Supply Chain Visibility Roadmap. Author Ranjan Arora WHITE PAPER

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1 Supply Chain Visibility Roadmap Author Ranjan Arora WHITE PAPER JULY 2012

2 TABLE OF CONTENTS Abstract 3 Supply Chain Visibility: Definition and Key Trends 3 SCV Framework: The Need 4 Supply Chain Visibility: The Key Challenges 5 Supply Chain Visibility Solution: Deployment Methodology 6 Business Benefits 13 Conclusion 15 About the Author 15 2

3 Abstract The benefits of Supply Chain Visibility (SCV) have been known for over a decade. Enterprises have been deploying Supply Chain Visibility solutions in their environment to reduce costs and improve services but often remain dissatisfied as the existing solutions fail to deliver in today s highly dynamic business environment. A recent AMR research titled, affirms, this fact. The report cites, In the area of Supply Chain Visibility, what vendors provide and what businesses need don t match. As a result Supply Chain Visibility projects to support agile supply networks are at high risk for failure. Achieving Supply Change Visibility excellence has thus become a major concern for supply chain leaders. Some of the major challenges faced by supply chain leaders are: 1) Collapsing demand, unreliable forecasts and increasingly volatile risks 2) Increasing complexity of global sourcing and aggressive global competition leading to longer lead times and more pipeline inventory; and 3) The immediate need to control downstream and upstream logistics To address the above-mentioned challenges organizations need a dynamic and robust SCV framework that can enable quick response to change as well as improve and strengthen the organizational supply chain by making data readily available to all stakeholders, including the customer. The need for Supply Chain Visibility framework is especially great for manufacturing companies who are moving from a push supply chain model to a demand-driven supply chain model. A SCV framework such as that of HCL can address the needs of CPG manufacturers and retailers by: Synchronizing supply and demand while balancing inventory exposure across the supply chain utilizing planning software; Streamlining and increasing effectiveness of global sourcing and supplier management, including developing deeper supplier relationships with more sophisticated integration; and Enabling real-time collaboration and data exchange between suppliers, distributers & retailers Supply Chain Visibility: Definition and Key Trends Every business dependent on a supply chain needs SCV as it is related to business intelligence to manage its increasingly complex supply chain. It is not just the quantum of visibility that matters but also the kind of visibility. SCV should provide appropriate and timely information to businesses to take on the key challenges of the increasingly complex supply chain world. 3

4 Understanding the Key Trends in Supply Chain Visibility The supply chain organization needs to be treated as a single integrated organization to effectively support all supply chain functions Risk and opportunity management should span the entire supply chain from demand planning to expansion of manufacturing capacity including the key partners End-to-end supply chain cost optimization is critical. Customer requirements and competitors call for regionally tailored supply chains and product offerings Securing growth requires truly global customer and supplier networks. The future of global supply chains depends heavily on international customers and customized products. An efficiently managed global supply chain is the need of the hour Supply chain volatility and uncertainty have permanently increased. Market transparency and greater price sensitivity have led to lower customer loyalty. Product commoditization reduces true differentiation in the consumer and business-to-business (B2B) environments Businesses need to catch up with the above-mentioned trends and the top pressures (depicted in the graph below) in SCV to achieve excellence. Caption: Top Pressures to Improve Supply Chain Visibility Source: Supply Chain Visibility Excellence: Mastering Complexity and Landed Costs, MarchAberdeen Group SCV Framework: The Need In the prevalent dynamic environment, organizations are continually striving to meet the ever growing demands of their clients and consumers. They need accurate and constant visibility in their supply chain. The transparency thus achieved can be passed on to the clients and consumers to have an efficient supply chain. 4

