A very good summary of need for a comperehensive supply chain strategy when using an outsouced supply chain
The See-through Supply Chain
By Shanton Wilcox --Supply Chain Management Review,04/01/2009
There's a choice to be made in supply chain management. Do you want to remain tied to a patchwork of manual interactions with suppliers, carriers, exchanges, freight forwarders 3PLs, or other links in the global supply chain? Or would you rather harness processes and technologies that provide instant access to your shipment's status or your suppliers' production? Supply chain leaders are choosing the latter—and through methodical, incremental, and focused efforts are achieving success.
Cost Pressures Dominate
The breadth, length, and depth of supply chains are on the rise. That's more suppliers across more geographies managing more SKUs. At the same time, our research and experience consistently shows the pressure to reduce supplier costs is nearly incessant. Even in good economic times, organizations are laser focused on the drive to leaner, more on-demand, just-in-time business models. But now, amidst a global downturn, such cost pressures are even more prominent.
For supply chain and logistics professionals, it adds up to a remarkable set of challenges. But even as the level of complexity and challenge increases, so does the power and promise of available tools. In particular there are a growing number of evolving technologies that when bundled and co-mingled with appropriate processes and incentives can begin to offer unprecedented views into the supply chain.
So-called visibility technologies can shift the tracking of in-production or in-transit materials, components, and products from fragmented and manual to something more akin to fully-automated. That means less time phoning suppliers or freight forwarders across a range of time zones confirming status or chasing down lost or delayed shipments.
Enhancing Efficiency
In today's global markets, it is no longer sufficient to be made aware of conditions after the fact. Supply chain leaders know precisely where the ship, train, truck or airplane is at any given point in time and can even see where their shipment is physically located on a ship, for instance. These companies thus have access to, for example, details regarding finished good inventory positions at suppliers—even those located half-way around the world.
Greater visibility also provides a range of ancillary benefits. With more—and more precise—data being captured, companies are able to perform more sophisticated analyses. Is supply optimized to current demand levels? Could safety stocks be reduced? Are materials being held at the optimum point in the supply chain?
This leads to more proactive and cost effective operations. Greater visibility means a company can more efficiently position their products physically to serve their markets and customers. With such capabilities, a company could intervene to re-route products in transit from slow-moving sales or distribution centers to markets where demand or need is higher.
In addition, greater visibility gives companies the needed insight and confidence to operate with even leaner tolerances. A major cost within supply chains is the working capital required to finance inventories. Visibility reduces unknowns enabling lower safety stocks across the whole of the supply chain, resulting in significant savings.
Moreover, such systems can be configured to provide alerts and related information on an exceptions basis. That is, rather than flooding your staff with countless “this shipment's on time” notices, the system flags potential problems.
As vendors become leaner and supply chain complexity and volume increases, it is not practical or even desirable for a company to monitor every event or activity within the supply chain process. But working with supply chain participants and implementing appropriate technologies, business rules can be defined and technologies configured to automatically generate notices when conditions warrant.
Consider the following example: “This shipment was supposed to leave customs but it's still stuck here.” The business rule in this case: send an alert if there is no notification of the shipment leaving customs after two days. Or “this is only a partial shipment—the rest of your parts will be shipped in two days.” The business rule here: we need immediate notification of any variances, including partial, late or substitute shipments.
Or perhaps even worse but potentially more valuable, “This container just fell off the ship.” The business rule in this case: immediate notification of any catastrophic events. In the past, a customer might not be made aware of such an occurrence until the ship arrived at a port.
Delays in notification result in significant costs. At the very least, such delays tend to lead to expensive responses such as expedited air freighting of whole or partial orders. But even more catastrophic costs are possible. Delays in information could lead to halting downstream production, failing to meet obligations to customers, or perhaps even missing out on an entire season. In essence, time is money, and the longer it takes for such information to arrive, the higher the costs of remediation.
Getting it Done
The needed technologies already exist: ERP systems, electronic data interchange protocols, RFID tags, email, barcodes and scanners, to name the primary enablers. What's missing, however, are two of the most critical elements.
The simpler of the missing pieces is a visibility platform. These packages are capable of integrating with a broad range of data sources and communication protocols. Certainly, a company will want to do its homework with regard to providers. In particular, it will be important to compare one's own universe of freight handlers, suppliers, 3PLs, distribution centers, and customers to determine which vendor's solution is the best fit.
The more challenging aspect of building a transparent supply chain will be garnering the needed commitment and participation of all the various participants in your supply chain. It's not enough that the technologies exist. What becomes critical is that they are employed to deliver visibility and collaboration. And while the more global the supply chain, the greater the need for visibility, the corollary also applies: the wider the range of individual members' sophistication, orientation and motivation.
The way forward is to emphasize that this is a win-win proposition. Certainly, you do not want to devote your resources to manually tracking orders via phone calls or emails. But more than likely, that's probably the case with your suppliers as well—they don't want to devote their staff time to fielding such inquiries. There is mutual benefit. Once this view takes hold, it's possible to begin designing processes that will benefit both supplier and customer.
Of course, there may be many weak points in the information chain. Individual ports, trucking companies, or shipping lines might not be ready to participate. But through a process of incremental evolution, matters will begin to sort themselves. Gradually—sometimes rapidly—new or existing supply chain members see the light.
The basic idea is that suppliers begin to see the benefits of being part of an end- to-end relationship. With both you and your supplier now aware and committed, incremental improvements will follow along every link in the chain until a more or even fully integrated solution arises.
Ultimately, supply chain visibility initiatives deliver results that shareholders value. As demonstrated in previous research, paring costs, improving margins and reducing supply chain risks have all been shown to play a key role in building and sustaining credibility with shareholders. All three objectives are directly serviced by enhanced supply chain visibility.
Sharing the Benefits
The drive is to achieve greater levels of cost effectiveness—a reality made even more urgent in a down economy. Today's vast, complex, interdependent, and globally distributed supply chains call for a solution that embraces technology and collaboration. Today's technologies, in concert with appropriate processes, can be deployed to deliver synchronization across the whole of a supply chain. Visibility platforms enable all members to plug in, evaluate, coordinate and deliver more capably and efficiently against their respective responsibilities. In the end, closer collaboration benefits all.
Note: The views expressed here are those of the author and do not necessarily reflect the views of Ernst & Young LLP.
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