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Right place, right time

Right place, right time

Cost cutting and better inventory control are two of the most touted benefits for supply chain management systems, but what do these applications offer in practice? We check out the experiences of two New Zealand enterprises.

Mention the term supply chain management (SCM) and many people will start to think of manufacturing industries — the phrase may evoke visions of just-in-time inventory techniques or cost-efficient raw materials purchasing. But Auckland Airport provides an example of how supply chain management systems can be just as relevant to service-based industries.

Tony Wickstead, Auckland Airport’s head of information technology and telecommunications, says two years ago the airport realised its systems needed a major overhaul to help manage projected growth.

At the time the airport was using a JD Edwards ERP system for its core financial functions, but the version it was using was no longer supported. The two basic options were to upgrade or switch to another vendor.

“There were some alternatives but they were limited,” says Wickstead. “We looked at SAP and Microsoft, but we felt that with its focus on small to medium enterprises the JD Edwards product best suited a company of our size.”

At that time JD Edwards had recently been taken over by Oracle, so Wickstead spent some time in discussions with the new owner to ensure the product had a future.

“We looked for some surety, we wanted to know about the product lifecycle. Once that was clear we were ready to leverage the investment we had already made,” he says.

Along with the version upgrade, the airport implemented an Oracle data warehouse and business intelligence toolset. The company also switched to an enterprise license to make the software accessible to authorised users across the company. Previously the software was only available to certain sections of the business.

“This gave everyone access to more in-depth reporting and the ability to query. In the past people had to ask the finance department to get the information they needed,” says Wickstead.

Complexity and collaboration

After upgrading the financial system to the currently supported version, the next step was to implement a purchase order module with associated procurement workflow.

So far it was a fairly standard installation. However, the airport began to depart from typical supply chain management territory, when implementing an Oracle Case Management module to manage its response to the everyday incidents that occur at any large airport.

Wickstead says each incident – which could be anything from the replacement of a light globe to a fuel spill - will trigger processes to handle various responses, including the financial and procurement consequences.

“All this is managed through an approvals/workflow–based process, so there is a service supply chain that arises from that.”

The airport’s service supply chain is complex because it involves several external interested parties including Customs, Aviation Security, Police, Fire Services and the Ministry of Agriculture and Fisheries. Wickstead says this means any development must involve a lot of consultation. While the aviation industry has a culture of collaboration, you cannot take this for granted.

“It’s something that needs to be constantly nurtured. We cannot roll something along without that strong sense of collaboration.”

Another important part of the airport’s business is real estate. Auckland Airport owns large tracts of land and buildings in and around the airport that it lets to various tenants. So the company decided to fold its existing real estate system into an Oracle Real Estate Module.

The ERP system is also being extended to include the airport’s retail activities and car parking operations. In the past, managers had to rely on historical reports, but by giving them access to live data, Wickstead says they are able to be more pro-active in their decision-making.

He estimates the airport is about halfway through the project and so far the main challenges have been human resource-based rather than technical.

“Sometimes it can be hard to get all the managers and experts together when they have got their day-to-day jobs to do, with their busy month-ends and year-ends.”

However, Wickstead says he has been greatly assisted by the airport’s published “master plan”, which outlines the future shape of the airport in 2011 to 2012 and 2025. He likens his task to an architect who has to lay the right technical foundation for change to occur. The strategic plan helps him to articulate technology projects in a way executives can understand.

“Eighty per cent of a CIO’s role is being a salesperson, but you can’t talk about technology, you’ve got to talk in terms of business benefits. Then executives will say ‘I get that, I see what’s in it for me,’ and so you get their commitment, support and that really important momentum.”

Cost control

A different and more traditional SCM implementation has taken place at furniture manufacturer Vita NZ. Vita manufactures furniture and bedding products based on polyurethane foam, polyester fibres and polystyrene beans and employs more than 400 people at its three manufacturing facilities in Auckland, Upper Hutt and Christchurch.

Vita financial services manager Peter Thorburn says the company implemented Lawson’s (formerly Intentia) M3 ERP system three years ago. Although the system has been modified since then, he describes the system as being “well bedded down”.

Vita’s main objectives when it installed the software were to control manufacturing costs and manage its inventory that includes around 8000 live items. Prior to implementing M3, the company was using a legacy ERP system, supported by several different databases to manage inventory. Planners relied on spreadsheets to allocate production resources.

“Before, every planner would be using their own system, now they are all on the same page,” says Thorburn. “Because they are all working from one database, planners can now cover for each other and the information is much more transparent… for example our sales people can check it for themselves.”

M3’s Bill of Materials module ensures the correct stocks are drawn out of inventory as each product is ordered and that each product or sub assembly is costed correctly.

“Previously product costings were set up externally to the legacy system and thereafter they wouldn’t be challenged,” says Thorburn. “Sometimes errors wouldn’t be picked up for years, if at all.”

Accurate costings are especially important to Vita, Thorburn explains, because many of its raw materials – in particular Poylol and “TDI” (Toluene Di-Isocyanate) are derived from petrochemicals and are therefore subject to considerable price fluctuation.

“We buy millions of dollars of these chemicals each year and a change of just a few cents in the price of either can have a significant effect on the cost of a lounge suite or a bed,” he says.

The M3 system produces monthly gross margin reports and when Vita reviews its own product pricing every three months, managers can see the cost of each product as of that date and the projected cost in a three month-period based on estimated raw material prices.

Thorburn says Vita will be using the M3 system for “many years to come” and the system continues to be developed. Vita employs a full time M3 development manager as well as an IT manager. Thorburn says the company has produced a long “wish list” of desired functions which he arranges in order of priority, generally based on their expected return on investment.

One of the projects currently on the boil is to bring in the company’s production bonus scheme, which is now managed via an Access database, under the M3 umbrella. Thorburn predicts this project will make “huge savings” as working with both Access and M3 involves “a lot of process”.

Vita is also planning to implement Lawson Multi-Site Planner module to co-ordinate production between its three plants. Thorburn says this module will be able to take such factors as the location of a customer into account and automatically re-organise inventory levels when an order is moved from one plant to another.

Flags and fields

While Thorburn says the M3 package has had a positive effect on Vita, it has taken a considerable amount of time to set up.

“We probably underestimated the resources it would require in terms of systems support and development, particularly in the first year. There are so many flags and fields to set up, and it’s so crucial to get them right. Getting the data right at the start saves you so much time down the line. Our systems are so much more automated now but you need to put a lot of effort in up-front.”

Thorburn also points out that the very flexibility of the package means it can make big demands on development time.

“When you have implemented the package it’s so configurable that you can change almost anything if you have got the will. Once people know that they tend want to change everything, and that takes more resources.”

CIO Business Software Guide 2007

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