March 9, 2006
Globalization is changing the way manufacturers and distributors operate their supply chains. Outsourcing, contract manufacturing, shorter lead times and more regulations are facts of life. Company managers have not yet responded adequately to this new reality. Often every business link in the supply chain operates with a different performance measurement reference model, and systems and processes are not well-integrated. Thus, managers must respond to escalating demands despite diminishing visibility and control. To regain both, high-performance organizations are augmenting their business intelligence (BI) tools and platforms with niche applications that support the growing complexity of managing global supply chain performance.
These days, it seems globalization touches every business. Having products (or parts) made overseas by a contract manufacturer and selling into external markets are not just for large companies any more; small and midsize companies are in on the action, too. But no matter what their size, all face an uphill battle when it comes to getting better business intelligence (BI) about their supply chains. That’s because key pieces of information they need to make smart decisions about the global supply chain aren’t available on any in-house system. Today’s BI tools fall short in supporting these needs in five important aspects.
The chief shortfall of traditional BI deployments is that they fail to address the complexity of supply chain networks and processes. Gone are the days of a simple supply chain network with suppliers shipping raw materials to the manufacturer and the manufacturer shipping finished goods to the customer. Most manufacturers and distributors now operate with a mixed network and fulfillment process, where supplier goods are shipped directly to customers and/or the suppliers manage inventory. When measuring results, companies now must account for goods in varying states of completion, transit and ownership. These “states” are rarely recognized in operational data stores and data warehouse data structures, and much data about trading partners never makes it into either at all. But this visibility into the entire complex supply chain is essential if supply is to meet customer demand.
A second shortfall is the failure to deliver the information that supply chain managers need to assure that business processes and activities comply with new reporting and auditing requirements. The frameworks of the Tread Act, GMP, RoHS/WEEE, product pedigree and food traceability regulations (to name only a few) have strained traditional reporting systems and even catalyzed the creation of new classes of software applications to address them.
The third area in which current BI platforms fall short is that most companies do not operate with a standard performance measurement reference model. A performance measurement reference model is a simple tool to help guide change and continuous improvement within an enterprise. Reference models integrate the well-known concepts of business process management and process measurement into cross-functional categorizations. The Supply Chain Operations Reference model (SCOR) created by the Supply-Chain Council illustrates this approach. It describes standard management processes (Plan, Source, Make, Deliver and Return) and a framework of relationships among them. Like most reference models, SCOR also defines standard metrics to measure supply chain performance.
A fourth information shortfall is a consequence of the complexity created by distributed decision-making. All decision-makers need to look at the same view of mission-critical data if they want to make decisions that are not myopic. Yet finding a common definition of even as basic an item as the customer or a product is a real challenge; the absence of such definitions obstructs accurate analysis. Typically, disconnected data is spread among various internal and external systems. Each has its own data model, definitions, codes, attributes and relationships, and they are not easily translated from one to another or into a homogenized view. What is needed here is master data management (MDM): the process and technology to manage sources of key reference business data. MDM defines business contexts for common definitions, the business rules and detailed identifiers of internal and external objects (such as customer, product, vendor, branch office or sales rep). MDM enables accurate business performance reporting and creation of accurate views of the business.
The fifth way that a BI platform strategy falls short for supply chain management is that it lacks a performance management focus. Even if you were able to assemble all the data from these individual systems into one homogeneous data set and create a reference model around it, you still would not have intelligence about supply chain performance. That’s because transaction systems, particularly enterprise resource planning (ERP) and supply chain management (SCM), do little to forecast future states. Managers need information to measure “what-if” scenarios. They want forward-looking analytics that predict the performance that could result if a certain plan is adopted.
Additionally, managers want visibility into detailed customer forecasts and supplier schedules. They need this knowledge to align operations and respond to changing market and demand conditions. The problem is that this information is constantly moving. The purchase transaction of today was based on yesterday’s customer forecast. Tomorrow, that forecast will change. Managers want this kind of planning and transaction data gathered in one place so they can use it to take immediate action. They are not finding it in traditional BI applications, and so they turn to spreadsheets to view it – and everyone knows how cumbersome and unreliable that method is.
The need for better global supply chain intelligence has created challenges for business and IT departments. It’s hard to make return-on-investment calculations for many of the newer applications that fill the information gap. Meanwhile, the established vendors of BI platforms are expanding their capabilities. For example, Business Objects, Cognos and Oracle (PeopleSoft EPM) now incorporate prepackaged supply chain-centric measurements and analytical applications. Cognos supports distributed decision-making with business event management alerts. Hyperion provides master data management services.
However, no BI vendor supports trading partner visibility together with detailed supply and demand scenario planning. These datasets require the integration of trading partner data and the mixing of planning information with transaction information. For these needs, business users must turn back to their SCM vendors like i2, Manhattan Associates, Oracle and SAP, or they must assemble functionality piece by piece by turning to niche players like Kalido, SAQQARA and Silver Creek Systems for trading partner MDM; Interlace, Kinaxis and SymphonyRPM for scenario planning for decision support; IBM, seeBeyond, Tibco, Viewlocity and webMethods for trading partner connectivity; and ClickCommerce and RiverOne for compliance visibility.
Ventana Research recommends that executives and senior supply chain managers of global businesses take the lead in their global business intelligence assessment efforts. The aim here should be to identify the requirements that are critical to support the business and manage performance of the supply chain. Start by adopting a standard performance measurement reference model like SCOR. This benefits the business because it provides balanced horizontal (across processes and trading partners) and vertical (hierarchical) views of the business. These models provide metrics and scorecards that examine both capability and performance, thereby exposing gaps in core processes. They will also show where the largest gap lies (for example, a supplier compliance problem, a planning problem or something MDM-related). Once gaps have been determined, a business case can be built to demonstrate the value and results that a visibility and control project will deliver. It must provide clear definitions of both the program’s cost and its potential benefits, as well as compelling productivity and financial reasons for satisfying the unique information requirements of global supply chain performance management.
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© 2006 Ventana Research
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