Visibility Key to Adaptive Supply Chains

But weak economy, risks of change impede march toward better supply chain event management, study finds

San Francisco  October 2, 2002  As the speed of business continues to increase, top management and supply chain managers alike are attempting to gain real-time visibility into their supply chains in order to better meet customers' needs while at the same time reducing costs internally, according to a new study of trends and issues in logistics and transportation.

The study, "Visibility: Tactical Solutions, Strategic Implications," the 11th annual report issued jointly by consulting firm Cap Gemini Ernst & Young, Georgia Southern University and the University of Tennessee, was released this week at the Council of Logistics Management annual conference.

According to the study, a number of key indicators show that the speed of business has increased since last year. Inventory turns were up from 11 to 15, and days sales of inventory had decreased from 47 days to 43 days. In terms of the time it takes to receive an order in days, the minimum expected time for materials to arrive has decreased from 19 days to 16 days, a drop of 16 percent. And finally, the average expected time for materials to arrive has dropped by 27 percent, from 30 days to 22 days.

While visibility has become a strategic step in providing customer service and in most cases helps increase revenues, more than half (54 percent) of the 365 logistics and supply chain professionals who participated in the study report that cost reduction is their primary focus.

In addition, 52 percent said their organizations view logistics as a cost center at a time when the sluggish U.S. economy, terrorist attacks and corporate governance issues force many companies to reduce short-term costs at the expense of investments in new technologies or process improvements.

"This year's study shows that visibility within firms continues to be a challenge and a significant opportunity, said Alan Montgomery, vice president and global leader for logistics and e-fulfillment for Cap Gemini Ernst & Young. "End-to-end visibility is the desired state of an adaptive supply chain, but the required transformation efforts must overcome the soft economy and risks inherent with change itself."

The study's authors identified six building blocks to achieving end-to-end supply chain visibility and using it for seamless supply chain execution: extended connectivity, enterprise transparency, exception-based alerting, performance metrics, event-based response controls and enabled control. The authors suggest that these six building blocks, encompassed in the concept of supply chain event management (SCEM), offer the promise of truly adaptive supply chains through automated planning and control of offers, inventory and shipments.

"In addition to providing the vision of an adaptive supply chain that is capable of effectively and efficiently responding to changing environmental conditions, the study outlines proven outcomes in achieving visibility," said Dr. Mary Holcomb, associate professor of logistics and transportation and assistant dean in the College of Business at the University of Tennessee. "They include increased ability to do demand-driven replenishment, lower inventory levels, reduced cycle times and use of more cost-effective transportation of finished products."

Extended connectivity, the first building block of SCEM, is still in its infancy, the study's authors write. Currently more than half of respondents report that they spend less than 10 percent of their time with suppliers (54 percent) or customers (56 percent), but a clear majority says they will spend more time with suppliers (56 percent) and customers (64 percent) in the future.

In terms of operational visibility, there still appears to be a gap in the data being collected for use. For instance, roughly four in ten (41 percent) inbound orders are bar-coded while slightly more than half (56 percent) of inbound shipments are palletized. By contrast, 56 percent of outbound orders are bar-coded, and 52 percent of outbound shipments are palletized.

Respondents this year also reported that top management is increasingly focused on performance and operational supply chain metrics.

"The study tells us that managers are spending more and more time collaborating with customers, management is thirsty for meaningful operational metrics, and visibility tools can add such value now," said Dr. Karl Manrodt, assistant professor of information systems and logistics at Georgia Southern University.

"While SCEM offers significant value as an enterprise-wide solution," Manrodt continued, "most firms do not have the bandwidth to engage in large-scale, big bang transformational efforts to obtain overall adaptiveness. However, the trend appears to be one of using a step-by-step approach to operationalize SCEM, identifying the value-add scenarios, focusing on core problem areas and then a roll-out to the entire enterprise."