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5 posts from March 2011

03/23/2011

Is Supply Chain Analytics The Next Big Thing In Business Intelligence?

In my previous post, I noted the importance of the renaissance of RFID across industry verticals and what this means for pharmaceutical supply chains in terms of elevating their current level of performance.  In this post, I want to focus on another emerging supply chain trend that seems to be gaining significant traction by allowing companies to increase operational responsiveness and flexibility.  This area, known as supply chain analytics, hopes to allow for supply chains to quantitatively segment multiple data points to make fact based predictive decisions as a means become “data driven” and improve operational performance.

Supply chain analytics, a somewhat nascent yet growing business intelligence platform, led by companies such as Teradata, is proving to be a powerful force.  While most companies across industry verticals measure supply chain performance based on what has occurred solely in the past through metrics, this approach will no longer be sustainable in the future.  By contrast, analytics ties future and predictive performance together by analyzing trends based on millions of data points gathered from operational transactions in real time throughout the globe.

The idea of analytics utilized within supply chain management becomes even more important as companies look towards cost containment and freeing up working capital, risk management, sustainability, and increased visibility within their supply chains.  Therefore, automating the entire supply chain through advanced modeling and predictive performance is not only here for today, but very well may be the way of the future.

The promise of supply chain analytics allows for “intelligent systems” to learn and adapt to how a particular supply chain is run and then make adjustments accordingly through advanced simulation and complex algorithms.  For example, this avant-garde system allows for predictive buying and selling patterns (i.e. what is the supply chain impact of a particular promotional event or seasonal trends) to coincide with the proper level of production, inventory, and distribution to more effectively align costs with revenues.  In addition, some companies are even using supply chain analytics software as a competitive advantage, to adjust their supply chains based on market conditions, weather patterns, or customer segments.   This ultimately provides the correct level of “end to end visibility” of the performance of each specific node within the supply chain in order to improve responsiveness, contain costs, and improve customer service.  Sophisticated modeling and analytics software may also allow companies to uncover data that may be overlooked within traditional ERP and CRM systems.

So what does this mean for pharmaceutical supply chains?  For one, it can allow for issues and risks to be predicted earlier, such as seasonal spikes in demand and optimizing inventory accordingly.  Perhaps this could allow for these supply chains to finally increase inventory turnover and velocity.  Or perhaps analytics could provide a catalyst for pharmaceutical companies to predict CMO or supplier performance, allowing pharmaceutical companies to work with their suppliers before problems arise.  While this is just a theory the basic premise is sound, using analytics  to make precise decisions with greater agility and speed while having a full understanding of why certain events may or may not happen.

Considering that this is still an emerging trend, we would like to know your thoughts on the future of supply chain analytics in the pharmaceutical industry.  Is your company currently utilizing analytics to align supply chain goals with corporate objectives?  If so, how is supply chain analytics software being incorporated into your existing technological infrastructure?

Jeremy Friedler

03/16/2011

Transparency Is Good, But Sharing Information Can Be a Dangerous Proposition

Raja Chandrashekar, VP of High-Tech Industry Strategies, JDA Software | January 24, 2011

Supply chain visibility has become one of those universal goals – like profitability or high service levels – that every organization wants to achieve. It is certainly easier  for businesses to ensure supply chain efficiency if they have real-time visibility into every aspect of their networks – including detailed information on products, suppliers, distributors, carriers and customers worldwide.

In order to achieve a high level of supply chain transparency, companies must share their technology systems and data with the dozens – or even hundreds – of suppliers, distributors, transportation carriers and channel partners that bring their products to market. This information may be seen by thousands of employees in every corner of the world. While there are doubtless benefits to be achieved, increased data sharing also carries an inherent level of risk.

Recently, global media outlets have been extremely busy reporting on damaging information leaks at consumer electronics companies known for carefully staged product launches. In June 2010, a detailed Windows 8 planning document was leaked, following a forum that Microsoft scheduled with computer and hardware manufacturers. A couple of months later, a Verizon Wireless inventory screen shot was posted online, revealing a number of new SKUs with specific model numbers, product features and even order quantities. Blurry Android product photos showed up elsewhere on the Internet.

With today’s competitive pressures, short product lifecycles and continuous innovation, companies cannot lose sight of one simple fact: information is power. A potentially game-changing new product design will not change anything if key competitors obtain classified knowledge. As such, it comes as no surprise that – along with broad visibility – secure information management is emerging as a core competency for supply chain leaders worldwide.

