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Filling the Black Holes in Your Supply Chain

Outsourcing. Multi-tiered supply chains. Shrinking product lifecycles. SKU proliferation. Incompatible information systems. Is it any wonder that companies are still losing track of goods as they make their way to market?

For all of the technology promising "end-to-end" supply chain visibility, there remain a number of "black holes," where shipments simply drop out of sight for a time. Years ago, businesses might have tolerated such gaps as the natural by-product of complex, global operations. Today, they don't have that luxury. Efforts to slash inventories hinge on the ability to track product in transit every step of the way.

In recent years, North American companies have stepped up the outsourcing of manufacturing to offshore vendors, especially in China. The trend has increased the number of partners in the supply chain and the distance between them. At the same time, sellers of finished product have sought to widen their markets, adding new customers into the mix.

"In the past, you could have managed an efficient supply chain just by focusing on a small set of suppliers and customers," says Nari Viswanathan, vice president and principal analyst with Aberdeen Group. "That's very difficult to do now."

Black holes tend to appear "on the edge of enterprises," Viswanathan says. Any time that raw materials, production parts or finished goods change hands, there is the potential for a loss of communication. Yet many companies attack the problem exclusively through internal programs, such as pricey enterprise resource planning systems. They aren't looking beyond the organization's walls, to where the gaps are actually occurring.

What's needed, Viswanathan says, is an underlying information system that links disparate applications across multiple partners. The emergence of the software-as-a-service (SaaS) model is a positive step in that direction, he says.

Physical goods aren't the only things that are getting temporarily lost in the shuffle. Supporting data and financial flows can also be difficult to monitor, says Aberdeen research analyst Viktoriya Sadlovska. Aberdeen's own studies have revealed a particular lack of visibility in the areas of trade-document flow and costs that occur on the financial side.

"A lot of companies have a very vague idea of where those costs are accruing and being incrementally added," Sadlovksa says. "They're trying to find ways of reconciling their front-end cost estimate with back-end balance sheet results." The problem is likely to become even more acute with recent implementation of the "10+2" filing requirements of U.S. Customs and Border Protection. The new rule adds data elements that must be reported to Customs prior to an import shipment being loaded at the port of departure. But it doesn't suggest how companies can achieve the additional visibility.

Information or Inventory?

Black holes disrupt the precise timing that is necessary for keeping pace with customer demand, says Terry Harris, managing director of Chicago Consulting. "The single most important lack of visibility in a supply chain is knowing when a specific item will be ordered," he says. Lacking such knowledge, companies must carry extra inventory, which weighs down the balance sheet.

Having good visibility means coping with a number of "invisible" issues, such as carrier reliability, efficiency of order-picking processes and, most of all, correct forecasting of demand. Such intelligence can only be obtained through close collaboration with supply chain partners and customers, Harris says.

The other key element in achieving total visibility is knowing the status and nature of standing inventory, according to Harris. In theory, this should be the easier goal to achieve, as it involves knowledge of an existing reality. But inadequate business processes often stand in the way. A vendor might have failed to ship a full order, without informing the consignee. Basic standards could also be lacking, with supplier and customer classifying parts and finished product in different ways.

Companies need to understand what those invisible issues are costing, both in overhead and lost sales, says Harris. They should make a point of dealing only with suppliers that have product on hand and can ship it as quickly as possible.

Suppliers, for their part, must be up-front about any back orders or missed shipments, instead of scrambling to correct the problem before the customer finds out about it.

The same lack of communication exists between sellers of finished products and their ultimate buyers. Even in the age of the internet, many companies continue to operate with paper-based systems, says Richard Yim, vice president of product marketing and services with San Francisco-based SmartTurn. They don't necessarily inform customers about what's available or is being shipped.

Small and medium-sized businesses are in particular need of systems that can report the status of orders in real time. "Not having visibility to stock levels creates the need for a high level of safety stock," Yim says.

Merchandisers can no longer afford to attack the problem by flooding the channel with product. "Push-based" systems, in which supply levels are dictated by guesswork instead of actual knowledge of demand, don't meet today's need for mass customization and shorter product runs. Says Yim: "We have to expose the dark spots."

SmartTurn's Inventory Grid, a remotely hosted warehouse-management system, allows for the sharing of information across multiple applications and facilities. Data can be entered in a variety of ways, in line with the sophistication of each partner's technology platform, according to Yim. In the process, a company can understand for the first time which raw materials it is actually using, and eliminate the waste.

