In Part Two of this series, Controlling the Uncontrollable, we looked at technology attributes to provide visibility and control. Here in Part Three we discuss the benefits.
In this series we have been painting a vision of a new modern supply chain system that is an anywhere, anytime, always on and very very smart system. This is enabled by digitally connected people, places and things. We know that we all want one, but the buying community — supply chain and IT managers — are struggling with defining a value proposition to begin the journey beyond traditional enterprise systems.
Think about it, point of sale today is anywhere the customer is. And if we promise same-day service — anywhere, anytime, then our organization and process needs to be organized around this new reality. If we wire up our products with sensors to detect a need for service, then the expectation is that we will respond to that signal — immediately. So we need that always-on supply chain. When we are on the road as well, we are dealing with constant challenges and changes that may require our urgent attention.
All this calls for a greater level of precision. If we know precisely what, where, who and the context in which things happen, we can fine tune — with precision — what the appropriate response is, allowing us to organize an optimized response. That precise visibility also allows us to induce or prevent creating or sustaining value. Specifically this means:
- Saving resources — people, inventory, equipment
- Improving service levels
- Increasing sales and revenue
- Improving working capital
- Reducing risks.
Let’s look at a few areas where use cases and validated benefits are playing out today.
A big challenge for logisticians is the execution intermodal/inter carrier logistics which entails moving multiple resources to a site in precise synchronization. Examples include intermodal transfers and in-transit merge, warehouse consolidations or pooling. Drivers and workers sit idle when shipments are late. Expensive resources — equipment, laborers, rail cars, trucks — consume working capital when they sit idle. Delays in end-customer arrival impact on-time metrics which results in fees and fines, expediting, and other costs associated with unscheduled consumption of capacity (demurrage, container usage, accessorial charges, labor costs). Shippers pay fines when shipments are late to customers; carriers lose revenue; and inventory sits!
Once shipments leave ‘our control’ from the four walls systems, the modern inter-enterprise/location-aware technology takes over. The key for business is to participate in multi-party platform environments since an enterprise-only solution just can’t have the context data as well as the trading partner attributes needed to pull all the data together to actually monitor the many many factors that may need to be understood.
Not just time and resources reflect expense, but the actual value of the goods may depreciate due to disrupted or inefficient logistics.
Consumers are becoming very concerned about the freshness and quality of products they consume. Higher-value perishables like pharmaceutical biologics or time-sensitive assets like emergency spare parts require even more attention. Managing high-consequence shipments requires continual monitoring to ensure that the current conditions are positive, and routes are navigable, safe, and secure. Here on-time and high-quality guarantees, if not met, cost money. If goods are damaged or lost en route or mishandled, often multiple parties — suppliers and their customers — lose out.
Working Capital Management
Cash is king. And in supply chain, preserving and increasing working capital through advanced supply chain practices is the mandate! The key to unlocking working capital is compressing cycle times, which can reduce inventory and free up capacity. In the past we did not have tools to explore and fix the many cycle-time issues since, as we are discussing, they were beyond our control.
- Inventory lead time and safety stock — Safety stock levels are often set based on lead time and lead-time variability. Lead-time numbers entered into planning systems are often rough estimates, not actual lead times. This can result in excesses or shortages. With actual data, real transport lead times can be used to calculate safety stock. With visibility, finding out where the variability occurs can be used to diagnose and fix the issues at those recurring trouble spots, thereby reducing both lead time and variability, and hence, inventory levels.
- Title transfers — Companies often pass the title too early or too late, due to relying solely on latent transactional notification (e.g. EDI). The precise data showing the current position of vessels and vehicles can determine precise hand-off points. This ensures transaction financial compliance while increasing supply chain liquidity.
Ultimately acting on precise and real-time information will result in reductions in lead times and variability which can reduce inventory by several days of supply (freeing up working capital), while maintaining or improving services levels. Supply chains become more responsive to the markets they sell into, also improving demand response.
