[From iSource Business, June 2001] The word coming from auto dealers into DaimlerChrysler's U.S. headquarters in Auburn Hills, Mich. last fall was that -- once again -- fickle consumers were going for an interior color trim that confounded the automotive giant's forecasts. Orders coming in showed an unexpected increase in demand for one color and a drop for two others. The message to the supply chain: shift gears, folks.
In the past, such a change in the carmaker's parts requirements would have taken two weeks to filter from the car manufacturer down to the tier-one supplier of the interiors and further down to the tier-four mill that produced the cloth for the interiors. That's 14 days of labor and materials that would have gone into producing the wrong materials. Or, looking at it another way, 336 hours before DaimlerChrysler's supply chain could start producing what consumers wanted. But under a pioneering pilot program designed to give its supply chain greater visibility into its production requirements, DaimlerChrysler was able to communicate the change in consumer preference to its interior trim supply network in just 24 hours. That adds up to 13 days spent producing to consumers' preferences and a truckload of savings for the entire supply chain.
Visibility: Hazy, with Increasing Clarity
Supply chain visibility is fast becoming one of those ubiquitous catchphrases that pops up in every press release coming from the B2B enabler community. But, like the near-cliched collaboration, visibility is a genuine issue for companies trying to make the most of their supply chains. The technical and cultural obstacles to attaining visibility are numerous and not trivial and, as the example above illustrates, the potential benefits are also very real. No solution yet exists to provide a complete view of the supply chain, but that hasn't deterred a few forward-looking companies from working with enablers to attain a greater degree of supply chain visibility.
The first thing you realize when you start investigating the issue of supply chain visibility is that the phrase has different meanings for different people, depending on where those people stand in the supply chain and which way they are facing, upstream or downstream. Kirsten Cloninger, an industry analyst with research firm Cahners In-Stat Group, offers this definition: From my perspective, it's really the ability to see what's going on in your supply base, from the raw materials end of your supply chain all the way out into your demand chain and the needs of your consumers.
So for a chief purchasing officer and others on the production side, having visibility probably means knowing inventory levels at the company's suppliers and the suppliers' manufacturing schedules and capacities. Marketing chiefs and their sell-side colleagues want visibility into the demand chain: what do the company's customers want, how much of it do they want, where do they want it and what sales channel is most appropriate for that customer? Transportation managers and those on the fulfillment and execution side want to have a clear picture of where the company's inbound and outbound shipments are at any given moment. For all these supply chain stakeholders, the benefits come down to faster time-to-market, reduced inventories (and therefore lower costs), higher quality and greater customer satisfaction.
Visibility is certainly not a new concept, as Mike Kanze will tell you. Kanze, C.P.M. (certified purchasing manager) and A.P.P. (accredited purchasing professional), is a 30-year veteran of procurement and currently president of Cornerstone Services Inc., a consulting firm that helps senior management at small- and medium-sized enterprises increase the productivity of their purchasing departments. Kanze recalls his days in procurement at Procter & Gamble, where a purchaser charged with buying, say, a conveyor would trace the supply chain back to the hole in the ground that produced the bauxite that went into the aluminum for the conveyor¹s framework. On the fulfillment side, Sandy Orr, vice president of e-commerce at logistics provider Ryder System, notes that visibility has traditionally been important in the transportation business: It's always been critical, even back in the days when you were tracking the trailers on the whiteboard with the telephone.
The difference today is that new technologies make accurate, real-time information flows theoretically possible, both within an enterprise and, more important, between enterprises. Why theoretically ? Because the technical and cultural obstacles to greater supply chain visibility remain frustratingly significant.
Blocking the View
The technical challenges to a clear view into your supply chain include both data and content issues. Data are critical because visibility assumes a smooth flow of accurate information between trading partners. The problem is not just moving data from one computer system to another. Rather, it's moving information through multiple systems both within an enterprise and among partners. Even when partners do establish bi-directional connections, they must ensure the information they are transmitting to each other is mutually intelligible, requiring the adoption of common standards and nomenclature.
