DE-CODER: Q&A: IT's role in the supply chain

Kevin O’Marah is vice president of research at AMR Research in Boston, where he directs the analyst firm’s coverage of supply chain technology. In this interview with ADT, he looks at the potential of radio frequency identification (RFID) and how IT should respond to demand-driven supply networks.

Q: You’ve defined RFID as the killer app of supply chain investment for the next decade. Aside from the retail and distribution industries, as well as the Department of Defense, where its uses are either obvious or fairly well known, where else might RFID provide high value-added benefit?

A: Probably any service-intensive, engineered-to-order product. So, machinery as installed in a factory, perhaps equipment that supports utilities and telecoms; for instance, in the telecom business, the tracking of plug-in circuit cards, which are very expensive. They look all the same to the naked eye, yet are a huge source of poor asset utilization. So, a lot of these installed-base capital equipment applications are places where RFID could have a really nice value proposition.

Q: You’ve also addressed the issue of demand-driven supply networks, most exemplified by a company such as Wal-Mart. If customers are exerting a lot of pressure on enterprises to meet their supply demands, what processes should IT organizations have in place to quickly satisfy their companies’ customers?

A: Probably the most important one is sales and operations planning. Sales and operations planning is a process whereby forecasts and orders and any other form of demand statements are merged and rationalized with supply plans, capacity plans and lead time so that an organization can be ready to respond operationally.

Q: Amid all that IT organizations must do, does this add stress?

A: No, actually, it should alleviate stress. Stress comes from firefighting. Firefighting is a characteristic of a system that was built to handle the same old transaction over and over again, but is, in fact, now facing constant change. Building a demand-driven supply network says, “Lets take this change as a fact of life and get ourselves into a mode where we’re inherently flexible and inherently agile.” So, the stress of dealing with problems becomes something that is more extraordinary instead of a daily firefight.

Q: Name a company or two that’s doing this the right way.

A: By far and away, Proctor & Gamble. We’ve seen them a lot. They do it on all levels. They do outstanding product innovation. They’re extremely good at listening to and perceiving trends in their consumer markets. They also do an extremely good job at engaging with their supply base and planning their capacity to minimize waste. And at the same time they do a tremendous job of engaging downstream with customers, meaning retailers… So, it’s not just the familiar ones. For instance, I think Wrigley (the chewing gum manufacturer) is a very good organization. They have some pretty sophisticated processes in place.

Q: What technological capabilities must IT have to improve at supply chain management?

A: Probably the most important ones are connectivity or communication; being able to get a look at your customer’s forecast, being able to get a look at your supplier’s capacity or on-time commitment, and understand those things. And then on top of that, analytics, being able to understand the implications of those things.

Q: What organizational capabilities will IT need in supply chain management?

A: Probably the most important single one, outside of the famous truism about understanding the business needs, is benchmarking: operational benchmarking, not technology benchmarking. How well are the tools that I’m rolling out helping the organization improve its benchmarks for lead time, cash-to-cash cycle time, perfect order performance, time to value, etc.? That’s the ultimate measure of an IT organization’s effectiveness and how well they can make those things happen with the deployment of technology tools.

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