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Implementing supply chain management abroad raises tricky issues

Introducing SCM software to manufacturing facilities in developing countries is no small task. Industry experts offer their advice for dealing with technological and cultural barriers.

For many manufacturers, supply chain globalization is a fact of everyday life. Expanding operations into other countries is a common way to increase business, but there can be growing pains. One of the biggest challenges of running global supply chains is implementing supply chain management software in developing countries. Besides a myriad of technological obstacles, manufacturers must learn to navigate cultural waters in their new operations.

The most immediate issue is software compatibility between the home office and the new facility. According to William Newman, managing principal at Newport Consulting Group LLC (Clarkston, Mich.), management-system governance and recordkeeping are two problems that arise with manufacturing in developing countries. “Assuming infrastructure is available, goods and services -- the basic logistics -- generally are not an issue,” Newman said.

“Management systems and the ability to govern those and to demonstrate a log of transactions to support what is happening can prove to be a challenge,” Newman said. “Global systems with enterprisewide governance requirements will still need to tie into headquarters and the full, transparent supply chain.” 

Global supply chains require some creativity
When a manufacturer’s home office and a new facility are very far apart, handling suppliers, shipping and logistics can get extremely complicated. One approach to reducing the chaos, according to Newman, is to “truncate” the supply chain.

“ABC Company might have operations in Vietnam, but rather than own the operations, it will lease the manufacturing from a supplier who then manages the local supply chain on a tier-two level,” he explained. “This means that the internal supply chain governance and reporting requirements for ABC Company stop at the Vietnam plant, and the Vietnam plant is then responsible for the logistics, governance and reporting to and from the local supply chain into the plant. This removes many software requirements, as long as the plant can correspond to the enterprise via very traditional means, such as EDI and XML. Then ABC Company can retain the responsibility of overseeing logistics and management systems, rather than a complete internal data governance role.”

Language, currency and compliance discrepancies are other common hurdles in global supply chains. Julie Fraser, principal industry analyst and president at Boston-based Cambashi Inc., sees this as an issue that mostly affects small and medium-sized businesses. “Bigger companies tend to work with software providers that have software that is available in many local languages and currencies,” Fraser said. “Local regulations are a big issue and can range from labeling requirements to local content requirements. Midsize companies that are expanding into emerging countries often have older software that doesn’t cut it.”

When selecting SCM software for operations in a new country, flexibility is critical. “You need to have local currency show up, so people can make financially intelligent decisions,” Fraser said. “Global trade management changes as regulations change in countries. You need to have all global trade rules saved in a system that is constantly updated with locales you ship from and to. Some suites have it built in; some don’t.”

While implementing the same software across the global supply chain may seem easiest, this isn’t always the best approach. “In some scenarios, standardization is impossible,” Newman said. “In a prolific post-merger environment, a long-term roadmap to standardize software is often the best you can hope for. Many very large enterprises may focus on one target platform and have a dozen different versions of the software running on multiple instances throughout the organization. This is more the rule rather than the exception for very large, global enterprises.”

Another recurring challenge with implementing SCM in developing countries -- or really, any country in a different time zone from the home office -- is ensuring that all users have access to data when needed. Fraser advises manufacturers that are facing this issue to develop a 24/7 IT infrastructure in the cloud.

“Companies are thinking about how to run a central version or have some sort of extension into the system that runs into the cloud, where anybody can access it,” she said. “When you’re in the cloud, you don’t have those issues where systems have to be taken down for maintenance at night, which may be day in another country.”

Keep culture, people in mind
Technology isn’t the only aspect of introducing SCM to a facility in a developing country. According to Fraser, respecting cultural differences -- as well as respecting the methods of existing IT staff -- is just as, if not more, important.

“For companies that are established in one locale and expanding, one of the keys to success is being able to share knowledge. When there’s no overlap in workdays, it can be a big challenge,” she said. “You’ve spent years tuning your supply chain strategies, so how do you get your new locale up to that level?”

When there is a large language barrier, some companies send a representative to new facilities to share knowledge and assist in translations, said Fraser, but she cautioned that this is only a short-term solution. “If you don’t have software that can do the translation, then you may need to actually go and buy a system separate from your core ERP system to serve this location,” Fraser said. “On one hand, yes, you want to have a unified view across the organization, but if you expect this new operation to be successful, they need to not have to rely on the few people who are fluent in English there.”

Often, new manufacturing facilities are the result of an acquisition or a merger, and these facilities may have an IT staff -- and an IT management culture -- already in place. According to Fraser, this is one of the most difficult scenarios to navigate. “You need to come to a consensus with the team about the software and processes that will be helpful to them. The idea of winning over the locals is important,” she said.

While it may be tempting to try to shoehorn the IT management practices of the home office into a new facility, Fraser advises against it. “In older, semi-manual systems, there will be a few experts who keep the place running and will be threatened unless you take an approach where you say ‘OK, you’re the experts, we want you to be successful as part of our family,’ ” she said. “Really pick their brains over what would be the best approach.”

Fraser stresses that people are the key to success in developing supply chains. “You need to give them credit for the success they’ve been having. Respect that and have somebody with cultural understanding help you through that process. Otherwise, you could lose people who you could have easily won over if you had known how to communicate with them.”

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