The Visible Supply Chain

The Visible Supply Chain Ensuring end-to-end optimization White Paper sponsored by Aligning Business and IT to Improve Performance Ventana Research Headquarters Ventana Research Europe 1900 South Norfolk Street, Suite 280 2nd floor, Berkeley Square House San Mateo, CA 94403 Berkeley Square, W1J 6BD London info@ventanaresearch.com europe@ventanaresearch.com (650) 931-0880 44 (0) 20 7887 6012 © Copyright Ventana Research 2007 Do Not Redistribute Without Permission Ventana Research – The Visible Supply Chain Table of Contents Visibility Needed ......................................................................................3 What Visibility Contributes.......................................................................3 The Visible Supply Chain ..........................................................................4 Technology Pathways to a Visible Supply Chain .......................................4 Strategizing for Supply Chain Visibility ....................................................6 About Ventana Research ..........................................................................6 © Ventana Research 2007 Page 2 Ventana Research – The Visible Supply Chain Visibility Needed Today’s supply chain is, of course, the primary processing mechanism of every manufacturing company. But it’s more than that: Its multifaceted, multicompany, multinational structure makes it the most complex management challenge found in any enterprise. Supply chain management no longer means just making sure that the right resources and the right materials move to the right place at the right time. Today, it also means ensuring that the entire chain of events involved in producing goods and distributing them to customers satisfies customers, minimizes costs and maximizes profit. Clearly, managing a supply chain in this fashion requires information, but exactly what that means is not obvious. Merely pushing information about partners or products into a report that lands on a manager’s desk every day will not achieve the goals. Nor will a dashboard, even if it delivers that same information in real time. What today’s supply chain managers need instead is a supply chain that is visible. “Visibility” in this case means that data about the supply chain is delivered in a way that enables managers to know whatever they need to know whenever they need to, at whatever level of detail they need, and that allows them to analyze the data and take action based on the results of their analysis. The essence of supply chain visibility is the ability to know the location and status of all physical components, from raw materials to finished goods, as they move from suppliers through the stages of production to delivery to customers. Defined this way, supply chain visibility is a tall order, but some of today’s IT systems can meet it. This paper will describe the characteristics of a visible supply chain, explain why having one is important and discuss the technology resources that can deliver it to you. What Visibility Contributes Business performance management relies on data that is readily accessible to managers, but data accessibility alone is not sufficient to make the supply chain visible. It is truly visible only if the data is accessible within a context that gives it meaning and can make it useful as part of a decision-making process. Context is especially important in today’s information-rich enterprise environments because it is easy to overload users with too much data, from too many sources, presented to them with too little context of how it relates to other data and business processes and activities. In addition, most business decisions today require collaboration, so visibility also requires that the information be shared among colleagues. And visible systems offer users an analytic framework within which they can work with their information. Business intelligence (BI) systems are frequently used as the analytic tools of choice because they can pull data together from disparate sources and make sense of it, which is necessary in creating a visible information environment. The analysis enhances visibility by providing an additional context for the information. For example, if a manager does an average unit cost analysis of a product component and sees that it is costing more than the minimum amount the organization contracted to pay, he or she can then take action to analyze and correct © Ventana Research 2007 Page 3 Ventana Research – The Visible Supply Chain the problem. Analysis of the component-ordering pattern can determine where quantities can be adjusted to meet minimum pricing requirements. Then the company can use its enterprise resource planning (ERP) system to adjust the component ordering pattern and the manufacturing workflow for that product. Finally, visibility in systems includes the ability to act on the information and the analysis provided. If the data is accessible and available in a meaningful context, and if both primary users and their cohorts can share and analyze it, they have what they need for decision-making. Finally, a visible environment is complete only if it also enables users to act on any decisions that are made. The Visible Supply Chain Today’s international, multifaceted, multiple-partner supply chain makes creating a visible information environment to support it both difficult and necessary. The complexity of supply chain structures and the amounts of data they generate create the need to implement a visible supply chain. Supply chain managers thus must find ways to make their diverse and far-flung manufacturing and distribution initiatives more visible. Other pressures to control supply chain processes come from both external and internal sources. Externally, one source of that pressure is customer demand, particularly for products sold worldwide in markets that are very competitive. When operating at that scope and in such markets, visibility is essential, but gathering and managing the information that enables demand to drive the manufacturing and distribution processes is a complex job because it likewise is dispersed widely. Internally, cost pressures make finding low-cost suppliers and managing their participation in the supply chain a business imperative that can be executed most efficiently when the processes are managed through a visible supply chain. Implementing other cost containment programs such as scrap minimization, efficient transportation systems and inventory reduction similarly require a visible supply chain, as do creating and managing initiatives such as distribution programs that meet delivery goals, component quality initiatives and effective target marketing programs. Then there is the issue of aligning the supply chain itself with corporate strategy: To maximize the contribution that the supply chain makes to overall enterprise performance means that supply chain decision-making has to be both deft and on target, which is another ongoing source of pressure. Ventana Research believes that supply chain visibility can enable supply chain managers to meet these pressures, and that the creation and maintenance of supply chain visibility should be part of an overall performance management strategy. Technology Pathways to a Visible Supply Chain A visible supply chain can be implemented by using technologies that are readily available and in many cases are already in place in manufacturing enterprises. Most supply chain data is managed in a combination of the ERP system and specialized software for supply chain management (SCM). To make these technologies work in a visible supply chain environment, key technologies must be added to the mix: © Ventana Research 2007 Page 4 Ventana Research – The Visible Supply Chain dashboards and other tools that can track materials and product flow in the supply chain, and information access and business intelligence tools for analysis. Modern dashboard technology applied to a visible supply chain gives production and distribution resource managers the ability to see both numerically and graphically what is happening in their areas of responsibility. In a properly visible environment, cohort managers can see their own data as well as data from processes that affect their work, even though they are not responsible for managing them. In either case, the dashboard user can drill down to find the root causes of the behavior of the monitored resources. Updated data from intra-enterprise ERP and supply chain systems often is available in real time or within one day. Recent research from Ventana Research has shown, however, that even where a local ERP system is in place, data often is not available to managers that quickly. This limits visibility into the supply chain and is a problem that should be corrected. When data from intra- and intercompany sources is not immediately available to the supply chain management system and the dashboards its managers use, the cause may be a delay involving interfaces to an external partner. The delay may also be the result of recent merger activity or a lag in the implementation of modern IT systems in certain divisions.