Leveraging S&OP for Secure Information Management

Just as supply chain technologies and associated business processes have enabled the broad collection and sharing of data, these same tools and processes can help to manage inherent risks that come with collaboration. Involving trade partners at the last possible moment though real-time demand sensing, decision postponement and inventory agility – all of which are foundational strategies for effective supply chain management – can help ensure the protection of sensitive information. But because many high-tech product components require six to 18 months of lead time, some companies must bring their suppliers on board early in the production process.

Supply chain leaders in every industry are demonstrating that data can be safely shared across multiple trading partners – as long as this occurs as part of a carefully controlled, tightly managed, collaborative sales and operations planning (S&OP) process that spans the global network. From the moment that new products are conceived and production planning begins, these leaders implement strategic S&OP activities that involve their trading partners. Technology supports well-managed S&OP processes by ensuring a high level of collaboration from key suppliers while controlling their access to sensitive information around end products, launch dates and sales forecasts.

Sharing POS Data to Strengthen Retailer Relationships

The balancing act to ensure that there is information flow, cross-company collaboration and supply continuity while keeping critical competitive information under wraps can be tricky. However, some businesses are emerging as leaders in successfully bringing innovative new products to market — both securely and profitably.

Due to its focus on identifying consumer needs at the individual store level, a leading consumer electronics manufacturer generates a wealth of demand and sales information every day. As part of a collaborative S&OP process it executes in partnership with its key retail partners, the manufacturer uses electronic data interchange feeds and other communication tools that provide store level point-of-sale (POS) information for all of its products. Data arrives daily and is reviewed weekly by the manufacturer. “Slicing and dicing” this information in various ways reveals demand trends across the company’s entire product portfolio down to the product model, retail channel, geographic region and individual store levels. In turn, these insights drive intelligent optimization engines to determine the most effective replenishment and promotional strategies in support of collaborative S&OP. These consumer insights also fuel future product development.

With this incredible level of visibility, the consumer electronics manufacturer has gained a significant competitive advantage and strengthened its retailer relationships. Its deep level of POS information allows the business to anticipate market shifts and monitor trends in real time.

However, this huge volume of data also presents risks to the business. Information security is paramount as the manufacturer collects and analyzes this information, sharing it selectively with retail partners to demonstrate its knowledge of their own shoppers. To protect this highly detailed consumer data, the company uses a number of closed-loop business processes, software solutions and user protocols to ensure that the information remains secure at every step. Both the company’s retail partners and employees are monitored closely to ensure that key data and insights are accessed only by those who have clearance to access this proprietary information. By building data security measures into its foundational S&OP processes, the manufacturer can safely collect and protect an enormous amount of sensitive market data.

Earning Customer Trust as a High-Tech Component Supplier

As a leader in providing premier power solutions to global electronics leaders – including Dell, Intel, HP, Samsung and Motorola – ON Semiconductor understands the complex security challenges of high-tech component suppliers. In addition to building its global supply chain for agility and implementing collaborative S&OP, which are essential when supporting consumer product launches, ON Semiconductor uses closed-loop business processes and secure technology to safeguard all component orders, delivery dates and other data that could be used by competitors to anticipate a product launch.

ON Semiconductor strives to meet the stringent demands of its high-tech customers. These companies value trust and collaboration as much as they value high-quality components and on-time delivery. Due in part to its robust, secure business processes, ON Semiconductor is a preferred partner of consumer products leaders and their global manufacturing partners – all of which rely on the company to safeguard their competitive information.

Maximizing Collaboration While Minimizing Exposure

Robust S&OP processes such as those used by the aforementioned supply chain leaders requires close partner collaboration and the secure exchange of valuable information. Organizations that want to adopt a similar approach should bear in mind these four suggestions to minimize risk when sharing supply chain information with their trading partners:

Synchronize and align product development with the rest of the supply chain. While many companies manage product development as an isolated activity, this is an area of the business where ongoing governance is most needed. The business rules, predefined partner roles, and permissions and authentifications demanded by a tightly managed S&OP process ensure that launch information is as carefully controlled as the rest of the supply chain’s sensitive data. In addition, the overall supply chain can be properly positioned to phase products in and out, which can otherwise create a great deal of stress on operations.

