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August 10, 2003

The Smartest Link

What can BI do to transform your organization's supply chain from a costly morass into a competitive strength that works in sync with strategic objectives? Here are eight key areas where BI can have the greatest effect

by Sudhi Sinha

Continued from Page 1

Finally, BI could also ease the disconnect caused by lack of correlation between marketing and manufacturing efforts, especially by bringing to bear knowledge of the impact of competitor activity.

Cost Of Materials And Price Of Products

Raw materials and finished products are the two opposite ends of the supply chain. Usually, the supply chain organization has little control over valuation of the cost of raw materials or the price of finished goods; but, since it does govern the input and output, the supply chain organization should understand what's at stake and its ultimate impact on valuation.

In a company with a varied, multitiered supply base coupled with the absence of a single materials requirements view, raw material prices are governed by the multiplicity of vendor agreements on price and delivery, the urgency and variation of demand, and relationships with vendors. A BI tool that gives a single material-requirements view empowers a corporation to better negotiate price and delivery with its vendors. With more intelligent planning, companies can reduce on-hand inventory costs and instead use just-in-time inventory. The organization is also more able to plan for global sourcing of materials to reduce material handling and delivery costs by charting out the optimum delivery schedules and eliminating redundant carriage and storage.

Raw material, as well as internal material processing and handling costs, largely determine prices of finished products. BI tools can help organizations discover how to reduce material procurement costs and raise efficiency in material handling. The business benefit: higher profit margins that could subsidize dynamic product pricing to suit market pressures.

Warranty and Claims

Almost all manufacturing companies face warranty claims on products sold. Normally, distributors file for warranty claims with the parent company but at the same time service customers with existing inventory designated for normal sales. Inventory outflow from the company against warranty claims is therefore uncontrolled. The problem becomes acute when a high incidence of warranty claims occurs due to exigent circumstances. Also, controlling warranty-related inventory becomes critical during quality campaigns.

Advanced BI solutions integrating supply chain information can accurately track warranty claims information and enable decision makers to review it in the same context as the rest of the organization's operational data.

Supplier Management

To manage the supply chain effectively, you need to manage the suppliers. Most companies have started rating their supplying vendors — for both physical materials and intellectual capital. With respect to a vendor, some of the key performance indicators (KPIs) measured are cost of supply, cost of doing business with the vendor, supply quality, timely delivery, payment lead-time, cycle time analysis, and transportation mode performance.

OLTP systems generally record some data pertaining to these KPIs. However, BI systems are necessary to perform more extensive analysis and to tie KPI metric data to other important corporate data, such as the impact of supply chain business performance on cash flow, operational flexibility, and overall profitability.

Warehouse Management

Supply chain organizations must manage raw material and the finished goods in warehouses. Today, the market offers a range of packaged applications for warehouse management. Beyond the operation control these systems provide, corporations need tools for various activities: tracking inventory in terms of costs, turns, and accuracy; assessing warehouse structure and space utilization; and conducting warehouse operational analysis in terms of on-time receipts and deliveries, slotting, picking and shipping accuracy, customer fill rate accuracy, and labor cost control.

BI applications must do more than simply make the data available. BI systems should also report the cost-benefit analysis of various warehouse activities, help organizations determine the effectiveness of reverse logistics, and identify patterns to reinforce supply chain business processes.