Getting ready for prime time
The first wave of supply chain visibility software promised to provide real-time information on the status of orders, inventory and shipments. The next wave promises to do much more-it`s just not clear when we can expect it.
By Bob Trebilcock, Editor at Large -- Logistics Management, 9/1/2002
Recently, UPS began airing a commercial during "The King of Queens," a CBS comedy about the everyday life of a deliveryman. Although the ad is sandwiched between pitches for breakfast cereal and department stores, UPS isn't targeting family viewers. Instead, the shipping giant is hoping to get the message out to managers and executives who might be watching that it now provides visibility on the whereabouts of packages all the way through its network. When an ad like this shows up on prime-time TV, you know still another aspect of supply chain management is going mainstream. And indeed, visibility became one of the most talked about concepts during the dot-com boom, as e-tailers began trumpeting their ability to provide tracking and tracing information for orders placed online. As a result, businesses and consumers today routinely expect to be able to log onto a Web site to learn whether their order has been shipped and where it's located in the delivery network of UPS and other carriers.
But while providing shipment-tracking capability is nifty, the real promise of visibility is more than just making order status information available. It's also what's called "event management." As envisioned by most vendors, event management software will be able to monitor transactions for exceptions like late shipments or inventory shortages, notifying a decision maker when those exceptions occur, simulating solutions, taking action to correct the problem and measuring the outcome.
And ultimately, vendors hope to build upon inventory visibility and event management capabilities to include real-time supply chain management. "The big opportunity for visibility providers lies with enterprises that want to move their operations closer to real time," says Rich Vancil, chief marketing officer for Tilion Inc. "They want to use technology to connect the demand side with the operations side of their businesses."
Certainly, visibility is touted as having great market promise. According to Bruce Richardson, an analyst at AMR Research, visibility and related applications have the potential to hit $1 billion in annual sales. Contrast that with sales of warehouse management solutions that after 30 years are still less than $1 billion a year.
Working From the Inside Out
Although software that provides inventory visibility has gained a solid foothold in the market, less progress has been made with the more advanced versions. Certainly, there have been some early wins: DaimlerChrysler's Mopar parts division, for instance, saved $7.5 million in the first 61/2 months of a supply chain visibility implementation. But DaimlerChrysler's win is the exception. Many other users have been overwhelmed by data because they don't have business processes in place to take advantage of the information they receive.
"Several companies we've worked with implemented an event management system only to shut it off because they didn't know what to do with the information," says Ray Hood, chief executive officer of EXE Technologies. "Visibility into what's going on in your supply chain isn't very useful if you can't do something about it."
Adding to the confusion is the sheer number of companies offering visibility solutions. In addition to nearly 50 best-of-breed suppliers, vendors of enterprise resource planning (ERP), supply chain planning, warehouse management (WMS), and transportation management (TMS) systems all offer visibility. At the same time, order management systems are evolving into order visibility systems.
For those companies that have cleared the vendor selection hurdle, the next step is a little more clear cut. Most companies begin with a visibility project inside the enterprise, says a report from AMR Research. They are using supply chain visibility and event management solutions to "bridge the communication gap" between systems in their own companies. Those companies have made significant investments in legacy systems that do an effective job within their silos, where the information is locked up. Visibility solutions make the data from those disparate systems available enterprise-wide. Those projects, however, are more about fixing an IT problem than showing a return on investment.
An emerging application inside the enterprise is the tracking of inventory on the move between stations in a plant or between facilities. "Right now, there are black holes in the supply chain," says Keith Dierkx, vice president for strategic markets at Savi Technology Inc. "I know where things are when I put them on the truck or when they arrive at the warehouse. But I often have no idea what goes on in the middle." Inventory, after all, is dynamic. Trailers in the yard, containers on the warehouse floor, and pallets on a fork lift all move. To track those movements, real-time locator systems are using radio frequency identification (RFID) tags and scanning technology. Initial applications have been tracking trailers in the yard or alerting forklift drivers if they try to load a pallet onto the wrong truck.
But extend the technology outside the four walls of a facility to other participants in the supply chain, and that same RFID tag could be read at every stop along the line to establish the chain of custody of who had a shipment and when. Connect transportation providers through a wide-area network and visibility could extend to the inventory when it's in transit.
"That information can be fed to a WMS, a transportation management system, or a supply chain planning system that will provide the information to the people who need it," says Dierkx. "The point isn't to just collect information. Actionable information is the key."
Fire Prevention
That actionable information collected by event management systems is currently used for fire fighting. Basically, it provides a window into events that are important to a company's operations and alerts someone who can put out the fire.
"If you're running a logistics operation, stuff is going to happen," says Tilion's Vancil. "Factories shut down. Deliveries are late. Inventory falls off of trucks. You need to be able to react and put out fires as they happen."
But going forward, the real value from these systems may be fire prevention—that is, using these systems to synchronize orders and deliveries across the supply chain to avoid problems. This is particularly important to companies that are heavily reliant on outsiders for customer service.
"We have clients like Lucent that have outsourced their logistics and manufacturing," says John Davies, vice president of product marketing for Optum. "They're relying on suppliers to deliver for them or they're coordinating the flow of goods into a merge-in-transit center to ship to the final customer." For them, this cross-enterprise visibility becomes crucial. "You're trying to integrate a number of companies into a vertical scenario where they act as one company even though they're not owned by one company," says Davies.
The Real-Time Enterprise
Ultimately, the hope is that visibility solutions will extend into true supply chain management. Once information has been shared, orders have been filled, and fires have been put out, visibility solutions can analyze and measure the performance of an enterprise or supply chain.
"If I have six suppliers for the same commodity, a visibility system will allow me to [determine] that five are performing well, but one is constantly late and in the last few months [its performance] has been trending down," says Vancil. "Now, I can decide in a thoughtful way whether to only work with those five and prevent fires."
Although that represents an ambitious evolutionary step, AMR's Richardson predicts that in the near future, supply chain visibility solutions will be transformed into supply chain performance management solutions (SCPMs) that will monitor and measure business performance "from source of demand through source of supply."
In Richardson's view, participants will have access to real-time information customized for their role in the enterprise from a Web portal. The portal, he says, will aggregate data from a variety of supply chain management and execution systems. Those data will include supply and demand numbers, forecasts vs. actual cost and revenue projections, business plans, product sales figures and supply performance metrics, among others.
"This will bring us to the age of the real-time enterprise," says Richardson.
That won't happen overnight. But as more early adopters like Lucent, DaimlerChrysler and Sears (see box) record wins, and more vendors embed a visibility solution into their core product, the visibility market will grow. After all, the demand to do everything faster, cheaper, and with less inventory than the year before is not going to go away.
"There are going to be different flavors of visibility to address specific needs and vertical markets," says Optum's Davies. "It may take four or five years, but visibility is going to be a ubiquitous service that everyone will offer."
View All On-Demand Webcasts
