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GUEST EDITORIAL
CHANGED PRIORITIES AHEAD !!!
IT-Enabled Real-time SCM Can Transform Performance
By Michael Romeri, CEO OpsRules.com
Firms with global supply chains need to manage risk carefully as they apply lean techniques to optimize the performance of global supply chain. Supply chains that are “over-leaned” have short cycle-times and minimum inventory but can perform poorly when disruptions occur.
The problem faced by many firms is that the 6-sigma lean program is the only game in town. Companies have spent truckloads of money training individuals and teams and using this expertise to dig into high priority operating problems. There is no doubt that firms worldwide have benefited enormously from their emphasis on lean, but like any best-practice technique, apply with care and consider the scale and unique characteristics of the problem you are addressing.
The current state within many global supply chains is near-chaos. The global supply chain strategy may be regional or
centralized but the management approach to be used to optimize overall performance is not well defined. Why is this the case? There are several reasons including:* Time zone and cultural differences spanning the global supply chain that make coordination and communication difficult
* Large numbers of 6-sigma projects underway at the same time, sometimes with conflicting or at least overlapping objectives
* Data silos that exist in pockets across the supply chain making end-to-end transparency difficult to achieve
* Supply chain analysts who do not have time for proactive management of the design or performance of the supply chain because of day-to-day crises
Too often, 6-sigma enabled continuous improvement programs take the place of mindful operations strategies. Firms who rely so heavily on 6-sigma forget that it is fundamentally an analytical and implementation methodology and overlook the need to inform and prioritize 6-sigma business objectives in line with a well understood operations strategy.
One IT-enabled strategy focusing on real-time supply change management - Real-time SCM - is now a feasible alternative for companies who are trying to optimize supply chain performance and reduce supply chain risks. Real-time SCM depends upon a few key enablers, which are:
* Real-time monitoring of key performance indicators and significant policy or procedural violations that are associated with adverse supply events, for example:
* Late payments made by a key supplier to their vendors can indicate financial instability
* Safety stock violations along the supply chain where upstream capacity fluctuations or the availability exotic materials can literally stop production
* Rules-based alerting to inform responsible individuals who need to investigate and resolve looming supply problem
* Role-based, automated workflows that provide in-context best practices to:
o Analyze problems
o Define optimal solutions
o Assign and track responsibilities for corrective actions
o Monitor task completion efforts
Together these components provide the necessary building blocks to enable Real-time SCM and answer the question many firms have
regarding, “what would I do with end-to-end transparency if I had it?”
The most forward-looking companies like Toshiba are beginning to think about their global supply chain networks the way telecommunications companies think about their network operations centers (NOCs), including to:
* Monitor global supply chains centrally or both centrally and locally (focusing on different key performance indicators, for example)
* Staffing their supply chain NOC’s around the clock to ensure that emerging problems are identified quickly and resolved before there is a significant impact
These companies see clearly the advantage of minimizing the delay in detecting evidence of a problem and taking the necessary steps to investigate and resolve the problem? Research by Georgia Tech Professor Vinod Singhal indicates that late detection of an important business event is the most likely cause for a major supply chain disruption. Current company practices are most developed in the area of reacting to an identified supply chain problem. Real-time SCM focuses specifically on reducing the delay (i.e., latency) in the problem identification and resolution process in order to minimize disruptions. The chart below shows a conceptual diagram of the Real-time SCM process.
Real-time SCM is a great strategy for informing the objectives of a company’s continuous improvement efforts. Continuous improvement projects can be established to improve how well and how quickly a company:
* Monitors its supply chain to detect a potential supply chain disruption as early as possible
* Collects and analyzes the necessary information to make a recommendation
* Minimize the time it takes to develop, authorize and implement a set of corrective actions
The IT components required are already familiar to the IT departments of most companies. The three key elements are:
* Event management (used to detect performance problems and process or policy violations)
* Workflow (used to manage sequential work steps of skilled individuals)
* Business intelligence (used to enable predictive management of the supply chain process) - some simple examples
o Late raw material deliveries will likely delay related shipments of products that require that raw material
o A labor strike action or severe storm that shuts down a port will always delay shipments from that port
Siemens implemented a pilot program using software from Tibco and Microsoft. They were able to reduce cycle-times and process costs by an average of 30%. The options available depend on the timing and scale of the implementation involved and the prior use of business intelligence within the business. Most companies will standardize on software for event management, workflow and business intelligence.
The project to implement Real-time SCM is usually carried out in waves where there is a strong interchange between technology and business process experts to minimize the cost and duration of the implementation, for example:
* We don’t want to capture bad practice inside the workflows we IT-enable. So it is recommended that current manual processes reviewed and improved where possible. Some typical problems you will find:
o Downstream steps have required inputs that no one seems to have responsibility for preparing
o For no good reason, there are multiple methods to do the same work
o Some “required actions or outputs” are no longer used by any other supply chain organization
* The Real-time SCM solution should be deployed early so that graphical workflow design techniques can be used to simplify and accelerate the design of workflows
* Key performance indicators and performance-significant operating policies should be identified and captured as part of the original design effort.
Most companies publish the performance of suppliers in a portal that they can visit. Ideally, all the information required for periodic reviews with the supplier should be collected and published on the portal so that supplier performance is monitored continuously. Alerts can be implemented that inform both the supplier and the company’s responsible analyst whenever contractual performance levels are breached or if there is evidence that a performance miss is imminent based on the predictive analysis carried out by the Real-time SCM solution.
The design of the workflows can be a challenge. All processes look simple at a high level. The closer you get the more the details matter. Unfortunately, the individuals involved in a complete process rarely all understand and agree on all the process details. Consequently, care is required in the design of the workflows to ensure that all the details that matter are considered. We recommend a three-step approach to ensure that all the right information is understood and that the workflow details are optimized, which is, as follows:
* Develop an organizational model consisting of:
o All the individuals involved
o Their individual roles
o Unique operating scenarios related to key performance indicators that predict serious supply chain problems and consequences
* Define the operational model using the workflow design tools that are available to capture
o What, why, when, where and how the given process operates using the available graphical design tools
o Outcomes desired
o Time-frames per step and related to event management detection
o Clear definitions about metrics, dimensions and performance monitoring
* Then, and only then, create the technical model using the selected IT tools for event management, workflow management and business intelligence
Real-time SCM solutions are still at an early stage of development when leading companies will need to explore and optimize their capabilities to get the most benefit from using them. We predict that companies will find they have opportunities to reduce operations costs by 10% to 30% and significantly minimize the risk of supply chain disruptions if they focus on reducing the time it takes for them to identify and resolve adverse performance trends before there are significant consequences for the firm. The software costs associated with implementing a small-scale pilot can be acquired for less than $100k for most companies.
Michael Romeri, mromeri@opsrules.com, a graduate of Harvard Business School, is CEO of OpsRules (see David Simchi-Levi feature interview) based in Waltham, Mass., former head of Thomas Group Management Consultants, EVP at Emptoris, and a Director of PRTM.
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