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A Possible Remedy for Non-responsive Supply Chains

Written By: Predrag Jakovljevic
Published On: March 17 2008

Increasing globalization is leaving manufacturers no choice but to change the way they conduct their business, starting with reorganizing their supply chain processes. More and more, these organizations are opting to streamline their in-house operations by steering their supply chains toward horizontal or virtual integration. But many manufacturers have found that the software technologies designed for the vertical supply chains of yesterday cannot support this growing trend in supply chain management (SCM).

For more information on how SCM is changing for these businesses, please see the first part of this series, Who Could Object to Faster, More Responsive Supply Chains?. For background on the systems (and their inadequacies) that manufacturers have been using to manage increasingly complex supply chains, please see The Need for Multi-enterprise Responsiveness — Can It Ever Be Achieved?.

So What's the Solution Then?

It is clear that complex, global supply chains have become the norm, and managing these networks has forced manufacturers to reexamine their business processes and the accompanying software technologies that support them. At the end of the day, coping with such complexity and unforeseeable changes comes down to accepting a series of trade-offs and compromises that the people involved need to make together at the point of action, based on the best information available.

These days, manufacturers seeking a competitive edge want tools and techniques that enable collaboration, visibility, demand-sensing, quick and judicious response to unplanned events, and so on. By having the right means at the operational decision-making time, an organization can drive significant steps forward in customer service and operational performance within the competitive industrial manufacturing environment. Translated into capabilities, these manufacturers need the following:

  1. The ability to track and manage all distributed supply chain activities in real time from a central location, which is, in industry vernacular, often referred to as end-to-end visibility.

    While forecasts are still necessary for longer-term planning purposes, nowadays, smarter collaborative methods are being deployed to increase visibility down the supply chain. The key concept in modern SCM is visibility of material flows from the supplier end of the supply chain, and of cash flows and demand from the customer end. Visibility-enabling applications are at the heart of managing the extended supply chain because trust cannot be built without reliable information. Unless information is consistent between partners, it will not be deemed reliable. For example, manufacturers want to be able to see when a supplier has begun working on an order destined for them, as they want to know their partner's supply chain issues, in addition to their own.

    Therefore, visibility-enabling applications must present the same version of the truth to each party, and must include methods of keeping the data accurate. Some consider visibility to be the most important factor, since nine-tenths of fixing a problem lies in realizing that it is there. Other applications and persons should be afforded the ability to measure and report on supply chain performance by providing a detailed real-time and historical perspective of events at a granular level. Information that is commonly provided includes customer demand patterns, shipments, order location, lead time, and inventory levels by location. Visibility should also help companies migrate from push to pull manufacturing models, institute vendor-managed inventory (VMI), and introduce new products more swiftly.

  2. A means of analyzing the potential impact of unplanned events and of making quick decisions to preempt any related problems that such events might prompt.

    One way to do this is by authorizing a broad base of users (instead of only a few power users within a single enterprise) to simulate what-if scenarios. This would allow users to gain instant insight into individual customer orders impacted by late supply, for example, so they can quickly understand supply and capacity constraints impacted by any changes in those orders.

    The same what-if scenario capabilities would also come in handy to simulate multiple engineering changes and new product introduction (NPI) scenarios quickly (that is, new components, demand, time frames, order policies, etc.). This would help manufacturers to meet customer and market commitments and to evaluate alternative effective (cut-in) dates with a holistic understanding of the impact on excess and obsolete inventory. It would also allow them to proactively manage global inventory, leading to decreased excess and obsolete inventory, increased inventory turns, and reduced carrying costs.

  3. Methods for collaborating with customers and suppliers in both the planning and execution stages of supply chain processes.

    As organizations become more complex and international, effective collaboration becomes a strategic imperative, since hardly any organization today works within its four walls only (that is, in isolation). Hence, the system has to foster and facilitate the collaborative participation of key players at all levels of the extended supply chain to ensure continuous alignment of supply, demand, capacity, and product.

  4. A decision-making analytics tool that provides input (back integration) into multiple local transactional, planning, and execution applications.