When launching new products, minimize the number of partners who are directly involved. Product launches are exciting events and it’s not surprising that organizations want to share information about their latest innovations with all of their trading partners in order to strengthen their relationships. However, most product launches require the active participation of only a few key partners — and going beyond that limited network exponentially increases the risk that proprietary information will be leaked.

Limit the amount of non-critical information shared with suppliers. Even when suppliers must be involved in prelaunch activities, organizations can make strategic decisions about when and how much information should be shared. The more sensitive the information, the more suppliers should be operating on a “need to know” basis. Suppliers play a key role in meeting launch deadlines, but do not need to know every detail about product features, price points or sales forecasts.

Maintain and enforce strict confidentiality agreements. Every company should manage its trading partner relationships via carefully conceived contracts that, in addition to spelling out roles and deadlines, should also include strict confidentiality clauses and penalties if they are violated. Such contracts remind partners that data security is a shared responsibility and that information access should be limited within their own businesses via passwords, authentifications and other security measures.

There is no question that new supply chain processes and technology have created enormous benefits. Today, information can easily and quickly be shared among a diverse, complex, geographically distributed network of trading partners around the world. Unfortunately, such speed and agility also create the possibility that sensitive information can be mishandled and shared with the world instantly – as shown in recent headlines. The “dual-edged sword” of visibility makes it imperative that organizations complement their speed and power with an equal measure of discipline and control.

03/11/2011

Manufacturers Need to Deal With Soaring Commodity Prices

Robert J. Bowman, SupplyChainBrain | March 07, 2011

The warning signs are there for all to see. Just last week, the price of oil topped $100 a barrel for the first time in three years. And, despite an upbeat message from Federal Reserve chairman Ben Bernanke, the Dow Jones Industrial Average dropped 58 points at the end of February, with investors clearly worried about the impact of higher commodity prices. Even without fuel and food, the recent release of the Consumer Price Index saw some of the largest increases in recent history.

You don’t have to look far to discover the causes. In addition to bad weather all over the globe, the remarkable series of popular uprisings across Northern Africa and the Middle East is threatening to topple any number of autocrats and aging dictators. And while that’s good news for lovers of democracy, the situation creates massive uncertainties about the future price and supply of oil and other key commodities.

But perhaps “uncertainty” is the wrong word. Because one thing is certain: fuel prices are going up. Don’t be shocked to see gasoline at $4 a gallon this summer, or crude oil passing the $100-a-barrel benchmark without slowing down.

In fact, oil is just one of many commodities that global businesses need to be worrying about right now. (Copper and cotton are also seeing big price increases.) The key to a successful supply chain used to lie in cheap manufacturing. Now it’s all about how you cope with volatility in commodity markets.

Manufacturers are responding by beefing up stocks of commodities and raw materials, locking into current prices. That strategy, according to the Institute for Supply Management, has been driving up inventories for some time now. (February broke a seven-month streak of rising inventory levels, ISM reports. Companies are borrowing for that purpose – yes, banks are finally beginning to lend again – and the resulting infusion of fresh funds into the U.S. economy threatens to fuel inflation. Which, of course, gives consumer-goods producers yet another reason to jack up prices at the shelf.

At times like these – just prior to what appears to be a big leap in commodity prices – smart companies like to engage in hedging strategies. Southwest Airlines is well-known for its forward-buying of jet fuel in the early 2000s, a strategy that served it well when oil prices soared, then backfired when they declined. Paul Martyn, vice president of marketing with supplier-management expert BravoSolution, says this is a good moment to be thinking about such a move again.

“It’s an interesting time to be hedging against long-term inflation, and at the same time keeping enough supply flexible in commitment to take advantage of ripe opportunities,” says Martyn. The question, of course, always remains: are we at the peak of this particular pricing trend in critical materials, or is there room for further increases? When it comes to oil, I haven’t heard anyone who believes the price is about to level off, much less drop.

Companies have paid the price of being too cautious in their inventory strategies before. Global demand for coffee fell off sharply in 2008 and 2009, Martyn notes, and suppliers reacted by cutting production. Then bad weather in Asia and Latin America caused a serious shortfall in supply, causing coffee prices to skyrocket. “An aggressive company could have gone in there and taken advantage by building up inventory,” Martyn says. “It would have been a dominant strategy.”

Which way to go now? Martyn says purchasing managers need to align themselves with finance and operations in order to assess the situation properly. Currency valuation is another possible area where hedging might be called for.