At a more fundamental level, real-time visibility assumes a high level of automation among all partners in a supply chain and a continuous (or at least near-continuous) data flow, which is something that might not be possible for companies using the type of batch processing typically associated with electronic data interchange (EDI).
The cultural obstacles may be even more daunting than the technical issues. For example, buying organizations looking to gain greater visibility into their suppliers' inventories may encounter resistance among suppliers reluctant to take on any additional expense or work that might be required. Going after information about a supplier's suppliers could raise the specter of disintermediation or, should the buyer take an interest in the supplier's cost structure, a price squeeze. On the other hand, the buying organization might hesitate to share proprietary information relating to demand or planned products, and purchasers may find it difficult to move from the traditionally antagonistic buyer-supplier relationship to one that is more (dare we say it ) collaborative, with the value shared among partners.
Despite the obstacles, changing market dynamics continue to push increasing numbers of companies toward greater supply chain visibility. In a consumer-driven economy, the time-to-market and cost reductions that greater visibility affords are compelling competitive advantages. No enterprise has reached the Holy Grail of 360-degree visibility, but the following examples show that a few companies are putting in place the technologies and relationships necessary to gain a better view of at least part of their supply chain.
A Step Toward Visibility
DaimlerChrysler has been putting supply chain visibility into practice for years -- to a point. Under the Chrysler group's longstanding Extended Enterprise Initiative, the company had built extensive EDI connections and some Web-enabled applications with the first tier of its supply chain, giving these suppliers a view into the original equipment manufacturer's (OEM's) material requirements, production schedules and forecasts. But beyond the tier-ones, the suppliers' view of the automaker's requirements was considerably murkier, resulting in lost cycle time and production delays that reverberated down the chain.
In early 2000, the company's Global Procurement and Supply Group formed a team called e-Extended Enterprise to explore ways for DaimlerChrysler to apply new technologies to improve the current process or to create new processes. As part of this program, a team working on an initiative called Supply Network Collaboration took on the challenge of fine-tuning the process for moving information out from the OEM all the way down the chain to critical-components suppliers, giving suppliers visibility into DaimlerChrysler's requirements.
The traditional way that information has moved in the automaker's supply chain was not conducive to efficiency, according to Greg Wise, a senior supply specialist working on the e-Extended Enterprise team. Suppliers receive information from the tier above, process it through a material requirement planning (MRP) or enterprise resource planning (ERP) system, and then release it to the next tier down. As a result, by the time the information gets to the critical-components suppliers -- the key links in the supply chain for particular commodities -- they have little or no time to react and have to resort to firefighting methods of management, as Wise puts it. The Supply Network Collaboration initiative is aimed at giving suppliers a real-time view of the OEM's requirements, allowing them more time to react to any changes that occur.
To test the visibility concept, last summer the automaker ran eight-week pilot projects for two commodities: a body stamping and an interior door trim panel. The pilots' objectives included testing a supply chain software package to determine whether it could really provide the type of visibility DaimlerChrysler was looking to achieve and gauging the reaction of the company's suppliers to this type of initiative.
The automaker's first task was to identify the critical-components' supplier for each of the two pilot commodities. Each supply chain is different, Wise says. You may get down to a tier-two supplier and realize that's where your critical components are coming from. You may go down to tier four or five before you realize that you have mapped the whole critical part of that supply network. For the body stamping, tier two was far enough, while for the interior trim it was tier four.
Not surprisingly, DaimlerChrysler found that various tiers in the supply chain operated at differing levels of technical sophistication. Says Wise: We are connected virtually 100 percent with all our tier-ones via EDI. That level of sophistication obviously doesn¹t exist as you go down through the lower chain. The need to accommodate these different levels of technology dictated DaimlerChrysler¹s requirements for its visibility solution: low-cost, relatively simple, user-friendly and Web-enabled systems, so that lower-tier suppliers could access information flowing down from the OEM using only a desktop computer and a Web browser.
