Synchronised supplies

As the need to reduce costs and improve time to market grows, many companies are looking to tighten their supply chains by deploying specific solutions.

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By  Maddy Reddy Published  July 1, 2004

The need|~|spinnys_m.jpg|~|Demand planning was the first part of Al Seer Trading Group’s supply chain management project, says TKG Nair.|~|With globalisation becoming the mainstay of today’s economy, organisations are looking beyond their country of origin to source cheaper materials and sell their wares. Critical to doing both effectively is robust supply chain management (SCM), which ensures raw materials arrive when required and the correct goods go out on time. While this sounds relatively simple, the entire process comprises a gamut of sub-areas, including demand planning, inventory management, ordering, production, supply planning, logistics, warehouse, transportation management and replenishment. “SCM leverages technologies that fuse demand with supply to forecast, take an order, give an accurate delivery date, manufacture the right goods, position inventory properly, pick, pack and ship efficiently while maintaining optimal inventory levels,” explains Cory Eaves, vice president for solutions management at SSA Global. SCM could prove more vital to the Middle East than other markets, as the region has typically based its non-oil activities on trading. Last year alone GCC countries traded more than US$420 billion worth of goods, and moving products around the world as quickly as possible is paramount as the likes of Dubai and Kuwait establish themselves as hubs linking the East to the West. Such effectiveness becomes even more important when the correct management of product distribution creates 20% to 60% cost savings for businesses. “Even simple companies with basic procurement requirements need a supply chain. They need the right suppliers and the right procurement cycles,” says Ayman Abouseif, Oracle’s senior marketing director for Middle East & Africa. To address end user SCM requirements, most enterprise resource planning (ERP) application vendors are offering a multitude of modules that automate supply chain processes. Smaller SCM vendors, catering to specific links of the supply chain such as warehouse management systems (WMS), are also targeting the sector, while larger pure play SCM vendors such as i2 and Manugistics continue to work globally but are yet to enter the region. Despite this vendor activity, the adoption of SCM applications by end users in the Middle East appears to have been limited. For instance, IDC Middle East estimates that the local SCM market was worth US$4.89 million in 2002, and that it will to grow by only 20% this year. Worldwide, AMR Research forecasts that the SCM software market will touch US$5.5 billion by the end of 2004 as end user organisations invest in supply chain execution initiatives and demand-driven supply networks. “SCM market spend is starting from a low level [in the region]. Most of the companies in the Middle East are trading companies that have a short supply chain. They just buy and sell and don’t need supply chain automation,” says Torben Pedersen, senior analyst, software & IT services, IDC Middle East & North Africa. “The market is being driven by a few investments by large organisations, which are implementing SCM as an add-on. Most customers are opting for the materials management functions embedded in their existing ERP solutions,” he adds. ||**||The successes|~|SSA_GLOBAL_Cory Eaves.jpg|~|SCM technologies fuse demand with supply, according to SSA Global’s Cory Eaves.|~|While IDC believes the local SCM market is characterised by low adoption rates, some forward thinking end users have already taken the plunge. For example, the Qatar Steel Company (Qasco), which sources its raw materials from 4000 suppliers scattered across the world to produce more than 1.2 million tons of steel, invested US$3 million in a SCM solution from Oracle to replace legacy applications that were unable to provide the control it required. Instead of struggling with complex supply cycles, high inventory costs and the poor procurement that impacted on stock levels, production costs and plant capacity, Qasco now has an effective way of tracking what it sources and sells through 200 distributors and traders. “After the implementation, its hard for us to imagine how we operated without it. We have improved planning capabilities, reduced the inventory and debt cycle time with better response to customers. [Earlier] we had a budgeting cycle of 30 days — now its less than five days each month. Our cost of production has immediately been cut down and we moved from 25 days turn around time to realtime,” says Malek Hamdieh, IT manager at Qasco. Although the steel company faced a number of challenges, including the opening up the supply chain to external entities, uniting the organisation into one value chain and overcoming project delays, Hamdieh believes it was worth moving from a semi-automated system to the Oracle solution. “Our employees are able to analyse the data [in depth] for better procurement. We are almost there in terms of recovering our investments. The inventory for spare parts alone was reduced from US$32 million to US$27 million per year using the solution. We have had saving of US$5 million in the inventory alone,” he says. In fact, boosted by the success of its SCM initiative so far, Qasco is now working to open up the supply chain from both directions, linking suppliers and customers through a partner portal to provide the capability to complete online transactions and automated tendering. Another company keen to bring greater transparency to its supply chain is the Al Seer Group. Comprising four divisions, the group acts as a distribution agent for over 20 global fast moving consumer goods (FMCG) manufacturers. It also runs 24 Spinneys stores in the UAE and Oman, a catering division that serves over 30,000 meals a day and a logistics unit. Dealing with the supply chain complexity presented by these diverse businesses, as well as serving a wholesale customer base including 6000 independent groceries, co-operatives and retail chains, was beyond the capabilities of Al Seer’s inhouse developed Cobol-based system and point