERP packages, including interfaces with partner companies, micro-management of warehouse processes and so on. Companies such as i2 Technologies, Manugistics, MatrixOne, and Agile are providing dedicated, high-end SCM solutions, mostly to retail, wholesale and manufacturing customers. In this region, however, these names are virtually unknown. Senior IDC analyst Torben Pedersen described the present market for SCM in the Middle East as “insignificant.”

Although Pedersen expects to see some interest in these solutions in this region in the next few years, at present there are a number of factors that are restricting growth.

“The reluctance of many companies to invest in SCM applications here is not surprising because of the trading and distribution nature of many regional businesses. The supply chain is very short—they receive finalised goods and resell them. You don’t really have production plants that produce anything here, and that is where you really need a comprehensive supply chain solution,” Pedersen explained.

Even those companies that would potentially benefit from SCM are often not in a position to implement them yet, as they are either still rolling out ERP solutions or waiting to see a return from ERP before spending on extending their systems. SCM solutions require that the company installing them already has a large amount of automation of business processes, usually through ERP, before they can operate properly. “Normally we see companies that invest in a classic ERP suite that has smaller modules like distribution and CRM have to wait for maybe two or three years before they get the return on their investment. Not until that point will they start re-investing in extended functionalities such as CRM and supply chain automation. For most companies, whatever is in the classic ERP suite is enough for now,” he added.

||**||Channel resistance|~||~||~|But although full scale SCM is some way off yet, the channel is still looking at ways it can make a difference to supply chain processes. Aanand Rai, logistics manager for Aptec explained that the distributor, which runs its own logistics facilities in Jebel Ali, uses quite a high degree of automation in its processes. The warehouse is managed by an application called Scala, which traces all products through the facility using barcodes and wireless handheld scanners. The system also tracks serial numbers, which in turn allows Aptec to handle RMA over the web. An online RMA form is available for resellers to fill in, which is then cross-referenced with the serial number system to provide the revelvant product data.

Most orders from vendors are handled online, either through web-based ordering or emailed order forms. Vendors also provide email alerts to Aptec regarding deliveries. Unfortunately the resellers do not seem as interested in automating their processes. Rai explained: “Most of the resellers in Dubai are not interested. We experimented, to give the resellers the option to place their orders online, but they don’t want that, they want personal contact, so they can gauge you on prices, when they are going to get their shipment and things like that,” he said. “I know of some resellers here who don’t have an Internet connection—it is just the way the market functions. Everyone places orders when they have received a specific order, no one is given enough advanced notice, it is all ‘I have received an order, I want a shipment now’, no one really plans that much.”

Aptec is still planning to invest in on online facilities for resellers however, particularly order tracking. At present, Aptec can tell resellers where their order is in the chain, in part through using the facilities provided by its freight forwarders and courier companies. Logistics companies have been offering this sort of online tracking service for a while, and are leading the drive towards to automation with some of the other services they provide.

||**||Joining with partners|~||~||~|DHL has recently signed a deal to provide a wide range of services to Canon. The logistics provider will handle spares for Canon’s range, primarily photocopiers. By holding stock of four hundred of Canon’s fastest moving items, and taking on responsibility for shipping them to resellers, DHL has been able to cut turnaround from ten to twelve days to just 48 hours. The overriding principle is straightforward, according to Bilal Kably, field sales manager for DHL. “We start with the objective of taking the logistics and operations headache away, They are a sales and marketing company, they don’t want to be bothered by logistics,” he said.

The agreement is not just as straightforward as taking on the responsibility for Canon’s spares supply however. The systems and automation that go into creating the transparency required by Canon, in order for them to be able to trust an essential part of the business to DHL. Through DHL’s LS Express Logistics Information System, the company is able to automatically provide Canon with a host of daily reports on inwards and outbound shipments, sales orders, stock levels and alerts to tell Canon when to re-order.

