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Vision and Visibility Govern Global Supply Chains

July 17, 2006
"I think it's safe to say that what we're seeing is the strategic focus of supply chain management has fundamentally shifted from cost and quality to

"I think it's safe to say that what we're seeing is the strategic focus of supply chain management has fundamentally shifted from cost and quality to risk management and continuity of supply," says Peter Scott, vice president of marketing and corporate development for Exostar. During the last downturn, he points out, companies focused on reducing the number of suppliers they had and concentrated on cost and quality. Now, corporate executives are worried about single points of failure in their global supply chain — and that may not be with their facing supplier, it could be two or more tiers deep in their supply chain.

Carl Brewer agrees that visibility is key. The president of Integrated Warehousing Systems says companies with extended supply chains want to "kick out the walls" of their warehouse and apply the mature tools they have for managing inventory, location and controlling receipts to leverage the times they own inventory and keep inventory levels in closer line with demand.

Operating beyond the four walls of the warehouse presents some added challenges, agrees Scott. Not the least of these is how to implement the technology that will support the supply chain, provide visibility and still be accessible to all of the supply chain members while maintaining data integrity and security.

If the technology decision is bilateral, says Scott, the cost profile will dictate implementing only with big partners. For the large number of companies with whom you do relatively little business, cost is only one of the factors affecting efforts to gain visibility. Brewer points out that many overseas suppliers are capacity constrained when it comes to technology. It could be they lack the expertise, or they may lack infrastructure.

Having a single source of truth is important, continues Scott. Both he and Brewer agree the complexity of involving multiple tiers of suppliers and customers in supply chain visibility are crucial but complex. Getting everyone to agree on and implement common tools is a daunting task. Both agree it doesn't work to take the "big stick" approach and push your system onto the entire supply chain. For most suppliers, you won't be the only one pushing a technology platform or agenda and, if you aren't a major customer, you may not get a welcome reception or willing compliance.

Supply chain visibility was more hype than reality in the 1990's and 2000, says Jim Preuninger, Management Dynamics. Then it was one or two major companies doing something, but it wasn't mainstream. Now, more companies, and smaller companies, are taking an active role. Price and complexity dictated that only major companies with large supply chains could justify the tools. Many companies relied on their third party logistics company (3PL) or freight forwarder to provide what visibility they had. Then, even electronic data interchange (EDI) could get expensive on the basis of a cost per transaction.

More and better control of suppliers and inventory in transit were drivers then, says Preuninger, not security. But what was "good to have" in the past is increasingly a necessity, especially when you consider companies are saying global trade was 5% of their overall business 10 years ago and it might be as much as 50% today — visibility and security along the supply chain are critical.

With the focus back on inventory and the need to compress cycles, taking five days out of a cycle is a big thing, Preuninger observes. But taking days out puts risk back in. You want to establish a process that sets thresholds for alerts for each customer/supplier, he notes. You want to be able to adjust where those thresholds are set for different commodities and different scenarios. Lead times aren't four days, they're 40 days, he observes. If a shipment gets held up and you don't know about it until the 41st day, your recovery time is pretty narrow. If you have a supply and demand mismatch nine weeks out, it's a different level of alert from an imminent stock out or missed shipment.

Don't just use the information to avoid imminent catastrophe, develop the analytics to allow you to review chronic problems, he continues. Inventory is the "hot potato," continues Preuninger. "I want to own as little of it as possible and I don't want to own it any longer than I need to. But if lead times went from four days to 40, there's a lot of opportunity there for savings if I can reduce safety stock."

One global pharmaceutical company achieved tactical benefits from efforts to improve visibility, says Preuninger. When something goes wrong, the system can send an alert and someone can fix the problem. Before, he says, it was "just a black hole and you didn't know about a problem until you missed a delivery date." But on a longer range, more strategic level, supply chain execution and visibility helped with planning. "You get a lot of good data about how cargo moves, the performance of suppliers, logistics companies, and you can break it down by commodity, by season, by trade and by mode of transport." Now the company can drill deep inside those former black holes and uncover their inefficiencies. If necessary, says Preuninger, the company can try moving consolidation or deconsolidation centers, change the mix of suppliers or narrow or expand the stable of logistics providers. In pharmaceuticals, government oversight is very intense. In a couple of years, the company was able to wring out $200 million of inventory through added efficiencies.

The further back in the supply chain that you can go, the greater the opportunity, says Preuninger. But with that opportunity comes complexity and new risks in security. On the one hand, there are a multitude of supply chain execution systems, extending down to operational subsystems that come into play. Getting those to communicate is one issue. Making them secure is another. In a given month, Exostar's Peter Scott notes, they probably have 6,000 to 7,000 suppliers actively logging in to work on different transactions. "We have about 23,000 registered suppliers on the system," he adds.

With customers like Boeing, Lockheed, Raytheon, BA Systems and Rolls Royce and their aerospace and defense suppliers and customers, security is a paramount concern. Major hosted applications like Exostar have evolved their links to the multitude of execution systems. The cost of putting a robust " security wrapper" around all of that can be a deal breaker.

Verifying sources can be critical, especially for defense contracts. Scott points to examples where shipments were held up because the prime contractor couldn't certify that the metals that went into the core product came from the appropriate countries. On the other end of the transaction, it is equally important to ensure that the receiving party is authorized to receive the goods. This involves denied party screening, not only on goods shipments but also on sharing intellectual property like drawings and design specifications. And, says Scott, the U.S. government is also very interested in nationalities.

No one gets into the system that hasn't been invited, says Scott. The individuals are provided with credentials that may allow them to read files but not download them. Or, certain individuals can be given full rights to edit files. In addition, you want to be able to audit to see what a person did and where they went in the system.

Security on systems likes Exostar's require two-factor authentication. It's not just a user name and password, says Scott. You have to have a "digital certificate" which the system operator provides, and that has a much higher degree of vetting, Scott continues.

The time is past for the historical mindset that "my supply chain is mine and I don't care what else they do in their business," says Scott. In the extended global supply chain, it's not just about finding the low-cost source, he continues, "you need to start caring that you are being a low-cost customer to serve because there's only one place for suppliers to pass those costs on if you're going to increase their cost of doing business."

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