5 Customers today are not only hopping channels, but are switching from one retailer to another for better price and service. This has added to the demand fluctuations making it vital for organizations to make real-time adjustments in their supply chains or else they would end-up with unwanted situations such as stock outs or excess inventory. Most of organizations have adopted just-in-time (JIT) strategy to significantly reduce their inventory costs. While JIT eliminates dependence on supply chain partners, just-in-case (JIC) strategy does the exact opposite; it increases the dependence. A delay of few hours or even few days in supplies by any partner could potentially disrupt operations. To counter such challenges, organizations must have the capability to spot the problems and take appropriate corrective actions in real time. There is a critical business need to obtain real-time visibility across the supply chain to constantly monitor supply chain activities to identify problems and ensure business continuity. Supply Chain Visibility: The Key Challenges The emergence of the consumer-driven value chain and globalization of supply chain networks have increased the complexity and the need for supply chain-wide visibility. The key challenges witnessed by the retail consumer packaged goods industry are: Rising Supply Chain Costs: According to the recent Aberdeen Survey, growing supply chain complexity is the top business pressure leading to increased supply chain cost. The manufacturing companies are specifically facing this challenge because of their higher propensity than other industries to outsource production and distribution; hence tracking it becomes more critical. Without detailed and effective supply chain visibility, it is difficult to control supply chain costs, inventory levels and lead times, or react effectively to ever-increasing variability and disruptions Demand Prediction & Synchronization: With rapidly changing trends and consumer preferences, it has become a challenge to predict consumer demands and consistently deliver higher overall service levels. The demand planners rely heavily on Supply Chain Visibility to match supply and demand. It is crucial for planners to get timely and accurate updates regarding product availability Holistic Supply Chain Visibility: Today retailers & CPG enterprises seek visibility from operational as well as strategic levels to have an efficient supply chain. Though benefits of gaining Supply Chain Visibility into critical elements across the end-to-end logistics network for improving cost and service are evident to the industry, but the solutions till date have not been effective. While, in recent past, warehouse management systems may have been able to give inventory visibility for in house stores, the true holistic Supply Chain Visibility is still a challenge for most companies 5

6 Supply Chain Metrics: A holistic supply chain visibility provides real-time, accurate, and usable information about product, processes, and flows. It streamlines the information flow by avoiding blind spots and data-sharing delays. Seeking such information, which can be readily accessible from anywhere on the supply chain flow for decision makers, has been a challenge. The need of the hour is an effective supply chain visibility framework that can provide timely insights into key supply chain metrics Supply Chain Visibility Solution: Deployment Methodology To deploy a successful supply chain visibility solution, organizations need to think through the best approach. In our opinion, a successful supply chain visibility roadmap and solution must follow the 5-step methodology detailed below. 6

7 Understand the Supply Chain Network The first and the foremost step before deploying a Supply Chain Visibility solution is: to understand the network and identify the nodes. For each identified node, capture the list of processes executed by them. And then document various activities/ tasks performed by the identified nodes to facilitate the movement of goods and information within the network. Proceed cautiously through the step to ensure that only the activities pertaining to the supply chain are documented. Identify Level-1 Strategic KPIs Real-time information monitoring contributes effectively to decision making. Thus it is important that the implemented Supply Chain Visibility solution monitors the strategic key performance indicators (KPIs): the main objectives of management; the nature of supply chain; the kind of business; and the requirements of various partners. The following table depicts top 5 KPIs of an effecint supply chain. 7

8 Performance Attribute Supply Chain Delivery Reliability Supply Chain Responsiveness Supply Chain Flexibility Supply Chain Costs Definition The performance of the supply chain in delivering: the right product, to the right place, at the right time, in the perfect condition and packaging, in the right quantity, with the proper documentation to the right customer. The velocity at which the supply chain provides products to the customer. The agility of a supply chain in responding to marketplace changes to gain or maintain competitive advantage. The costs associated with supply chain operations. Level-1 Metric Delivery Performance Fill Rates Perfect Order Fulfilment Order Fulfilment Lead Times Supply Chain Response Time Production Flexibility Cost of Goods Sold Total Supply Chain Management Costs Value-Added Productivity Warranty/ Returns Processing Costs Supply Chain Asset Management Efficiency The effectiveness of an organization in managing assets to support demand satisfaction. This includes the management of all assets: fixed as well as working capital. Cash-to-Cash Cycle Time Inventory Days of Supply Asset Turns 8

9 Study the Extended Supply Chain Issues Identify the constraints and issues faced in the supply chain and devise strategies to address them. Some examples on what are the typical constraints and issues faced in the supply chain network and what customers really want are listed in the table below. Typical Constraints Issues Voice of Customer Demand Planning Lack of visibility into future customer needs Lack of quality point of sale (POS) data Frequent promotions and markdowns Seasonal demands Low forecast accuracy Decrease in inventory obsolescence and mark downs Increase customer service levels and fill rates Supply Planning Planning assumes fixed lead times Simplistic inventory planning leads to overstock and loss of sales Replenishment & distribution Inventory management (trade off between safety stock vs customer service level) Inventory rebalancing between distribution centres Manufacturing Product sourcing Seasonal build ahead (for e.g. high demand during Christmas season) Reduce inventory cost Expedite global supply chain coordination Sharing information across the supply chain 9

