The Visible Supply Chain

Want to succeed in e-business? Give your stakeholders a view into supply chain performance, as well as the ability to make collaborative decisions

By Mark Smith

The supply chain has been a mystical yet scientific area of specialized business processes and technology for some time. It can significantly affect your company's viability based on its ability to meet customer demand and deliver products or services in a timely fashion.

But as many organizations continue to improve their business processes as well as automate them electronically, the appropriateness of the term "supply chain" has come into question. This evolution of terminology is associated with the advent of e-business, in which companies are integrating their business processes and dynamically automating them on the Internet. At the same time, a new wave of e-business principles such as demand planning, collaboration, and online procurement are generating entirely new buzzwords, such as "dynamic trading networks," "commerce chains," and "e-marketplaces."

These developments are all very important steps in the evolution of the supply chain. However, they are all simply variations on the theme of traditional supply chain management: operating, optimizing, and automating supplier-centric business processes. Although some parties may be focusing on the new buzzwords for the purposes of differentiation or attention, supply chain management remains a relevant and meaningful process.

The e-business revolution is affecting the supply chain dramatically and is changing how companies integrate business processes inside and outside the enterprise. For example, in the last year, e-marketplaces have rapidly emerged as a means of automating business processes among buyers and sellers in a supply chain. This development introduces new business and technical challenges and spotlights existing business processes and supporting enterprise systems that revolve around the supply chain. But bringing new efficiencies and economies of scale through externalizing and automating some aspects of the supply chain will not eliminate the need for integrating enterprise and supplier systems.

Most organizations lack collaborative and analytic capabilities, however, and only a few have an information foundation that lets managers make the right decisions at the right time. These needs exist because of organizational barriers that hampered business units (manufacturing, sales, marketing, and distribution) from operating more closely and integrating their internal process and information assets.

Having this common information foundation - as well as "visibility" into the supply chain with the right analytics and collaborative capabilities - are now critical for meeting revenue and profitability goals. For example, the ability to perform demand planning to respond to competitive pressures and increase production or to replace component parts based on a quality management recommendation within days, not weeks, require visibility and collaboration. These capabilities, which go under the term supply chain analytics, are the basis for achieving "business velocity" and the centerpiece of any enterprise, supply chain, or customer relationship management (CRM) strategy.

Supply Chain Complexities

Supply chain management comprises the business processes that bring a product or service to market, including coordination, communication, and collaboration among suppliers; manufacturing, materials, transportation, and warehouse management; and procurement, distribution, wholesale, and service and sales channels.

A variety of supply chain-related operational systems (such as supply and demand planning, warehouse, and transportation management), CRM systems (for sales, marketing, and services), and enterprise resource planning systems (for finance, human resources, and manufacturing) support these business processes. (See Figure 1.) These systems work together to support the two basic principles of supply chain management: production, including materials management, procurement, manufacturing, warehousing, transportation, inventory, and supplier management and fulfillment; and fulfillment, comprising logistics, demand planning, distribution, transportation, and order management.

These areas are associated with a distributed, complex set of applications that require interoperability at the process (interprocess integration) and application (enterprise application integration) levels. These applications must also support existing and evolving standards - the EDI, RosettaNet, Voluntary Inter-Industry Commerce Standards, for example - to collaborate with external parties.

This already complex situation is exacerbated by the introduction of e-business systems, such as e-commerce storefronts and e-marketplaces. This huge set of challenges has captured a significant amount of financial and human capital resources and has left many companies without the required information foundation to answer critical business questions. Consequently, questions such as "What will a manufacturing run and inventory management cycle cost?", or "What is our potential revenue based on a marketing promotion for 12 weeks through the retail channel?" are easy enough to ask but almost impossible to answer in any timely way. They require integrating information from distinct functional applications across the enterprise at the detail and aggregate levels. So how do you build the information foundation that can help you answer these types of questions?

Achieving Supply Chain Excellence

Before you can build this common foundation, you'll need to break through various "cultural" barriers in your organization:

• Break organizational barriers. Production and fulfillment traditionally involve many internal individual organizational units that act independently and maintain their own supporting systems. However, these units are evolving through three stages to work together more closely: communication, coordination, and collaboration. Communication is already occurring among enterprise organizational units and supplier networks. Coordination, the next stage, is the process in which those units and networks interact on a more timely basis. Collaboration, the final stage, implies the ability to electronically share information about business activities and interact on a near realtime basis across the supply chain.
• Enabling visibility into the supply chain. Traditionally, a small, select group of individuals responsible for supply chain planning would provide the "magic" answers about the predictability of the supply chain. Visibility implies that people beyond these experts have a view of the activities and metrics that help measure the supply chain's effectiveness. These metrics are critical for optimizing customer relationship life-cycle models and increasing financial profitability. Furthermore, supply chain visibility enables the collaboration that can optimize these business processes.
• Manage by metrics. Breaking organizational barriers and enabling collaboration across the supply chain requires a cultural change in how your organization measures and rewards individuals and organizational units. The traditional measurement model is based on cost and revenue models: The new model is based on metrics that align to cross-organizational business processes. In fact, you should assign metrics to specific individuals so that they can understand their relationship to business processes and are empowered to set performance thresholds for them.

When you've addressed these cultural barriers, the next steps are to:

• Reduce the decision cycle process. Because most businesses lack the appropriate amount and depth of accurate, reliable information to make good decisions, decision makers rely heavily on scant facts and experience-based judgment. Furthermore, the increasing complexity of business models and the corporate drive to maximize profitability have introduced new metrics that compound the problem. To optimize supply chain processes, your organization will need to make decisions based on significantly more information in a matter of day and hours, not weeks. There's no other way to respond to market or customer demand or changes.
• Improve decision-making collaboration. The concept of collaboration has quickly caught on thanks to popular activities such as collaborative, planning, forecasting with replenishment (CPFR), in which business plans and forecasts are shared among supply chain partners to reduce inventory levels and improve delivery cycle times. To reduce decision-making cycles even further, you'll need to make decisions collaboratively on the Internet, allowing relevant individuals involved in the process to contribute electronically. This approach will force accountability and responsibility into the decision-making process and provide a mechanism for making better future decisions in which employees can learn from past behavior. This team- and process-based approach, which includes the involvement of internal as well as external individuals, will enable collaboration and contribute to timely and effective decisions.
• Reduce opportunity and problem resolution latency. Your organization's responsiveness to opportunities and problems within the supply chain can significantly affect product profitability and customer satisfaction. Managers must have the authority to react to changing market conditions, customer demand, supplier defects, or warehouse shortages. The ability to monitor and alert any step of the supply chain process is critical to success here; being reactive is not such a bad thing if you can understand and be alerted to opportunities or issues that require action. This approach, in which managers measure and monitor supply chain activities iteratively, can effectively enable self-sufficiency.