The cost of risk is one of the highest expenses in supply chain/logistics. Billions of dollars are spent on insurance1 — property, causality, errors, equipment failures, lost inventory, damaged or stolen assets, and personal injury plagues the industry.2 Moreover, consumers and, therefore, the enterprise are requiring visibility from source markets as well as shipment/product traceability.
Over the last few years there has been a plethora of regulations from Consumer Safety Protection, the Lacey Act, and Dodd Frank/Conflict Minerals as well as new FDA regulations that all require increased track and trace on products. Rather than just seeing these as a bureaucratic burden, the data collected could be used to control the quality and safety of the supply chain.
Continuity of Supply
Of highest concern for supply chain managers is avoiding disruption of supply. Precision counts. Though one can become rapidly aware of major events like earthquakes, floods, or political unrest, the relevancy of these events may not be understood. But there are also transient issues such as traffic or weather that may be harder to detect. Large or small, the question is: do they impact your supply chain? There usually are complicating or compounding issues that ultimately determine whether resources or employees will be impacted. They are not obvious from mere public weather or other alerting systems. Each year, due to our global supply chain structures, firms have had an ever-increasing rate of impactful events. No industry has remained untouched. A factory explosion, an ice storm, or a major regional event can delay or shut down the supply chain.
The data sources to understand these come from a variety of data sources — both private and public. Here again, the impact on time to market and keeping commitments for on-time delivery can be high. For most companies this is the first order of business.
Conclusion — Gaining Control
Central to this series is the idea of using information to gain control of events outside our four walls or enterprise systems. Yes, there is a place for enterprise systems, but in the supply chain we are defacto, talking about things beyond the enterprise domain.
This will require adopting multi-party platforms and subscribing to new types of data sources such as weather, social, and consumer intelligence. But to actually gain benefits, processes will also have to change.
Better data and the analytic engine to understand it will help provide the insights to see where and how processes should be changed.
Better data also means more time. Having more time to deal with unexpected events or high-consequence conditions means having fewer operational risks and more opportunity to improve supply chain responsiveness. Having more time means better, more thorough communications with team members and trading partners. Having more time means more efficient and productive use of resources. Having more time is seeing and seizing more opportunities. More time provides the means to contemplate more transformative changes to processes, only talked about today, making the enterprise more competitive.3
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References on the ChainLink Research website:
Always On: Peak Performance for Nonstop Businesses.
My Demand Management Manifesto
RFID or IoT
The World of Integration
Managing Cyber Risk: Not Just for Big Retailers
Supply Chain Risk and Its Impact on Equity Volatility: Kevin Hendricks and Vinod Singhal
The Journey to Visibility
Social Data Mining: Beyond Sentiment
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Other research and articles on the ChainLink Research site:
Other white papers by ChainLink:
1 Ocean carriers and logistics firms spend millions per year on insurance premiums. In fact the maritime and logistics sector is not only the oldest but still the largest sector in the risk industry. As well, the shipper or consignee may add additional insurance for their high-value freight on top of whatever the carrier is paying, that can cost a mere $50 up to thousands of dollars per shipment — for each shipment. New forms of risk products such as Catastrophic, Business Continuity or Supply chain policies add more cost each year. — Return to article text above
2 Each year, over 500 commercial vessels are involved in accidents — from fires on board to collisions; statistics vary on containers lost from the low of 650 up to 10,000; there are also over 400 piracy attacks; environmental disasters, though rarer, have an even higher and longer-term impact. And estimates on loss of life are in the hundreds, what to say of injuries in the thousands. — Return to article text above 3 Examples include rerouting/allocating inventory to different customers or locations to meet current demand. Retailers and OEMs alike state that with better visibility and control across the whole process they could reduce cycle time by days to a week or more, allowing lower safety stocks and higher responsiveness to market. Thus more sales with less working capital tied up. — Return to article text above
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