As companies seek to contain or cut supply chain management (SCM) costs, they are prioritizing increasing supply chain visibility, inventory optimization and supply chain analytics this year, according to Aberdeen Group.
More than two-thirds of the 389 companies surveyed by Boston-based Aberdeen said the need to contain supply chain costs to remain cost competitive is the key pressure forcing them to look into their supply chain processes.
With budgets so tight, any software purchases and other projects have to be justified as mission-critical.
"There are major concerns about cost," said Nari Viswanathan, vice president and principal analyst at Aberdeen Group and the report's author. "The cash flow situation is bad."
Customers of Acsis -- an SAP partner that caters to SAP customers in the chemical, pharmaceutical, consumer products, aerospace and defense industries -- all find themselves in a "pretty dismal economic climate," CEO Andre Pino said. They're working only on projects that will produce a return on investment (ROI) in less than six months, he said.
What are SAP SCM customers doing?
Many SAP customers are implementing tools that will help them derive more value from their existing investments. There's a move to embed supply chain analytics and performance management in business processes, Viswanathan said. In turn, if a company has implemented demand planning, it's now seeking to do more what-if analysis, or using it to support sales and operational planning.
Most SAP customers look to SAP for this functionality, according to Noha Tohamy, vice president at Boston-based AMR Research.
"It's still the case that most current SAP customers look to SAP to begin with to see whether they have the right functionality," Tohamy said.
Increasing supply chain visibility is also high on the radar.
Over the last several years, because companies have outsourced parts of their supply chains, they've lost control and visibility over what used to be part of their own operations, Pino said.
To help one of its customers, a chemical company, gain greater supply chain visibility, Acsis created a facility through which it can link partners into the SAP system. The company can collaborate with its partners on production requests and orders, shipment of raw materials and status information and can provide information on product shipments, deliveries and confirmations.
"The way it's been set up in the SAP system, these outsourced partners look like another one of their plants and facilities, so it's managed in exactly the same way as their own operations," Pino said.
Which SCM strategies should companies implement?
Some companies aren't taking the best approach to optimizing these processes, however. For instance, when it comes to inventory optimization, Viswanathan said he's finding that projects are driven by the company's financial organization, such that they're being handled more in a crisis fashion.
"[They're not] worrying about the long-term impacts of what they're doing," Viswanathan said. "That should not be the case."
Last year's highest technology priority -- sales and operation planning/demand management -- sank in importance in this year's Aberdeen report, falling from first to third.
But companies should still focus on supply chain profitability, Tohamy said. See what the cost to serve is, understand where the profitability lies, match the supply chain or integrate the supply chain, and try to have a more holistic approach to managing it.
"Sales and operation planning, integrated planning and understating costs, that's where we want companies to focus," she said.
Companies should look at the software as an asset and seek ways to optimize the return, Viswanathan said. It's a good opportunity to take a look at a tool, chart how much it's being used and come up with better ways to use it.
"I think the biggest advice for SAP customers is get more out of their investment. I see a lot implemented [such as APO] that they've just scratched the surface with," Tohamy said.
For inventory optimization, Viswanathan recommended looking at SmartOps, a third-party inventory optimization software.
In turn, very short-term consulting projects can help find ways to optimize existing software, he said. Have experts come in and do updates and process changes, he recommended.
It's also a great time to be looking for good supply chain talent -- which has historically been very difficult but could become easier with fewer jobs available on Wall Street for the brightest students, Viswanathan said.
"The best supply chain practitioner should be open-minded, willing to learn things on the fly, understand the connection between processes, and look to what others are doing in manufacturing," Viswanathan said. "It's a difficult skill set to find."