Not so long ago, effective supply chain management (SCM) meant staying abreast of orders, inventory levels, even raw materials and parts supplies within the confines of a manufacturer's four walls. Yet fast forward a decade and the game has completely changed, driven primarily by globalization and the rise of outsourcing.
Today's manufacturers have multi-tiered networks of suppliers, partners and customers, all of them playing a pivotal role in how the manufacturers bring their products to market. Factor in the economic downturn, customer demand changes and a multitude of possible supply chain interruptions, and manufacturers are looking at a much more complex picture. Traditional enterprise software platforms like ERP or SCM are not equipped to deliver the end-to-end visibility and controls a manufacturer requires in order to optimize its supply chain from the standpoint of both cost and operational performance efficiencies.
"Back 15 years ago, an ERP system gave you good visibility into where everything was within the four walls of your company -- everything from where parts were to what was on order," said Anil Gupta, principal at Applications Marketing, a consulting firm. "As companies started outsourcing and more core business functions moved outside the four walls, ERP no longer had visibility into all of that. Companies now need inter-enterprise processes and visibility, and they need access to information that is not necessarily within their company."
The number of partners composing a supply chain network is certainly on the rise, according to a Supply Chain Benchmark survey by Gatepoint Research and E2open, a provider of on-demand, multi-enterprise demand-supply network solutions. More than half of the 4,000 respondents reported having in excess of 500 component suppliers or manufacturing partners. Of that broad network, 44% of respondents said they had deficient visibility into tier 1 suppliers, while 75% confirmed they had insufficient visibility into tier 2 and tier 3 suppliers. More than 80% of respondents admitted they hadn't yet automated -- or had only partially automated -- their supply chain processes.
Much of the problem lies with the fact that there is no single definition of supply chain visibility, nor is there a well-defined product category of solutions. Rather, the definition of supply chain visibility depends on what kind of manufacturer you're talking to, according to Noha Tohamy, vice president of research at AMR Research, a Gartner company. A high-tech manufacturer, for example, would probably describe its need for visibility from a supply-side perspective, as a way to do rapid planning and stay on top of what's going on with contract partners, Tohamy said. On the other hand, a consumer products manufacturer would view supply chain visibility from the demand side, in terms of leveraging downstream or point-of-sale data to come up with better forecasts and eventually to optimize inventory and sales.
Yet supply chain visibility on its own isn't enough to make a business case for a project, whether it involves purchasing enterprise software, on-demand supplier network solutions or doing custom integration to sync up existing business systems. "Visibility alone is a very difficult thing to justify -- it's just the starting point of being able to effect change," said Trevor Miles, director of industry application marketing for Kinaxis, which markets an on-demand software solution for supply chain visibility and sales and operations planning. "The fact that you have the information doesn't mean you've been able to make decisions based on that information. Once you've worked out what the information means and what to do about it, it's at that stage that value is delivered."
To make a successful case for supply chain visibility, manufacturers need to zero in on the most relevant pain point for the business and build the case for visibility around that. For instance, for manufacturers dealing with contract outsourcing, having real-time visibility into interruptions that could affect product delivery or quality levels can help manage customer expectations, reduce returns and provide overall better service. For manufacturers of packaged goods, being able to collaborate with suppliers and share real-time forecasts and demand data can help reduce inventory on hand and improve order fill rates.
"If you're a company or supply chain investing in a supply chain visibility solution, bring it back to a very concrete business benefit you're expecting," Tohamy said. The business owners expecting benefit from the initiative should work in tandem with supply chain management, the CFO and high-level representatives from IT to make the business case for supply chain visibility projects. It helps to pick one spot to start and hook that project to the CEO's core mission.
"Check out what the CEO is doing and hook your star onto that," said Ann Grackin, CEO of ChainLink Research, a research and advisory company specializing in supply chain issues. "What the corporation is driving to -- that's how you pick your first project."