As supply-chain meetings go, the session on the leafy college campus began with great promise. Seated at the conference-room table were a national electronics retailer and several of its trading partners, including a printer company, whose products the retailer sold, and the manufacturer of the chip sets used in the printers. All had gathered for a workshop on sharing information.
But when the retailer related its success in circulating its real-time point-of-sale data to suppliers to allow more accurate replenishment, the representative of the chip-set maker pointed out an important discrepancy. To craft its planning, his company was relying on the printer company's year-old forecasts. Would the printer company include the chip-set maker in distribution of the up-to-minute sales data? The answer came swiftly. "The response was 'absolutely not,' " recalls Robert Handfield, director of the Supply Chain Resource Consortium at North Carolina State University who attended the meeting as a consultant. "They said 'We don't trust you; it's that simple,' " says Handfield.
Divulging sales and inventory data to suppliers requires a stomach-churning leap of faith. For the retailer, letting loose with such critical details to a supplier's supplier was a leap too far. "At the end of the session they said, 'We'll consider it,' but they never did, which is usually how these things end," says Handfield, who said that the incident, which occurred several years ago, remains a common occurrence today.
These days, the crystal-clear supply chain - where each partner has full "visibility" into partners' orders, shipping notices and even inventory - is something many companies aspire to. The theory makes perfect sense. Supply-chain partners who can readily view each other's pipeline of raw materials, finished goods and packaging can drive inefficiencies out of the manufacturing process and produce cost savings for all parties. Software to automate the process first appeared in the late 1990s and has become increasingly sophisticated.
But there are challenges aplenty. Data that's incomplete, inaccurate or just plain late can toss a monkey wrench into visibility plans. More fundamental is the issue of trust. While channel-masters such as Wal-Mart Stores Inc. can demand compliance, most supply chains struggle with the notion of releasing business details to their trading partners in the name of efficiency.
The see-through supply chain "is something we will see," says Handfield. "But by far the most difficult part is to establish a relationship where you're willing to share that information."
Visibility was a top concern to the 130 executives polled on supply-chain issues this year by ARC Advisory Group Inc., ranking second only to metrics and benchmarking. Steve Banker, service director of supply-chain management for the Dedham, Mass., research firm, says visibility is being discussed "more than ever." The research, he says, shows that companies with revenues of $250 million or more "clearly get it and understand it. And that's different than even two years ago." (For a look at how one company achieves visibility, see box, page 48.)
The visibility movement has also been aided by the growth of flexible technologies such as extensible markup language, or XML, which provide a standard for easier integration. Market leaders Yantra Corp. and Click Commerce Inc. (formerly Optum Inc.) were two of the first makers of supply-chain management software to offer visibility features. Enterprise software vendors like SAP AG and Oracle Corp. have also joined the fray in recent years, along with i2 Technologies Inc. and Manugistics Group Inc., which produce planning software.
Still, the forecast for visibility is far from cloudless. And while businesses are more openly sharing data among their supply base, they're not necessarily discussing the new practice publicly. Companies that are successful at visibility consider it a strategic advantage, and rarely want to share their experiences. Security concerns drive others to stay mum, fearing that publicizing the availability of their inventory levels on the Web will attract hackers.
So where is visibility succeeding? "You can almost look at the end product and know whether the supply chain is into visibility," says Jim Tompkins, CEO and founder of Tompkins Associates, a Raleigh, N.C., supply-chain consulting firm. Trend-conscious products - such as fashion, music and DVDs - are best pumped through an open supply chain that can respond more quickly to public tastes. The retail industry, with its relentless focus on inventory turns and seasonality, was among the earliest adopters of visibility. Wal-Mart required its suppliers to adopt its visibility practices, a stance that was later followed by other major retailers such as Barnes & Noble Inc. and Best Buy Co. Drugstore giant CVS Corp. has also become an enthusiastic advocate of visibility in its inbound supply chain. The $36 billion-in-revenue Woonsocket, R.I., company implemented software that links its stores and distribution centers with suppliers to speed the delivery of merchandise, thereby reducing out-of-stock positions and slashing inventory costs. It expanded the system in 2003 to include pharmacy items, which account for 70% of its sales.
Automakers are active in visibility because of the number of options they offer, says Tompkins. So are technology companies that depend on integrating the newest advances. Lucent Technologies Inc. operates a portal for its vast network of parts and systems suppliers. Lucent trading partners can view inventory levels and demand data, as well as supplier invoice information. Through the portal they also gain alerts to key supply-chain events, such as request-for-quotation and pricing processes and order cancellations.
The more partners and the more distributed the supply chain's power, however, the more difficult compliance becomes. What's more, in some quarters, visibility has gotten a bad rap. Supply-chain information doesn't necessarily want to be free. "You hear a lot of companies who say 'We've done visibility, and it didn't work,' " says Tompkins. Tompkins believes that much of the failure is rooted in mismatched partners.
Other companies are still heavily invested in electronic data interchange, the decidedly unsexy, forms-based technology that automates basic business transactions such as invoices and payment authorizations. Many are reluctant to fund yet another new generation of technology. "There is still a big undercurrent in EDI that wants to leverage its investment," says Ken Ruggles, a research director for consulting firm AMR Research in Boston. What's more, Handfield says, the current crop of technology solutions "aren't user-friendly, and you have to spend a lot of money to get them to do what you want them to do."
For many more, the glass pipeline that visibility software aims to create is the very crux of their apprehension. It shakes up the time-honored cloaking of supply-chain data, by which partners reveal only carefully selected information to each other. It also eliminates their ability to manage - some might say massage - the information.
"The big change that occurs nearly instantly is that you open your kimono and share information very quickly," says Christopher Heim, president and general manager of Eden Prarie, Minn.-based HighJump Software. "It can be a positive or negative reflection on your company. The trust issue is one of the biggest barriers."
Heim says a common fear is that the information could be used as a weapon against them. They worry that details on pricing and inventory will be leaked from the trading circle to competitors. They're also concerned that as every exception is carefully tracked - each missed deadline, quality problem or return - they can cumulatively become the basis of a price decrease when it's time to negotiate terms.
Visibility "can lead to huge benefits, but you have to make sure you have the level of relationship," says Heim.
Much of the effort in creating that relationship begins off-line, points out Handfield. One example is the help-us-to-help-you approach that Honda of America in Marysville, Ohio, has adopted toward its supply base and dealer network. "They view their supply base as a family," says Handfield, "almost like a stern parent-child relationship, where they don't give [their suppliers] everything they want, but they give them the means and motivations to stand on their own two feet." Handfield points out that the foundation of Honda's efforts rests not on systems but on relationships and communications, such as visiting factories and working with suppliers to make sure parts are manufactured correctly.
Fear of visibility within the supply chain is a symptom of problems within a company, says Tompkins. He argues against viewing POS data, advance shipping notices and transportation details as confidential. Success in a global economy, he says, lies in working toward the betterment of your trading circle, not your own bottom line.
"It's not about company versus company," says Tompkins. "It's about supply chain versus supply chain. I'd rather be a pretty good company in a great supply chain than a great company in a pretty good supply chain. Because if those down the line aren't getting the job done, you're toast." - Deborah Asbrand
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