Whatever you decide, don’t do it purely for the sake of speculation. The goal of hedging should be to take risk off the table, not increase it, says Jason Busch, managing director of Azul Partners. It’s one thing for Apple Inc. to buy up most of the world’s supply of flash memory or LCD touchscreens for its iPhones and iPads. That’s to ensure that the company has enough capacity to meet demand, while squelching similar efforts by its competition. Or maybe a high-tech manufacturer has a chance to pick up extra supplies of a rare earth metal like tantalum, which is in perpetual short supply. But if all you’re doing is playing the commodities market, “that’s bad,” Busch says. “Speculation is a game for traders, trading companies and investors.”

Hedging also entails some accounting issues. Busch says the purchaser needs to mark an asset at its current value on a quarterly basis, which is fine if the locked-in price remains below market levels. But if the company’s long-term cost begins to exceed the market rate, then the implications on its balance sheet can be severe.

In any case, there’s more than one way to engage in the hedging of commodities. “The most important thing is creating transparency,” says Busch. “It’s critical to understand not only what you’re buying, but what your suppliers are buying as well.”

The answer might be as basic as solidifying long-term relationships with suppliers. Those who make the effort find themselves with access to key materials when stocks are low, says Martyn.

Right now, with commodity prices and consumer demand on the rise once more, the biggest risk for manufacturers is doing nothing. “History has shown that those that walk confidently and firmly are the ones that take advantage of these upswings and can launch their companies into a decade of success,” Martyn says. “Those that sit on the sidelines as prices increase whittle away their advantage.”

03/08/2011

Addressing the Technology Gap to Improve Visibility in Cross-Docking

Young Chul Kim, Director of U.S. Product Management, TAKE Solutions | January 17, 2011

Cross-docking has emerged as a popular strategy for third-party logistics providers and organizations with extensive distribution networks. The practice of immediately converting inbound deliveries to outbound shipments offers significant financial and operational advantages. Specifically, it reduces inventory costs by eliminating intermediate warehousing activity. It also improves delivery times by making shipments instantly available for delivery — without the delays incurred by transferring shipments to and from a warehouse.

Effective cross-docking requires continuous real-time visibility of shipments as they move from the supplier to the end customer. Unfortunately, even with warehouse management modules supporting cross-docking installed, traditional enterprise resource planning technology doesn’t offer the real-time visibility and accountability to optimize cross-docking efficiency. Because of their focus on the financial impact of business activity — including shipping, receiving and warehouse operations — ERP applications essentially overlook the importance of real-time visibility for efficient cross-docking of shipments.  Furthermore, typical ERP systems string traditional transactions to be executed automatically to emulate cross-docking, without providing granular details specific to the cross-docking transactions.

Without the ability to track shipments on a real-time basis down to the level of individual parcels companies can lose control over inbound materials, increasing the potential for duplicate shipments, delayed shipments and other errors that can offset any gains in efficiency.  This functional technology gap poses a significant challenge for 3PLs and distributors. Without tracking and tracing capabilities designed specifically for cross-docking, companies risk building up excess inventory and incurring the administrative overhead required to receive and process “rogue” shipments. Companies simply don’t know the status of cross-docked items, which in turn means they can’t fully control the flow of shipments from suppliers to customers or troubleshoot missing, duplicate or misdirected shipments.

Even with an existing ERP investment, organizations that want to achieve best-in-class performance in cross-docking will need to fill the gap with an additional supplier technology that addresses three key operational priorities for cross-docking activity:

• Visibility. Real-time shipment status, location and delivery time information available to customers, suppliers and third-party logistics providers.

Traceability. Up-to-the-minute historical records of shipping activity, down to the individual parcel level, to isolate errors and bottlenecks, and simplify troubleshooting as it pertains to cross-docking.

Compliance. The capability to enforce rules and standards that ensure shipment accuracy, timeliness and approvals.

Ideally, the solution should include an integrated combination of cross-docking components with real-time tracking and tracing capabilities to improve visibility, centralize receiving and distribution activities, and capitalize on the efficiency gained by consolidating shipments and optimizing delivery schedules. Consider the following “must-have” cross-docking solution checklist to help continuously improve key performance indicators and the customer experience:

Advanced Labeling. Suppliers must have the capability to generate labels meeting the requirements of the customer and the 3PL. The label should include a unique identifier — or parcel tracking number — that provides ongoing visibility of shipment status and history.

