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Mining for Gold

April 1, 2005
There's valuable information hidden in the data collected by software systems. Today's supply-chain execution systems can help extract the gold from that mountain of ones and zeros.

Today's supply-chain execution systems (SCES) can report uptothe-minute revenues, track minute-by-minute pick quantities, tell managers which employees are the most productive, and check supplier's inventory availability along with a host of other information needed to manage a company's supply chain. These software programs also offer analytical tools that can help managers be more proactive when it comes to improving their material handling processes.

Many executives still use spreadsheets to view performance data from their operations. It's a common approach that causes them to miss a lot of information that could help streamline processes and prevent problems. Such spreadsheets often require manual labor to collect the data, adding delay as well as inaccuracy to the process. In addition, these spreadsheets may only present one piece of data. For example, one customer of supplychain software provider RedPrairie Corp. (Waukesha, Wis.) used 50 spreadsheets, each containing a single piece of the data, to manage its supply chain.

Newer supply-chain software can also present data in the familiar spreadsheet format, but these programs will gather information-directly from floor activities and put them together in one screen view.

"Now, those 50 spreadsheets have been condensed down to one and those managers look at one screen and see charts and graphs updated in near real time with all the information and how it interrelates to the other supply-chain processes," says Nyle Morrison, "value delivery leader" for RedPrairie.

Programs that push data onto manager dashboards have been around for a while. "What was missing," continues Morrison, "was the ability to drill back into the data via software." Earlier programs informed managers that something was happening, but managers wouldn't know specifics without calling back to the plant. The newer programs automate this task with their ability to drill down to the floor level.

The programs pull data from bar code scans, radio-frequency transmissions from handheld computers, put-to-light and pick-to-light acknowledgements, transmitted shipping data, and any other processes. Using sophisticated algorithms they then analyze the data and present it as graphs and charts so managers can see trends quickly. Depending on the system and how managers setup the screens, they can pull data across the entire supply chain. Managers should look for supply-chain programs with flexible tools that will create views and reports specific to their business.

"Because material handling processes involve a mountain of data, a flexible system is key to sorting through them all," says Chris Heim, president of HighJump Software, a SCES supplier based in Eden Prairie, Minn.

Some programs offer a feature known as "data cubes," which are repositories that collect specific data. For example, managers can build a cube for labor in a given operation. The program collects that data, analyzes it and presents it in a graphic format. "Based on the information from that cube," says Morrison, "a manager may want to change product mix, change a layout, or change whatever. Then, as the new data come into the cubes, he can see the effects of the change immediately on the computer screen instead of waiting days, weeks, or even months to see the results."

Management must decide how often to they need to look at the data. "We find the data helpful in tweaking operations, which we do about every six months or so," says Mary Teehan, director of information technology, Direct Fulfillment, a third-party logistics provider in Robbinsville, N.J. "But that can change on a client-by-client basis.

"The warehouse," continued Teehan, "uses the system for fast-moving items or high-frequency items to replenish forward pick locations. It also shows slowmoving items, helping managers determine if they can be moved back off the forward pick."

The Hershey Co. analyzes its supplychain data daily. "The managers designed the programs to display information to their workers on the floor, via RF terminals and displays, to let them know whether they are ahead or behind their projected performance for that day," reports Gene Wier, senior consultant, St. Onge Co., York, Pa., who worked on a project for the Hershey, Pa.-based candy maker. "These programs inform management as well as the line people, giving everyone a level of visibility to see whether the department is performing to the standards set. It's been extremely useful in managing day-to-day operations of that facility."

"We have some customers that use these programs to self tune on a daily basis," adds HighJump's Heim. "One customer examines their backlog of orders that must ship that day. If the backlog gets too high they're changing work patterns and FIFO flow to optimize shipment. These programs enable self-tuning, which can be done hourly. Just don't stay focused on hourly progress; don't forget to examine the long term-trends too."

