The Growing Importance of Supply Chain Analytics

With a growing recognition of the strategic influence of the supply chain, executive teams are looking at ways to more tightly link corporate strategy to supply chain execution. This requires a clearer understanding of the cause and effect of daily operational actions in the context of meeting corporate objectives. As a result, there is increasing attention being given to establishing more robust supply chain analytics and integrated decision-making processes.

As a first step, answering the question of why more in-depth analytical capabilities are needed can, by default, answer the question of what exactly is needed in this regard.

The driving force behind needing a better view of the ins and outs of the supply chain is the pressing need for flexibility and performance amid a business environment of complexity and volatility. Corporate plans are made, and then reality takes over. Constant changes inside planning horizons are no longer an exception to the rule; they are the rule. With so many unplanned events happening across extended supply chains, caused by supply disruptions, demand volatility and shrinking product lifecycles, frontline decision makers are making literally hundreds of judgment calls each day. Each of these alone may not have significant implications to the business, but in aggregate, they are quite material. How does an organization ensure that these decisions — which need to be made quickly to satisfy customers and avoid costly delays — are consistent with its overall corporate performance goals?

The ability to deliver results in the face of daily changes inside planning horizons is being thwarted by the inefficiencies of traditional tools and technologies, which lack the integrated demand-supply planning, monitoring and collaborative response capabilities required for today's complex and dynamic world. Companies are now recognizing the need to arm their frontline staff with better information and analytical tools to make informed decisions on risk tradeoffs and response and ensure ongoing alignment of operations execution to top-level corporate objectives.

Setting the Stage

In the pursuit of continuous alignment between corporate strategy and supply chain execution, information is power and visibility into the supply chain is at the core.

Supply chains that at one time consisted of a factory and its direct suppliers now span the globe and can consist of multiple levels of supplier/customer relationships. So, for supply chain visibility to be truly insightful, it must be inclusive. A company must have the ability to easily consolidate data from these multiple sites and systems for a holistic view of the extended supply chain. For global performance management, one needs global visibility. And for decisions to be effective, partners across the organization (internal or external) need to be on the same page, working from the same set of data, in the same way. A multi-enterprise, multi-tier view of operations is required to have a complete understanding of the business and to effectively manage operations across the supply chain.

Functionally, this requires a central system that can pull up-to-date information from different operational systems and synchronize it, providing a single version of the truth that is accessible by diverse, ad hoc supply chain management action teams across the extended enterprise.

Having this visibility is meaningless though if you can't find the critical information within the data. A user should be able to view information at as high or as low a level as is necessary to understand what is happening and why. User-defined views help convert raw data to real information.

Another key component to deciphering the critical information from all the available data is alerting capabilities that provide early warning of an unplanned event that will have a negative impact on the business. Automated solutions can sift through all the activities, uncovering the truly important information and exceptions for a user's particular area of responsibility and send an alert. Such alerting tools, for example, could warn that certain key performance indicators (KPIs) are projected to exceed tolerance levels or that a specific key order is projected to be late. For real value though, alerting analytics should take one step further and understand the domino relationship and cumulative effects of multiple events.

For example, while a supply order may arrive only one day late (which may be within tolerance from a supplier management perspective), the consequence could be that a major new order will be delivered later or, even worse, lost. This, in turn, might mean a downward trend for gross margin. With these tools, such an occurrence would cause an alert to be sent to a senior manager, allowing him to take appropriate action.

More importantly, there could be several small changes at the operational level, each of which is within tolerance and therefore does not generate traditional alerts. However, the cumulative effect of these changes could be a 5 percent drop in revenue for the quarter — large enough to warrant executive attention.

While alerts can be powerful, ultimately they are tools that are structured for insight, not execution. With alerts, the information is put into the hands of the decision maker(s), but it is then up to them to determine the course of action from that point on.

Visibility and alerting without the tools to drive action give only minor advantages to the organization. In fast-paced, dynamic environments, where there tend to be hundreds of decisions throughout the day that must be made at the moment, information alone is not enough. The problems are complex and require users to interact with data in a collaborative way, performing various calculations and data modeling. One needs the ability to test alternative solutions by altering and analyzing the information. In the face of difficult real-time tradeoffs, snapshots of information and read-only analytics leave a wide gap between awareness and action.

Empowering the Decision Makers

Information is most powerful when it is put into the hands of the people who need to make quick decisions and take action on a daily basis. In this regard, access to comprehensive information should be coupled with the ability to apply sophisticated and powerful manufacturing analytics to do instant calculations, thereby empowering daily decision makers with a real-time supply chain.

Specifically, tools to simulate, share and assess multiple "what-if" action alternatives in response to unplanned supply chain changes are a necessity. Simulations of what-if scenarios need to be based on current material requirements planning (MRP), master production scheduling (MPS) and demand data pulled from systems throughout the extended supply chain. Against these data, supply chain analytics that accurately model the host system need to be applied. In today's fast-paced world, these supply chain analytics need to run instantly, not taking hours or days like with traditional planning systems. Internal and external participants should be included in the analysis for complete stakeholder input and a full understanding of the impact of decisions prior to execution.

Consider a scenario in which a fulfillment team member at a large electronics manufacturer unexpectedly receives an order of 100 units with a delivery date within two weeks. Using what-if simulation tools, he can see within seconds what the impact would be of accepting this order. Assume the results come back that the order cannot be fulfilled as requested (which would make sense, as the order was not in the existing plan), the user can then use the what-if simulations to assess the various options and alternatives to understand what can be done. For example, what if they reprioritize another order, freeing up resources for this order? In executing this scenario, people throughout the organization that are affected by this action are automatically identified and brought into the collaboration to provide feedback on the implications. The course correction is quickly decided upon, and commitments from the team members are documented and tracked.

The ease and speed of use of scenario simulations should be such that multiple scenarios can be assessed and compared simultaneously for a quick yet comprehensive review of the options. Drill-down features to perform root-cause analysis are important to enable a user to diagnose the gating issue and consider alternatives specific to correcting this problem.

This type of collaborative analysis based on real-time analytics extends beyond the standard capabilities provided by enterprise resource planning (ERP) system. In contrast, responding to unexpected changes with traditional ERP systems typically involves one of the following approaches:

  • using spreadsheets to try to model a change and do a rough (and typically time-consuming) analysis of the impact;
  • using the load and pray approach (load the order and pray that it gets done); and,
  • keeping enough inventory on hand so you will be able to meet your monthly demand (or supply) variations.

Weighing the Options

Driving Benefit

About the Author: