The Missing Part is Always the Most Important Part

Stephen DeAngelis

November 1, 2011

I read with interest a short case study about the Boeing 787 Dreamliner [“Case study: Boeing’s Dreamliner,” by Ravi Anupindi, Financial Times, 11 October 2011 ). What particularly caught my attention was Anupindi’s description of one of the reasons that the Dreamliner encountered significant construction delays. “One reason for the delay,” he wrote, “was an industry-wide shortage of aerospace fasteners, the nuts, bolts, rivets and washers that hold aircraft together. Although fasteners comprise only about 3 per cent of the cost of an aircraft, they became a serious supply-chain issue.” That line reminded me of one of the “mistakes” that Bindiya Vakil and Hannah Kain claim is made by too many companies: “Quantifying everything by spend and not by impact.” [“Five Mistakes Companies Make When Trying to Effectively Manage Supply Chain Risk,” SupplyChainBrain, 25 July 2011] They continue, “In order to ship a product, every single part needs to be present – this is the fundamental challenge for supply chain practitioners.” Anupindi obviously agrees since he concluded, “A lack of attention to commodity items such as fasteners can put a company at risk.” As I note in the title of this post, the “missing part” always has the greatest impact. Vakil and Kain conclude that one reason missing parts continue to plague some businesses is a lack of supply chain visibility. “The fundamental challenge with risk management today,” they write, “is the lack of visibility across global supply chain dependencies.”

 

Visibility remains one of the hottest topics in supply chain management literature and was a key objective in Boeing’s development of its Fastener Procurement Model (FPM) system using its Exostar Supply Chain Platform. As Anupindi documented in his case study, Boeing’s experience related to visibility in both directions and the establishment of clear value-add to all supply chain players. This was accomplished to some extent with the Consumption Based Ordering (CBO) visibility but it was obviously not enough to address all of the complexities associated with the new 787 design requirements and supply chain dependencies. Although lack of visibility is a widely recognized supply chain challenge, achieving it is difficult – a fact to which Boeing is probably willing to attest. The topic of visibility is not new. Supply chain analysts have been speaking about it for years; yet the problem lingers. Here’s how Anupindi describes the challenge that Boeing faced:

“The worldwide downturn in the aircraft industry caused by the terrorist attacks of September 11 2001 led to consolidation among fastener makers, along with reduced capacity and smaller workforces. Although demand began to increase again, the fastener makers resisted adding capacity because of the continuing uncertainty over just how much demand there would be. So by the end of 2006 the fastener sector was running at only 80-90 per cent capacity. The problem: In 2007 Boeing’s analysis of the shortage confirmed that there were fundamental ordering and scheduling problems. Because fasteners are used by Boeing as well as its partners, and each had its own way of procuring them, the fastener makers were unable to get a clear picture of demand. Above all, the process was not geared to forecasting demand. Boeing’s study also revealed that the shortages might continue into 2012, even if fastener makers had increased capacity.”

Anupindi reports that Boeing tried to get a handle on the fastener problem by taking control of ordering fasteners for both itself and its partners. “In addition,” he writes, “Boeing and its production partners [were to] make daily updates on inventory levels in a central web portal, which would help stabilize the supply chain. The fastener makers would be responsible for replenishing inventory between set minimum and maximum levels. Boeing would also develop a forecasting algorithm to help smooth demand.” What happened next is fascinating as challenges to this centralized system quickly emerged. Anupindi explains:

“Boeing’s main partners were worried that they would not benefit financially. To deal with this, Boeing sent a formal request to the fastener makers asking for preliminary pricing data. But many manufacturers were both unhappy at sharing information on pricing and confused by the amount of information requested. Moreover, Boeing had overlooked how important distributors were to the supply chain. The aircraft maker realized it had to consider more partners. … Boeing also met internal obstacles. It found that middle managers were skeptical of the claimed benefits and were worried about unintended consequences.”

In other words, although the system was centralized it was not as transparent as it needed to be in order to satisfy all of the stakeholders involved (both internally and externally). In addition, adding more partners meant adding more complexity. Only automated systems capable of gathering and analyzing large amounts of data then displaying pertinent results are capable of providing the kind of visibility necessary to a complex supply chain adequately transparent. Stakeholders want to know that all are dealing with the same data and talking about it in the same way. To put it another way, trust needs to be developed between stakeholders in order to share data. Once that hurdle is overcome, stakeholders will discover that trust only increases with improved visibility. Supply chain risk management expert Daniel Stengl reminds us, “There are many obstacles to information sharing in a supply chain.” [“Information Sharing in Supply Chains,” Supply Chain Risk Management, 7 March 2011]. He continues:

“Confidentiality is probably one of the biggest issues, but there are others not so obvious like antitrust regulations, the timeliness and accuracy of the provided information, differing technologies between the supply chain partners or a mismatch in the alignment of incentives. Therefore trust and cooperation become critical ingredients in a supply chain partnership.”

As CEO of a cloud-based, supply chain, solution-as-a-service (SaaS) firm specializing in the application of artificial intelligence and a rules-based ontology to solve complex business problems, I’m well aware of the challenges involved. I’m also aware that the reason that solutions have been difficult to implement is that, until now, the challenge has been too big handle. We are now in an era of so-called “big data” and, as a result, companies, including mine, are offering “big data” solutions for the supply chain visibility challenge. The Boeing FPM system, a collection of large supply chain related database systems, evaluates mountains of data and predicts potential demand/supply disparities –- a comprehensive, but structured, data environment. That approach is ideal for some visibility challenges; but, it leaves the unstructured data to be dealt with by departments across the supply chain using various communications outside the FPM system’s analytics.

 

The “missing part” of the challenge described here, requires a system that digs deeper in order to understand supply chain relationships hidden in masses of structured and unstructured data. Understanding those relationships is essential for a “big data” system to intelligently alert decision makers to potential problems and assist them in making more informed decisions. We sit on the cusp of a new era in which globalized supply chains will require systems that “Sense, Think/Learn, and Act.” This is difficult and costly to do with just relational database systems. The good news is, as new technologies and ever better algorithms emerge, I believe we will be able to put the “missing part” era behind us.