It’s rather more than 20 years since EDI – electronic data interchange – first began to preoccupy supply chain managers. At the time it seemed the perfect solution: a neat, standardised way to streamline communications allowing orders and invoices to be exchanged electronically so cutting days, or even weeks, from the supply pipeline and encouraging new levels of collaboration.
Two decades later EDI is still with us – although at many times, over the years, it has proved a nightmare for CPG manufacturers grappling with a raft of proprietary systems and differing protocols from demanding retail customers. Initially, too, EDI was also expensive and technically demanding, far too complex for smaller players to cope with and limited in its ability to automate data exchanges. It was, however, a very significant start.
Over the next few years rather cleverer IT systems are promising to transform the supply chain and the chances are that their impact will be felt rather more quickly and rather more widely than EDI.
Already web technology has allowed EDI-type connections to extend beyond tier one players. Web-based supplier portals where even the smallest company can access stock and order information using the Internet have been with us for years; now, improved technology is making even this basic sort of collaboration more effective.
OmPrompt, for example, started work on its business connectivity systems in 2003. By 2005, thanks to VC investment, it had a commercial product used by Kimberly- Clark to connect with the 120-plus distribution companies that deliver its products across Europe. The system is built around a translation engine which takes inputs in any digital format – voice, text, images or data – and transmits the information to wherever it is required. It means, for example, that a small rural mushroom grower could fax product availability to a large supermarket but the information could go directly into something like a SAP ERP system without the need for human intervention.
‘We offer connectivity as a service,’ says OmPrompt president and founder Brian Bolam, ‘so it is a hosted operation which can handle any type of material.’
Checks and controls are built in so that if the voice recognition system is not entirely sure what someone is saying it will issue an alert asking for clarification. The platform can cope with a telesales order, 1000-line EDI document, fax or whatever all on a pay-as-you-go model with no need for IT investments by any trading partners.
OmPrompt suggests that in a typical business the 80-20 rule applies: perhaps 30 per cent of trading partners handling 80 per cent of the business connected electronically, while the remaining myriad of small suppliers with perhaps 20 per cent of the business by volume still on manual links. By moving to 100 per cent connectivity around eight per cent of supply chain costs could be eliminated giving multi-million pound savings in a large organisation.
Twenty years ago when EDI hit the headlines, supply chains were rather simpler: they were shorter – domestic or at best continental – and manufacturers were just that – they made things. Today, manufacturing is not only global, but is also increasingly outsourced. Supply chain information is thus no longer limited to the enterprise: it must be shared across a number of trading partners in different time zones and countries. The branded manufacturer is also no longer simply concerned about what goes on in its own factories, but how an array of products is being made and assembled in any number of third party locations.
‘Manufacturing today is outsourced,’ says Stefan Theis, head of solutions for supply chain management at SAP, ‘so companies need better IT links to combat the decrease in supply chain visibility that results. That means greater collaboration and new technologies.’
SAP now calls its solution in this space ‘Supply Network Collaboration’ – it was formerly known as Inventory Collaboration, but has been expanded and developed to cope with changing supply chain needs. It is a platform that helps enable the deeper relationships needed when manufacturing capability is outsourced. The latest version was unveiled at SAP’s Sapphire conference in April.
While EDI was very much a solution for tier one businesses, platforms like SNC are designed to link many thousands of smaller suppliers. Users of earlier releases of SNC include Knorr Bremse, a leading producer of brake systems for trains and commercial vehicles, which has reduced safety stocks by gaining greater insights into activity at its upstream supply chain partners.
‘EDI was proprietary and expensive,’ adds Theis, ‘but with the modern generation of collaborative tools using lighter, more advanced technologies then you can achieve deep system-to-system connections and smaller companies can also take advantage of collaborative working.’
Among these ‘more advanced technologies’ are web services, XML and service oriented architecture (SOA). While XML standards have improved SOA still comes in many flavours. It basically involves treating different applications as services which any other application can communicate with and access: rather like a bag full of functions that simply talk to each other when they need a piece of information to complete a task. A few years ago ‘enterprise application integration’ (EAI) was the name given to a wide assortment of proprietary solutions to link assorted applications within the business – today SOA is fast becoming the preferred route.
Almost all the major IT vendors are moving towards SOA, building platforms that simplify integration both between their own applications and between those of other vendors. Using the technology to link a vendor’s own products may seem unnecessary, but given the level of consolidation in the IT industry is eminently practical if large players, like SAP and Oracle, are to benefit from their numerous recent acquisitions of niche application providers by integrating these products quickly into their own offerings. SAP’s NetWeaver platform, for example, is one flavour of SOA; Oracle’s Fusion is another. ‘SOA can add value within complex IT implementations,’ says Sarah Taylor, Oracle’s UK retail industry director, ‘and you don’t get much more complex than a modern supply chain.’
While SOA can link different applications, the applications themselves are becoming more adaptable. ‘Modern composite application development’ moves application development away from the traditional custom-built approach. After all, today’s leading edge custom-written application is tomorrow’s legacy system and with business processes constantly changing and adapting, it is important to keep IT systems as flexible as possible.
