Technology: the missing link in the chain?

It's possible to gain huge productivity, efficiency and accuracy benefits by using technology to fully integrate your supply chain. So what's holding Australian businesses back?..

By Simon Hendery

Integrate an organisation’s supply chain by deploying barcode scanning – or even RFID technology – and you open the door to a vast range of efficiency benefits.

Scanners and barcoding technology are now relatively cheap. Even RFID tag prices have dropped significantly in recent years.

So in theory it’s easy to implement a scanning system that achieves the fundamental goal of supply chain automation: removing the need to key in data related to product movements at multiple points along the supply chain journey.

Scanning is an error-free way of capturing data, whereas relying on humans to key in information is not. Scanning also happens instantaneously at, say, the receipt of goods stage.

This means there is no hassle or confusion caused by data entry delays.

Automatically capturing the receipt of goods means an organisation can instantly match those goods to a purchase order, electronically acknowledge their receipt, pay an invoice directly, and immediately re-adjust stock levels.

Along the way, all this automation eliminates numerous human-dependant processes that would otherwise involve a stack of manual paperwork and much duplication of effort.

Overcoming cost and complexity
Supply chain automation and integration clearly has its attractions, so what is holding organisations back from embracing it?

The cost and complexity of changing existing systems remains a major barrier, says Maria Palazzolo, chief executive of GS1 Australia, the local administrator for the international GS1 trade item identification system used by over a million member companies globally.

“It’s very easy to say: ‘Look at your supply chain and look at where you can build efficiencies’ ,” says Palazzolo.

“The complexity comes once you’ve identified those efficiencies and you have to change processes and, in many cases, change practices that have been in place for many, many years. Then normally there’s a whole IT factor that has to be considered, because IT is supporting the current processes and the current way the business is operating.”

Changing those systems is obviously a complex and costly process – the sort of project an organisation might take 5-10 years to fully complete.

Palazzolo says in that context, implementing changes to the supply chain is often something organisations brush aside to “look at doing properly” as part of that grand 10-year system upgrade.

GS1’s recommendation is that instead of putting supply chain integration in the too-hard basket, businesses look at deploying a few “easy wins” – introducing some scan-based automation that will result in improving efficiencies – as the first step towards embracing the potential of a fully integrated, global standards-based supply chain.

A regularly-heard excuse is that supply chain integration is not high on the list of corporate priorities, says Palazzolo.

“There are always very well documented, well justified reasons why companies don’t do as much as they could potentially do in looking at streamlining their supply chains and becoming a lot more efficient in taking out completely unnecessary and duplicated efforts which don’t have to be there, which ultimately add up to an inefficient supply chain.”

While GS1 Australia has more than 16,500 members, Palazzolo admits the majority of businesses join the organisation for reactive reasons: they’re asked to put barcodes on the products they sell by a customer, typically a large retailer.

“At that point we encourage them, quite aggressively, to look at the benefits they could derive by doing this for themselves – don’t just look at it as a cost of complying to what your customer wants, have a look at it as an opportunity to really understand how your supply chain operates and how you can benefit from the things you’re going to have to do anyway for your customer – why not get the benefits out of it for yourself,” she says.

“There are some companies that are very innovative, have people within their organisations who have got the insight and the courage to try things, and try to change the way they have been traditionally doing business in their supply chain. They just get on and do it, and they do it very well. We’ve got some very well documented case studies where companies have done some fantastic stuff but unfortunately they’re nowhere near the majority of the sixteen and a half thousand companies we work with.”

Innovator: Patties Foods
One example of a business that has embraced a retailer requirement to barcode product, by turning it into an opportunity to enhance their own supply chain efficiencies, is Patties Foods, the company behind iconic pie brands including Four’n Twenty.

As well as barcoding its finished goods to GS1 standards, Patties reviewed its entire supply chain, implementing new practices throughout its raw materials warehouse, and talked to suppliers and customers about adopting the same standards.

Every container received by Patties now carries a GS1 logistics label, uniquely identifying the contents.

Inwards goods staff scan the label, confirm the container with a quick physical check, and the data is automatically uploaded into management and accounting software.

The software marries the information with the original electronic purchase order, acknowledges receipt with an order confirmation and readies the account for payment.

“The GS1 System prevents the errors that come when you’re keying in a lot of data and for the first time, we could be really confident in what we were seeing,” says Patties general manager purchasing and supply, Joe Rettino.

