It's a given that supply chains have become more complex as they have become more global. It's also a given that competitive pressures demand that those managing supply chains look for ways to reduce costs, reduce risks, shorten cycle times, and obtain more accurate forecasts. It requires the agility to shift gears quickly as circumstances change.
Managing all that across an elongated supply chain also requires the ability to know what is happening from end to end and to quickly react to changes. That requires visibility to all the critical nodes in the chain—suppliers, carriers, customs brokers, and bankers, to name a few.
True end-to-end multi-enterprise visibility may be a ways off for most companies. However, technology and events are converging in ways that make it no longer a far-fetched notion.
"This should be on the radar of leadership," says Greg Kefer of GT Nexus, which provides a cloud-based collaboration platform for shippers, carriers, and other supply chain participants. "I would be stunned if companies are not looking at their supply chains after the events in Japan and Thailand." While the effects of the earthquake and tsunami in Japan and floods in Thailand are still reverberating among supply chains worldwide, those companies that got out in front of the crisis and were able to react swiftly fared better than those that could not adjust their networks. "The whole notion of operational excellence depends on vertical operational excellence," Kefer argues.
"That goes right to shareholder value. Companies win on the strength of their supply chain operations," he says. And that, in turn, demands greater visibility into exactly what is happening throughout the chain, he adds.
Visibility allows speed
Bill McBeath, chief research officer for ChainLink Research, a Newton, Mass-based supply chain research firm, has looked closely at trade logistics visibility and what it can do for companies with complex international supply chains. He argues those tools not only can help manage transportation but can also support the financial components that drive the whole system.
Late last year, McBeath wrote an article for the ChainLink Research website ("Supply Chain Financial Network Platforms: Trade-Logistics-Visibility") on how supply chain visibility can accelerate cycle time by providing business partners with crucial information. In the piece, which focused on the financial aspects of visibility, he noted, "trade-logistics-visibility platforms can help by providing lenders with detailed visibility into the status of various milestones in production, shipment, delivery, and inspection. ... By having near real-time visibility and access to documents confirming the achievement of milestones (e.g. successful inspection), instead of waiting for paper documents to arrive, banks can improve payment processing speeds, accuracies, and efficiencies."
McBeath claims that end-to-end visibility back through the supply base opens a lot of doors for managers. In an interview with DC Velocity, he said, "It enables a lot of different things. For example, if you want to do performance improvements, you can see where the bottlenecks are, where the breakdowns in processes are."
Visibility into events as they happen allows managers to respond to them quickly, McBeath says. "If you get alerts early, you can do a better job of adjusting the plan or looking for alternative ways to solve the problem."
He gives an example of how visibility across the supply chain, including lenders, could work to reduce cycle times. "If you look in particular at smaller Asian suppliers, they may not have the cash flow or credit financing they need for raw materials," he says. "If they need to wait for sufficient down payment to have the cash on hand to order raw materials, that slows down the whole process. Visibility helps in a couple of ways. If lenders have a history of the performance of the supplier and the supplier has a firm order, they can put those together. They are more likely to forward money to the supplier." That allows the vendor to order materials sooner, leading to earlier production and thus a shorter order cycle time.
Visibility can also help accelerate payables once the goods are delivered. On the consignee end, McBeath says, the ability to provide a final clean invoice at the time of delivery can speed up payments. "In a traditional system, the paper goes back to the office, and it's a week or more before you're ready to invoice," he says. "Using some of those mobile and tracing technologies, you can improve cash flow."
Visibility allows agility
Lorcan Sheehan, senior vice president of marketing of ModusLink Global Solutions, points to the consumer electronics industry as one whose operations could be improved with greater multi-enterprise visibility. Typically, he says, consumer goods companies place orders with contract manufacturers 13 weeks out, providing time to acquire components and schedule manufacturing. For offshore manufacturers, add another six weeks for transit time. That long lead time makes adjusting to changes in demand or other market shifts a real dilemma.
"In many cases, companies are planning and making decisions in June or July for selling in November," he says. "You need visibility and a good understanding of what is happening with demand and where in the pipeline you can make different decisions."
In the past, he says, making adjustments has been slowed by the essentially sequential nature of communications: the retailer contacted the distributor, who then contacted the DC and on upstream to the contract manufacturer and its suppliers. Allowing all parties to see shifts in demand as they occur can allow faster adjustments to inventory plans, Sheehan says.
