Supply Chain Visibility – Can Information replace Inventory?

Supply chains have been stretched in both directions of demand and supply to access new markets and low cost component supply. Combined with ever increasing consumer demand on features and short product life cycles, supply chains are becoming more complex. The spread and complexity of supply chains have made it harder to manage end-to-end operations effectively. In response to market’s needs for a more responsive and agile global supply chain network and the need to better mitigate risks; supply chain visibility continues to be an important supply chain priority. This articles develops on the hypothesis that information can replace inventory based on the research “Supply Chain Visibility in High-Tech: Is the Priority Paying Off?” that was presented at InForum’s Q2 Quarterly Forum in Germany.

Understanding Supply Chain Visibility

Every supply chain has two parts to it – the physical aspect that is concerned with movement of goods from suppliers to customers and information aspect going both ways. Supply chain visibility provides insight through information that is held by other departments or entities in the supply chain. The information is required to be distributed or shared with all entities involved for an optimal total supply chain versus local optimization. The outcome of Supply chain visibility is

“Right information to enable right product at right time at right place for a cost-effective decision making for efficient product or service delivery.”

Lack of available information leads to uncertainty in the supply chain. The most common hedging strategy by companies to this uncertainty is to hold buffer inventory. One of the key advantages of having supply chain visibility is that information can replace inventory resulting in lean and agile supply chains. The research identified that the key reasons that companies adopt supply chain visibility are to improve customer performance and reduce cost. It is interesting to note that the drivers for adoption are internal needs to improve performance and not external pressure from customers or suppliers. The main obstacles for adoption reported were

• lack of understanding of supply chain visibility principles,
• financial benefits not being evident, and
• lack of enabling technology.

One of the key objectives for the research was to understand the kind of benefits companies have realized after implementing supply chain visibility initiatives. This is quite important to develop a business case for supply chain visibility. The study asked participants what benefits they had expected from implementation of supply chain visibility and what they actually realized. Studying contrast to many study results this research reveals that realized benefits were larger than expected. Respondents observed improvements in both internal (cost, inventory) as well as externally (perfect order fulfilment, order fulfilment cycle time) facing metrics.

Managing Supply Chain Visibility

The research explored how companies are managing supply chain visibility in their organizations and with their supply chain partners across the three dimensions of people, process and technology. The key requirement for employees to adopt supply chain visibility is a good understanding of the principles and how it relates their day-to-day responsibilities. The right set of tools should also be available so that any manual work can be automated and employees can focus on more value added tasks. As with any business initiative, top management commitment and support are necessary.

A formal process should be instituted to facilitate sharing of information not only between departments but also with supply chain partners on a regular basis. Sales and Operations Planning (S&OP) is an industry best practice to bring together various departments/functions in an organization and work towards execution of the business strategy as a whole. Several leading companies are now adopting the extended S&OP process to involve customers and suppliers as well. The critical element for enabling collaboration across departments and supply chain partners is to have a formal process in place. This can be achieved by having collaboration related tasks as part of the job description of interfacing positions like Buyer, Planner, Sales, Logistics Coordinator.

Just over half of the survey respondents mentioned that they are using modules of standard ERP system to enable visibility. We have to understand that traditional ERP systems were developed with a single organization in mind. Companies looking to integrate with their sites globally and supply chain partners should look for new web based technologies specifically developed for that. Certain supply chain vendors offer applications to integrate disparate ERP systems. Technology does play a critical role in having a sustainable supply chain visibility program. Employees should spend their time on valued added tasks such has making decisions using the available data rather than working on gathering and cleansing data. Automated data acquisition also instils a higher degree of trust in the data as manual errors are avoided.

Supply Chain Visibility Roadmap

Companies looking to implement a supply chain visibility programs in their organizations can follow the steps outlined below.

Following this roadmap, we strongly believe that companies can implement an effective supply chain visibility initiative. Supply chain visibility creates values for shareholders and enables competitive advantage. With improved visibility less inventory can be carried for the same service level leading to better cash flow position. Also, improved visibility enables effective risk management and mitigation. Hence, enhanced visibility will contribute significantly towards building a sustainable supply chain as it impacts both the economic and the service aspects.

For more information on the research, contact us.