November 2002

Global visibility and supply-chain collaboration seem to come at the top of everyone's wish list these days. But are they here yet? What are they, anyway? Why do we need them? Marcia MacLeod shakes this voguish topic around, and finds plenty of benefits, but also a need for real commitment

It's hard to say just what has made supply-chain visibility such a "must-have". What's clear enough is that there now seems to be an insatiable demand for ever more accurate, up-to-date information on orders, inventory and production. One is inclined to wonder how retailers and manufacturers ever managed before "supply-chain visibility" joined our dictionary.

But if today's buzz phrase has given everyone 20/20 vision, what exactly do they get visibility of? How much of the supply chain can they see - and how do they remove the telegraph poles blocking their view?

In reality, supply-chain visibility probably means different things to different people. For a warehouse manager, it could mean inventory, expected goods and orders ready for despatch; to a procurement specialist, it could comprise only ordered parts or, in the case of retailers, finished goods; to the production planner it will incorporate a wider range, from parts ordered through inventory to production and back to inventory.

And therein lies the rub. While the benefits of supply-chain visibility can be immense, they are almost outweighed by the time and effort needed to ensure that all of the supply chain is visible to everyone at all times. If a company is going to take full advantage of supply chain visibility, it must be able to see, at the very least, current inventory, including in-store stocks down to SKU level (where relevant); the status of all purchase orders; potential delays on the supply side; current production levels; sales orders and goods despatched on a daily basis; and the transport/delivery of both sales and purchase orders.

Access to this sort of information enables management to plan better, reduce inventory, streamline the supply chain, respond proactively to potential problems and, ultimately, take cost out of the business.

Sam Brown, solutions marketing director for Manugistics, offers a classic example. "Say a mobile phone manufacturer gets an alert that it will run out of microphones in two weeks," he suggests. "Advanced knowledge allows it to identify the shortfall and contact its supplier or put out a new request for tender. At the same time, the microphone supplier can plan production to meet the projected shortfall or, if it cannot help, warn its mobile phone manufacturer customer."

To achieve this supply chain nirvana, an organisation has to be integrated internally - and that might not always be the case. "People are still not very good at joining up bits of the supply chain," says Les Beaumont, senior consultant at The Logistics Business. "However you try to join the supply chain, everyone still works in their box. They might understand the next bit down the line, but very few people understand all the drivers."

Cultural issues

Getting the technology right may help, and that's likely to mean centralised computer purchases. No organisation can achieve true visibility if departments are allowed to buy their own elements of the corporate system. But even the best technology won't overcome cultural issues. In order to extend visibility of the supply chain, organisations and the individuals within them must be prepared to share information and to collaborate with their colleagues.

"Collaborating internally is hard," says Ken Lyon, founder and chief executive of Sourceree, the supply-chain and logistics solutions provider. "People create fiefdoms in order to maintain competitive edge. They hang on to data that should be shared."

Good supply chain visibility depends on external, as well as internal, collaboration. If that mobile phone manufacturer doesn't share information with its supplier, the microphone manufacturer will never know that it needs to beef up production.

First stage of collaboration

Collaboration is not the same thing as supply-chain visibility. In fact, according to Mark McDonnell, marketing director of Equos, the supply-chain consultancy and software house, visibility is really the first stage of collaboration. "Visibility is data publishing or one-way information flow. It has numerous limitations. It is, for example, reactive, not proactive, telling organisations where things are going wrong but not predicting when this will happen. It can also lead to information overload - and it presents information in a way that enables it to be extracted and stored locally, leading to fragmentation."

Level two of collaboration, says McDonnell, involves a system of alerts and exceptions, warning organisations of potential problems before they occur. The resolution and management of issues exposed by exceptions form the third level of collaboration, while the fourth is represented by a "continuous improvement" programme. This becomes the strategic view of the organisation, incorporating trends analysis and improvement of both the supply base and service levels.

"Instead of being reactive, businesses should be able to alert their trading partners," he continues. "For instance, instead of a retailer picking up a problem, only to find the supplier knows nothing about it, the supplier is alerted to the problem at the start of the day, allowing it to take action before the retailer starts screaming."

