The Changing Role of Software in the Supply Chain

Supply chain management software is big business. Gartner reports the global market for SCM software reached $7.7 billion in 2011, an increase of 12.3 percent from the prior year. The market is forecasted to grow in excess of 8 percent annually through 2015.

Analysts say the need to boost productivity is behind this continued growth. But for the electronics industry, productivity is only part of the equation. Visibility into forecasts and actual demand is still elusive and requires more data than any software system can deliver. Risk management is another priority for the supply chain, as are compliance with global environmental and trade laws; logistics; and end-to-end customer service. Big-data is expected to assist in many of these areas, but it presents its own challenges in regard to systems and software support. (See: Harnessing Information and The Supply Chain Needs Big-Data to Be Fast Data.)

There is no shortage of systems, suites, modules, nodes, and programs to manage everything from orders to returns. According to the website/community business-software.com, a comprehensive supply chain management software package includes:

• Inventory Management: Companies can significantly improve the way they track and manage their supplies of raw materials and components needed for production, finished goods to satisfy open sales orders, and spare parts required for field service and support. This eliminates excess and waste, frees up valuable real estate for other important purposes, and minimizes related storage costs.
• Order Management: Supply chain management software can dramatically accelerate the execution of the entire order-to-delivery cycle by helping companies to more productively generate and track sales orders and enabling the dynamic scheduling of supplier deliveries to more effectively meet demand.
• Procurement: All activities and tasks associated with sourcing, purchasing, and payables can be fully automated and streamlined across a company's entire supplier network with supply chain management software. As a result, businesses can build stronger relationships with vendors, better assess and manage their performance, and improve negotiations to leverage volume or bulk discounts and other cost-cutting measures.
• Logistics: As companies expand globally, their supply chains become more and more complex. This makes the coordination of the numerous warehouses and transportation channels involved quite a challenging endeavor without supply chain software in place.
• Forecasting and Planning: Organizations can more accurately anticipate customer demand and plan their procurement and production processes accordingly. As a result, they can avoid unnecessary purchases of raw-materials, eliminate manufacturing over-runs, and prevent the need to store excess finished goods, or slash prices to move products off of warehouse shelves.
• Return Management: Supply chain software can simplify and accelerate the inspection and handling of defective or broken goods – on both the buy and sell side of the business – and automate the processing of claims with suppliers and distributors, as well as insurance companies.

Yet for electronics distribution, there's long been a "make vs. buy" conundrum for managing both in-house systems and customer-facing functions. A classic example is the kind of tracking the channel has to do to be compensated for design-wins.

A design win occurs when a distributor successfully gets a supplier's component placed in an end-product design. Once the product reaches mass production, the distributor often gets rewarded for its design effort by getting a high profit margin, price protection, or exclusivity from the supplier for a period of time. But tracking this practice has long been difficult for the channel. Since OEMs often outsource manufacturing, EMS companies procure components. EMS providers assign unique part numbers to devices for internal inventory management purposes. At that point, a distributor may lose the ability to follow that product design to production. If this happens, compensation is lost.

As a result, distributors developed their own programs for tracking. Some even offered these programs for sale or license.

Over the years, the channel has developed a wealth of such programs and has tried to commercialize them for the market. In the late 1990s, the fee-for-service model was attempted by the channel where various services -- including value-added and specialty handling -- were unbundled from a component order. Product tracking and customer visibility dashboards were among the offerings rolled out by the channel. The practice never really caught on because customers were not accustomed to seeing the costs broken out piecemeal.

A number of new trends are now shaping the supply chain management software business. The rise of the cloud has opened up software-as-a-service (SaaS) with applications across and beyond the supply chain. Platforms such as GT Nexus and E2Open have emerged that don't require upfront enterprise investments, including software. Distributors have also moved again in the direction of offering their own procurement, BOM, and analytic services -- software-driven but not software-dependent -- such as Avnet's RaBET. We'll take a look at all these developments in upcoming posts.