The process of gaining supplier buy-in for the pilots began at the top. DaimlerChrysler alerted its first-tier suppliers for the chosen commodities that the OEM would be talking with the tier-twos, tier-threes and so on. Then the automaker contacted the different tiers, described the pilot, explained the objectives and invited all the suppliers to come to DaimlerChrysler's offices for a presentation on the pilot's implications for the suppliers. The car company followed up with field visits to the suppliers' locations to present the project more broadly within each organization. Supplier response was favorable, Wise says, as soon as we showed them what our intent was and the fact that this tool was going to make the whole supply chain run smoothly.
Although the pilots were limited in scope -- just 10 suppliers participated in all -- they produced radical changes in information flows in the selected supply networks. By logging onto a central Web site, suppliers were able to see requirements for the parts they provided, with the information presented using the part numbers and unit of measure applicable to a particular supplier. Equally important, the information flowed directly from DaimlerChrysler to all players in the affected supply chains. In the case of the body stamping, DaimlerChrysler's parts requirements moved to the tier-one supplier and to the tier-twos. But information could also flow back and forth among the various suppliers at the various tiers. Data movement was equally dynamic among suppliers in the interior trim supply chain.
The advantages to this type of communication became clear when orders coming in from DaimlerChrysler's retail sales group showed an unexpected change in demand for interior trim colors on a particular model: more of one color, less of two others. That mix change hit us all in a week's time, so we had to get information out to the suppliers right away, Wise says. In the past, right away' meant a two-week process as the changes filtered down the supply chain to the tier-four critical-components supplier, the mill that produced the cloth for the interiors. But in the pilot, the tier-four saw the information on the same day as the tier-one, cutting 13 days out of the information cycle. The supply chain was able to react more effectively to the change and to coordinate with the tiers to accommodate the new requirement. By having that information out there, we were able to support that change in our customer requirements without any significant delay, Wise concludes.
A review at the end of the pilots revealed a good deal of supplier enthusiasm for the new level of visibility. The lower tiers, especially, are always thirsty for information, Wise notes. They like to know what's going on as soon as possible. And for good reason: with faster notification of changes, suppliers can identify more efficient ways to react and work with the different tiers to find the best solution. In fact, Wise says the suppliers were disappointed when the pilots came to an end and they lost the visibility provided in the collaborative environment.
Wise says the company did not go into the pilots with the objective of deriving specific metrics for a return on investment (ROI) case. For DaimlerChrysler, the pilots essentially proved that visibility software could perform as promised and that suppliers would buy into it. With this proof-of-concept test behind it, DaimlerChrysler is conducting a second round of pilots this summer, including one with suppliers in Spain to test the global capability of the visibility software package the company is testing. (DaimlerChrysler was not prepared to reveal its solution provider prior to completion of the pilots.) For the second round, the automaker's focus is on exploring how the lower-tier suppliers can best use the visibility that DaimlerChrysler can provide to them, how they can incorporate that information to make better business decisions. We're concentrating beyond just the technology [and focusing on] the business processes that will be involved in managing this new type of data, says Wise.
Reflecting on his experience on the project, Wise recommends that any company considering a visibility initiative avoid getting lost in the technology and remember to take a hard look at both the company's business processes and those of its suppliers. We had to get a better understanding of each others' business processes so that we could see how the technology can automate those processes or potentially change them in the future, he says.
The company's vision for the Supply Network Collaboration initiative is to ensure visibility throughout all its critical supply chains and to have a more responsive, synchronized supply network capable of responding to customer orders as they come in. One of our main goals is to reduce our lead time, our cycle time, Wise says. We are trying to get more to a build-to-order mode, where we can react to our customers' requirements in a more timely fashion. To do that, we have to get all our supply partners on the same page, and we have to do that much quicker than we do today.
The Cow Was the Eighth Tier
In another example from the automotive industry, supply chain consultancy Healy Hudson is helping a European car manufacturer get a view of its supply chain.
When the carmaker in question (which declined to be interviewed for this story) found itself short on leather for the door assemblies of a new model, the company also found that it did not have the visibility into its supply chain necessary to detect the bottleneck responsible for the shortfall. Surmising that they wouldn¹t be able to solve the first problem without addressing the second, the company brought in a team from Healy Hudson to get to the root of the problem.
