Supply chain management (SCM) is critical in periods of lower economic growth, says Mark Maguire, principal of IBM global services Ireland. “ In times of growth, such as the recent Celtic tiger economy, sales, advertising and product development are concentrated on," he said. "But in tougher times reducing costs and inventory levels and improving customer service levels should be focused on. This is where SCM comes to the fore." The supply chain is the network of facilities and distribution options that performs the functions of procurement and transformation of materials into products and their distribution to customers. SCM involves the physical and informational flows between each stage of the chain.
It is important that businesses engage the services of IT consultants from the early stages of deciding to improve SCM, said Maguire. "The reason systems often fail in SCM solutions is not because of the technology but because the business didn't go through the proper chain management in terms of business processes, behaviour and culture within the company."
In deciding how to improve SCM within a business, IT consultants first conduct benchmarking to compare the business's performance against other businesses in the same industry.
For example, the consultants may discover that the business holds 30 days of inventory, while its biggest competitor only holds ten. “Once we identify all the gaps, we determine why they exist and how they can be improved. A business plan is drawn up to implement the appropriate changes. This may or may not involve the automation of certain processes," said Maguire.
In the current economic climate, people are cautious about making large investments, according to Maguire.
"They need to set measurable objectives and know from the outset how much they will spend, how much they will save and when they will achieve full return on investment. "Payback should occur no later than 24 months after a new system is implemented."
Research conducted by IBM shows that companies with the best-in-class SCM have a 7 per cent cost advantage over average performers.
They continue to have a 40 to 65 per cent advantage in cash-to-cash lead time and hold 50 to 80 per cent less inventory.
Denis Neavyn, general manager of consulting services with SureSkills, said that businesses make the mistake of assuming that a SCM solution involves all processes within the supply chain. “It may be that the business needs to concentrate on just one or a few different elements.
"This will be determined by the standard of the business's existing processes and its objectives."
SMEs are often put off considering an SCM solution because they mistakenly believe that it is just for large companies or multinationals, said Neavyn. “They are under the misconception that SCM involves a massive overhaul of processes and that it incurs great time and expense.
Often SMEs can benefit more from SCM because they can implement changes and solutions quicker to see more immediate benefits." IT consultants form only part of the overall SCM solution, according to Neavyn.
"They help with the infrastructure, the mechanics and tools needed to implement the structure.
"Business drives technology -- not the other way round. "Companies often make the mistake of getting carried away with the technology and focusing on that. Technology is an enabler, and is only there to assist."
Neavyn said that in many cases it is more cost-effective to engage IT consultants from the outset.
"IT departments often don't have the budget to hire additional staff to deal with SCM. By training existing staff companies run the risk of those staff leaving the company. By engaging a contractor, companies are limited to the skill set of one person.
"The biggest advantage of engaging consultants is that they have access to a pool of skilled people and bring experience from similar projects."
Trends in the global supply chain management marketplace show IT consultants beginning to take on some of the risk in implementing SCM solutions. This is now starting to happen in Ireland, said Maguire, and it is important for businesses and consultants taking this option to agree in the beginning what can be achieved and at what cost.