Supply-chain event management is dead. Long live SCEM. This much-hyped technology that for the last three years has promised to provide end-to-end supply-chain visibility and control is now in the midst of a top-to-bottom renovation. This rebirth, which will no doubt include a new designation, is happening just in the nick of time. Earlier this summer, Gartner Research declared that SCEM is at the very bottom of a "trough of disillusionment" among users and is becoming "obsolete before it plateaus."
"The reason for these negative comments about SCEM is not that we think these capabilities are unimportant," says Karen Peterson, Gartner's vice president and research leader for supply-chain management. "Real event management is extremely important, but the original applications just never delivered on their hype. At the same time, the basic visibility and alerting functions of stand-alone SCEM applications are rapidly being absorbed by other supply-chain applications."
Early SCEM solutions lacked business context, according to Peterson. Users just received a tool set, and it was up to them to build it into their business processes.
"Event management was simplistic and usually consisted of e-mail," says Peterson. "It was up to the user to handle the problem manually. Companies were quickly overwhelmed with repetitious alerts that did little to resolve supply-chain exceptions."
AMR Vice President of Research Larry Lapide, who is credited with creating the SCEM designation, agrees with this assessment. Even though many vendors still sell SCEM as packaged software, he says that SCEM has always been just a set of capabilities destined to be included in larger applications to handle visibility and exception management.
"Unfortunately, the early pure-play SCEM vendors focused too much on the visibility and not enough on problem resolution," says Lapide. "Few of these vendors took advantage of the small window of opportunity they had to create a sustainable business. Their basic functionality is now widely available in newer supply-chain planning and execution applications."
New Vendors Arrive
More than ever, however, there is a need for extended exception management capabilities because supply chains have become globally distributed, outsourced and more difficult to control. To meet this growing need, Lapide says, a new wave of vendors has emerged that offers greatly expanded the capabilities spanning multiple companies and applications.
There is no well-established designation for this new class of solutions, but AMR is using the term inter-enterprise supply-chain coordination (ISCC) because the applications focus on activity between enterprises and systems. They take data from one system, do something with it and pass it to the other system to enable a business process to happen.
Lapide says that there are at least 15 to 20 vendors in this space, including names such as
Valdero, Vizional, V3, Yantra, Optum, Sockeye Solutions, Supply Solutions, River One and Blue Agave, just to name a few. They offer much more than inventory visibility. They support complex business operations such as vendor-managed inventory (VMI) and distributed order management.
None of these applications are the system of record. The applications just coordinate what happens in between to enable a specific business process. All the data of record sits on either the buyer's or the supplier's enterprise systems, which remain focused on what happens within a company's four walls.
These ISCC solutions also can play an important coordination role because each company's data is always a little different from that of their partners, their processes are rarely aligned, and the freshness of the data is never the same.
"Extended supply chains need a platform like ISCC that allows specific business processes to happen based on the data from multiple parties with different characteristics," says Lapide. For example, order management, inventory replenishment and other tasks are not handled the same way at every company.
"When you have this common platform, you automatically have better visibility into data from the other company's systems in a form you can understand," says Lapide.
One such ISCC vendor is Valdero, which has five modules for dealing with dynamic processes such as VMI and multi-tier supplier replenishment, especially for the high-tech industry.
"Manufacturers spend 80 percent of their planning time in doing painfully manual tasks such as expediting orders, dealing with shortages and figuring out if they can fill an order," says Walt Rossi, vice president of marketing for Valdero. "These tasks are so manual, because the information resides in so many different systems that often are not even in the enterprise."
Valdero's modules pull data in from internal and external systems and combine it in a supply-chain-specific data mart that is programmed with rules-based metrics such as days of supply, inventory levels, forecasts or shortage rules. The system anticipates potential problems by running orders through a rules engine that determines which get priority based on margin, revenue or other parameter. The system recommends actions to resolve these problems. The planner either accepts or adjusts the recommendations and them presses the button.
"The key value that we provide is one consolidated picture of the extended supply chain," says Rossi. "Data is automatically pulled in from wherever it exists. There is no longer an endless flow of manually produced spreadsheets and e-mails going back and forth between trading partners to find out the days of supply, just in time to have all the data become out of date."
This new class of applications also adds a level of customization that was missing in early versions of SCEM. According to Gartner's Peterson, each vendor in this space is driven by a specific industry or business process. Each offers application-specific templates, rules-based engines, workflows and decision support tools.
"If a vendor does not have a tight focus and a rich level of customization, they are not in this space very long," says Peterson. "Customers want very specific functionality."