applications. As such, the Dubai-based group set out to consolidate its inventory data of 40,000 line items contained in disparate legacy systems and Excel spreadsheets by implementing a single instance of mySAP ERP and SCM 4.0, spread across its stores and three warehouses. Costing US$3.2 million, the solution contains all of SAP’s supply-orientated modules, apart from those covering non-relevent sectors such as raw materials and primary manufacturing. “Demand planning was the first part of our SCM initiative. Whether overstocked or understocked we lose money. We cannot order too much as the demand should be aligned with the physical storage capacity. Since we also deal with food products subject to contamination or expiry, we have to be careful,” explains TKG Nair, IS manager of Al Seer Trading. “After implementing SCM, we are doing better in terms of inventory turnaround. It cost a lot of money, but we are treating it as a long-term investment. [For instance], before the WMS initiative, the biggest issue was tracking the stock. We would either under order or over order, because we couldn’t locate the stock easily, though the stock was physically lying there. After the WMS, our picking accuracy and stock tracking is 99.99%,” he says. With SCM providing a shot in the arm for its internal automation, Al Seer is following the path laid out by Qasco and looking to extend its supply chain to other customers and vendors in the region through a collaborative portal. It also plans to integrate its supply chain with its yet to be launched CRM system. Other companies in the Middle East looking to persuade their suppliers to interact with them online in an attempt to tighten supply chains include Saudi Aramco and Saline Water Conversion Company (SWCC). The latter currently has seven companies — two from Saudi and five from abroad — working with it via an EDI network and expects the number to grow once it goes live with Oracle’s e-procurement module. “It cuts the purchasing cost by around 12% and it reduces the purchasing time significantly as it removes the need to go to different suppliers,” says Loay Bin Ahmed Al-Musallam, deputy minister for planning & development at the Ministry of Water & Electricity and head of the SWCC ERP team. “Also, it used to take up to 200 days to bring spare parts to the plant but using EDI we have reduced it to around 35 days and this will become even quicker when we move to e-procurement,” he adds. However, while SWCC has had some success in tempting suppliers online and both Qasco and Spinneys hope to replicate this, there are a number of challenges facing local organisations pursuing such strategies. Foremost among these is the technical competence of suppliers, many of which do not have the computing environments or SCM systems that can integrate with other firms. If these companies are unable to work with others online, then the benefits of SCM can be diluted and a weak link in the supply chain created. “In a typical supply chain, the company needs to interact not only with internal users but also with principals, suppliers, customers or their own corporate and branch offices,” says Basil Daniells, indirect channel manager, Scala Business Solutions. “Each one of these units could be working on different software platforms and this creates problems, as the automation of the supply chain does not deliver the benefits until all systems are able to seamlessly communicate with each other on a collaborative system,” he explains.||**||The future|~|torben_idc_1.jpg|~|SCM spending in the Middle East is low, according to IDC’s Torben Pedersen.|~|In an attempt to increase SCM spend and ensure those yet to invest in supply chain solutions do so, vendors are touting new and improved SCM offerings such as advanced planning & optimisation, inventory collaboration hubs, partner relationship management, supplier relationship management, supplier event management and SCM analytics. Another technology being touted by vendors is radio frequency identification (RFID), which enables users to track goods more effectively through electronic tagging. “On the warehouse side RFID will take off, no matter what the issues are. Wireless supply chains are just a matter of time,” comments Abouseif. Despite the growing number of SCM solutions being offered on the market, some are sceptical about the impact the latest incarnations of the technology will have on adoption rates in the region. For example, Ram Reddy, president of Tactica Group, sees them as little more than smoke and mirrors. “All these are new handles by technology vendors trying to sell these various technologies. The fact of the matter is that we are yet to unearth the benefits of automation. To make SCM seem dated [with new products] is like saying ERP or MRP is yesterday’s news. It’s plain garbage. I would discount the technology vendors with a bag of salt by asking them for customer references and the money savings they can promise,” he says. Others disagree with Reddy and believe SCM spending in the Middle East will grow, especially as more companies focus on tightening processes and increasing the transparency of supply chain operations. “There is a bright future for the SCM market in the region. A trend seen across the globe, and now the Middle East, is that multinational companies are forcing their associates to automate their SCM while others are being forced by deadlines. In time to come we will see that all companies will have an automated SCM, if they are to survive in the highly competitive global market,” says Daniells. Both Oracle and SAP agree and see a huge market for SMC solutions in the Middle East’s vertical sectors, especially those such as construction that are currently witnessing a boom in business. “There are sufficient industries here which need a good supply chain. Even in the region’s trading and construction sectors, there is appreciable uptake of SCM products,” says Abouseif. “In the supply chain area, we have a lot of non-manufacturing companies, who have implemented the supply chain part of it, but not the manufacturing modules. For buy-and-sell products and service companies demand is an extremely important part of the supply process,” adds Marc Hoppe, director for supply chain products at SAP. ||**||

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