IT consultants are often called in for the labor-intensive IT system transitions, and supply chain redesign is one of the biggest and messiest. A supply chain redesign affects not only your company but partner companies as well, and their job is to keep everyone on the same page. That's tough to do when each company must become more compatible with all the others, and competition between technologies and methodologies can break out at any moment.
Consultants try to enhance your investments by contributing several "go-the-extra-mile features" that can be implemented across a wide range of platforms, distribution scenarios, and enterprise resource planning (ERP) packages. Each of the redesign suggestions below is worthy of a detailed article in itself, but for now they'll serve as a means of stimulating creativity in the process. They may act as a foot in the door for the consultant seeking to significantly enhance a planned supply chain systems overhaul.
Before looking at these, consultants have a snapshot of what you're shooting for. In abstract terms, supply chain redesign centers around these goals:
- Reduce lead times to become more competitive in today’s time-based market competition.
- Reduce costs.
- Accommodate an expanding range of customer interfaces.
- Accommodate new methods of interface for the procurement of parts, materials, transportation resources, etc.
Because you're responding to pressures to adopt these requirements and accommodations, supply chain redesign can be generally characterized as reactive rather than proactive. It’s here that consultants try to make a difference. In reacting to these pressures, they try to encourage your client to become proactive with these suggestions.
1. Replace the linear supply chain with a dynamic supply network. The traditional supply chain is linear. At one end is a customer; at the other are sellers of raw materials. In between, you’ll find any number of participants, including one or more manufacturers, peripheral materials and parts suppliers, distributors, brokers, and others. What’s wrong with this picture? It’s out of date. It's configured for serial transmission of information (purchase orders, invoices, ship notices, promotional info, etc.), which introduces delays. With the delays come the introduction of error, which compounds with each added step (this is sometimes called “the Bullwhip Effect”).
On top of that, human decisions in this system are also linear, serial, and time-bound. Linear supply chains isolate data and decisions, and generate delays and data errors. Finally, the traditional hedge against these inconveniences—inventory—is a direct result of, and one of the costliest consequences of, supply chain inefficiency.
Consultants may propose an alternative: a dynamic supply network. They'll point out that the market no longer permits the errors and delays of the linear system. By using a dynamic supply network, you don't have to bear the expense of unnecessary inventory or the burden of credits and chargebacks from customers and other downline entities for invoicing and allowance errors that inevitably result from uncoordinated information.
It works like this: One company in the chain (most likely your company, unless there’s a good reason why it should be another one) will serve as a hub for the entire supply network, with information coming in to the hub from customers and, from there, disseminating outward to other participants. In other words, information coming in to the supply chain is no longer transmitted one-to-one, but one-to-many; better still, information sent back to the customers (data upon which you'll base ordering and forecasting) will also be one-to-many.
The advantages of this are immediately clear: There will be far fewer opportunities to introduce errors into this information; it will be far more timely, allowing ordering cycles and lead times to shrink; the databases of all parties will be more tightly synchronized, leading to fewer invoicing errors; and the planning processes of all parties will be far more accurate and efficient.
What do you need to pull it off? A leadership or strong support commitment from your client, with respect to the other parties in the network; a dialog pursuing common business standards upon which to base the sharing of information in the network; and the technical skill to implement the data distribution hub (that’s where you come in).
2. Implement dynamic logistics management. A problem with supply chains in general, and especially in today’s multimodal markets, is that conventional accounting systems—cost accounting in particular—are not designed to accommodate the rapidly changing logistics that emerge in the fast-paced order fulfillment environment today. There is increasing fluctuation in the cost of creating and delivering products, as customers' options for ordering and purchasing diversify and the speed with which materials and transportation resources may be acquired increases. Put simply, there are many paths to take in creating and delivering a product, and it's becoming increasingly necessary to create many paths simultaneously as a product flows along an increasing number of distribution channels.
A consultant will propose that both budgeting and costing can be made more accurate, despite the inadequacies of the in-house accounting system, which tends to have accounts organized by department and cannot hope to cope with multiple logistics scenarios in assessing total cost of production and delivery, especially not when these things can change mid-process now.
The solution can have varying degrees of complexity. To take the simplest route, you can generate a dynamic logistics grid, outlining the various possible production/delivery channels that accommodate each type of customer. With this grid, you can pursue one of several projects:
- Encode the “business rules” of each logistics channel for each customer type into the database(s) that store the cost data. You can do this with stored procedures, constraints, or database event triggers. You can’t alter the in-house cost accounting system, but you can provide that department with contextually appropriate data.
- Create a supplemental integrated costing database for the cost accounting process. It will need to draw information from a number of department-specific databases and will require feedback mechanisms for confirming changed items. In addition, you’ll need to create and implement a coding system for categorizing logistics data by distribution channel and by customer. But since you’ll be adding value to the processes of every department affected, you should get a reasonable level of cooperation in this.
- Create a company-wide interface to distribute relevant supply chain logistics data (a Web site is an obvious choice). This interface permits real-time participation of parties whose knowledge affects specific distribution scenarios for specific types of customers. It could also extend beyond the company, providing real-time reporting to other companies in your supply chain, and would obviously be the front-end interface for the database described previously.
3. Consider strategy and tactical options for managing lead times. Cost accounting seldom extends as far as attaching a specific value to the expense of time in the product manufacturing and delivery cycle, but any competent manager in the loop will tell you that it should. Everybody wants lead times tightened. Rapid product creation and delivery makes for happy customers, and forecasting becomes less necessary, as does inventory.
What can you do to help trim lead times? Well, first you need to understand the causes of your lead times, and this requires some real legwork. Whatever your position in the chain—manufacturer, parts supplier, distributor—you can make a strong contribution toward reducing lead time in the chain, and that benefits everyone.
Basically, supply chains are “pipelines” seen as linear even if they're not (as in the dynamic network described above), because the biggest lead-time generator is a one-to-one relationship: time-to-manufacture from procurement-of-materials. Whatever the supply network configuration, whatever the forecasting/ordering process, however information is distributed, the bottom line is that you can’t make a product if you don’t have the parts.
To make a long story very short, if you can perfectly synchronize manufacturing lead time to procurement lead time, you’re operating at peak efficiency and you can provide distributors and customers with time-to-delivery estimates that will keep them happy.
There are clear advantages of linking manufacturing lead time to procurement lead time: faster response time, more accurate delivery estimates to distributors and customers, lower inventory. You can create an interface between manufacturing and supplier(s) with the goal of continuous information sharing. What information should this be? Availability of materials, obviously, and time-to-availability, where significant. If this information is current and immediately accessible, the manufacturer can plan production with great precision and report time-to-manufacture to the rest of the chain with greater confidence. Everybody wins.
A Web site fronting a shared database is one way to go with this; mutual read-level access to portions of each other’s databases is another. Figure out what’s appropriate for your situation, and push for it.
Scott Robinson is a 20-year IT veteran with extensive experience in business intelligence and systems integration. An enterprise architect with a background in social psychology, he frequently consults and lectures on analytics, business intelligence and social informatics, primarily in the health care and HR industries.