Every year, and sometimes several times a year, we get asked by our clients to help with their multi-tier supply chain challenges. And no wonder. Suppliers are generally burdened with some extraordinary time scales when they ‘own’ the product. Recently, outsourcing and other procurement strategies have reduced physical and financial touch points to some degree. But the fact remains that the span of control, or orchestration of value creation, is still their responsibility. And the brand companies have the most to lose if the overall cost and effectiveness of the supply chain is not managed well.
The trick is to reduce not just the physical but also the information cycle times, by mastering the digital time zones. Long-time friends will see some things they recognize here.
Beyond MRP, which systematized and standardized planning, we had our real big break-through in the mid-1990s with APS systems. Well implemented, with significant data cleansing and improvement of process and policies, these systems could reduce the planning cycle time by 100% to 200% or more!
This allowed the firms that implemented these technologies to not only reduce their inventory, but also provide a faster, cleaner signal to their suppliers, thus reducing overall inventory across the participating supply chains (Figure 1).
Multi-tier with “e-commerce”
Along came the web and the opportunity to collaborate. As practiced by the leading firms today, e-commerce or collaboration (now commonly thought of as web 1.0) was a leap forward, allowing trading partners to work in a network. Inter-operability has allowed us, once again, to shorten cycle times (see Figure 2). Here you see the evolution to a web-based planning environment.
Just “shuttling data” quickly back and forth does not make the web multi-tier. The challenges are not as different as you might think. Certain clients have challenged us due to the inter-enterprise nature of today’s world vs. the vertical example. Yes, in many ways it is different and we will explore those differences below. Some believe that working across the enterprise to synchronize planning might be easier. But for many corporations that were based on mergers involving different product lines and divisions, this work was harder. “Corporate directives” were easy to ignore and difficult to implement.
But let’s dispel that myth quickly. Suppliers are generally much more motivated to support improvements in planning. Most have their eye on the bottom line and know that they need to cooperate in the chain to be a player. And in today’s world, we have gone a long way in industry standards and the interoperability of system interfaces to ease the transition to collaborative systems and processes.
However, part of this change was cosmetic, a mere redistribution of inventory to other partners. No doubt the overall level had gone down, but certain participants had a higher ratio of inventory (Figure 3) in the overall chain. That cost is still part of the overall supply chain costs—all of it—for a healthy chain. Each partner in the chain must make a profit.
In the recent down-turn, we saw some best practices by some of our customers that ‘supported’ some of their small but essential suppliers, and also in some cases had to cast off others. It was sad to watch those. When the music stopped, as it has in many cyclical environments, someone was left without a chair. Other unfunny nursery games come to mind. The cheese stands alone, with the cheese left holding the inventory, cannot be a strategy for long-term viability of markets. The overall market has to support the cost of the chain. This means that we have to innovate constantly in process, technology, and understanding, to assure profit for all at the right price.
Into the Clouds
Working in the network has had the benefits of reducing working capital, reducing the financial touch points, limiting the time an asset sits on your books, as well improving forecast accuracy. But there is so much more to running a business and succeeding in this Second Decade!
It is interesting to note that the migration to On-Demand or now called Cloud is not complete. Discussions abound on customer segmentation, supply chain visibility, and real-time data, but few have actually taken the leap. Interestingly the technology is less of an obstacle. In our recent research, when we asked the respondents what their obstacles were, profound inertias were stated, such as organizational inertia, being in tactical fire fighting mode, and lack of manpower.
Often we hear these. Often you hear these. And that is a huge issue – familiarity breeds . . . inaction. We get used to things as they are, and change doesn’t happen. This is the biggest issue facing the so-called developed economies (or ‘old’ companies) right now. Not so with emerging players. They are leap-frogging ahead, absorbing lessons learned, and implementing new technology approaches and new demographics.
So How Is Cloud Enabling Multi-tier?
Our research on several fronts (such as Single Version of the Truth) showed a desire and willingness to create a new model for process and technology to share ‘single instance’ data, and to work toward supply chain-wide processes (Figure 4).
We have had several decades of collecting data from ERP, Auto-Id and now web customer and marketing automation systems, pricing systems etc. Each is stored in its own stovepipe system. Cloud, with multi-tenant architecture, provides the opportunity to share and analyze massive amounts of data.
We need to learn how to learn about the uses of this data . . . and learn about partnering.
Creating a true understanding of the dynamics of Supply Chain, and a strategy that incorporates these understandings, are the key to moving the organization forward. Until management has incorporated these understandings of the dynamics and how to use decision making tools, there will be a resistance to moving forward. Training on how to run software is usually part of a Supply Chain program. What isn’t part of the training is why we manage this new way. Training is how. Education is why.
