Electronic negotiations. Real-time updates on suppliers. Just-in-time inventory. Innovative companies with capabilities such as these are ushering in the next generation of supply chain management. And chances are, they're using business performance management (BPM) software to sharpen their visibility into how to make better products, deliver them faster and save money along the way. As companies expand globally and rely more completely on geographically dispersed partners, vendors and customers, they need to tighten the reins on their supply chain. Quickly getting reliable information to the right locations becomes as important as getting the product where it needs to go. The keys to better supply chain management include more standardized, centralized data; greater collaboration among supply chain members; and tighter integration between supply chain metrics and corporate goals.
According to a recent study by AMR Research, many companies are reevaluating their performance management processes in order to shore up their supply chain. "All performance leaders are focused on KPI [key performance indicator] management as a best practice for their supply chain," says Vinay Asgekar, research director at AMR Research in Irvine, Calif. "It was surprising to us that KPI management was a best practice across a broad range of industries, including automotive, retail, consumer products, heavy equipment and semiconductor."
Faith in Numbers: Data integrity is the foundation of effective performance management--and of a high-performance supply chain. Building employees' faith in the numbers was a key goal at Abbott Canada, the Canadian affiliate of Abbott Laboratories, when it shopped for a new software system early last year. The company's 1,400 employees produce pharmaceutical, nutritional, hospital and diagnostic products. "Before we implemented the BPM system from Hyperion Solutions, we were using an activity-based costing tool to evaluate supply chain costs by division," says Sylvain Simard, a business analyst in the company's Saint-Laurent, Quebec, offices. "The challenge was to take the historical numbers and analyze them. However, since they were less accurate than we would have liked, we ended up trying to influence the results of the analysis to reflect our perceptions, but not necessarily the truth."
The ability to perform accurate analyses of customer profitability has been the biggest benefit of Abbott Canada's BPM implementation. "Now we can extract our actual customer costs, instead of working with estimates, as we used to do," Simard says. "We link the cost to each customer, determine which ones are the best (most profitable) and worst (least profitable), then issue a new process to increase the profitability of our worst ones. In addition, the amount of time we spend conducting these kinds of analyses has been cut in half."
In late 2001, Sunnyvale, Calif.-based Network Appliance Inc., a $900 million producer of data storage products, found that it too needed more detailed and more accurate supply chain data. "We were growing quickly, and we wanted to move beyond a single manufacturing model and look at outsourcing," says Mike Peters, Network Appliance's director of information technology. "We also wanted to move from batch manufacturing to a real-time model, which would lead to lower cycle time and lower costs. But in order to do that, we knew spreadsheets wouldn't work for us anymore."
After consulting with PricewaterhouseCoopers, which assisted in the vendor selection process, Peters and his team chose Webplan, an operational performance management system. "Three days after we implemented it, 75 percent of customer orders were being scheduled automatically," Peters says. The company outsources a substantial portion of its manufacturing to contractors. Tracking the performance of those contractors is crucial when Network Appliance decides how to fill upcoming orders. "We use the BPM system to determine if we have adequate capacity to build something ourselves, or if it would be better to have it built by outside contractors," says Peters. "The BPM system helps deal with the complexity of multiple assembly locations, looking at manufacturing options such as building a product for European delivery in Europe, which reduces costs (and) taxes and improves delivery performance."
The BPM system has a real-time link with Network Appliance's Oracle ERP system, according to Peters. As soon as an order is booked, Oracle sends a message to it with the customer's specs, time of delivery, special instructions and so on. Then the BPM system analyzes that information and proposes a plan of action. "For example, suppose a client needed to fill an order in a Scotland plant within two weeks," says Peters. "Oracle and Webplan do this little dance back and forth to determine whether the order can be filled at that location within that time frame. Thirty minutes to an hour later, the results of the analysis are sent to the customer."
Increased Intelligence: Better information can mean a better-finished product. At W.L. Gore & Associates Inc.--a diversified $1.35 billion maker of electronic and industrial products, medical devices, and fabrics such as Gore-Tex--the main objective of a business intelligence upgrade a couple of years ago was to improve production processes and product quality. "By gaining intelligence about raw materials, temper lines, time, humidity and other factors affecting production, we've been able to stabilize processes and controls, reduce waste, lower inventory levels, and produce higher-quality products with the BPM solution from SAS that we implemented in December 2001," says JosÃƒÂ© Ramirez, Ph.D., an industrial statistician at the company's offices in Elkton, Md. "But the biggest advantage has been the ability to carry out experiments, report the findings and act on those findings," Ramirez adds. "For example, we used the BPM solution to gauge the shelf life of a Gore packaging material for semiconductors by showing how it degrades with time at varying temperatures."
He adds that the BPM system also helped the company's R&D people increase the reliability of its fiber optics technology by 70 percent. Another benefit has been that the system's gotten everyone to speak the same language when it comes to measuring performance. "We have four divisions: medical, electronic, industrial and fabrics," Ramirez says. "We needed a common language (for performance terms) across those four divisions, along with a common set of metrics that were based on reliability and consistency. Now our engineers have that common language, along with a common set of reports, which helps them communicate better at different stages of the supply chain."
