Moving towards the transparent supply chain

Even the best laid plans can be hit by the unexpected. And in today’s just-in-time (JIT) environment, unexpected supply problems demand speedy response. Supply chain event management (SCEM) systems promise exactly that and to make supply chains more flexible and efficient through web-synchronisation. SCEM applications are designed to notify supply chain participants of rolling changes after the forecast and planning stage – red flagging exceptions and events, like late shipments, design changes, inventory shortages, raw material delays, breakdowns, rejected deliveries and so on – so that problems can be resolved in real time or even sorted before they occur. They can also be used to synchronise suppliers for new product launches, special offers and other demand changes. On the logistics side they can automate materials delivery alerts, also covering multiple replenishment modes, like vendor managed inventory (VMI) and Kanbans. Indeed, SCEM also promises to compress reporting and notification cycles when events occur. And the result is staff spending less time fire-fighting, and more time making good and useful production and business decisions. And what should make SCEM so appealing is its ability to offer this kind of visibility to any partner. Early days, but it’s coming Take-up will be driven by the increasingly complex and demanding nature of supply chains, as aspects of manufacturing are increasingly outsourced, requiring partners to manage costly safety stocks as insurance against hold-ups. By reducing that risk through information visibility, SCEM will slash that inventory and its associated costs. However, as yet it’s still early days, and most initiatives that could describe themselves as SCEM are currently focussed on exception alerts within enterprises, rather than without – with companies getting this ironed out before tackling connectivity along the supply chain. According to analyst Frost & Sullivan, SCEM license revenues are set to rise from just $10.4 million in 2002 to $147 million in 2007, as they steadily become an integral part of the wider supply chain management (SCM) applications market. Web-based systems typically draw information from disparate systems inside and outside an organisation, using business rules to identify exceptions in inventories, orders, shipments and production, while workflow sends automated alerts to authorised users (via pagers, mobile phone text messages, PDAs, email), effectively closing the loop between supply chain planning, scheduling and then execution. This has been one of the key attractions for sectors like the auto-industry, given the need to operate ever leaner and faster. As Andy Bell, industry analyst at Frost and Sullivan, and author of its report on SCEM, says: “SCEM acts as a second set of eyes for the enterprise.” He says that major manufacturers in fast moving consumer packaged goods, retail, food and beverage (RHM Foods, Colgate Palmolive), high-tech (Dell and HP) and the process industries (BP and Castrol) are now adopting it. Most of the major ERP vendors have introduced, or are introducing, SCEM modules: SAP, for example, launched EM-1, which is being used for exception management by Colgate Palmolive. But they’re not all production- or transaction-centric; Keith Bell, head of supply chain products at SAP, says, “SCEM is primarily being targeted at logistics operations today.” Certainly, supply chain IT vendors like Manugistics, i2 Technologies, LIS and Manhattan Associates all have SCEM solutions in this direction. Meanwhile, JD Edwards has also added SCEM to its Production Distribution Planning (PDP) software suite, covering VMI and CPFR (collaborative planning, forecasting and replenishment) between partners. Baan, Intentia and PeopleSoft also have systems in the pipeline. Ed Stubbs, solutions consultant at JD Edwards, sums up the drivers: “The quick wins for SCEM are all based on better inventory management, as companies can better plan the supply chain from end-to-end with more predictability.” Leatherhead-based Categoric specialises in real-time event detection and mobile alert messaging for a wide range of industry sectors. RHM Foodservice uses its Xalerts system, which has been rolled out to wholesale customers and suppliers, and now initiates stock management processes within the company’s ERP system. Toby Barber, RHM’s IT manager, says “Xalerts has optimised inventories, with far fewer stock-outs or over-stocks. A key benefit of the system is its ability to highlight stock approaching its sell-by date... Sales staff offer the product at reduced prices, so there’s less expired merchandise.” But most companies are likely to adopt a managed services, or outsourced ASP (application service provider) approach, like that offered by SCEM services vendor WeSupply – covering web-based demand and fulfilment integration, which suppliers access via an Internet browser. Lear Corporation, with 330 plants world-wide supplying seating to vehicle makers like Ford and Jaguar, is one of its users. The group adopted WeSupply specifically to increase efficiencies and reduce costs on three plants: Genk in Belgium, Halewood and its HQ in Coventry. Supporting Lear’s lean operations Lear operates extremely lean, with no finished stock and minimum raw materials. It only starts manufacturing when it knows which vehicle is going down the line. Its ASP SCEM provides a common view of demand and fulfilment data from 30 or so suppliers, with exception alerts delivered in XML, EDI, email, whatever is appropriate. The system is bidirectionally integrated with Lear’s SSA GT BPCS ERP system and updated automatically in real-time. According to WeSupply CTO John Luscombe, Lear Genk received 579% ROI (return on investment) on the system, with payback in just six months. In one plant, stock turns rose from 60 to an incredible 150, because sheer visibility knocked out the need for safety stocks. The system also analyses delivery performance and quality, for supplier management, yet typical cost per supplier per month are just £500, and a company with says 20 suppliers could expect roll-out within 90 days. Meanwhile, GM’s system, handling inbound materials logistics from its suppliers for the Vauxhall Astra and Vectra, comes from Copenhagen-based software house Alta. It’s operated through third party logistics company Ryder at Ellesmere Port, which manages more than 50 Tier One suppliers, including Delphi, Visteon and Johnson Controls. And it’s working well, sustaining tight lean operations involving parts being delivered in sequence in lead times as low as 30 minutes. Ryder has been running the Alta Power B20 build-to-order SCEM system for about a year now. In this case, alerts are initiated if orders change, parts have been mis-assembled, the bill of materials (BoM) is incorrect, or even a screw is mis-torqued. What’s more, they go direct to the right people, so corrections can be carried out immediately. GM is understood to have gained ROI within six to nine months. Inventory costs have been cut by 20—30%, and there has been significant cycle time reduction at all stages, from order receipt to despatch. And Alta reckons it’s got about 30 installations with Tier One automotive suppliers and 3PLs like Ryder. But you won’t hear a lot from them: for many, SCEM gives such a competitive advantage, they’re staying low. Concerns about security and sharing confidential information notwithstanding, this is going to come. How do you get it right? “It’s vital to identify the key touch points and examine the business processes,” advises Alta development manager Jens Michael Haurum. You need to identify which key processes really require alerts. What really gives the company value as a supplier? Shop floor error-proofing, for example, offers significant value in terms of improving quality and efficiency. Better inventory control is undoubtedly important, but it’s not the only win. Manning, fire-fighting, supervision costs, and most of all time-saving, are key. Then choose not only an SCEM profile that matches your requirements, but a provider.