These products are incremental steps in the shift from supply chain planning to supply chain execution. Inventory visibility software is just the beginning. Technology now replicates real-world processes such as Kanban, the card-based system used to signal and trigger events on the production floor. Other products compile inventory, production and logistics information to generate instructions for warehouse management. Customer self-service applications provide more ways to streamline the ordering process.
These specialized technologies make it possible for companies to do more than understand the status of their supplier relationships. They actually automate supply chain execution. The next three to five years could see a more level playing field, as companies understand the value of using these tools to balance the planning and execution aspects of supply chain management, which becomes a commodity instead of a competitive advantage.
Commit to Openness
But today, information flow within the supply chain remains a problem — it just moves too slowly.
It's important to recognize that the sophistication of technology used by suppliers varies widely. To illustrate, technology standards among automotive suppliers plummet after the first tier. In an industry where margins are razor-thin, smaller component manufacturers — suppliers to makers of seat, dashboard and other assemblies — often have little in the way of sophisticated software, much less the personnel or financial resources to add it.
To balance supply chain planning with execution, it stands to reason that members of the supply chain must be able to converse with one another. Unfortunately, in the automotive industry, the wealth of good visibility software applications also means suppliers must support all of the applications their customers use. On average, that's five or six products a supplier must learn simply to check inventory or fulfill an order.
Clearly, it will take more than good intentions and a renewed focus on supply chain execution solutions when there is disparity among manufacturers in terms of technological sophistication and resources.
What will it take to resolve this? Redefining openness. Trading partners must speak the same language — the purpose of programming standards such as extensible markup language (XML) and simple object access protocol (SOAP) — and subscribe to the same definitions so that they can interoperate.
Redefining "openness" is a task for industries as well as individual companies. Industry organizations have made great progress toward standardized procedures. Now, they need to address communication standards. For example, Southfield, Mich.-based AIAG, the not-for-profit automotive industry association, is spearheading an initiative for inventory visibility and interoperability, including conventions for programming semantics and syntax.
The initiative does more than ensure suppliers and customers can use the inventory visibility product they prefer. It gives them more than confidence that "quantity" always means one widget and not one case of widgets. The expected result is a supply chain that preserves suppliers' and customers' ability to share information selectively in each relationship.
Supply Chain Execution: From Six Weeks to Six Hours
What "weight" — inventory, time and costs — can manufacturers expect to trim out of their supply chain? To continue with the automotive industry example, supply chain execution and true openness will transform the mathematics of production. AIAG anticipates inventory visibility and interoperability alone will save the automotive industry $255 million annually on multiple software applications.
But more importantly, instead of producing to forecasts, accurate demand information might be transferred in a fraction of the time from one tier of the supply chain to the next. Lead-time from order to delivery would decrease, and inventory levels would decline. Sales and market share would increase. From my experience, gross margins could jump from five to as much as 11.5 percent.
Already there are early industry examples of the impact. Metaldyne, which designs and makes metal-based components, assemblies and modules, uses a Web-based application for inventory management. The company reports that its first installation already has reduced raw material inventory by 20 percent, in turn cutting inventory carrying costs. And Webasto, maker of ventilation, heating and cooling systems, is using technology to manage electronic data interchange with a simplified, standardized architecture that's cut EDI maintenance costs by a factor of 20.