Supply-chain visibility used to be desirable. Now it's essential. The need to keep track of products and information, from procurement through delivery to the customer, has never been greater.
The reasons are largely beyond the control of supply-chain managers. In the post-9/11 era, security concerns are paramount. Regulators want to know exactly what's in a container, when and where it was loaded, who supplied the contents, and whether the shipment remained secure throughout its journey. New accounting rules, enacted to combat corporate fraud, require companies to keep better records than ever before.
Business trends are also driving the need for heightened visibility. The spread of outsourcing has introduced additional partners into the supply chain, complicating efforts to obtain timely and accurate data. Globalization has stretched supply lines and created new headaches, in the form of distant vendors and wide variances in the sophistication of systems. And ever-increasing cost pressures are forcing companies to do a better job of managing expensive inventories. Here, then, we offer 10 best practices to help supply-chain executives reach the next level of visibility.
1. Clearly define why you need visibility. The idea seems like a no-brainer; everyone wants to do a better job of monitoring goods from cradle to grave. But what's the precise objective? Many companies express a desire for visibility without identifying the benefits to be gained, says John Murphy, director of product marketing with Shelton, Conn.-based Global Logistics Technologies Inc. (G-Log). They end up realizing few if any benefits at all.
Family Dollar Stores, a G-Log client, has vendors all over the world. It specified a need for visibility to purchase orders from all sourcing locations, traveling inbound to its distribution centers. It also wanted global visibility of both inbound P.O.s and outbound customer orders in a single system. Previously, the company had only a vague idea of when an order was shipped, what it contained and which carrier was handling it. Today, through tighter communications with suppliers, Family Dollar knows what's in the pipeline. It closely monitors vendor compliance, and ensures that the lowest-cost carrier is being used on each lane.
2. Don't just automate - optimize. Along with visibility comes information. And to many companies, "whoever has the most data wins," says John Clark, director of marketing for Provia Software in Grand Rapids, Mich. That can be a dangerous notion. A top warehouse management system (WMS), for example, might do a good job of automating a company's operation, "but you may have automated chaos," Clark says.
The problem is that multiple systems, individually of great value, can end up clashing with one another. The WMS might be good at sequencing waves of orders, yet fill up the loading docks too quickly for trucks to handle them. A transportation management system (TMS) might call for the reloading of a truck to maximize scheduled stops, with negative ramifications on warehouse efficiency. A high-level optimizing tool, says Clark, looks at all applications that provide some form of visibility, and generates the best solution according to the system's overall constraints.
One customer of Provia, a large retailer, creates a daily master plan for each lane segment according to its manufacturers' constraints and order configurations, allowing it to make changes, such as adding labor, shuffling orders or expediting shipments, as needed.
Murphy cites the example of Du Pont, which eliminated six days of inventory by combining visibility with intelligence, allowing it to do things such as combine shipments placed by different divisions with the same vendor. In the process, it created more cost-efficient containerloads.
3. Get your own house in order first. Collaboration with supply-chain partners is the ultimate goal, but a company must first be sure that its own visibility systems are running smoothly, and generating accurate data for forecasting. In order to outsource manufacturing, Alcatel had to undertake a complete business model redesign, says Jonathan Colehower, vice president for applications marketing with Oracle Corp. in Redwood Shores, Calif. Contract manufacturers had to be linked to a system that could accommodate multiple organizations, giving them direct access to Alcatel's core enterprise resource planning software. Only then could the company ensure true visibility with its upstream vendors.
One Provia client went live on the vendor's WMS without first having done a physical inventory, Clark says. As a result, the system generated accurate data that the warehouse thought was "dirty." A formal inventory was required in order to solve the discrepancy.
Data integrity is a key issue. According to Paul Donnelly, director of marketing with Atlanta, Ga.-based Viewlocity, inaccuracies exist in 20 to 40 percent of all supply-chain data. "That's going to kill you in an event-management or visibility scenario." Viewlocity is preparing a new release of its software which will permit data cleansing, he says.
Companies should live by the "garbage in, garbage out" rule, says David Smith, director of product strategy with BridgePoint Inc., Cary, N.C. The same goes for data obtained from supply-chain partners, including providers of outsourced services. Some industries have a 30-percent turnover in partners every two years, making it tough to maintain data quality. "You've got to be vigilant, and monitor [the data] at all times," Smith says.
4. Extend visibility beyond logistics, into production. Virtually all retailers, distributors or original equipment manufacturers (OEMs) have some level of communication with core manufacturers as to what's on the assembly line, and when it's due to arrive. But few have systems that are good enough to support a true build-to-order supply chain. Yet that's exactly what top companies are seeking, in a bid for customer loyalty.
In the automotive sector, both Audi and Volkswagen are granting customers visibility into their production cycles. The building and delivery of cars can be tracked online. The system doesn't fulfill the distant (and perhaps unachievable) dream of a five- or seven-day car, but it does give buyers confidence as to when they will receive their vehicles. "They're willing to wait, but they didn't like not knowing when the wait was going to end," says Carlos Alvarenga, managing director of the lead operations management practice at BearingPoint in McLean, Va.
