The Growing Importance of Supply Chain Analytics

Executives looking to link enterprise strategy to supply chain execution first need to understand the cause and effect of daily operational actions in the context of meeting corporate objectives

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.

Regardless of the approach, the end effect is excessive inventory and expediting and poor responsiveness to customer change requests. Neither is sustainable in competitive business environments.

Weighing the Options

With an ability to perform real-time supply chain calculations, frontline staff can understand the operational impact of a change and can simulate possible alternatives to meet it, but it also is critical to have the means to make the right choice of which option to pursue. Driving the ideal response behavior — the one that best meets predefined KPI targets — is at the heart of aligning supply chain execution to corporate performance.

A company can put in place corporate objectives, KPI targets and sales and operations planning (S&OP) plans, but these strategies for performance are limited in their influence if there is no way to ensure that daily actions in response to unexpected events are within the parameters of the set plans and goals.

As a result, decision-support tools that frontline decision makers use must include scorecarding capabilities so that each proposed action alternative can be weighed against key corporate metrics before any action is taken. This is the only way to ensure that tradeoffs made throughout the day are consistent with the goals of the organization.

Scorecard technology ranks potential actions to assure that they are aligned with the key performance objectives that are most important to the business. Scorecarding can measure parameters such as customer impact, costs and quality and adjust the criteria weighting to reflect unique requirements. Operational objectives set by executive management are typically expressed in financial measures such as gross margin, cash-to-cash cycle, economic value-add or similar categories. The best tools can readily convert the unit-based view of the users into financial measures that are relevant to executive management. If standardized measures do not suffice, the tool should also provide capabilities that allow users to develop additional measures specific to their organizational needs — scoring for divisional, departmental and user-defined targets. Allowing the decision maker to compare metrics results across various scenarios provides an objective way of determining the best scenario to pursue. So it becomes not about automatically saying "yes" to a change, but saying "yes" in the most profitable way for the company.

Driving Benefit

Global leaders are recognizing the need to leverage supply chain analytics — whether for alerts, what-if scenario simulation or scorecarding — for the purpose of driving immediate action. The benefits of doing so can be far reaching.

For one electronics manufacturing service (EMS) provider, analysis of supply chain changes can be done in a half-hour avoiding significant buyer participation, time-consuming ERP system cycles and the need for voluminous paper reports. Among the many benefits of its integrated planning, monitoring and response process is that its solution operates across varying systems and locations, so standard benchmarks such as inventory turns, excess inventory and on-time-delivery (OTD) can easily be measured across multiple facilities, rather than having to perform multiple MRP data extractions and manual manipulations to produce the pooled results required.

One multi-billion dollar international manufacturer and marketer of advanced electronic products integrated new systems to improve its ability to collaborate and respond rapidly to changes in supply and demand, shortening its lead times and significantly reducing inventory levels. Calculations that had previously taken three hours to run can now be completed in less than 50 seconds. Access to information across the supply chain, combined with sophisticated supply chain analytics, allows various action alternatives to be considered and scored in just seconds. Establishing a competency for rapid and effective analysis and decision-making has improved daily operational efficiency and flexibility in materials, logistics and manufacturing operations, ultimately making the company more competitive in the marketplace.

Finally, a wireless solutions provider found that decision-making had become much more difficult because of the increased complexity of its operations and environment. It wasn't always obvious to any single individual what the implications of decisions would be across the supply chain. The spreadsheet-based methods they had been using weren't effective in this environment, and too much time was being spent firefighting. They needed to be able to investigate different ways to resolve issues quickly and see what the impact would be on materials, costs and customer satisfaction. Scorecarding capabilities are now used to provide a multidimensional assessment of any given alternative, ensuring that staff can make objective decisions as opposed to gut-feel reactions.

Supply chains that leverage sophisticated analytics for integrated planning, monitoring and collaborative response will help companies to achieve breakthroughs in S&OP, demand management, supply management and supply chain risk management — the results of which are superior customer service, improved operations performance and a competitive market advantage.

About the Author: John Westerveld, CPIM, is product manager with Kinaxis. More information at