Developing better intelligence about suppliers can help identify those the company should do more business with--and those it should drop. That was particularly important for Sandia National Laboratories, an 8,000-employee nonprofit engineering and science laboratory in Albuquerque operated by Sandia Corp. for the U.S. Department of Energy's National Nuclear Security Administration. "We implemented an enterprise system from Oracle that helps us rate the performance of over 11,000 suppliers in our evaluation database," says Gary Concannon, manager of the business technologies department. "We're funded by the U.S. Department of Energy, so we need to balance our list of suppliers to include firms run by women and minority groups."
Concannon ranks suppliers by percentage of on-time deliveries, full versus partial deliveries, quality of goods received, and number of rejects. "In addition, we allow our suppliers to enter our system so they can check the status of orders, which helps speed up delivery time," he says.
ROI Expectations: What kind of return can a company expect from a BPM investment directed at its supply chain? Results vary widely, but Nucleus Research Inc. recently quantified gains at two major implementers: Toyota Motor Sales U.S.A. Inc. and Trimac Corp., a trucking company with more than 6,000 employees. "Toyota annually tracks more than 1.6 million vehicles at every step, from cargo ship to individual dealership," says Shruti Yadav, a Nucleus Research analyst in Wellesley, Mass. "Business analysts at the company had been using Excel spreadsheets to track each vehicle in transit. They realized they need a business intelligence solution that would automate and simplify reports while providing better information for decision-making. Toyota decided to implement a data warehouse and business intelligence solution from Brio."
The implementation, which began in 2000, has brought Toyota several benefits. "Brio's exceptions-based reporting and route management reduced total transportation time for each vehicle from 36.5 days to 17.5 days," Yadav says. "In addition, time spent on reporting and analysis has been drastically reduced via automation. And sharper visibility into freight and billing information has allowed Toyota to identify inefficiencies and eliminate excessive costs. All in all, the payback from their investment in the Brio solution was 602 percent within the first two months."
The ROI on Trimac Corp.'s BPM system has not been as dramatic, but it's impressive nonetheless: The company saw a 185 percent return in a little over one year, says Yadav. One of the most important reasons Trimac chose its Cognos solution was compatibility.
"We liked the fact that Cognos could integrate with all the legacy systems and connect to all our databases, including Oracle and Sybase," says Janet Topic, vice president of information technology at Trimac's headquarters in Calgary, Alberta. "We can drill down and compare the actuals to the reports, which improves the value of the total logistics chain. It's allowed us to provide a total order-to-fulfillment system for our customers while giving them some significant savings in the process." According to Yadav, the Cognos implementation has helped Trimac increase revenue through more precise pricing of services; reduce operational costs by better identifying tasks that need improvement; and upgrade reporting by cutting the reporting cycle to four days, which enables the company to provide weekly instead of monthly reports to its field staff.
It would seem that everyone should embrace benefits like these. But they don't always. BPM brings greater transparency to supply chain operations--and that prevents managers from covering up unattractive numbers or shifting the blame for problems to another party. "Before BPM, supply chain managers weren't nearly as accountable for performance results, whereas now the BPM metrics will point the finger directly at someone," says Tony Zecca, partner in charge of Cohn Consulting Group in Parsippany, N.J. "Before, managers could hide from hard-and-fast numbers with fancy spreadsheets. With BPM, there's no place for them to hide."
The flip side: For managers who aren't afraid of the results, BPM can bring big improvements in effectiveness. "BPM allows them to spend more of their time on what really matters, which makes them more effective," Zecca says. "That, in turn, can inspire them to work harder in order to qualify for a promotion."
Change is bound to cause growing pains in any new initiative, especially one that promises to transform existing processes in so many ways. That's not slowing down the adoption of BPM for supply chain management, however. More and more companies are realizing that the demands of a far-flung enterprise can be met only by a state-of-the art supply chain system.
Melding the Metrics: With all the positive things BPM can bring to the supply chain management (SCM) table, the most important of all remains elusive: the integration of supply chain metrics with corporate metrics and goals. "The metrics surrounding supply chain management aren't all that difficult to grasp; most of them focus on quality, on-time delivery, pricing, vendor performance, inventory and so on," says Tony Zecca, partner in charge at Cohn Consulting Group. "What is challenging--and something that not many companies have been able to do yet--is to connect those metrics to the corporate metrics."
That's where BPM can help. "For example, suppose one of your corporate metrics is cash flow," Zecca says. "BPM will ask what aspects of inventory management and vendor performance are going to drive cash flow. Without BPM, a company can develop tactics and action plans within the supply chain that they believe are connected to cash flow, but they don't have the metrics to see if those efforts are actually translating into cash flow improvement."
BPM speeds up the evolution of supply chain processes to better support corporate metrics. "Business performance management tools give you better visibility into your supply chain processes, which enables you to make changes in those processes more quickly," says Steve Craggs, European vice chairman of the Enterprise Application Integration (EAI) Industry Consortium, an independent nonprofit based in Calgary, Alberta, that promotes best practices in software integration, Web services and business process management. "For instance, if orders are backing up, EAI doesn't know why. Business performance management allows you to see what the impact of that is on the overall business and gives you the knowledge to improve the process."
Metrics that seem on-target for the supply chain may be missing the mark when it comes to the big picture. Linking supply chain performance to the company's overall metrics becomes easier when a BPM implementation helps connect the dots.
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