Redefining Visibility

In recent years, the whole definition of visibility has changed. It used to mean receiving confirmation via electronic data interchange (EDI) that a purchase order was shipped. Now companies want the ability to track that order from door to door, says Scott Fenwick, senior director of product strategy with Manhattan Associates in Atlanta, Ga. Sellers of fashion apparel go further than that, insisting on monitoring key aspects of the manufacturing process, such as style and color. Still, with the use of so many different tools across partnering organizations, the formation of black holes is inevitable.

Almost perfect isn't good enough, says Fenwick. He cites the example of a Manhattan customer that achieved 95-percent coverage of product in transit. Because the system lacked visibility 5 percent of the time, it wasn't trusted at all by internal users, who refused to use it.

"Just getting the data is not the complete challenge," says Fenwick. "If you're not looking at your organization from a change-management perspective, you're not going to get the benefits of visibility. Projects are not going to go forward."

Complexities often emerge in the course of shipment. Another Manhattan customer was tracking containerized shipments across the Pacific into the Port of Long Beach. It knew the contents of containers down to the case level. But once they got to the port, the orders within each box were divided into two trailers by the deconsolidator. The consignee didn't knew the precise contents of each truck, or when they would arrive at destination.

The solution, says Fenwick, lay in creation of a centralized Web portal, into which multiple logistics vendors were required to input status information. Such a tool can be especially useful when supply chain partners lack fully integrated information systems.

Tom Kozenski, vice president of strategy with RedPrairie Corp. in Waukesha, Wis., divides supply chain black holes into three broad categories: inventory, labor and shipments in transit. In the case of inventory, he notes that gaps in visibility can occur even within a single warehouse. (A company might do a good job on the receiving end, but lose track of product when it moves through the facility and gets mixed together with other items, he says.) Throw in the many tiers of a modern-day supply chain, and the challenge becomes even more daunting. Upstream supply chain partners might balk at the notion of using advance shipment notices (ASNs), for example, if they don't want to spend the money to acquire that capability.

On the labor side, visibility is often lacking from a planning and forecasting standpoint, says Kozenski. Companies fail to establish the standards needed to link planning with execution, making it difficult to determine whether a workforce was deployed in the most efficient manner. The problem applies to labor in the warehouse, at manufacturing plants and on the road. A lack of visibility in any of those areas can disrupt the entire chain and take its toll on customer service.

In the area of transportation, a consignee must know whether and when a shipment has been picked up, what's on the truck and whether it will arrive on time. That level of awareness requires the tracking of product through multiple hand-offs. "Otherwise, when you open the back of the truck, you never know what you're going to get," says Kozenski.

The Human Factor

Disparate systems are indeed a cause of black holes, says Neil Smith, chief executive officer of Savi Networks. But people are equally at fault. "A good many of our customers have been relying upon systems that are populated and driven by manual input," he says. "Human intervention leads to error."

Many companies, including logistics service providers, are having trouble achieving even basic levels of visibility. Freight forwarders often employ individuals solely for the purpose of tracking down containers, Smith says. Black holes occur at every step-between ports, on land and even in the "final mile" before delivery to the ultimate consignee.

"Typically on an end-to-end ocean container move, there can be more than 20 parties involved in the transaction," Smith says. "There's certainly no IT system today that is capable of pulling together all of these very separate systems into one single platform."

Savi's solution is the deployment of electronic tags on containers and other equipment, using radio frequency identification and global positioning system technology. The devices allow shippers to track boxes throughout most of the supply chain, although transmissions usually cease during the time that a container is at sea, buried deep within the hold of a ship. Even then, the tags are constantly monitoring conditions within the container, so that alerts can eventually be transmitted if the box exceeds thresholds of heat, humidity and shock, or if tampering occurs in transit. Information stored on the tags is tied to the vessel manifest, so that shippers know what's in the container down to the SKU level.

Even the most accurate data is of little value, however, if supply chain partners aren't willing to share it on a consistent basis. The flow of critical shipment information tends to be "highly intermittent," according to Chris Jones, executive vice president of solutions and services with Descartes Systems Group in Waterloo, Ont. As a result, consignees find themselves unable to nail down arrival dates for incoming goods. The acronym "ASN," Jones jokes, often stands for Already Shipped Notice.

Part of the problem lies in the buyer's failure to define clear expectations about the performance of suppliers and logistics service providers, then measure those vendors to ensure that information is being obtained in a timely manner. "If you don't get the basics down," Jones says, "any of the more advanced things you can do won't have that much benefit."