When management gains an understanding through the education process, it will have a comfort factor that it can win the game and achieve the company’s goals. This also holds true of supply chain organizations that are part of the total. The effects will be better quality of product and management decisions, and speed of the product to the customer.
Just sharing data does not mean that the other supply chains have the knowledge to rapidly move forward. They also must have the comfort factor of knowing how you are going to use the information and how will it benefit their organization. The education process must take place across the total supply chain to be truly effective in the 21st Century.
Multi-tier needs to think about value creation—not just lean
An important concept in multi-tier environments is that we need to enrich each real value-adding stage, not just a single node to off-burden cost. Many leading firms have done this, and in the short term it might have helped their balance sheet—no argument there. But now we have some challenges. The best brands you can think of are struggling with these. Suppliers have multiple customers just like themselves. In order to gain efficiencies these ‘suppliers’ may have blended their purchasing and inventory. Segmenting your availability vs. others they serve may be difficult.
From the Suppliers side, you cannot rely on good quality demand data from your customers, though you should always strive for it. (And you might achieve it with the right encouragement). It is best to do your own market research, understand your market and know that brand companies may win or lose share to each other, but that customers probably will buy some kind of running shoe, or desk top computer, etc. In other words, the Market size vs. who has the share may vary. If you supply several competitions, your business may be stable through their competitive ups and downs.
Value perceptions, pricing and its practices vary. Multi-tier needs to come to terms with the distribution of costs (inventory carrying costs, transportation, etc.) as well as the accumulation of cost, and the creation of the market price. Price erodes too quickly on many product segments due to poor practices across the chain and even a great player in a poor chain can suffer price erosion due to these practices. So it behooves all companies in a chain to take the initiative and work toward supply-chain wide improvements, reducing cycle times throughout the chain to the market.
Suppliers suffer from markdowns and returns if product does not meet market timing or desire. And they take their channel partners with them. The converse is also true: poorly distributed, presented and sold product also takes the whole chain down. With today’s market dynamics a Supply Chain’s cycle time is a very effective weapon to dampen its effects. One cause of the Supply Chain’s protracted cycle is the management decision process. No longer can a monthly planning cycle be tolerated. The management process for decisions must be integrated into the Sales and Operational planning.
The Sales and Operational Planning process must be supported by a technology that enables management to simulate the effects of proposed changes. This allows for rapid decision-making to align the supply chain with changes in the market place. It has been said, “The management decision is a decision with insufficient information and time.” We have to close the information and time gap in our decision-making, and simulations will significantly close those gaps. If the cycle time of the Supply Chain is fast enough, the gap between customer demand change and its effects will be greatly reduced and the company bottom line will be enhanced.
You see the retail side striving to be more involved with sourcing/product design (even if not private label) and working toward new product introductions into the market place. And we also see more effort by suppliers to reach into the end customer base with methods to capture customer data and build relationships than reach ‘over’ the channel partner.
Managing…Time, Technology, Processes and Methods
|Process/Methods||MRP II||Value Chain-wide|
|On Demand Services||Supply Chain Orchestration|
|Performance Basis||Cost Accounting|
|Return on Assets||Return on Invested Capital||Working Capital / Free Cash Flow||Shareholder ValueRisk|
|Technology||Mainframe or Department Computing|
Bar-coding / Scanning
Monitoring Control Systems
|PortalsWeb 1.0||Pervasive Technologies|
RF / Smart Technologies
|Cloud Computing- Again! |
Scalable Multi-tenant databases
|Applications||MRP IIIntegrated Financial||APSERP||WebSOA tools||Trace/ provenanceIdentity||Self Service|
Emergence of CMS
Emergence of 3PLs
|Vested Outsourcing Source: ChainLink Research|
Conclusions: Managing the Digital Time Zone
- Technology has evolved from enterprise to e-commerce platforms to ‘single instance’ clouds, but few companies have taken advantage of these migrations to share data and reduce their information cycle time.
- Digital time zone opportunity poses a new way to work. Applying 20th century partnering techniques in the 21st century won’t work if you expect collaboration.
- Knowledge management of the 21st century should be applied in partner relationships. These are immersion and games that can teach successful collaboration.
- Performance as a ‘distributive’ issue—supply chain-wide cycle times, value-add, inventory measures across the chain that reduce carrying costs and improve working capital, lack of price erosion, market share, and time to market—need to be committed to as a trading partner
We have created really useful models for these with customers and it can work to improve the total supply chain competitiveness.
Production Planning Technology webinar
Demand Management Technology for Retailers report
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