Blue Agave's Active Performance Management suite, for example focuses primarily on consumer packaged goods companies supplying large retailers. It provides its users with pre-defined solutions to 60 to 80 of the most common problems that CPG companies must deal with, including late orders, stockouts, demand volatility, excess inventory and forecast variance from week to week.
One of Blue Agave's major users is Hartz Mountain, the $1.5-bn pet supply company. According to Keith Belton, vice president of marketing for Blue Agave, Hartz Mountain's major challenge was getting advanced visibility on potential stockouts from major retail customers, such as Wal-Mart. Hartz Mountain has used Blue Agave's Active Demand module to identify potential demand-supply mismatches at the product level based on planning data. It will also soon be using Blue Agave's Active Customer module to take point-of-sale (POS) data directly from Wal-Mart's Retail Link system. The module will look at product sales by item at the store level to predict where there may be a demand-supply mismatch in the store three or four days before it happens.
"We are taking vendor-managed inventory collaboration to the next level with real-time visibility at the item level within stores," says Belton.
This level of actionable visibility also allows the user to measure the benefits of the system. "We associate a dollar volume with the lost-sale cost of a stockout, so Hartz is able to measure the additional revenue that our application is allowing them to earn. Our application keeps score as problems get resolved. The user knows exactly how much the system has returned to them."
Blue Agave also has the capability to "round trip" the data, meaning that it will automatically execute the transactions to resolve the problem and feed the updated information back into all appropriate enterprise systems.
"Our customers are not automating the solutions right now," says Belton. "They feel more comfortable just giving their planners a recommendation and allowing them to take the final actions. No doubt we will close the loop for customers in the near future, but the market is not looking for that right now."
SCEM Vendors Reborn
While most of the original SCEM vendors have merged, been acquired or just disappeared, Viewlocity is one that has flourished by reinventing itself. Its purchase last year of supply-chain planning solution provider SynQuest has allowed Viewlocity to weave together optimization algorithms with collaborative exception management. Its applications can monitor orders, shipments, inventories and forecasts against plans. It then predicts problems and fixes them before they actually happen.
"Planners, inventory supervisors and other supply-chain managers need problem solving context to recover from an out-of-range situation, not just generic alerts," says Michael Sherman, executive vice president and chief technology officer.
"We provide the linkages between forecasts, internal capacity, supplier capacity and the ability to fulfill based on real orders," says Sherman, who adds that his company still uses the term SCEM.
Probably because Viewlocity has been around longer than most solutions in this space, it covers many industries. Right now, service parts and logistics are its two hottest markets. The down economy has forced many companies to maintain equipment longer than in the past, so after-market service part support has become a pressing customer need. "Service parts suppliers have a rapidly growing visibility need to match inventory in multiple locations with customer orders.
"The need goes beyond visibility," says Sherman. "Service-parts oriented companies, especially in automotive and high-tech need to monitor their entire network and must constantly react to potential stockouts. This is a natural area for our applications."
Viewlocity will soon offer a logistics component to its SCEM solution that will combine its exception management capabilities with the optimization capabilities to provide inbound route optimization.
"Standard TMS applications provide good plans that optimize based on lowest cost or fastest delivery time, but they don't help much if problems occur after the plan is run," says Sherman.
For example, a TMS system can create an optimized plan for a large consolidation, but if certain orders in that consolidation are pulled after the plan is run, that plan is of little use. To recover, transportation managers either manually attempt to recreate another consolidation or just ship the remaining orders as separate less-than-truckload shipments to keep them on schedule.
"These manual processes are always sub-optimal, and there is rarely enough time to re-run the TMS solution," says Sherman. "Our application spots the problem and re-optimizes a solution to create another consolidation that provides an acceptable solution."
The Viewlocity solution can also automatically alert the customer about the problem and provide various solutions to find out what is acceptable. The customer may not care about a slight delay, so rather than shifting to a higher cost mode, the system can optimize a low-cost solution that meets the customer's requirements.
The large, well-known supply-chain planning and execution players have been adding traditional SCEM functionality as quickly as they can, and are now beginning to add the more advanced functions offered by the ISCC vendors.
Manhattan Associates, one of the largest vendors of warehouse management systems and transportation management systems, for example, also offers a solution called Performance Management that includes modules for event management, analysis and reporting to identify and resolve execution exceptions.