A similar degree of visibility must exist between OEMs and their suppliers. Seagate Technology LLC, a maker of disk drives and other data-storage devices, can quickly relay information on demand changes to its manufacturers. Alterations in production can be made within a day or two, versus the standard time of four to 16 weeks, Alvarenga says.
5. Use visibility data to promote quality and efficiency throughout the supply chain. UPS was one of the first logistics providers to offer detailed status information on shipments in transit. But the data can serve a larger purpose than merely indicating where a package is, says Jordan Colletta, vice president of electronic commerce marketing with UPS in Atlanta. His company uses specific details about shipments to model and project workloads within its own operation. The same information, compounded as a shipment moves through the pipeline, ends up in the handheld computers which accept delivery signatures and close out the package.
Even more important is the ability to use visibility data to improve a partner's supply chain, says Matt Armanino, senior vice president of corporate development with Santa Clara, Calif.-based WhereNet. Ford Motor Co. deployed WhereNet's location software at more than 50 plants worldwide, allowing it to solve discrete problems at the plant level. But Ford was also able to share information with its suppliers, optimizing delivery sequencing and cutting down on logistics costs. The availability of real-time data made possible the implementation of a just-in-time system for parts moving into the plants, instead of the pre-arranged delivery of items that end up in storage until they're needed.
6. Use visibility data to support strategic planning. Good visibility allows a company to engage in multi-echelon demand planning and forecasting for any aspect of its operation, such as a production site, says Karin Bursa, vice president of marketing with Atlanta-based Logility, Inc. Also key is the value of visibility to an effective sales and operations planning (S&OP) process. Now gaining ground in the executive suite, S&OP allows companies to make tradeoffs according to constraints in supply. They can better control sourcing, new product introductions, and collaboration with outside partners. In a bid to become more responsive, companies are shifting from monthly S&OP processes to weekly cycles, triggered by exceptions such as shortages, production problems and new distribution challenges.
Katun Corp., an OEM supplier of office machinery, elevated its S&OP process through improved visibility of goods in the production pipeline, says Bursa. The project, involving close links to manufacturers, has led to faster and more accurate inventory replenishment, as well as fewer missed deliveries. "S&OP is the highest level of visibility," she says.
Raw information can be employed in a data warehouse to fuel high-level analytical tools, says Smith. Companies can track major trends and uncover the root causes of problems, cutting days out of the supply chain. They can even feed data directly into supply-chain planning and modeling engines. Day-to-day performance reports can then be measured against the plan. In the process, managers make a strong business case for investing in visibility systems.
A manufacturer of office products has embraced "forward-looking visibility" through better collaboration with suppliers, says Scott Pulsipher, vice president of product management with Yantra Corp. in Tewksbury, Mass. Information on customer demand becomes the basis for negotiations between the company and its suppliers as to what can actually be produced and when. The two sides can then agree on a solution that will keep product flowing to customers.
A good visibility system, synchronized with trading partners, can go a long way toward boosting customer service, while keeping costs down. Says Pulsipher: "You can actually allocate orders and customer demand against inventory you don't even have yet."
7. Use visibility data at the tactical and execution level. Even the best just-in-time system must be supported by a certain amount of inventory at rest, and companies must know exactly where it is at any given moment. For a major supplier to American automakers, Oakland, Calif.-based APL Logistics oversees the movement of full containers of production parts, which are later broken out and distributed as needed. Through satellite tracking, APLL can keep tabs on multiple "milk runs," recording how long each trip took, where trailers are in the yard and what's inside, says George Cavage, director of technology solutions and strategy. The close monitoring allows APLL to take immediate action if anything goes wrong. "You always have to be in a position to expedite," Cavage says. "You can't let the line stop."
Good visibility can help solve numerous discrete problems on the tactical end, says Chris Heim, president and general manager of HighJump Software. Direct Fulfillment, a provider of promotional materials to major automotive suppliers, allows its partners to view inventory and order status through a portal over the internet. They get instant visibility into how promotions are going, and which items in inventory are being used to support them. Another HighJump customer, Musco Family Olive Co., lets its suppliers view inventory levels of product that they control, so that they can replenish accordingly.
In the warehouse, managers employ visibility systems to see how operations actually took place during a given day. They can track the movement of each forklift, uncovering any latent inefficiencies, says Armanino. Such an approach is used by Tchibo, the German coffee retailer, whose warehouse is reportedly the largest in Europe. The WhereNet system has helped to eliminate shipping errors and speed up processing of more than 6,000 pallets a day.
Donnelly says visibility is an equally valuable tool on the outbound side, allowing customers to see shipments in transit and ensure that suppliers are meeting their commitments to delivery date, fill rates, and complete orders. In addition, inventory can be quickly shifted to meet changing circumstances.
