Note: A version of this article appeared in the March, 1998 issue of Modern Materials Handling magazine.

In my January column, I identified 8 questions that a company should ask and answer as it considers the information and control systems that will take it into the next millennium. I said that I would be addressing them over the rest of this year. Obviously, I can’t answer the questions for any individual company; but, I can explain why I believe that it is important to companies to find the answers.

This article will expand on the first question which really has two parts. The first part is to determine your relative position in supply channels. The second is to understand the impact on the production side of the facility (if you are a manufacturer) as well as the distribution.

The main reason to think about position is to realize that every company is really in the middle of a supply chain. Understanding this seems to be more of a problem for manufacturers than it is for companies who are solely involved in the distribution of finished products. Examples of distribution companies are ones like W.W. Granger or Kmart who receive finished goods, ready for sale, from many different manufacturers and use the products to fill orders.

Manufacturers many times visualize themselves at the end of a raw material chain and, consequently, focus on master schedules and inbound shipments. They automate purchasing and tend to think of using bar code or other forms of automatic data collection as input to the manufacturing process. Most of them were developed during a time when the only way for them to make real money was to refine the processes that produced the products. Distribution was an unpleasant but necessary expense. The game has changed. Distribution is now a vital customer link that can greatly affect profits.

This is not to say that world class manufacturers do not have sophisticated distribution capabilities. Many of them do. But many, many more treat the distribution of finished goods as a completely separate operation. The reason that understanding the position in the chain is so important is that the separation of manufacturing from distribution defies the foundation of the new integrated approach. The "enterprise" concept that is at the basis of "enterprise computing" requires a company to think holistically. A company must think about raw material orders based on knowledge about manufacturing cycle time, stocking levels all the way through the supply chain and the volume required at the point of use or point of sale. Manufacturers do not buy a computer system that gives them enterprise computing. They reorganize the company to run as one cohesive set of activities supporting processes which turn raw material into products that are delivered to a consumer who pays for them.

Companies who receive finished products and distribute them to the point of use or point of sale have to change some thinking too. I said earlier that they tend to have less trouble recognizing their relative position; but, they must see themselves as part of a value chain that goes all the way to and through the manufacturer on to the raw materials or subassemblies necessary to build the products. Their systems must be responsive to shifts in demand and must pass information to manufacturers who use it to provide (back to them) the right product for the right price at the right time. This is where bar code and electronic communication become so important and an inexpensive, reliable way to pass discrete information about use and demand throughout the entire supply chain.

The question also asks that companies think about the impact of their position on sales and marketing, as well as production. This is really about entirely new types of business relationships. Companies involved in distribution should be more proactive with the value of and their ability to gather timely information about the consumption of products. Many are waiting for manufacturers to come to them and offer vendor managed inventory (VMI) or some other integrated demand/supply concept. Distribution companies should be putting systems in place that can use information to tighten control, provide higher levels of service and manage inventory like the cash it represents. Then they can make that same information available to manufacturers who can use it as mentioned earlier.