“Because of the increased visibility of our inventories, there was no longer any need to carry excess safety stock – not just at the finished goods stage but at every point of our manufacturing process. The bottom line is that implementing the GS1 system freed up 20 per cent of Patties’ inventory and made more working capital available.”

Aside from streamlining the flow of materials to and from production, improved inventory visibility has made Patties’ sales forecasts more reliable.

Palazzolo says Patties is a good example of a mid-sized Australian company embracing technology to achieve smart results.

“I like the way they look at their business and say: ‘We’re very successful, and we’re a great business, but let’s have a look at how we could be better.’ And they’re not afraid to say that.”

Data accuracy
Palazzolo says as supply chain integration appears on the radar across more organisations, issues around ensuring data accuracy are becoming more important.

“Suddenly everybody’s realised that you can have all the technology in the world in place but if your information isn’t accurate and your data isn’t synchronised then you’re just using the technology to move it around a lot faster but it’s actually still not going to work for you,” she says.

“As we work more computer-to-computer and you don’t have the human element there to notice that things might not be quite right, you need to have absolutely accurate information to ensure that the information you’re exchanging about whats taking place is completely synchronised and absolutely accurate.”

So what can organisations do to ensure data accuracy?

“First and foremost they need to start looking at the quality of their data and have some very specific measures in place to ensure their data is accurate when it goes into the system,” Palazzolo says.

Issues of data variation can arise, for example, if an ingredient in a food product changes, and the change is recorded in one database but not in other databases linked to supply chain activity.

With this type of issue in mind GS1 has developed GS1net, an online data synchronisation solution aimed at allowing users to enter, validate, store and maintain all their product, pricing and other related trade information in a single location, enabling easy and consistent access to that single set of data by all trade partners.

What about RFID?
RFID has long been championed as a high-powered tool for super-charging the supply chain, but the technology has yet to live up to its hype, at least in the Australian trading environment.

“The interest levels are still high – as they have been for the past couple of years – but the implementation itself is pretty slow,” says Palazzolo.

She says a key issue affecting the uptake of RFID is that while in markets like the US, where powerful retailers such as Wal-Mart have mandated its use by their suppliers, that is not the case here.

“We don’t have mandates in Australia. We don’t have any retailers saying you must put an RFID tag on the pallet or on the carton [of products you supply]. Until such mandates happen in this country – if indeed they do – we will have companies who may want to take the initiative and implement it within their organisation, for their own benefit.”

Palazzolo says experience to date suggests the cost factor associated with changing technology will hold up RFID adoption, particularly because the massive amount of data RFID is capable of gathering means organisations embracing it need systems in place to process that additional data.

Michael Panosh, marketing manager for Australian ERP vendor Pronto Software, puts it this way in a recent paper: “Right now, the adoption of RFID across the retail supply chain is pretty much a Mexican standoff between manufacturers and retailers, with distributors stuck in the middle. Retailers see that RFID can help manage shrinkage and warranty processing overheads in their stores. For distributors, RFID will streamline handling procedures and improve supply chain visibility, lowering costs and improving operational efficiency. But for the manufacturers, RFID adds cost and complexity to products that are already operating on razor thin profit margins, though there is the glimmer of hope that RFID can deliver similar benefits to those offered to distributors.”

So, Panosh says, while it is obvious there is much to be gained from RFID, there are some fundamental issues that need to be overcome before the benefits are realised.

One issue, he says, is that everyone along the chain wants everyone else to pay for the infrastructure before they will adopt it.

Another issue, he says, is the lack of standardised technical specifications, incompatibly with business software and complicated implementation procedures. GS1, however, reject this claim, saying standards for RFID have become well established over the past couple of years.

And yet another issue Panosh raises is that while today’s RFID technology is suitable for pallet and carton tagging and tracking, it is not yet suitable for item level management. This means that while RFID can be useful in a warehouse environment, it does not yet readily transform retail operations.

Easy wins
Regardless of where RFID is heading, and how quickly, fixating on it can be a distraction to organisations looking for ways to utilise technology to boost supply chain efficiencies.

As Palazzolo points out, the answer is not to sweat the big stuff, but to look for the easy wins – the cost-effective ways to automate current human-error-prone procedures – and gradually integrate them into your other business systems.

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