Our task was to give them visibility into their supplier relationships, explains Susan Stevenson, president of the U.S. branch of 3-year-old Healy Hudson. To do that, the consultants set about mapping the supply chain for the door assemblies. Healy Hudson diligently went to the tier-one suppliers, then the tier-twos, tier-threes and on back in the supply chain until, eight tiers later, they got to the raw material: cows on a farm in South Africa. The resultant map (for the leather and other components) and Healy Hudson's subsequent analysis helped the European automaker understand the structure of its extended supply chain and the relationships that bind together the trading partners within that chain. It was clear how, when the South African farmer missed his target for cows on the veldt, the repercussions rippled up the chain and left thousands of new cars out in the pasture.
To prevent such bottlenecks, the car manufacturer implemented a pilot project involving Healy Hudson's sourcing software, eSourcing, to provide better communication among the supplier tiers. The software allows the car company to issue requests for information that flow down the supply chain and inform the cow farmer of the manufacturer¹s planned demand for leather. eSourcing also permits the farmer to issue an alert through the Web-based software to report any problems that could impact the number of cows in the field. Should a shortage of leather appear imminent, the automaker can source additional leather from other suppliers included in a catalog set up and populated by the consultancy. Visibility, in this case, lets the carmaker proactively take steps to address a potential issue before it impacts production rather than reacting to a problem after the assembly line grinds to a halt.
Overcoming suppliers' fears of disintermediation naturally would be critical to the success of any such supply chain visibility exercise, acknowledges Larry Fournier, vice president of marketing of Healy Hudson U.S. The way to do this, he asserts, is to emphasize the increased communication between tiers and to point out that the increased visibility is really a way of better managing risk for the entire supply chain. After all, Fournier notes, the entire supply chain is joined at the wallet. Healy Hudson charges a monthly hosting fee in addition to the initial consulting fees associated with the preliminary sourcing and supply chain analysis work it performs. While the company does not have a public pricing list, Stevenson says the hosting fee could range from $30,000 to $60,000 per month, depending on the size of the client.
The View Looking In
For Powers & Sons, a $100 million tier-one automotive supplier, the pain was on-time delivery from its suppliers, and the solution was to provide greater visibility into its own inventory levels.
Powers & Sons, a division of Detroit-based Letts Industries, supplies steering suspension components to automakers and heavy truck manufacturers. According to Bill Feit, materials and purchasing manager at the company, back in 1999 Powers & Sons was having problems with supplier performance, primarily relating to delivery. Every day it seemed like there were one or two parts that caused us to be on the verge of shutting down our production line and possibly shutting down our customer, the 30-year auto industry veteran laments.
To address the issue, in early 2000 the company signed up to use software called i-Supply from Santa Barbara, Calif.-based application service provider SupplySolution. i-Supply ties into Powers & Sons' back-end systems, tracking consumption of components in real time and reporting that information on a secure Web site. Suppliers, who are assigned minimum and maximum levels of inventory for each component they provide, log into the site to check on consumption and inventory levels, giving them the ability to determine when they will need to make their next delivery to replenish Powers & Sons' inventory. If inventory levels fall below the minimum level (or rise above the maximum), the software automatically sends alerts to the suppliers by e-mail or fax.
The advantages for the suppliers, explains Feit, include a streamlined order-entry process and heightened control of their own production: Instead of having a whole bunch of paper in front of them that says, Here is what you have to ship, and, by the way, it has to be done tomorrow,' they like having the flexibility of ... being able to ship what fits in best with their production schedules.
For Powers & Sons, the results so far have been a marked improvement in on-time deliveries from suppliers. Ironically, though, Feit says the implementation has led to increased inventories and transportation costs, but he admits that this is because initially his company was primarily concerned with resolving the delivery issues. By the end of 2000, Feit and the materials team at Powers & Sons had the company's 33 primary suppliers on the system, and for 2001 his goal is to start tinkering with the minimum and maximum levels for components to whittle down the available inventory.
SupplySolution, which has partnered with Peregrine Systems (San Diego, Calif.) for data translation purposes, charges a fee based on the percentage of inventory under management through the provider's software. The idea, according to SupplySolution's president and CEO, Chris Moritz, is for the system to result in lower inventories and lower fees over time, with the software provider maintaining its revenues by adding additional functionality, as well as placing additional inventory into its system.
