June 30, 2006, 12:00 AM

Supply Chain Management

Just as the promise of web technology is becoming more of a reality for multi-channel retailing, enabling merchants to leverage cross-channel information on customer activity and inventory status, it’s also reaching new heights in retail supply chains. Retailers can improve merchandising and customer service with improved visibility and control of the inventory coming into their warehouses and stores or being drop-shipped directly to their customers.

A combination of web-driven technology and progressive mindsets among retailers and their trading partners is setting the stage for effective supply chain collaboration-once a symbol of unfilled promises of the Internet age. Challenges remain in realizing the most effective supply chains, as retailers must first establish effective business processes across their selling channels and choose supply chain technology that best supports their business environment. But both retailers and supply chain technology vendors are entering new levels of readiness and performance, experts say.

Beyond the hype

“In 1999-2000, a lot of supply chain management and inter-enterprise collaboration was hype, and many retailers and suppliers had a difficult time taking advantage of it,” says Rob Garf, retail industry research director at AMR Research Inc. “But now they’ve had time to re-engineer their business processes to begin to take advantage of it.”

“Collaboration is no longer a dirty word,” adds John Fontanella, service director for retail technologies at consultants Aberdeen Group Inc. “Retailers are becoming more willing to share demand information with suppliers, because they’ve seen the benefit of getting the right inventory into the right stores.”

The growth of web-based integration technology, including XML and other forms of web services, is providing for more robust platforms for sharing sales forecasts and production information among a wider range of retailers and suppliers.

Over the past few years, a number of supply chain collaboration projects have developed among some large suppliers and retailers, including major brands like Procter & Gamble, Michelin and Sears. But such projects can absorb excessive resources, requiring a supplier like P&G;, for example, to dedicate several logistics personnel to on-site operations at its retail collaboration partner, Fontanella says. “Suppliers realize they can’t do that with all of their retailers,” he adds.

But continued development of web-enabled supply chain technology is making such collaboration easier to implement across multiple partners, he says. “The supply chain technology in many cases is already there for what retailers need,” he says.

Service-oriented architecture

One of the most important developments is the spread of service-oriented architecture, which uses web services and other means of integration to provide for smooth and fast data flow among several software applications, so that a retailer’s POS data, for instance, can more efficiently flow into a demand forecasting system shared with suppliers.

Sterling Commerce, for example, is using SOA to expand its traditional role as a provider of EDI services to offer a more comprehensive supply chain system that includes its Yantra order management, transportation and warehouse management modules, and its EDI connections with suppliers.

This integrated supply chain environment extends the abilities of retailers and suppliers to share information. “For retailers, the supply chain used to be seen as stopping at the distribution center dock,” says John Stelzer, director of industry development for Sterling Commerce. “But now retailers are realizing they can carry supply chain information down to their fulfillment centers and to their customers. So they can provide a seamless source-to-sale information process.”

In effect, he adds, a truly integrated supply chain system makes it possible for retailers to merge what traditionally have been three separate worlds of information-the data shared with suppliers, with internal retail operations, and with customers.

“The kind of network Sterling Commerce is talking about is where merchandisers, logistics people, transportation companies and others are all updated at the same time with the same information,” Fontanella says. “So now the advance shipment notice doesn’t only go to the retailer’s transportation manager, but also to the carrier so it can make a dock appointment at the retailer’s distribution center, and the retailer’s merchandiser also sees what’s coming, and all of a sudden you have a very different supply chain. That’s the dream scenario of really making retailer-supplier collaboration happen.”

Retailers need to be wary, however, of the true level of integration that exists in supply chain systems, Fontanella says. While some companies may promote their SOA-enabled infrastructure, the degree of SOA integration can vary. “If you’re buying a system that’s just polished up with web services, it may not fully support the kind of workflow you need,” he says.

Move to modules

A key future development that retailers should consider, Fontanella adds, is a movement toward more modular components in supply chain software that lets retailers and their partners choose and pay for only the components they need.

“We’ll see more configurable workflow and more modularized applications,” he says. “In order management, for example, instead of buying an entire system, a company may want to just buy pricing functionality.”

“We see a lot of transportation management systems being delivered as an on-demand system, but it’s still offered as a full application,” he adds. “Tomorrow retailers will be able to go to the same vendors and instead of getting an entire application they’ll be able to buy only a service of transportation rates and routing if that’s all they need.”

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