The second stage of the deal will be to take on handling of warranty, and repair returns. As the scope of the deal increases, so the LS system will be integrated with Canon’s own ERP system to provide Canon with greater stock visibility, and to automatically inform DHL of sales orders that are made on Canon’s ERP. “They continue to work on their system, we continue to work on ours, but the information flow is integrated between the two,” he explained.

The close integration will eventually give Canon the option to hand over a lot more of the order handling to DHL. This can be a major asset to the client company, especially where volumes are increasing, creating a demand for more control over the logistics function. “We would advise the client to be involved, at least for the first few months, after which, if they had a list of authorised distributors we would agree limits of what they could order, and then we could create a free flow of information and goods communicating directly with those distributors,” Kably added.

The benefits to the channel of this level of automation are numerous, according to Steve Lockie, managing director of Tech Data.
“We don’t see a lot of people going onto web commerce either, but we see e-business becoming a part of our overall communications with resellers, because communications is a huge cost to us,” said Lockie.

The distributor has put several different systems in place, both to manage its own stocks, and to communicate with customers. A stock management system creates automatic alerts for various elements such as to warn a reseller when an invoice is due for payment, or to make them aware if a shipment is going to be late. The system also has open EDI interfaces to enable links to reseller systems—Lockie expects this to be especially useful for retailers who have a high level of turnover. The retailers system can communicate with Tech Data to automatically restock items as stocks run low. There are also plans to move software licensing and RMA online.

“These [systems] take out cost from us, and they take out cost from the reseller,” said Lockie. “Imagine the situation where we don’t tell the guy his shipment is late—he may face penalties because he is late deploying, maybe he has got engineers already booked. There is a huge cost in us not providing it.

“There comes a point, where resellers have to start thinking about their total cost of doing business. People are starting to work out that you can save money in the supply chain—when we have the wafer thin margins that we have to operate under, that is not going to change—then business is about stripping out unnecessary cost,” he added.

||**||Third party providers|~||~||~|Another example of logistics providers taking on channel functions is Trident Freight, the international forwarding arm of the RHS Group, based in Dubai. Trident is essentially acting as a distributor for satellite operator Inmarsat, handling inbound and outbound shipments of satellite IP modems. The satellite modems, lap-top sized devices costing $1,500-2,000 are shipped direct from manufacturers Hughes in the US to Trident, which then distributes them to customers in the 99 countries in the Thuraya satellite coverage area.
To handle the information flow required for the project, Trident has integrated its EXE warehouse management system with Inmarsat’s SAP ERP. The integration, which took three months, involved setting up interfaces between various parts of the different systems. This allows Inmarsat to see stock levels and other data on Trident’s EXE, and for Trident in turn to manage a wide range of services for the client.
“We provide a completely integrated IT system for Inmarsat,” said Madhav Kurup general manager of Trident Freight. “We provide online ordering, we provide online stock status to Inmarsat customers, we provide online freight quotations, online track and trace. We are managing an Inmarsat-branded web site for this particular project, and we also give some value-added services like inspection, function testing and software upgrades on the product. We also give complete supply chain insurance, so it is a huge scope of work—we are excited because it really widens our spectrum in the logistics business.”
Customers will have access to stock data, so that they can tell online whether Inmarsat can fulfil an order immediately, or whether they need to wait for new stocks. When an order is placed on the Inmarsat web site, it automatically creates alerts for the warehouse to prepare the shipment, the forwarding department to book space with an air carrier, an airway bill is generated and the whole process is tracked online. An EDI with the air carrier, Emirates Skycargo, means that when the airway bill is created by Trident on Emirates’ system, the data is automatically duplicated in Trident’s systems. Although it is not covered by this deal, Trident is also able to handle payment for companies that do not have a presence in the region.
Again, the idea of the deal is to allow Inmarsat to focus on its core business. “They are a service provider in terms of satellite airtime—I don’t think they have ever done logistics—they decided to launch a logistics arm to their services to add value to their customers. Hughes recommended us, so they decided to outsource,” Kurup explained.||**||

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