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Elasticity is the key for organizations seeking improved supply chain performance.
In brief
- “Elasticity,” the optimal balance of standardization and customization in supply chain software, helps many firms navigate disruptions.
- Configuring technology for elasticity means using the right mix of core and custom features and modules, and just enough customization to meet requirements.
- With the right tech platform, the integration of transportation management and warehouse management functions offers compelling benefits.
In the manufacturing, consumer goods and retail sectors, the companies that have been most successful in navigating the COVID-19 crisis were those that had highly responsive and flexible supply chains. They were also notable for having strong warehouse and transportation management capabilities, robust underlying technology and high degrees of integration.
Firms that had “elasticity” built into the configuration and deployment of their supply chain software allowed them to respond to changing needs in a resilient and flexible manner. We define “elasticity” in this context as the optimal balance of standardization and customization of supply chain software. When companies embrace the concept of elasticity to guide software implementation, responsiveness and flexibility can be designed directly into core supply chain operations and instilled into underlying technology platforms. We view these attributes as the next level of agility and adaptiveness as well as the keys to achieving excellence in supply chain execution.
Our latest report, Supply chain elasticity: driving successful transportation and warehouse management (pdf), breaks down what elasticity means, why it matters and how companies can embrace it in their supply chain technology and processes.
We believe we’ve reached a tipping point, where the convergence of a business-first focus and a strong technology solution can provide the capabilities and integration necessary to achieve excellence in supply chain execution. Further, we believe elasticity is critical to realizing this vision and ensuring the needs of multiple stakeholders – business executives, IT and end-users of supply chain tools and technology – are satisfied.
The pendulum swings between standardization vs. customization
For decades, IT and the business have battled over the best way to use technology. Typically, IT leaders want to run standardized processes on centralized technology platforms for as many core functions as possible (including supply chains). IT’s historical perspective has been that the fewer the number of systems, applications and vendors to manage and support, the better, because managing many different systems increases security risks and administrative costs. Plus, efficiency and accuracy increase when supply chain systems can connect directly to finance and other core systems.
For their part, business users want features and functionality geared towards doing what they need to do in the way they prefer to do it. Businesses often had very good reasons for wanting specific functionality. However, it’s also true that some platforms offer too much flexibility and functionality.
This state of affairs led to fragmented technologies across the supply chain. Supply chain planning and supply chain execution were thought to need their own technologies because the conventional wisdom held that they should be managed separately. Even warehouse management and transportation management were largely treated as independent functions, rather than as complementary and overlapping processes – the reason often being the lack of integrated technology solutions.
Transportation costs
savings annually.
In the last decade, as technology has advanced and matured, the integration of supply chain processes and activities presented an increasingly clear and compelling value proposition, which early adopters have realized. That’s especially true when elasticity informs the configuration of supply chain technology and the design of supply chain processes. Truly best-in-class capabilities and leading performance are only possible through the integration of the full range of supply chain functions and processes, including warehouse management and transportation management. The return on investment will rise higher for companies that can embed elasticity-enabled software directly into supply chain technology and processes. Such elasticity protects not only against overly customized solutions, but also against different forms of supply chain disruptions like natural disasters and, the recent pandemic. Firms can respond more nimbly to changing market conditions.
Why elasticity matters
The concept of elasticity is especially useful when companies come to recognize supply chain execution as an end-to-end process that starts with order entry or procurement and manufacturing, extends to inventory and warehouse management, and is completed via transportation and distribution – notwithstanding the necessary touchpoints to the financial world. Because adjustments must be made, flexibility and agility are critical to overall operations. Configuring supply chain technology for elasticity is essential because occasionally the adjustments will be dramatic, as was the case with the COVID-19 pandemic.
To achieve elasticity, supply chain leaders must address a few critical questions:
- How do we ensure that the system is flexible, usable and can absorb many requirements?
- How do we instil long-term flexibility so that the system never bends too much or breaks – especially as system usage scales up and initial requirements adapt to new situations?
- How do we strike the right balance between unique business requirements and standardized processes to satisfy the user base?
Superior technology provides many of the answers by integrating key processes and functions. For instance, transportation management modules can link customer service, procurement, manufacturing, logistics and finance together on a macro-level. Data models unifying customer and purchase orders, deliveries, shipments and freight invoices so that they speak the same language are key because they make supply chains more adaptive and resilient.
Similarly, the core functionality of warehouse management modules includes scenarios for outbound, inbound and internal warehouse processing. These standard function sets can be enriched with powerful functionalities like labor management which can increase productivity and improve order fill rates, accuracy and cycle times, as well as reduce the overall cost per order. When a unified data model supports both warehouse and transportation management, the two modules can exchange load plans, communicate on inventory shortages and collaborate on warehouse billing scenarios. Those are very powerful capabilities.
Within warehouse management
overall cost-per-order rates can fall.
Those benefits and the overall business case are compelling. EY experience suggests 6-15% savings on transportation costs annually, which are among the biggest expenses for industrial firms, manufacturers and distributors. Firms with the most complex supply chains and most outdated technology stand to realize the most significant gains. The cost savings can take many forms, including:
- Delivery and shipment consolidation
- Carrier selection and dynamic pricing
- Better cost tracking and more accurate customer billing and internal chargebacks
- More effective freight procurement and negotiations
- Lower freight invoicing and administrative costs
Within warehouse management, overall cost-per-order rates can fall by 15-30%, thanks to more productive workers and increases in order accuracy and perfect order completion. Gains in inventory accuracy can reduce carrying costs by 8-15%, as our experience has demonstrated.
But cost efficiency doesn’t tell the full story. With the right process design and integrated technology, firms can adopt many leading practices and develop more advanced capabilities, from smarter and more harmonized contracting, to centralized planning and standardized processes. Better customer service and higher throughputs almost invariably result when warehouse management and transportation management processes are linked and synchronized.
Gains in inventory accuracy can reduce carrying costs
as our experience has demonstrated.
Better data, reporting and advanced analytics can deliver actionable insights and decision-making confidence in real-time. Companies that don’t have to gather or reconcile data from different systems or cut-and-paste across different spreadsheets to complete reports have a huge advantage.
During the last three years, SAP has invested heavily to migrate its two historically standalone supply chain execution applications — SAP EWM and SAP TM — into a single platform. In fact, both solutions are now firmly embedded in SAP S/4HANA as a “single stack” application. For clients looking to build a strong business case for adopting SAP S/4HANA, SAP EWM and SAP TM offer compelling benefits, such as reduced IT costs and complexity. The nature of the single-stack application inside of SAP S/4HANA eliminates the need to manage separate hardware and software infrastructure, which can significantly reduce the total cost of ownership.
When warehouse management and transportation management function as a single, intelligent and unified process, companies can improve supply chain performance and integrate seamlessly into the broader organization. It’s important to note that running these and other applications in either a public or private cloud infrastructure (rather than on premises) provides clients another option to consume these technologies, offering more flexibility in business case calculations.
Supply chain elasticity: driving successful transportation and warehouse management (PDF)
Summary
COVID-19 exposed complexity and fragmentation in the supply chains of many companies, reminding business leaders of the need for visibility, flexibility, control and resilience. At the same time, advances in technology are enabling integration across the supply chain, including warehouse management and transportation management. When configuring software for elasticity, companies can take advantage of unified data models, industry templates and other leading practices for critical steps and activities. The benefits include lower costs, new capabilities, better data and analytics and more engaged employees.
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