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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.

7 comments on “The Changing Role of Software in the Supply Chain

  1. t.alex
    January 16, 2013

    With the rise of cloud platforms, the cost of hosting supply chain software will  become significant lower and lower in the near future. Not only big companies but also smaller companies can then make use of the service (perhaps free of charge with some limit). Until then “Excel” spreadsheet model will all give way to the cloud-based platform. 

  2. prabhakar_deosthali
    January 17, 2013

    The supply chain management is a work of heterogeneous organizations  the manufacturer, the distributor , the retailer, the logistic company, the transporter and so on. Though they all become part of the supply chain their individual systems are likely to be totally different from each others.

    A supply chain management solution which can integrate seamlessly with each of the partnership systems is difficult to achieve.

     

  3. Cryptoman
    January 17, 2013

    Distributors do lose track of design wins easily due to the way the OEMs work as mentioned in this article. I have come across a very clever cloud softwware based tool offered by DigKey that tries to get around this problem.

    This 'free' online schematics tool helps designers to put circuits together using parts offered by DigiKey (how convenietn!). This tool is called Scheme-It. It is very easy to use and while drawing your circuit you are able to instantiate the components from real parts available in DigiKey's inventory. You need to register to use this service effectively and to be able to save your designs in DigiKey's cloud.

    DigiKey's approach is very clever indeed. It makes a designer's life easy by not only offering a free schematics tool but also by being able to order the parts on the “Bill Of Materlais” (BOM) list before the ink of the schematics has dried! With the help of this tool, DigiKey is able to track who is doing what and what parts are ordered by which customer etc. It can even track the evolution of a design from prototype to production.

    There are similar free tools to this which also offer multiple distributors that help you search for specific parts in your design.

     

  4. bolaji ojo
    January 17, 2013

    Astute observation. Finding a supply chain management system that seamlessly links every company in a manufacturer's supply chain is difficult but it is still what companies aim for because it can help. That's the rather odd problem firms face.

  5. ITempire
    January 18, 2013

    @ t.alex

    Comparing excel sheet to a specialist SCM software is not the right thing to do however you are correct in the sense that smaller firms that cannot afford deploying such a system have to rely on the spreadsheets until they save enough for the investment. The integration of data captured in the various business processes is something which a SCM software can do and excel spreadsheet cannot.

  6. ITempire
    January 18, 2013

    @ prabharkar

    The manufacturer is the one who is most concerned about its product getting handled well in the supply chain. Due to this, the manufacturer often deploys staff for monitoring the products after they leave the manufacturer's warehouse and that monitoring cannot be achieved if a SCM system is not in place and if in place, isn't functioning upto its potential. Such systems become a necessity esp. if there is a large number of product units involved and all going through different supply chain partners to the end-user.

  7. prabhakar_deosthali
    January 18, 2013

    Re:
    WaqasAltaf

    I agree with you that the manufacturer is the one who needs the SCM to have better control over the movement of goods. 

    My point was that an ideal SCM needs to have hooks to bridge the host  systems of the  Supply chain partners. and this is a challenge for the SCM vendors.

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