Staying ahead of the competition
Published: Jan 11, 2012
Procurement and supply chain managers could be forgiven for thinking their jobs are among the most difficult in the region - the industry is rapidly changing, global markets are coming closer together and distribution models are changing, while technology is advancing quicker than many operations can keep up with.
The solution, then, does not reside in vainly attempting to keep up with trends by constantly reinvesting, but rather in looking at what the procurement industry will be doing in the future and making investments that will serve the organisation in the short term, as well as into the future.
Asian procurement and supply chain managers need to be aware of all emerging technology and operational trends across the region and around the world to ensure that they have the best information at hand to make the right decisions in 2012.
The rise in online ordering and what it means for the procurement sector
The rise in online ordering provides some significant challenges to the local procurement sector.
The prime focus of procurement warehouses and distribution centres moving forward should be on understanding and reacting to trends to ensure that their clients are best being served.
For instance, the number of packages being shipped individually has dramatically increased in the past few years, and is set to continue in line with the growth in online ordering.
This requires a different focus on what is being tracked and the amount of information that is required on each package - normal barcodes are often not enough when moving through a large supply chain, and RFID tags can help to supplement the information held in a barcode and prevent inefficiencies in the supply chain.
Where in the past Asian countries, used to import goods in bulk and then package them and change them to suit the market, now, with most manufacturing done in China and with more people shopping online, goods are now purchased directly by the end customer.
In the future, the process will need to be individualised. By adding RFID tags to individual items, rather than simple barcodes, end customers have far greater visibility into where their item is, and can access a much more accurate estimated time of arrival. This gives customers far greater peace of mind when ordering items and having it delivered.
In the future, the procurement supply chain will also have to offer greater flexibility in its delivery times and more transparency so that customers and partners can track the location of their goods and equipment. As time becomes an ever more precious commodity for businesses, customers are not as likely to be open to waiting around their places of business during the week on the off-chance that their delivery may arrive.
It is conceivable that distribution partners working in the procurement sector will have to offer businesses a choice of delivery times in specific, one-hour windows and deliver on these. Being able to track a delivery truck, or get delivery updates in real time from RFID tags on individual items, will also enable procurement operators to build trust with businesses over the long term as well, along with increasing intelligence around fleet movement.
The push for ROI with RFID in the procurement sector
It has long been said that utilising RFID throughout the supply chain can allow organisations to achieve significant efficiency gains. However, as the technology has matured, procurement offices around the world are becoming less interested in the future potential uses of the technology and are more directly focused on the actual ROI RFID can bring.
As an example for how RFID can help originations achieve a clear ROI, recently a large US food manufacturer, Mission Foods implemented RFID across its operation. As part of its distribution process, Mission Foods places all of their packaged products in returnable plastic containers, which independent distributors then load onto their trucks. Such independent distributors then return these containers after their sales are complete.
However, Mission Foods found that after the containers left the warehouse for deliveries, they were likely never seen again. With a paper-based tracking process that wasn't streamlined across their various warehouses and distribution centres, they had no way to track if the containers were returned to a different facility, or if they were ever returned at all.
Because of this, nearly 100% of their RPCs were being replaced each year. While plastic containers aren't often on the list of top costs for procurement and distribution managers within companies, after doing end-of-year inventories, the company found they were spending upwards of $3.5 million annually to replace the unreturned containers.
Using RFID, Mission Foods began scanning their returnable plastic containers as they left and identifying where they were going. Alerting customers that they would be charged for a replacement if the containers weren't returned, Mission Foods went to an approximately four per cent replacement, reducing wastage and delivering millions back into the business. Additionally, they gained visibility into which containers were being returned where, meaning they were better positioned to move their resources across the various distribution centres they had operating.
Looking beyond the initial purchase to take in TCO
When the global financial crisis hit in 2009, it became apparent that technology providers needed to lift their game as procurement officers across Asia started to plan for the future and look at where costs can be cut and efficiency improved. However, any equipment or systems upgrade can be a daunting task for procurement managers, as technology has a tendency to move quickly and can become outdated before any return on investment has been achieved. In addition, it is apparent that what many players in the industry are failing to recognise is that the costs relating to servicing make up a significant portion of the total cost of ownership (TCO).
Broadly speaking, TCO is a comprehensive look at costs, encompassing not only the upfront, direct costs of a given technology solution, but also the hidden, indirect costs. Simply, TCO is a barometer for the best, most economical long-term technology solution.
In terms of cost-cutting measures, Asian procurement professionals which look at TCO, instead of simply the "hard costs" of implementing technology will be better placed to make the right business decisions when implementing systems like RFID.
The changing face of delivery
Distributors and transporters working with procurement officers in 2012 need to be aware of the changing nature of delivery operations throughout the region to ensure their business is keeping up with wider industry trends. The pursuit of making every process within a procurement environment lean and efficient has led to a variety of technologies being introduced to better service the rapidly changing market and allow for flexibility in the case of another economic slowdown.
For Asian procurement professionals in 2012, delivery and receiving time needs to be as short as possible in order to keep up with demand at peak times and maximise profit. Collaboration with suppliers, changes to business processes and the use of Advance Shipping Notices, Vending machines with cashcard, nets, and SMS, in some cases, scan-based trading can all help to reduce this time.
Several technologies are helping procurement officers to improve the performance of their delivery and receiving operations. In recent years, there has been a significant increase in the purchase and use of wireless enabled LAN and WAN mobile computers. The primary benefit gained with wireless capability is the ability to communicate orders and check stock or equipment availability in the warehouse in real time. Another technology that is getting increased usage is GPS, which is being used to most efficiently route supplier staff and to verify that product is on its way and give customers or partners an accurate estimated time of delivery.
In addition, software and imaging technology is helping minimize the amount of paper that is printed, handled and stored by procurement officers and suppliers. Suppliers typically need to keep store level proof of delivery acceptance. Technologies exist today which allow invoice signatures and to be captured and stored electronically, eliminating the need to print additional invoice copies. With imaging, delivery drivers and procurement transporters can scan a barcode on an invoice and automatically capture the signature and store stamp, providing electronic proof of delivery.
2012 and Beyond
Asian procurement officers do not need to know their exact technology and operational requirements for tomorrow to make good decisions today. Instead, they need to be able to identify their general future business needs and look for flexible outcomes that be built off in coming years. It makes good business sense to invest in the technologies of tomorrow, as it helps to minimise the cost of upgrades, bridging the gap between the old and new environments of a growing business.
Contributed by Mike Muller, vice president and general manager for Intermec APAC.
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