Choosing an SCM Solution

There are a lot of supply chain management (SCM) solutions on the market. Here's how to find the best solution for your business and its needs.

By: Kate Carroll de Gutes, Technology Reporter

Last month we talked about supply chain management (SCM)--how you can use business information on inventory, sales trends, etc. to better manage the supply of materials and products to help you reduce costs, improve cash flow, and increase customer satisfaction and loyalty. If you read last month's article, you know that the first step toward successful SCM is to make sure your information is complete, consistent, current, and accessible, so you're operating from an accurate view of the business. Once the basics are in place, you may be ready to try one of the many SCM solutions available on the market. This month, we look at the features of SCM applications and some resources that may help you find SCM software that fits your needs.

Choosing SCM Solutions: You Know Your Business

Every company manages its supply chain, whether the process is automated or not, and you are probably already using at least basic tools such as spreadsheets, accounting software, or inventory reports to project supply needs. As you analyze the flow of your supply chain more regularly, you'll see where your business might benefit from more powerful analysis or SCM automation tools. There are a lot of SCM applications on the market, everything from plug-and-play to custom solutions, so let's look at the basic features you need and some other considerations for choosing SCM solutions.

SCM software is involved with two basic functions: planning your goods, equipment, or materials needs, and execution, which includes ordering goods and tracking shipments from vendors, tracking inventory usage, etc. There are many SCM vendors, large and small, selling ERP system add-ons, stand-alone software, SCM applications tailored to different industries, and even hosted SCM applications that can communicate and coordinate with your in-house information systems. Once you know what you need, you can find a solution that fits your business and budget.

As you look for an SCM solution, here are some things to consider:

• SCM applications generally involve some form of e-communication and information exchange with your suppliers. For example, your systems may automatically send some inventory information to their systems. That's sensitive business information you're sending, so ask your SCM vendor how they can help provide appropriate security.
• SCM systems are a kind of "expert system": they help optimize your supply chain based on past trends. When you first start using them, they won't have a lot of history on which to base predictions, so you'll need to look at their projections and apply some good old human know-how and experience. Don't give up, though, because the application will get smarter over time, helping to improve revenues and save you time and money.
• Change is hard, and people may naturally resist learning new business processes and tools, particularly if they're already busy. But SCM, like any tool, only works if you use it, so train your staff and discipline yourself and others to use your SCM application.
• Look ahead at coming opportunities to improve your supply chain processes. For example, in the future, many products and materials will come with Radio Frequency Identification (RFID) chips that could be a tremendous asset in managing your products and supplies. Unlike a bar code that has to be scanned, an RFID chip can transmit a great deal of product information, telling you what it is, the manufacture date, or where it is in the warehouse, in a container, on a shelf, or in a truck. Make sure the SCM solution you choose today is ready to take advantage of tomorrow's technology improvements.

Finding the Bottom Line

There are a lot of SCM options on the market. In fact, one analyst described SCM software as "possibly the most fractured group of software applications on the planet." And let's face it, the best solution is the one that contributes the most to your bottom line.

Of course, ROI on a supply chain management solution depends on your business and how you use the application, but case studies from SCM vendors show the investment paying for itself typically within 12 months, and some claim payback in as little as 90 days. If you're interested in analyzing your possible ROI, Nucleus Research has a neat and fairly easy-to-use SCM ROI calculator built as a spreadsheet. (To download the tool, go to www.knowledgestorm.com and search on the words "Nucleus Research SCM ROI Financial Analysis.") TEC's SCM evaluation center (scm.technologyevaluation.com) also has some great tools for defining your SCM needs and finding vendors who fit your budget. If want to consider third-party supply chain services, another good resource is vendorseek.com.

SCM Pays Off

Automating the management of your supply chain can be a big step. You're sharing sensitive information with other businesses, and relying on software to do some things that you and your staff have learned through years of experience. But SCM can pay off in increased sales, customer satisfaction, and lower operating costs. Just remember that SCM, like any application, is only as good as the information it has, so your central information system must provide correct, complete, and current data. When choosing SCM software, remember that no one knows your business better than you. The right solution is out there. So "google" to find options, visit some of the sites mentioned above, read your trade journals, talk to other business owners and advisors you trust, and choose what works for you.