The data management capabilities of supply-chain execution programs can also help companies manage inventory in new ways. "In the pharmaceutical industry, for example," says Wier, "several pharma companies will not take ownership of inventory. They leave it to their suppliers to manage the demand. By providing Web portals on the demand, suppliers have visibility of their customers needs, and they manage their manufacturing processes to match those needs. The suppliers responsibility is to not over ship."

Many SCES programs allow users to design Web-based portals between them and their suppliers or customers to send and receive data on inventory status, material used, and various manufacturing processes. This automates demand tracking. Supply-chain managers can see whether a customer's inventory needs replenishing and respond before they call, or they can see whether a supplier is running low on material and contact a back-up source before a shortage occurs.

Savvy managers can use these visibility tools to find their supply-chain blind spots. For example, offers Steve Christensen of the Warehouse Distribution Solutions Group of Symbol Technologies Inc., (Milwaukee, Wis.), a case might be scanned the first time when it hits a store, even though a manager may know that it went through a distribution center.

"If you're making decisions based on the assumption that data are 100 percent complete, the fact that you're missing data on the case's whereabouts from the time it left the manufacturer and went through the DC could be important," says Christensen. "For one thing it shows where you don't have data. For another, it shows you where you could be making bad decisions."

Gold In, Gold Out
While SCES programs do much of the data collection and analysis, like any information gathering system, what goes in matters. Managers need clean data and need to determine which metrics are important to track.

"Create a good set of metrics and maintain them, that's key to any successful system," says Bill Hubacek, director of distribution technologies, FKI Logistics (Emeryville, Calif.). "If you can measure it, you can keep metrics on it. Then you can see whether you are improving or falling back. By maintaining these metrics you can see where improvement needs to happen next."

Analyzing processes to determine that baseline can be an involved process. Fortunately, some SCES software can help by defining leading material-handling metrics. Another option for establishing baseline metrics is to hire a consultant.

"Not only can consultants handle documenting operations, they can also help define what you want and need," says Wier. "Once these wants and needs are explicitly identified, then the consultants can evaluate software vendors and examine the usefulness of their products to see if they meet the operation demands, or determine if you need to look elsewhere."

Most managers who track metrics compare this information against past performance. The next step is to compare performance against industry benchmarks.

"Take labor, for example," says RedPrairie's Morrison. "A key benchmark is cases per hour throughput in your operation. A typical industry average is say X number of cases per hour. But it's different for each industry. I think one of the key problems for executives when they set up their measurements is that they don't know what they're measuring against."

According to Heim from HighJump, many managers benchmark performance against others within their vertical market segment. Believing that they have become best-in-class in a particular vertical, whether it's automotive, retail or pharmaceutical, some are even looking to other channels to see if there's anything they can gain there. "We're seeing more of this cross-vertical benchmarking," he says.

Once they have a set of metrics to watch, managers can build and add to those metrics as processes improve.

Incremental Change
Once metrics are established, and they are regularly being analyzed, managers need to make changes. Rather than make expensive sweeping changes, experts suggest making changes at the edge of operations. Try a pilot implementation and keep it external to the company's primary processes.

"This achieves several things," says Symbol's Christensen, "one of which is to minimize risk. You don't want to expose your existing business systems to change because of the risk, until you are sure of the cost of that risk."

Another option to changing in increments is to simulate the changes before rearranging equipment or installing new processes.

"Simulation software has been deployed successfully as a functional and a strategic tool," says Vivek Bapat, director, supply-chain solutions marketing, Rockwell Automation (Sewickley, Pa.). The SCES data is used as the starting point for the simulation, which can show the potential impact before any changes are made. Based on the results, managers may decide to make small changes at the edge of processes or go ahead and make full-scale improvements.

To get the most from supply-chain execution systems, users must connect and integrate them with other business systems and other departments.

