High tech machinery in a manufacturing warehouse.

August 13, 2018

The Role of Technology in Supply Chain Management to Cut Costs

Several years ago, edible oil importer BMA USA, Inc. found itself forced to turn down business because it had reached the limit of its packaging capacity.

With just one semi-automatic line that sealed, capped, labeled and boxed its bottles of olive, avocado, grape seed and specialty oils, the small California company was unable to pursue larger retail customers.

Then, after going through a careful planning process three years ago, BMA purchased two new, fully automated lines, boosting capacity by a factor of eight — a change that allowed the firm to cut order processing by days, lower prices, import more oil, increase sales and profits, and move distribution beyond small regional grocers to target large chains.

“We just started thinking about being nationwide instead of local," said founder James Deeb, who owns the business with his wife. “We have the same name as we used to 20 years ago, but we are a different BMA from the last three years to now."

BMA is hardly alone in experiencing a business transformation because of advances in supply chain technology. While the oil importer invested nearly $1 million in its new packaging lines, low-cost, cloud-based software and other revolutionary supply chain technology is giving rise to new businesses and reinventing others across multiple industries.

Transformative Tech For Any Business

Smart trucks, manufacturing robotics, online freight marketplaces, cloud-based inventory management systems and big-data analytics represent several of the advances comprising the flourishing supply chain technology space.

“During the past five years we've had a major change in what is available for companies to potentially seek out and leverage. The advent of cloud computing and less expensive big data processing has resulted in broadened access to solutions," said Jake Barr, CEO and principal of BlueWorld Supply Chain Consulting in Nashville.

Until a few years ago, businesses that wanted supply chain software to run parts of their operations needed to install costly, “old-world" on-premise or on-site solutions, he noted. Cloud-based software has changed that, offering cost savings, flexibility, real-time data, the ability to quickly scale, and instant access from almost any remote device, among other benefits.

“Obviously small businesses have investment constraints so they don't have a lot of capital to spend and every dollar is precious," Barr said. Previously, owners had to decide if they wanted to deploy $30,000 to $100,000 in capital to buy and install software rather than making other important investments, like building a new plant, expanding distribution or acquiring a brand. “It was a really tough tradeoff," he said.

“The paradigm in the past has been when you're a small business owner, you delay an investment in the operation as long as you can," Barr said. “That really isn't the case today. You can be a very nimble small business owner today and take on the Goliaths very efficiently."

He cited several relatively inexpensive cloud-based subscription solutions with various supply chain functions: Microsoft DynamicsInforLogility and Salesforce.com.

All four players offer solutions to help manage assembly, packing and shipping, Barr said. “The cost of entry for a small player to efficiently compete against a big player has actually gone down" because of access to software-as-a-service, or cloud-based solutions, Barr said.

The Gartner research firm reported that adoption of supply chain management software accelerated last year, with revenue growing nearly 14 percent to $12.2 billion worldwide. Cloud offerings are driving market growth, and smaller "cloud-native" vendors increased revenue by an average of 41.4 percent, the firm said.

"Cloud solutions typically have lower barriers to entry and are more easily scalable, and are therefore a better fit for midsize organizations looking at SCM for competitive advantage," Gartner research director Balaji Abbabatulla said in a release.

Artificial intelligence built into supply chain software can improve productivity and user experience, he added.

Businesses need to lean in to the technology, BlueWorld's Barr said, “because it's become so effective and efficient that it can help you accelerate your margin improvement."

The rise of online retailing has put pressure on companies to respond quickly, which is difficult when you have little to no technology in-house and you're using spread sheets and other manual processes, he noted.

“The emergence of e-commerce has really been a tipping point to get small business owners to do more process automation than they have in the past," Barr said.

“Because of that, and again what's happened on the cloud front, you've got a host of very capable players who can help to transform the way a small business gets set up and running. In many ways, it's created an advantage for a small business versus larger counterparts when leveraged well."

Fortune 100 companies are following the same path to cloud-based solutions because they lower unit operating costs, he noted.

Cloud-based software is only part of the supply chain tech revolution.

Other innovations, like 3D printing technology, allow companies to make components inexpensively with a computer and printer rather using overseas factories, Barr noted.

Robotics and warehouse automation result in better production lines or conveying systems, even for small businesses, with technology becoming cheaper, smarter and more efficient. “The level of automation is indexing up but at the same time the unit cost is going down," he said.

Hermine Chobanyan, City National Bank senior business relationship manager, said she's seen supply chain technology progress across industries. “They have to stay competitive when it comes to logistics," she said. “Technology is very important."

Measuring ROI In Cost Savings

Companies measure their return on investment in terms of cost savings, which allow them to fulfill more orders and fill them faster, Barr explained. Most savings are operational in nature – reducing personnel costs and the cost of logistical processes such as order handling, warehousing and distribution.

Better fulfillment rates mean more revenue and margin for the business, Barr noted.

Oil importer BMA, lacking a larger customer base, didn't see much change in the first few months after it implemented its new, automated production lines. But over the next three years, sales increased by 25 percent. BMA hopes to at least double sales in the next two years.

Deeb said he took nearly three years to prepare for the investment, visiting three packaging trade shows and hiring three consultants to handle different phases of the project. He also consulted with Chobanyan, his banker at City National, which financed the equipment.

BMA's in-house engineer oversaw the installation and helped train workers how to run the machinery, Deeb said.

Businesses using cloud-based software can tap a vendor's consulting arm to help with setting up new processes, or use online tutorials or the vendor's partners to handle training, Barr said.

And purchasing decisions needn't be difficult.

“Technology selection is often viewed as difficult but isn't. It's important to understand how you want the business to operate," Barr said. That means prioritizing how quickly to serve a customer, or how rapidly to turn an order into production, distribution or material requests to a supplier.

“From there," he said, “a very simple road map versus current capabilities can be built to create a 'crawl – walk – run' game plan to deliver on the business goals."

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This article is for general information and education only and was compiled from data and sources believed to be reliable. It is provided as a courtesy to the clients and friends of City National Bank. The Bank does not warrant that it is accurate or complete. Opinions expressed and estimates or projections given are those of the authors as of the date of the article with no obligation to update or notify of inaccuracy or change. Unless otherwise stated products or software discussed, if any, are given as examples and are not recommendations by the Bank. This article may not be reproduced, distributed or further published by any person without the written consent of City National Bank. Please cite source when quoting.

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