"If you can't act on the data, it's not very valuable," says Mark Columbo, vice president of supply-chain marketing with Memphis, Tenn.-based FedEx Corp. Knowing of a problem the moment it crops up, a supplier can contact the consignee and explore options for dealing with, say, a late shipment. "Nine times out of 10, they're going to work with you and accept it late, without costing you more money," Columbo says.
8. Create an end-to-end event management system, with exception alerts. In terms of market adoption, supply-chain event management (SCEM) systems are still in the "toddler stage," says Donnelly. Nevertheless, they have contributed significantly to global supply chains. Viewlocity is aiding Dell Computer in the implementation of an SCEM application on the service parts side. Instead of fulfilling shipments from the warehouse, Dell will manage the direct movement of parts from suppliers to customers, without losing control of the process.
Event management is the answer for companies that don't want to be inundated with visibility data, says Deby Veneziale, chief product officer of San Mateo, Calif.-based Arzoon, Inc. SCEM alerts managers only when a shipment or product in inventory has exceeded pre-set levels of tolerance for complete, on-time replenishment and delivery. Such a system is configured to the unique needs of each partner.
Wal-Mart Stores is a leader in the use of SCEM, requiring suppliers and carriers to notify it of any glitches in the replenishment process. "They rarely run out [of product] in the stores," says Veneziale. Still, most companies seeking to deploy SCEM have yet to achieve the requisite level of visibility. "If people just had visibility, they'd be thrilled to death," she says. "Combined with event management, that would be nirvana."
Cavage says SCEM can be used to track multiple "events" in the supply chain, including order quantities that don't match booking, receiving or production totals, or shipments that deviate from ordered or booked quantities. A good system will generate alerts for "non-events," such as the failure of a package to be picked up, scanned or received at the warehouse, Alvarenga says. The key lies in managers' ability to respond proactively, often fixing the problem before it becomes evident to the customer. Where remedial action isn't possible, the supplier can inform the customer so that the latter can make its own adjustments.
9. Use visibility to develop shared metrics on supply-chain performance. There is a natural progression from visibility to SCEM to performance management, says Bursa. Exception-based monitoring generates data that can be set against key performance indicators (KPIs). Like basic visibility data, such metrics can then be shared with supply-chain partners. Williamson-Dickey, the maker of work clothing and accessories, measures its sales team partly on the basis of inventory turns. The strategy forces sales to take into account the impact on margins of obsolete or excessive inventory. Other popular metrics include forecast accuracy; profit margin, broken down by product category and region; cash-to-cash cycle and customer fill rate.
Major supply-chain partners can be monitored as well, for such elements as on-time delivery and overall cost of service. Tellabs, a provider of bandwidth communications, uses FedEx Supply Chain Services as a single point of management for more than 40 transportation providers, says Columbo, tracking metrics such as the on-time arrival of equipment.
But metrics mean nothing if they measure the wrong things, or can't be obtained on a timely basis, says Joe Chappell, president and chief executive officer of Blue Agave in Cambridge, Mass. Truly effective measurements will be geared to the customer's needs, not internal considerations. Procter & Gamble moved from measuring case fill rates to realization of the perfect order - on time, complete and undamaged. Instead of manufacturing defects, it focused on defects at the shelf, based on availability of stock and consumer acceptance, Chappell says.
Moreover, he says, metrics must be obtained quickly enough to fix problems as they occur. A manufacturer's change of schedule must be conveyed in time for the supplier to prevent missing a shipment to the customer.
10. Communications standards are good; a single platform is best. Donnelly says enterprise application integration (EAI) vendors are improving their ability to link disparate visibility systems, both within companies and across multi-partner supply chains. Off-the-shelf applications are edging out homegrown legacy systems, which are tougher to upgrade, connect and keep current.
Lucent Technologies has implemented a BearingPoint system that gives it one global platform through which it provides demand data to suppliers, says Alvarenga. Circuit City Stores, meanwhile, has pulled together "islands" of information within its own walls, then relied on HighJump to link up with trading partners, Heim says. "One system is ideal," he says, "but it's not realistic today."
Integration is especially vital when it comes to linking small to medium-sized players with larger companies, says Pat Meisner, chief executive officer and co-founder of RedTail Solutions Inc. in Westboro, Mass. The vendor lets mid-market suppliers exchange shipment status data electronically with partners throughout the lifecycle of an order. Catania-Spagna, an olive oil importer supplying everyone from Subway Restaurants to Wal-Mart, replaced a labor-intensive "Web farm" with RedTail's system for automating the exchange of order data.
The important thing, says Colehower, is to provide "a single source of truth" for information about customer demand. The grocery retailer Albertson's has adopted a portal approach, giving suppliers full visibility into its system, with a consistent view of product information. Increasingly, says Colehower, "companies are going from vertical silos to more externally integrated supply chains. They've had to learn the lesson of collaboration."
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