"But, one of the main problems we see consistently across manufacturing, is that data are still being silo-ed," says Darren Riley, senior business consultant, Rockwell Automation, (Milwaukee, Wis.). "The mechanisms to move data within an organization are not enabled. Part of the problem is one of data ownership." Orders and inventory, for example, are managed from a financial viewpoint while day-to-day warehouse activities are viewed from a shop-floor focus.

"The other factor," continues Riley, "is that integration tends to be done only out of necessity. It's costly and time consuming, and managers do it only when they have to rather than strategically. Plus, many companies can't do a lot of integration and process improvement because they're lean, and their people [are] spread thin enough as it is."

Some departments may not need to be involved in the supply-chain integration. Others are crucial but are too often left out. One example is the factory. Warehousing, distribution, and other supplychain components need to tie back into manufacturing to achieve real benefits. Bapat says manufacturing operations are often left out of supply-chain integration plans. But to have on-time deliveries managers need to know whether sufficient-quantities of a product were produced. For example, a company may capture point-of-sale data and feed that instantaneously into its enterprise resource planning (ERP) system. But if it doesn't tie that back to the manufacturing floor, it won't be able to control work-in-process or the factory inventory.

"You won't be able to communicate back to your supplier's supplier, and the whole supply chain breaks down," says Bapat.

Supply chain execution software pulls data out of applications and places it into charts and graphs either supplied by the software vendor or designed by the customer.

Material handlers can use simulation software to try out changes before actual implementation.

Better Data Enables Better Picking
Direct Fulfillment is a third-party logistics provider based in Robbinsville, N.J. Its services include direct-mail marketing, inventory management and order fulfillment, primarily for pharmaceutical companies. The company ships 15,000 packages and handles 5,000 incoming customer calls each day. It mails two million pieces of personalized mail each month.

In the late 1990s, the company was growing faster than its IT systems could manage. The manual warehouse operations and lack of inventory visibility and order status began to hamper order fulfillment and operational costs, labor in particular, escalated. The company used a homegrown order/inventory management system that eventually became too limiting due to continual customization.

"We weren't getting a lot of information on picks and times," says Mary Teehan, director of information technology. "We couldn't go down to an employee level short of someone sitting down and watching them."

Managers began searching for a warehouse management system (WMS) that would work alongside the existing Microsoft SQL Server database. Direct Fulfillment selected HighJump's Warehouse Advantage. With this Web-based system managers can hire temporary workers and track their productivity as well as that of permanent employees.

Average quality performance accuracy—a metric that assesses accuracy for pick/pack/ship activities, inventory management, receiving and put-away—has increased to 99.5 percent. Labor costs have dropped by 10 percent through the elimination of manual, paper-based processes. Workers are told what to pick in real time using handheld radio-frequency equipment.

Warehouse Advantage's wave-planning function speeds picking and throughput by grouping orders according to picker and order. The result has been a 12-percent reduction in order-pick time, in addition to a 25-percent reduction that the firm achieved through process optimization initiatives.

"HighJump provided key screens, but we also built custom screens and custom reports," says Teehan. "Each department has its own set of reports."

The WMS system also lets managers quickly and cost-effectively adjust business processes to meet changing requirements. Now that it is more nimble, the company can accommodate value-added services for its customers, such as assembly, product sampling and literature dissemination.

"Our executives use the data to understand what the profit will be for the next month," continues Teehan. "As the month progresses, we see order volumes and the characteristics of the orders varying. We bill on a per line basis or on a per order basis depending on the client. I'm also able to give prospective clients the types of data we have and can collect, which I think gives us an edge in the market. Not many companies can provide this type of information.

"We did a vast improvement in the order-pick logic, but we couldn't measure its success until the HighJump system came in," continued Teehan. "Our next goal is to batch orders even more intelligently, reducing the number of picks we need to make."

Managers at Direct Fulfillment, a third-party logistics provider, use warehouse management software from HighJump to track employee productivity and picking levels.

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