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Supply Chain Visibility Required to Reduce Costs

June 4, 2012


The editorial staff at Supply Chain Standard reports that a recent study “found that growing supply chain complexity was a top business pressure and this in turn has contributed to increased supply chain management costs.” [“Supply chain visibility under scrutiny,” 23 April 2012] The article went on to note, “Before a company can reduce inventory or landed costs it needs visibility into them.” The study to which the article refers was conducted by the Aberdeen Group and entitled: “Supply chain visibility excellence – mastering complexity and landed costs.” The article continues:

“Aberdeen points out that the increased complexity of global supply chains has led to longer lead times, more pipeline inventory, and the need to control downstream and upstream logistics. … Aberdeen found that best in class companies were: 2.44 times more likely to have online visibility into the customs events status; 1.92 times as likely to have formalised supply chain risk management; 1.78 times as likely to have the ability to analyse the current level of supply chain risk exposure; and 1.7 times as likely to have online visibility into supply chain disruptions.”

Although it sounds like the study focused primarily on how visibility helps monitor and reduce risks in the supply chain, visibility can also help identify emerging opportunities. The article concludes:

“[The report] said that to move towards a more connected and visible end-to-end supply chain and master complexity and globalisation, companies should extend visibility within and beyond tier enterprises; use dynamic business intelligence and decision making; centralise data and share collaboratively with customers and suppliers.”

As President/CEO of a company that offers visibility solutions, those words are music to my ears. As I’ve pointed out in previous posts about supply chain visibility, however, improving visibility is neither easy nor quick. Chris Jones, Executive Vice President for Marketing & Services at Descartes Systems, offers five recommendations for getting started. [“Five Points for Getting Value from Visibility Solutions,” Supply Chain Digest, 18 April 2012] His first recommendation is to narrow the focus of your efforts. He writes:

“The biggest challenges with visibility projects are scope and time to value. Visibility projects fail from the start when the scope is too comprehensive and there is a ‘hockey stick’ view of value. Because visibility is so nebulous for many executives, tangible results and momentum really matter. To get results fast, start by picking a defined portion of the supply chain (e.g. a small set of trade lanes) or a couple of critical supply chain events to track. Do not underestimate the time and effort of getting trading partners and carriers connected as it can be the longest part of the implementation. This is one of the reasons that network based cloud solutions with preconnected parties are becoming more pervasive.”

The longer and more complex your supply chain is the more difficult it will be to achieve the kind of visibility you really want and need. I agree with Jones that starting with a focused project that can be scaled is a good way to start. His next recommendation deals with the quality of data you use to gain visibility. He writes:

“Did you know that the acronym ASN has two definitions: advanced ship notice and already shipped notice? The latter can make any visibility project fail. Data quality is still alarmingly poor and needs to be recognized as a management problem as opposed to a technology problem. As part of the initial phases of a visibility project, implement data performance reporting to measure the timeliness and completeness of data for all of the parties involved – including your own organization. Scorecarding data quality is just as important as delivery performance will make and keep visibility projects producing great results.”

One adage that entered our culture along with the computer age is “garbage in garbage out.” If you don’t sense, analyze, and act on the right data, you can’t expect technology to “turn a sow’s ear into a silk purse.” When Enterra Solutions® engages with a client, we agree on what data they really need and where it must come from. Getting the right data is critical to success. Jones’ next recommendation is ensuring that all potential stakeholders are included. He calls it “expanding your constituency.” He explains:

“The fatal mistake in achieving or maximizing visibility value is to keep the data confined to the supply chain organization. There are so many others that can use the information and impact supply chain performance. For example, one customer provided visibility system access to their merchandising organization and completely eliminated a large inventory staging yard piled 3 high with 40’ containers. As the merchandisers gained confidence in the reliability of the shipment data, they began to order less reducing inventory. Include ‘360o‘ scorecarding with the carriers and logistics services providers. One version of the truth is essential to improving supply chain performance and do not assume that their systems will tell them what is really going on.”

Supply Chain analyst Lora Cecere talks about integrating data (i.e., having a single source of truth) and then using that data many times as part of the sales and operations planning process. In other words, she agrees with Jones that “one version of the truth is essential to improving supply chain performance.” Fortunately, cloud computing technology now enables such a capability to be implemented. Jones’ next recommendation discusses adding layers of visibility. He writes:

“It is important to understand that implementing a visibility system is a learning experience. By analyzing the visibility information with your greater constituency, you will expose blind spots in the supply chain. For example, knowing the status of customs clearance for international supply chains or scheduled dock appointments may be key information that provides you with a comprehensive view of your supply chain performance. Look for solutions that have a comprehensive view of the purchase order to warehouse receipt, but with the ability to layer in more events as your learn more about your supply chain performance drivers.”

