Supply Chain 20/20

[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.