Distinct Tracking Database. Information on cross-docked shipments should reside in a distinct database that provides the audit trail on individual shipment status and a view of shipping activity spanning all suppliers.

Mobile Data Collection Devices. Because effective cross-docking requires the coordinated actions of a widely distributed team, mobile data collection technology is essential. Handheld devices should allow drivers and shipping and receiving personnel to scan inbound and outbound shipments slated for cross-docking. The handheld devices can communicate directly with the tracking database via a wireless connection or store-scanned information for batch uploads to the database at a later time. The devices should also feature the applications that enforce predefined receiving, delivery and cross-docking parameters designed to minimize shipping errors and subsequent returns.

Supplier Sweep Support. Cross-docking is focused on the receiving, staging and shipping of data in an optimal way from multiple suppliers. Often, 3PLs and organizations with extensive distribution networks want to extend the receiving process to their supplier to manage pickup to ensure just-in-time receipt to the cross-dock. Ideal cross-docking solutions support supplier sweep pickup of inbound materials to the cross-dock. While cross-docking is an appealing practice for companies looking to maximize supply chain efficiencies, it follows the same basic rule as other data-driven supply chain practices: You can't improve what you can't control. To achieve best-in-class cross-docking performance, companies must ensure visibility, traceability and compliance. Adopting this strategy delivers significant financial and operational advantages.

Milk Run Delivery Support. Many complex companies want to manage the delivery of cross-docked goods in the same system to synchronize the data and ensure traceability of each part. Cross-docking systems should support the ability to control part delivery and ensure delivery to the correct location and even, if applicable, the correct person.

Validation and Reporting. The cross-docking system must feature the search and reporting capabilities that allow a central administrator to perform end-of-day validation on materials on hand and delivered to help minimize any misdirected or duplicate shipments. The capabilities must support consolidation of information across suppliers and customers and allow the administrator to drill down to information on individual shipments.

Returns. The ideal cross-docking solution will also create a unique identifier that provides similar visibility and traceability for the returns process. Handheld data collection devices must also enforce compliance with agreed-upon returns policies.

While cross-docking is an appealing practice for companies who want to wring every drop of inefficiency out from their supply chains, it follows the same basic rule as other data-driven supply chain practices: You can’t improve what you can’t control. In order to achieve the utmost performance in cross-docking activity, organizations should complement existing ERP applications with integrated capabilities in the areas of visibility, traceability and compliance. Otherwise, expect to run the risk of multiplying the same inefficiencies that cross-docking is intended to address.

Source: TAKE Solutions

Executive Reporting: Understanding Inventory Performance Over Time

SupplyChainBrain | February 18, 2011

Analyst Insight: A remarkable number of executives attempt to manage large inventory investments with lots of data but very little information –just pages full of numbers, none of which is very meaningful without (often significant) effort. And, frequently, it’s just data from the current period, minimizing the possibility of understanding whether performance is improving or declining except by working from memory at the very highest levels. The firm’s owners, and the executives in charge, deserve much better.

–Ralph Cox, principal at Tompkins Associates

Surprisingly, in some very successful firms, the simplest questions are the most difficult to answer – basic questions regarding inventory cost and customer service performance. For example, reasonable questions, like the following:

“Are our order fill rates up for every safety stock class in each DC over the same time last year?” or

“Were our promotion lift forecasts more accurate for all product families this fall than they were last spring?”

If the answer is “no,” the next question is sure to be “why?” Then the emails commence. Heaven forbid that the executive would want to understand to what extent each of the underlying driving forces or root causes contributed to any change.

The lack of easily accessible, meaningful information and the associated impediments to insight into inventory performance over time is a weak link, waiting to fail and hurt the bottom line. Selecting what to report and, perhaps more importantly, at what level of product, organizational and logistical aggregation to report and with what drill-down capability is an art.

Creative and thoughtful exploration of options – especially with the actual figures – can yield important possibilities. Having useful reports that provide quickly comprehensible performance change from season to season is a necessity for good inventory decision-making. The best reports are graphical and dynamic via the use of menus.

 

The Outlook

 

Business intelligence and data warehouse query tools have great potential for assimilating data and displaying just what is needed. The best of them are flexible and easy to evolve as events unfold – a crucial differentiator. However, the first step is recognizing the importance of viewing and understanding performance over 12 to 24 months to provide context. Then, expect clearer information from your systems and organization. The data is all there, but you need understanding – something infinitely more valuable.