‘Modern composite application development links SOA with business process management, business activity management and what we call BPEL – the Business Process Execution Layer,’ explains Taylor. ‘BPEL basically builds the rules engine which can manage changing processes and allow users to adapt applications very quickly to meet their developing needs.’ With this sort of approach, Taylor suggests that businesses can complete process change projects in six months – significantly less time than major IT implementations have traditionally taken.
This sort of adaptability is increasingly important in thesupply chain. Two years ago sourcing was racing to the East with just about every branded manufacturer looking to China for low cost production. The extended supply chains that resulted brought their own problems and today much production is heading back closer to home – notable to the developing economies of Eastern Europe.
‘Manufacturers used to outsource to gain competitive advantage,’ says Patrick Crampton-Thomas, business development director for SCM solutions EMEA at SAP. ‘Now they have to outsource just to keep up with the competition and much of that outsourcing is now moving back to central Europe. We’re also seeing much greater use of vendor managed inventory – typically some 80 per cent of the components sold by a large semi-conductor producer will be on a VMI basis. They will need to manage thousands of parts in hundreds of locations around the world and it is impossible to do that without good supply chain visibility and modern IT systems.’
Both outsourcing and VMI demand greater supply chain visibility and collaboration between trading partners. In the automotive sector, for example, efficiency requires components to be at the production lines precisely when needed while stockholdings are kept to a minimum. Plants, such as Ford’s 1.3million sq ft state-of-the-art truck assembly operation at Dearborn, Michigan have a neighbouring (outsourced) materials support centre (MSC) next door to keep the assembly lines supplied with parts. Older factories are likely to have an endless stream of delivery trucks circling the unit waiting for vital components to be called off.
At Dearborn – as in other locations – RFID is being used to speed the supply chain by tracking components through the plant and ensuring that the right component reaches the correct assembly point exactly when it is needed.
As use of RFID technology increases – and significant uptake is expected over the next few years driven partly by EU regulation – then supply chain visibility will be improved.
‘Combine RFID with global positioning systems and real time data feeds from such things as EPoS and you can have very good visibility into what is happening in your supply chain,’ says Crampton-Thomas. ‘But all these inputs need to go into a common platform and will generate vast amounts of data that needs to be managed.’
SAP has found growing interest in its supply chain event management solutions. Chemical company, BASF, for example, uses the Event Management application to monitor ocean freight logistics from the receipt of initial orders through to delivery of products to the customer. The software maps out all the different stages in transportation by sea. Based on standard time targets, precise deadlines are scheduled for each order so that it can be tracked from port to port, through customs and on to distribution depots.
Modern supply chain systems can not only monitor each event, but can alert managers if something is going wrong using various techniques as a desk-based dashboard application or SMS alerts to a mobile telephone.
As supply chains become more complex and events increase even cleverer technologies are needed. This is where such leading edge developments as complex event processing (CEP) and flowcasting come in.
CEP derives from the need to manage growing volumes of data across distributed computing systems and is a natural extension of both business intelligence and SOA. While traditional databases handle static data, CEP engines are designed to cope with streaming events so that instead of being structured to manage pre-set formats and fields, a CEP system can respond to new events and extract the relevant information without the need for complex re-programming.
CEP is still fairly new, although it is being increasingly adopted in the financial services sector, and supply chain projects are beginning to be made public – such as its use in enabling more flexible delivery routing based on real-time inputs of congestion, product availability, and demand.
Improved demand forecasting
Flowcasting – a term coined by André Martin, Mike Doherty and Jeff Harrop in their book ‘Flowcasting The Retail Supply Chain’ – looks at creating improved demand forecasting by combining information, not just about what has been sold in any given period but how much stock is in the pipeline, any outstanding orders, or other relevant data from different sources to give a true picture of the likely requirements on a store-by-store and product category basis. It’s an approach which demands good collaboration and trust among trading partners, as well as greater flexibility in the planning horizon with retailers willing and able to predict demand 15 weeks or more ahead – and share that information with suppliers. It is also an approach which, it is claimed, can add 1 – 6 per cent to the bottom line and cut inventory levels by 1 – 3 days.
Many of these concepts are still very new and have yet to gain widespread awareness among supply chain managers. ‘Much is still at the concept stage,’ says Richard Nicholas, UK sales and consulting manager for TXT e-solutions. ‘Some of our customers are starting to ask about SOA but very few are using the technology. We are seeing a 100 per cent increase in collaborative projects, however, and a realisation that supply chain improvements can deliver real benefits.’
While many supply chain activities – such as flowcasting – are focused downstream, we can also expect significant developments upstream this year. This is a key focus at Sterling Commerce where David Hogg, retail/CPG marketing manager for EMEA, sits on the adoption committee for GUSI – the global upstream supply initiative – under the auspices of the GCI. Since 2003, GUSI has focused its efforts on improving the links between CPG manufacturers and their suppliers. ‘They want to move beyond basic collaboration on order management and distribution to building standards around shared planning, forecasting and availability to promise activities,’ says Hogg. ‘This year will be the year for GUSI standards with pressure from major manufacturers for rapid and widespread adoption.’
While technology will play a part in enabling the various links between companies that will be needed for greater collaboration, Hogg believes that revamping business processes and priorities – along with good standards – are just as important. ‘It’s not really about technology,’ he says, ‘although the architecture certainly has a part to play and we all tend to think that use of leading edge technologies are rather more widespread than they are.’