January 02, 2007

Supply Chain Visibiliy

Recently I have designing and building a supply chain visibility enabling software for our WMCCM marketplace We will be more fully testing and evaluating the system in the coming year, but some of the background is introduced first. (suggest that unless you are actually interested in this background, you skip it!)

Today, globalization and intense competition are increasingly forcing corporations to reconsider their business strategies. Monopoly and centralization in the marketplace are outdated and collaborative working environments are preferred and adopted. Downsizing and Rightsizing are the new developments and strategies being followed by many organizations. Firms now prefer generally to concentrate on their core competencies and outsource other non core business functions. One method for making these judgements is by comparing the transaction cost of doing it internally and externally. Rapid developments in information technology and systems have impacted hugely on reducing the transaction cost of dealing with external firms. [1] As a result, outsourcing has now become a trend which has made the supply chain complicated and its management more critical for organizational success.

Also, customer’s demands are continuously increasing as they always want more in terms of quality and delivery, but at a less price (Kotler, 2004). So, organizations are under tremendous market pressure to reduce the costs by improving the operating efficiency. It can be argued that the internal functional improvement initiatives like Lean Management, Six Sigma, etc. across the whole supply chain are not sufficient to have a fully optimized supply chain; in fact it may sometimes hinder other member’s performance too. As supported by Ross et al. (2005) that it is necessary for the organizations to take a supply chain view of what is optimum rather than managing a collection of optimised individual functions which together may deliver a sub-optimal supply chain. Like for example, reducing inventory holdings at the customer end may require the supplier to keep extra buffer stocks, hence the overall supply chain inventory remains the same. Hence, it becomes necessary to align functional objectives with the overall supply chain objective which requires tighter integration and visibility of the supply chain operations. However, there are several problems associated with integrating and visualising the supply chain which are outlined in the following section.

1.2 Introduction to Problems

The various problems associated with supply chain integration and its visibility, are discussed in brief as follows:

1.2.1 Uncertainty of Events

On-time delivery is very important for the success of the business. However, it is highly impeded by the uncertainty of events whether it is demand uncertainty or operation uncertainty. The occurrence of the uncertain events is necessary to be communicated across the supply chain immediately so that appropriate timely actions can be taken by the supply chain members to avoid the problem or at least be prepared in advance for it. This is however difficult to achieve in most supply chains due to traditional method of information flow which is slow as it passes from OEM to 1st tier suppliers then to 2nd tier and so on. There is also insufficient visibility among the members of the supply chain regarding who to inform, when to inform, and how to inform in case of unexpected events.

1.2.2 Incompatible IT systems

Information and data sharing across supply chain is very important for integration. A typical supply chain may consist of many businesses having their own internal application systems. These different systems across the supply chain may not be compatible with each other. Hence, they may not be able to communicate with each other that efficiently which is essential for gaining deep visibility into supply chain operations.

1.2.3 Temporary Nature of Supply Chain

Large companies are increasingly outsourcing some short-term projects which require different capabilities, not present in a single company. Group of companies, mostly SME’s doing such short term projects operate by forming temporary supply chain which needs to be integrated to work efficiently. Setting up the integration and visibility system across the supply chain in such a short period is difficult and also the Return on Investment (ROI) might not be there as the supply chain members will not get the benefit from the system in short time.

1.2.4 Information Unavailability

Information sharing among the supply chain members is very important for integration. However, to make the right information available to the right person at right time and in the correct form is the key to the integration success. Information sharing is sometimes difficult to achieve across the supply chain due to various reasons like lack of infrastructural support required for information exchange or sometimes supply chain members may not like to share their internal information with the outsiders.

1.2.5 Identifying Supply Chain Inefficiencies

It is very important to have visibility to find out where exactly the inefficiency in the supply chain come from so that informed improvement decisions can be taken accordingly. Also, one member’s inefficiency may affect other members in the supply chain too, so identifying the root cause of the problem is important and difficult too.

1.2.6 Developing and Maintaining Supply Chain Relationships

Managing interpersonal relationships with other organizations can be considered as the most difficult part of the business. Successful integration requires efficient communication, coordination and more importantly co-operation among the supply chain members. This requires good business and personal relationships among people across the supply chain which is difficult to develop and maintain as different kinds of people having different objectives are involved in communication. Poor communication and improper coordination between supply chain members may fail the integration initiatives.

1.2.7 Adversarial Blockages

Supply Chain Integration involves a major change in the ways of doing business. Earlier, companies in the same supply chain were competing to get maximum benefit from other members and so had adversarial kind of relationships. While now integration asks for collaboration and co-operation among its members so as to have Win-Win relationship. However, getting this change in the relationship is difficult to achieve as dominant partners sometimes find it hard to lose some of the benefits to others due to cooperation.

1.3 Ways to Tackle the Problems

Increased importance is been given by many companies to visualise the entire supply chain because of the benefits associated with it. Also, the dynamic market environment and the globalization of business have made the supply chain very complex to manage. Hence, companies are using different and improved ways to better manage the supply chain integration and visibility problems. The following mentions some of the ways to tackle the problems mentioned in the previous section.

1.3.1 Information Exchange Systems

For better integration, members in the supply chain can use common information exchange systems like Electronic Data Interchange (EDI), CORBA, Sabre, etc. which facilitate business data and information transactions across the supply chain. Mostly large companies use these systems as they are expensive and can be used for fast and reliable information sharing among supply chain members.

1.3.2 Software Solutions

Many ERP software vendors like SAP (www.sap,com), SSA Global (www.ssaglobal.com), PeopleSoft (www.peoplesoft.com), etc. provide Supply Chain Management (SCM) solutions as a part of the total EIS package. Mostly big companies like the OEM’s buy the SCM solution to have better integration with their suppliers. Another advantage of buying this as a part of the EIS package is that it integrates well with the other internal application system. SME’s normally don’t buy these solutions as they are expensive and requires high technical capability and resources to use it.

1.3.3. Web-based Solutions

Due to extensive use of internet by the businesses, web-based supply chain integration solutions have recently gained increased acceptance as a cheaper alternative to other ways. Vendors like WeSupply (www.wesupply.com) provide web-based solutions to help their customers solve the supply chain problems.

1.3.4 E-Marketplaces

E-marketplace serves as a platform for the firms to interact and communicate over the web. It also provides various web based collaborative services which can be used to solve the supply chain problems. It is an easy and cheaper way for the SME’s to integrate and co-ordinate their activities.

Thus, there are various ways in which the supply chain problems can be solved. However, the selection of a particular way depends upon the individual supply chain requirements. Based on this, the project aims to develop a visibility application to have better integration and coordination of the supply chain activities for the Small and Medium sized Enterprises.

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