For example, a Manhattan WMS user may want to see if a day's orders are at risk of shipping late. To make a carrier cutoff today at 4:00 p.m., the company would schedule an automatic search to run daily at 2:00 p.m. to see if any orders are still in progress. If the event module identifies such a shipment, it would alert the packing supervisor and tell him to get these orders ready to go immediately.
The Manhattan event management tool also takes alerts from other solutions by setting up a triggering event. For example, if a hot shipment is expected to arrive in the warehouse, perhaps for JIT production need, a scanning action from another system, even that of a carrier can provide the trigger for an alert that will tell the appropriate person that the shipment has arrived. The triggering system just needs the ability to produce a message in extensible mark-up language (XML), so it can be patched into the Manhattan events module.
Like most ISCC applications, Manhattan now also allows companies to poll databases outside its four walls using a solution called Trading Partner Management. If an order cannot be fulfilled with inventory in its own warehouse, Trading Partner Management provides visibility into the warehouse of a supplier or distributor to determine if the orders can be filled.
Mathew Rife, Manhattan Associates' product manager for the Performance Management suite says that customers definitely want SCEM functionality for better visibility, event management, exception reporting and analysis. Even though the new wave of ISCC vendors is developing additional capabilities, he believes that Manhattan's aggressive expansion of its SCEM capabilities will be an advantage in competing with the pure-play.
"Just about every request for quote we receive includes a requirement for some form of SCEM," says Rife. "As soon as they learn that our Performance Management suite includes all of these functions, we tend to win the business. Customers want to have as few IT vendors as possible. They want to streamline the implementation and integration process with a single vendor."
According to AMR's Lapide, this desire for IT simplification will become an increasingly strong decision factor in this burgeoning marketplace.
"Right now, the enterprise applications are still primarily four-wall oriented, and the new pure-play ISCC vendors have a functional advantage," says Lapide, adding that this window of opportunity won't last more than a few years.
"The big supply-chain application vendors are going to be building out their software to incorporate these ISCC capabilities," says Lapide. "This market is too important for them to ignore."
|AFC Builds a Pipeline to Its Contract Manufacturers
|Advanced Fibre Communications (AFC) is the second-largest provider of broadband access equipment for the volatile global telecommunications industry. AFC has gained its market leadership in this difficult market in part by outsourcing its production to contract manufacturers (CMs) that can provide technological innovation and cost advantages, but this approach has also presented supply-chain challenges.
With no visibility into AFC's real demand and production plans, CMs still make commitments that result in excess and obsolete inventories for some products and shortages for others.
"It was a game of blind-man's bluff," says Jeff Rosen, AFC's vice president of operations. "Each month, we would spend hundreds of man-hours going through big spreadsheets to validate each line item. It was all historical, so we were just reconciling data, not responding to our supply-chain needs."
When AFC had to take a $35m inventory write-down about two years ago, the company decided to invest in a real-time supply-chain execution and visibility system from Valdero that would provide visibility and control over its CMs and suppliers. AFC is now connected in real time with five CM sites in Asia and with numerous component suppliers. It also has visibility into its own shop floor where final assembly and test for work are done. AFC has visibility into what is being built and bought on its behalf by CMs and has direct control over what parts and components are short or in excess and is able to react to these situations in real time.
The Valdero system combines inventory data from the CM sites with AFC's own ERP system. The application rationalizes internal and external supply against demand for the supply chain. Each buyer for the specific components involved has a personalized view and can manage inventory levels by exception. Managers can have full visibility to inventory positions and forecast consumption, excess and obsolete inventory levels, inventory turns and aging, days of supply on-hand and on order and forecasting accuracy - all in real time.
If demand softens unexpectedly, potential excess inventory is identified immediately so the CM can be directed to avoid it. Likewise, if an upswing occurs, shortages and delays are flagged so that components are allocated to orders and new purchase orders can be issued to meet demand. If there is an excess at one CM, components can be directed to another experiencing shortages.
"We now have a pipeline between us and the CM, so we pass formatted information," says Rosen. "As soon as a CM commits to a delivery through the Valdero system, our ERP system is updated so we can make available-to-promise commitments to our customers."
Since introducing Valdero a year and a half ago, Rosen says, AFC's inventory turns have increased 2.25 times. Excess inventory has been cut 95 percent. Just as important, AFC has gained competitive advantage by having only the most up-to-date products in stock and by being able to commit accurately to customer orders.
AFC staged the implementation starting with its three largest CMs and major component suppliers that accounted for 60 percent of its most complex lead-time situations. AFC is now connected with all of its major CMs and suppliers to the point that it is covering 80 to 90 percent of its spend.
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