    Where hi-tech manufacturing companies once relied on lofty (often unrealistic) sales goals or hindsight to generate forecasts, they are now moving toward a demand-driven model. Such a model uses more instant feedback from sales channels to provide a clearer picture of what customers actually want, as well as an agile supply chain to execute rapidly when inevitable (sometimes daily) changes in demand occur. Supply chain participants must have direct access to this information as well as be able to instantly model the data to assess and share what-if alternatives. This ability would allow collaborative decision making to be quickly transformed into cross-enterprise action that aligns with corporate objectives of all participants.

Some supply chain aficionados might recognize supply chain event management (SCEM) at the core of the above requirements, given that it entails visibility, collaboration, and exceptions to planned and unplanned events. Contrary to some ingrained beliefs, SCEM applications do much more than simply provide visibility: they allow users to set parameters, based on business rules, that trigger notifications to the appropriate parties when events in the system occur or when exceptions to those events occur. In this way, managers can set workflow-enabled business rules and focus on exceptions instead of sifting through each and every event. As SCEM software continuously collects information from external sources and adds it to the collective business intelligence, decision makers are able to quickly develop an alternate plan by using alert resolution logic.

In addition to the passive visibility that is provided by certain supply chain tools, a full-fledged SCEM suite provides a number of proactive tools to help managers get more out of their ERP and other advanced optimization tools. For businesses to gain greater control over resources, they need continuous visibility of material data and spend at each stage of the supply network. To that end, decision makers can use SCEM to collaborate on controlling the supply network because they should be sharing the same tool set and the same information. Decisions can be made more quickly, and the network can adapt its course in response to real-time events. Therefore, SCEM applications help to mitigate business risk, align processes, and promote and enable collaboration.

According to APICS Certified Supply Chain Professional (CSCP) Learning System; Module 4: Using Information Technology to Enable Supply Chain Management (2007) and Supply Chain Vendor Morphs into SCEM with Response Management Vision, full-fledged SCEM systems provide active and actionable visibility, including the following functions:

  1. Monitoring
    Real-time information on customer demand, shipments, orders, production, fulfillment, and inventory is collected and distributed to each node in the network. The systems monitor past data and transactions from the ERP and other transactional databases, including the current status of inventories, orders, shipments, production, and supply, and even down to the item level.

  2. Measuring
    SCEM systems can use selected key performance indicators (KPIs) to measure events for decision makers, and then compare the measurements to both expected and historical results to improve future forecasts and the decision-making process.

  3. Notifying
    Decision makers can receive exception notifications of events and emerging trends that need their attention via their computer, e-mail, or wireless technology. SCEM applications escalate the priority of items as they become more vital. For example, if a shipment will be short, the purchasing manager will be notified well in advance, allowing for the arrangement of an alternate supplier to substitute the short shipment without causing a costly work stoppage.

  4. Simulating
    SCEM suites include simulation tools, or what-if scenario testing, to determine the effect of actual or projected events occurring in the network. The system can assess what will happen if specific events occur and recommend what action can be taken, based on optimization methods, encapsulated formulas, and so on.

  5. Controlling
    Decision makers can change a prior decision based on results. Timely notification and consistent, detailed information allow for better understanding of why an event occurred, not just that it occurred. Having the ability to cope with multiple application workflows, the control ability lets a decision maker proactively change a previous decision, such as diverting a shipment or expediting an order.

In summary, only by using all the above five functions of SCEM can a business leverage passive visibility (i.e., separate, fixed views of information that cannot be integrated or manipulated) to make informed decisions and to take appropriate action. Providing information does little good without allowing the capability to do something with it. In other words, information is useful only when it can be 1) consolidated for a shared multi-enterprise view across the complete supply network (collaborated on with parties internal or external to the organization), and 2) analyzed using real-time analytics and data modeling for what-if scenario simulations.

This is part three of the five-part series Who Could Object to Faster, More Responsive Supply Chains? Part four introduces a response management pioneer that may have the answers for today’s manufacturers’ supply chain woes.

 
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