Tightening Supply Chain Replenishes Bottom Line

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Tightening the supply chain link by link is giving cable operators and their vendor partners a potential go-to strategy in their effort to reduce costs and gain efficiencies, two crucial mandates in their drive to multiple services and subsequent new revenue.

Managing a tight supply chain, from procurement and billing to sales and marketing, can save companies a significant amount of dollars once a clear view of the entire chain is established. Trouble is, most companies have blurred vision when it comes to intelligently managing their supply chains, according to experts. And that's hampering their push to lower operational costs and overall network efficiencies.

Companies are trying to mix old supply-chain models — historically burdened by cumbersome, paper-laden processes — with today's lightening-quick changes in technology, market fluctuations and time-to-market issues, forcing many operators to overhaul existing supply-chain procedures — at a cost and with some trepidation.

TOP-DOWN APPROACH

"We've been remiss in the supply-chain arena and haven't advanced this function nor understood what skills are required in the warehouse to feed the system with visibility of assets and exposure of our market demands. Now, forecasting and communications are the keys," said Gerald Lewis, director of supply chain management for AT&T Broadband's Dallas division.

Managing an unwieldy supply chain can be tricky, and requires a top-down strategy of tight communications, the right software and management systems and accurate forecasting of future supply and equipment needs.

When those occur, good things happen to the bottom line.

Companies can achieve cost reductions of 5 percent to 20 percent can happen by efficiently managing material procurement, inventory and supply chain management software programs, reported Technology Forecasters Inc., a manufacturing research group.

With the cost of supplies, materials, equipment and other supply-chain components taking up to nearly 80 percent of some companies' annual revenue, it's no wonder more operators and vendors are seeking ways to tighten their supply chains.

Add in the competitive edge of quicker time to market, and the search intensifies.

"We've saved millions of dollars by knowing where equipment and supplies are and where the excesses are by using an integrated inventory management system in our supply chain, and can now forecast up to a year in advance the supplies and equipment we'll need. That drives right to the bottom line in dollars and savings," maintained Paula Trustdorf, senior vice president of AT&T Broadband in Dallas.

AT&T's Dallas system has reduced its number of warehouses from 19 to six and its headcount from 98 to 75, a 24 percent reduction as a result of its tightened supply chain, he added.

BALANCE NEEDED

Incorporating a smart and efficient supply-chain strategy isn't for the faint of heart. "Old habits die hard, so you must trust the supply chain system and have contractors and vendors as partners and the right balance of technical and operational people," admitted Trustdorf.

Time Warner Cable also is getting the supply chain message, adding key components to its management process.

"Inventory has a way of becoming obsolete because of engineering-change notices and technology advances," said Steve Gines, director of corporate purchasing for Time Warner Cable. "That's the most important operational change we've seen industry-wide. We've integrated our purchasing and inventory systems and are now seeing significant savings and are able to make efficient decisions on a daily basis. That information hasn't been there before. Now it is."

For many, managing the supply chain is a guessing game.

"A clear view of the supply chain is absolutely mandatory," explained Greg Schementi, director of supply chain transformation for AnswerThink Inc., a supply chain software provider. "If there's no visibility [of assets], the same supply-chain nightmare will exist five years from now. Many companies simply look at top line dollars from the previous quarter and add or reduce forecasts by 5 percent. And in the supply chain, all disciplines are affected."

Those disciplines include fleet management, procurement, warehousing, maintenance, engineering, inventory control, billing, sales and marketing and more. In other words, nearly an entire operation.

Embracing, and paying, for a streamlined supply chain-management system can be painful, costing millions of dollars for an all-encompassing system. Yet the eventual payback, experts insist, can be worth the investment.

"Some applications can cost six or seven figures, some less, so a company must be committed to the plan," said Mike Mauro, general manager of Technology Hunters LLC, a technology research and consulting firm. "But, as more companies see the huge cost savings associated with a smart supply chain management system, prices for the software and other costs will fall."

Those other falling costs include set top boxes and cable modems; two crucial expenses to cable operators, an issue not lost on cable vendors.

"MSOs have limited capital expenditures, and return on investment is crucial," said Motorola Broadband Inc. vice president of supply management Keith Jones. "There are tremendous cost curves in set-tops and a bloody market for modems. So we have to reduce costs of the parts and in the design and engineering to provide the lowest cost with best feature set-top and keep pushing price points down."

Visibility and collaboration in the supply chain are two keys to making that happen, he maintained. "We need the same visibility into [cable operators'] supply chains and inventories, and need collaboration with equipment providers and MSOs. That removes the guesswork and the risk of matching supplies and inventory. If supply chains aren't integrated, it won't work."

SHARING IS HARD

But sharing information about inventory can be a touchy subject and could reduce the leverage for both vendors and operators.

"Yes, there are opportunities to collaborate to drive costs down and help with more accurate forecasting, but many key suppliers won't let you do that because of the competition. They don't want others to know what their 'secret sauce' is. Cooperation is a better term," said Jay Reddy, executive chairman of MindFlow Technologies Inc., a strategic sourcing management company.

Whatever the term, more executives are preaching supply-chain visibility and collaboration as the most effective ways of streamlining the chain and measuring its success.

"The only way to measure against the plan is having the visibility into the supply chain process, or it won't respond." said Greg Sowle, vice president of product marketing for Camstar Systems Inc., a leading provider of supply chain software.

"Cable products are constantly evolving so how do operators know they're getting the quality products from vendors?" he asked. Experts insist that visibility, quality vendor and operator relationships and trust in the supply chain system are the answers, experts insist.

"This business turns on a dime, so we need systems, people, and flexible relationships. The old supply chain paradigms don't work," AT&T Broadband's Lewis said.

The new paradigm must include accurate planning and demand forecasting, two crucial components to the new-era supply chain management strategy.

Yet for many companies, that borders on sheer guesswork.

"Baseline forecasts are crucial and accuracy is the key," maintained Andy De, director of solutions marketing for i2 Technologies, Inc., a provider of supply chain management solutions. "But most companies have rudimentary forecasting methods and attain only a 50 percent accuracy in their demand forecasting. So it's crucial to know what a company is holding in their inventory."

TWO BIG TRENDS

Supplies-relations management and strategic sourcing are two of the current trends in supply chain management. Both are designed to streamline the chain by giving vendors and operators a clear view of inventories, future supply and equipment demands and the cost efficient management of every link in the supply chain.

Without them, most experts agree the supply chain is doomed to fail.

"If you don't know where your products or supplies are and the inventory across the network, all disciplines will be affected. If a cable system is building out and the supply chain isn't visible, sales, marketing, finance, customer service and all the other functions will be affected," said AnswerThink's Schementi.

The effect of a dysfunctional supply chain on systems such as AT&T in Dallas and other large MSOs could cut right to the bottom line, a chilling thought for a growing number of operators and vendors.

Concluded AT&T Broadband's Trustdorf: "We needed substantial changes in our supply chain management at all levels. Now, the supply chain function reports to our CFO, who manages the assets and inventory to get maximum use of our investments. We're still challenged by communications and forecasting, but we've saved substantial dollars by doing our supply chain management more efficiently."

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