The View from the Sell Side
The sell side presents its own challenges for those who would seek greater visibility into the demand chain in this age of e-procurement, as Moore Document Solutions discovered. A U.S.-based division of Toronto's Moore Corp., a $1.6 billion forms and print services company, Moore Document Solutions is using hosted software from Trigo Technologies to integrate its Internet sales with its other sales channels, resulting in a better view of its customers' spends.
Moore's dilemma was that its corporate customers have been setting up private marketplaces using e-procurement platforms from Ariba, Commerce One, Oracle and others. These customers, wanting to maximize their investments in e-procurement systems, have been requesting -- with various degrees of insistence -- that Moore sell to them through these platforms. The interesting challenge, reflects Denise Miano, vice president for emerging technologies at Moore Document Solutions, is that as you start to go out to many different market technologies with many different standard formats, the maintenance becomes a nightmare.
The result was that Moore's staff was acting as human middleware, Miano's term for rip-and-read order entry from e-market systems. In a bid to save money while still connecting to the various marketplaces, Moore opted to manage this challenge with help from Trigo, a startup company based in Brisbane, Calif., that received its Series A round of venture funding in January 2001. Moore connects once to an e-marketplace hub set up by Trigo, and then Trigo establishes links to the e-marketplaces used by Moore's customers.
Admittedly, the primary benefits for Moore are improved customer service (since they can connect to clients as required) and reduced integration costs (since Moore only has to make the one connection to the Trigo hub). But Trigo also provides a unified sell-side platform for Moore, integrating customers' purchasing data across channels. The document company's customer service reps, for example, can check order status because the Trigo software integrates with Moore's back-end logistics and fulfillment system in addition to the front-end order-entry system. A side benefit of the system is that Moore can now provide its customers with reports on their document spends, regardless of which channel they use for ordering, in effect providing reverse visibility into the companies' spend.
Trigo, which charges a monthly fee that can range from $25,000 to $75,000 per month, plus a setup fee, has plenty of competition among other providers of sell-side platforms, according to Whit Andrews, a research director at consultancy Gartner who specializes in e-commerce technologies. Andrews cites, among others, Comergent, HAHT Commerce, NetVendor and InfoNow as equally active players in the sell-side arena. He also warns that, while some suppliers may bill their solutions as complete, We counsel clients that there is no single supplier who can provide them with the best elements in all the categories of a sell-side platform. But we do say that plenty of suppliers provide good enough technology, particularly for clients who might not need best-of-breed technology in a particular area.
Visibility on the Horizon
So the bad news is that there isn't one all-encompassing software package out there that can give you total visibility into your supply chain. The good news is that various pieces of technology today cover many -- if not most -- of the different aspects of visibility: corporate buyers can see eight tiers down their supply chains, suppliers can see their customers' demand, and logistics providers are becoming increasingly savvy at tracking the movement of goods.
With early adopters already demonstrating some of the benefits of increased visibility, the pressure will increase on other organizations to invest in visibility technologies in the same way that companies are having to look at collaborative design as an opportunity to drive faster times to market. Industry is really starting to believe that supply chain visibility is critical in order for them to get inventory levels down and to get the [savings] back to the OEMs in the cuts they are being asked to provide this year, says Moritz of SupplySolution. Feit, of Powers & Sons, offers the following prediction for where this trend is heading: What I would really envision is that we will all have almost instantaneous information regarding the end user. To me, that¹s the real key to supply chain visibility: being able to see what the end user really, truly wants; driving it all the way down the chain ... and minimizing the inventory investment along that chain.
Cahners' Cloninger warns that the technology is just one aspect of visibility and that companies must understand how they interact with their suppliers and what their own business processes are to effectively attain and use visibility. But she agrees that organizations, per force, will have to take steps to gain greater visibility, in order to remain competitive. With the new model being consumer-driven, she says, the successful companies are going to be those that are able to react to market demand and produce products in a more timely manner.