A visibility system should be flexible enough to be tailored to specific needs (including adding layers as required) as well as robust enough to be scaled from a pilot project to a organization-wide system. Almost all analysts recommend starting small and testing the system before implementing it on a company-wide basis. Jones’ final recommendation is to make sure that achieving “visibility” provides value added (i.e., results in actionable intelligence). He writes:

“Visibility systems make information available to all of the supply chain parties and form the basis for making collaborative decisions that improve performance. However, these systems do not provide the actual collaborative process for making decisions. Without ‘baked in’ processes, so many visibility projects fail to realize their full potential. There is a next generation of multi-party applications that allow all of the parties to participate in the decision process and understand the impact of the decisions made by each party. These solutions use the information of the visibility system, but have the multi-party process built in to facilitate decisions and project their outcome. One new solution which we call Load Flow Control is used by a retailer, its suppliers and carriers to intelligently consolidate shipments at the supplier or within the carrier network. As changes are made by any of the parties, the solution’s intelligent route guides dynamically advise if the changes comply with the retailer’s delivery performance mandates and makes the information available to the retailer, supplier and carrier.”

One of the benefits of a good visibility system is that it only requires the attention of decision makers when something abnormal occurs. Countless man-hours can be saved using this “management by exception” approach. The editorial staff at Supply Chain Digest agrees that visibility systems must result in actionable intelligence. [“Recommendations for Supply Chain Visibility Success,” 1 May 2012] The staff writes, “Visibility for visibility’s sake doesn’t do a company much good. Supply chain managers must focus on and clearly define what specific information will enable them to makes better decisions and effectively act faster to problems and opportunities.” That is just one the recommendations they make. The next recommendation involves building a proactive plan and roadmap. They write:

“Too many companies we see add supply chain visibility in a sort of scattershot fashion, based on perceived needs in some area or another at a given point in time. While the nature of visibility lends itself to falling into that fragmented approach, development of a master plan that sets priorities for effort and investment, and what sorts of visibility platforms need to be acquired or built (and it will always be several) will lead to a more effective and cost effective result.”

Without a good roadmap, the possibility exists that visibility efforts will result in siloed rather than integrated information systems that actually make things worse rather than better. Visibility efforts should be aimed at breaking down information silos not creating them. Their next recommendation involves ensuring that a business case can be made for implemented systems. They write:

“Visibility applications can be sometimes hard to justify. Managers know there are qualitative improvements, but find the hard savings at times is not easy. Vendors can help here – they go through this over and over again. But companies need to take their templates and really dive down into the details to not only produce a plan to gets the project approved, but also leads to the promised results delivered.”

The SCD staff’s next recommendation involves beginning a visibility project with your eyes wide open and recognizing that “much/most of the Information you need will be external.” They explain:

“If you have outsourced or virtualized much of your supply chain, by definition most of the data you need will reside outside your enterprise. This can be true even if a company has retained manufacturing and other functions internally. That in turn means connectivity becomes core to the visibility quest; we have found that some simply lack the will to make the effort. However, an increasing number of cloud-based vendors have achieved significant pre-connectivity to hundreds of companies and logistics providers.”

The staff’s final recommendation is that companies shouldn’t assume that technology is going to solve all of their visibility challenges. They recommend investing “effort in non-systematic visibility” as well as technology solutions. They write:

“While we tend to think of visibility as something that is technology based, leaders often actually spend a lot effort to get at data and insight that can’t be captured systematically at the start. Cisco’s advanced Sales & Operations Planning process has matured to the point now that among the top concerns is finding out ‘qualitative information we can’t see’ about market conditions, customer plans, etc., an executive there recently said.”

In other words, make sure that risk management and future planning teams are part of the constituency involved in the visibility process. The SCD staff concluded, “Many have heard the old saying that ‘What gets measured gets managed.’ That’s certainly true, but we could now add a corollary that ‘You can only manage what you can see.’ The supply chain winners of the future may largely be the ones that have more information at their disposal, and use that information more smartly than their competitors. Welcome to the visible supply chain.”

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