True collaboration brings a number of benefits: lower inventory, better relationships with partners, better responsiveness, a smoother supply chain, and, ultimately, reduced cost. Wal-Mart, for example, is collaborating with suppliers such as Unilever and Colgate Palmolive so that when a bottle of, say, fabric conditioner is sold, the supplier knows about it - and can plan production accordingly. The supplier (in this case Unilever) only makes what is needed, rather than making more, "just in case".

A retailer simply viewing the supplier's stock is not collaborating. Indeed, this sort of information sharing can be dangerous, Les Beaumont believes, as the retailer can make order decisions based on the supplier's inventory, without taking into account the supplier's other customers, potential production delays and so on.

"To collaborate properly, a clothing retailer would have to be open with its plans for the foreseeable future and give the supplier a free run to meet what part of that demand they can fill. The supplier would also need to come up with ideas to help the retailer. For example, if the retailer expects bright prints to be fashionable next summer, the supplier would come up with clothing ideas and agree to a minimum production. At the same time, the supplier must be allowed to carry out its part of the bargain in its own way - and the retailer must share any risk, so that if bright prints don't take off, the supplier isn't left with excess, unwanted stock."

According to Matt Muldoon, product marketing EMEA for Epicor, Marks & Spencer collaborates with suppliers on a very similar basis. It gives forecasts to suppliers, which decide how much to make. Marks & Spencer can then go into the supplier's system, see what is available and decide what it wants to take - but with a pre-agreed commitment to buy a minimum amount over a season.

Tremendous hurdles

Sounds like Utopia, but would-be collaborators have tremendous hurdles to overcome first. Few companies - or individuals - are ready to share information to the extent required for true collaboration. Many people, and businesses, deliberately withhold data for their own purposes. In addition to the individual "fiefdoms" already mentioned, you could find, for example, account managers paid bonuses on orders that forecast an inflated demand which will result in excess production. Retailers wishing to launch a two-for-one promotion may be prone to "buncing", in which they buy more goods than they expect to sell, benefiting from unsold stock bought at half price.

Even organisations without these sorts of problems will find it hard to generate the sort of trust required for successful collaboration. "Everyone's talking about collaboration, but I don't think anybody's really doing it," claims Jim Jones, general manager of InterBiz, the supply-chain software company. "Emotional trust is a harder barrier to overcome than technology; even if two companies have the same software applications, making it easier to collaborate, would they be willing to share sensitive data? Collaboration is fashionable at the moment, so people try to "fix" collaboration with technology. But that's not the real issue: organisations have to trust their partners; everything has to be transparent, so that an action in any part of the supply chain can be seen along the whole pipe."

"The degree to which people will collaborate is limited by how much commercial benefit they think they will get," Les Beaumont adds. "If two or more people working together are not culturally compatible, they won't get any benefits."

Sharing information

One very big commercial benefit to be gained from collaboration is to please your customer, as Ken Lyon explains. "If you supply an important customer, you want to be a good supplier. If you share information, the customer thinks you're on the ball; it also helps reduce the element of surprise when the unexpected happens. If you don't share information, customers think you're messing them around."

Assuming organisations can overcome the cultural issues, there are a number of ways to achieve collaboration, not least being to think small. "Don't attempt a big bang," Lyon emphasises. "Start with a small project with a handful of suppliers. Look for payback in six months. If you can't do it, don't try anything else; if it works, extend the collaboration, using your reference sites to show other partners what you want to do."

Mark McDonnell of Equos agrees, adding that instead of replacing multiple business processes in one fell swoop, these, too, should be brought together slowly. Full involvement of all employees - and trading partners - is also essential for successful collaboration, he says.

Systems need to be aligned as closely as possible. First, says Martin Painter, director of product marketing EMEA at Sterling Commerce, organisations need "to get their own houses in order", to ensure their own corporate systems are fully integrated. This will mean centralised IT control - possibly even across different operations of a multinational. "Improving workflow is important, too," Painter adds.

Web services can help to link systems together; companies such as Sterling, Equos and Epicor are employing this technology to create private exchanges in as little as 12 weeks. Others, such as InterBiz, EXE, Manhattan Associates and Open Business Solutions are helping customers collaborate in at least parts of their business.

We may still be suspicious of opening our corporate hearts, but we will learn to be more forthcoming. "In future," Ken Lyon believes, "the power of the supply chain will depend on collaboration. Organisations that do it now will inherit the earth."