Sheehan, whose company provides third-party supply chain design and execution services globally, says that visibility is crucial to adjusting to "shocks to the system," such as the events in Japan or Thailand.
"When tier-two or -three suppliers are affected, you have to be able to react quickly," he says. "The company that first realizes there is a disruption will be the one able to secure [manufacturing or transportation] capacity."
Visibility improves yield
That applies as well to transportation. The ability to see and manage freight in transit enables local managers to do a more effective job of allocating labor and other resources at DCs or stores, notes Kefer of GT Nexus. And it allows quick shifts based on demand.
Ann Marie O'Connor, retail industry marketing leader for RedPrairie, a developer of supply chain software, points out that visibility into goods in transit allows retailers in particular to reallocate goods on the fly. That's particularly important to the fast fashion segment of the industry, where styles have a short life cycle before they become outdated—and must be sold at a discount once they become passé.
The segment generally has a six- to eight-week cycle from order to required delivery. The ability to see inventory in transit, on store shelves, and in storerooms can enable managers to quickly align current demand with supply, regardless of the channel of consumption.
"What inventory visibility enables is for companies to protect gross margin," she says.
A small gain can be more significant than it might at first appear. Stephen Craig of EnVista, a supply chain consulting firm, notes that a good retailer that might normally have a 92 percent in-stock rate for most goods might get to 96 percent by getting visibility into out-of-sync shipments. "If you look at an increase in gross margin as a result of 2 percent, that 2 percent in many industries is pretty high."
He says that systems like MercuryGate's transportation management system, a system EnVista works with frequently, can set up a purchase order confirmation with vendors and then track whether vendors hit specific milestones even prior to shipping and send reminder e-mails at specific points in the cycle to ensure goods move on time.
He says it is relatively simple to establish an Internet pOréal that provides visibility into orders for vendors, carriers, and DCs.
The promise and the reality
All this is very promising. The problem is, while the vision for integrated end-to-end visibility may be compelling, the reality is that achieving it is very difficult across a global supply chain. And lack of visibility continues to complicate business supply chains. Kefer of GT Nexus gives the example of one U.S.-based retailer trying to set up shop in Asia. Because of a lack of visibility into its Asian supply chain, the company has been forced, at least for a while, to ship goods made in Asia to the United States for re-export back across the Pacific.
"I've got to believe the money being spent is staggering," Kefer says. But he is confident this company will figure it out—once it has better view into its Asian suppliers.
McBeath says advanced companies have a good handle on monitoring international transportation, sometimes down to real-time GPS data, for goods still on the water, on trucks, or in intermodal containers, but that the same level of insight into their suppliers is more problematic.
"In the best case, they have systems in place providing alerts when something is not on track. In terms of visibility into factories, some companies have that visibility into suppliers, but in many cases, those depend on the supplier to key in the status." In only a relatively few cases, he says, do systems update each other.
Greg Kefer of GT Nexus makes much the same point. "In reality, very few companies have a single monitoring system across the supply chain or value chain that gets all the companies they deal with on the same page."
The difficulty, he says, is linking all the partners. "It is tough to solve the technology [challenges]," he says. "Most software systems, ERP systems, order management systems are installed software. When you try to hook up networks through data grids, there are a lot of files flying around, but no one is looking at them."
But the visibility is coming. Kefer contends that the development of cloud technologies will eventually enable the end-to-end supply chain visibility. "The analogy we use is Facebook or LinkedIn," he says. "When you change jobs, once upon a time you had to send everyone the information. If you were lucky, 30 percent of your network would update. Now, you can go to LinkedIn and change your profile.
"We apply the same information model to the supply chain, but the information is on inventory, ETA, documents attached to the inventory, line items attached to that inventory as it moves through manufacturing, logistics, and even final payment. You get the full picture rather than a few pixels."
Accomplishing that can be daunting. "Companies are still trying to solve their TMS and ERP software [problems]," Kefer says. "But we think the cloud is a game changer." Like McBeath, he says the key will be linking supplier, carrier, banking, and other systems. And the more extended the network, the more valuable it becomes."
And therein lies the difficulty. While most major transportation carriers have the capability, suppliers are "a different beast," Kefer says. "There is still a long way to go. There could be 400,000 suppliers in Asia. A lot of them don't have systems. But if they are hooked to the Internet, they can still interact."
Broader visibility is on its way. Kefer returns to the social network metaphor: "The value of Facebook or eBay is the network. The value is there's a billion people in it. That's the game we're in right now, getting that network density."