Supply chains need to account for the varying sophistication of information systems, he says. An electronics manufacturer could be running a state-of-the-art assembly plant, complete with real-time event-management systems. Meanwhile, an upstream supplier is operating with little more than a Web browser and a fax machine. Other vendors might be deploying legacy systems that operate in batch mode, delaying the receipt of data.

"You have to be able to collect the data when they [suppliers] have close to no technology," says Jones. Descartes offers multiple-choice "e-forms," which suppliers can fill out and easily enter into the network. In addition, faxes and phone calls can be turned into standardized EDI messages.

A Promise Unkept

Black holes of information within a multi-tiered supplier base prevent companies from making accurate promises to their customers, says Warren Sumner, general manager with Austin-based ClearOrbit. In the end, they force sellers to resort to expensive airfreight in order to meet delivery commitments.

One customer of ClearOrbit wasn't aware of its supplier's excessive reliance on expedited transportation until it got the bill-months after the product was shipped. "We found that the supply base had no incentive to manage to those service-level agreements," Sumner says. "They were expediting all the time."

The supplier was using a lack of real-time visibility to cover up its inefficiencies. Often it's in the supplier's interest to ship product as late as possible, Sumner says, especially in cases where the buyer is paying the freight. What's needed is an "overlapping" reporting system, ensuring that each partner in the chain performs according to standards that were established from the outset.

The ClearOrbit system created "a firm electronic handshake," where the supplier agrees to fulfill the order in the time required, says Sumner. "As they move into the delivery window, the supplier logs in the level of freight that was used to ship the order." It is not permitted to expedite a shipment without prior approval from the buyer. Within a month of implementing the ClearOrbit software, Sumner says, the customer saw a 50-percent drop in expedited freight.

Some companies, especially larger organizations, have sought to end supplier misbehavior by tightening control over their inbound freight programs. Others continue to rely on suppliers to select the carriers, book transportation and pay the bills. Such a practice is common in the alcoholic beverage industry, says Stephanie Miles, senior vice president of commercial services with Amber Road in East Rutherford, N.J. These "deliver duty paid" (DDP) arrangements can lead to a frustrating lack of information about shipment due dates. They also make it tough to know whether a freight forwarder or supplier is booking with the customer's preferred carriers.

Miles cites one case in which the order lead-time variability for a particular product ranged from 30 to 275 days. The gap was narrowed through deployment of a Web portal, combining accurate data on procurement, logistics and compliance processes. The technology gave the customer real-time insight into its upstream supply chain, and reduced the need for safety stock.

Lack of visibility also occurs in the area of international trade compliance, and the price of errors there can be high. Miles says it's vital for importers to know whether their suppliers are correctly classifying goods according to the Harmonized Commodity Description and Coding System. "Often it's where the beginnings of problems with Customs start," she says. Companies need to monitor documentation with the same diligence as they do physical shipments.

How to Offset Risk

Given the red tape promulgated by regulators, that can be a difficult task. But many of the risks inherent in global supply chains can be offset through visibility and proper planning, says Jon Chorley, vice president of supply chain management product strategy with Oracle Corp. in Redwood Shores, Calif. The secret lies in modeling the various tiers of the chain in sufficient detail.

"You need to work with your suppliers and their suppliers to establish a level of granularity and frequency of information that's appropriate to your planning process," Chorley says. A supplier's ability to provide the right data should be a key issue in the contracting and selection stage.

Proper inventory management can serve to mitigate risk that arises from a lack of information. But it can only be achieved if the company has visibility into such factors as demand volatility and the health of suppliers, Chorley says. Black holes can form at those higher levels of planning as well.

Steve Hensley, president of Blue Sky Technologies Inc. in Coppell, Texas, says many visibility problems begin closer to home. Companies find themselves saddled with incompatible data systems as the result of acquisitions. Information has to wend its way through a maze of internal applications for warehousing, inbound and outbound transportation, and order management. "Between each of these applications you get a black hole," he says. "There's nothing that really tracks the whole process."

Blue Sky's approach was to build an application that sits atop existing systems and manages the flow of data between them. It features a management dashboard which alerts managers to any discrepancies that might occur.

In the end, it takes smoothly flowing data to plug black holes in the complex process of manufacturing, warehousing and distribution. Hensley likens the challenge to that of driving a car: "You get in. You turn the key. And before you drive off, you don't want to have to open up the hood and check that the engine's still there, and that everything is working."

Aberdeen Group,
Blue Sky Technologies,
Chicago Consulting,
Amber Road,
Manhattan Associates,
Savi Networks,

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