10 Collaboration Allocation: disaggregating expected supply/ commits against anticipated demand Typical Constraints Not all entities are technically mature Not all entities are ready to share information Allocating material across multiple dimensions (customers, product and time) and also account for customer demand fulfilment strategies Order promising constraints include accounting for real lead times to customer, accounting for alternate fulfilment locations and alternate products Issues Collaborative replenishment panning for geographically separate distribution centres and plants Collaborating on demand which is over a long lead time Collaborating for joint promotions Tier structure/ partners tend to get changed (how to allocate constrained supply in such a scenario) Voice of Customer On-time and Responsive delivery Reduction in inventory through improved long term visibility Reduction of costs reduced obsolescence, better planned promotions, reduction of markdowns and expedites Increased customer service and retention Increased order promising accuracy Hitting Promise Dates in Execution 10

11 Diagnose the Issues and Frame a Solution Roadmap Careful examination of the issues raised and information gathered reveals that Supply Chain Visibility should have the capability to: track and trace the entire supply chain; sense and respond to important events; conduct predictive analysis; and analyze and decide the supply chain behavior. It may directly address many of the supply chain management issues. Supply Chain Visibility can improve delivery reliability, increase inventory turns and reduce slow moving stocks. Caption: Key components of an effective and efficient SCV solution Supply Chain Visibility Solution Framework Keeping in mind the challenges, HCL has devised a framework to build a flexible, agile, reliable and responsive supply chain. It covers the data flow that span across the entire network, events/alerts generation, and measurement of various KPIs. 11

12 HCL s Supply Chain Visibility framework enables: Collaboration across the departments and extended supply chain network of multiple trading partners Information logistics related to inventory locations, shipments, actual demand & potential demand, order status, manufacturing status available in a dashboard across the extended supply chain Comparison of the planned, actual and projected (expected) inventory, order status as well assales Administrators to generate alerts for supply chain events. The alerts will prompt users to take proactive actions that would help in: Reducing loss of potential sales More efficient allocation and distribution of FG inventory Proactive planning in case of potential non-availability of critical components 12

13 Intelligent reporting of supply chain behaviour. It facilitates supply chain managers to take proactive actions for a responsive supply chain, better delivery reliability and more efficient use of assets Key Differentiators of HCL s SCV Framework The framework is technology-agnostic and can be applied to all packages available in the market It helps in improving visibility/ B2B connectivity into supplier-side processes Streamlines processes for easier monitoring Improves internal cross-departmental visibility Improves timelines and accuracy of data exchange about supply chain transactions Business Benefits The potential benefits of an effective & holistic supply chain visibility framework can be observed at three different levels: operational level, customer level and enterprise level. At operational level: Collaborative demand planning Sales and operations planning (S&OP) Synchronizing activities through information sharing Increase operational productivity and accuracy through a system enhanced by granular tracking and validation Increase supply chain responsiveness Reduce cost of inventory Increased order promising accuracy Efficient inventory turnover Reducing inbound lead time variability Dynamic reallocation of in-transit inventory At enterprise level: Increase in enterprise efficiency through enhanced supply network visibility and risk management around quality and time-to-delivery issues Leverage supply chain visibility for forecasting, tracking and tracing and vendor managed inventory to ensure right products and inventory in right place at the right time, ultimately helping an enterprise to deliver high-quality customer service Enabling a collaborative framework for internal and external collaboration across the supply chain 13

14 Improve enterprise revenue management At customer level: Increased customer service level Improved delivery Success Story Leading Global CPG Manufacturer Leverages HCL s SCV Framework to Achieve Supply Chain Resilience About the Customer The Challenges: The client was not receiving its raw material at the right time and at the right location, thereby leading to commitment failure. The supply chain planners did not have real-time visibility into supply chain events, and couldn t plan alternative means to get the requisite inventory and ensure order completion. This adversely impacted on the customer sdelivery reliability. The HCL Solution The HCL team developed a supply chain dashboard on top of the legacy ERP/ inventory systems. The dashboard provided customer with the visibility and projected inventory calculations of the material in a tabular format. This enabled the supply chain planners of the organization to understand and manage likely shortage of material. The information extracted through the dashboard enabled the supply chain planner: Expedite the supplier Look at alternate sources Re-look at priorities Provide advance intimation to customer with new commit dates The supply chain dashboard provides insight into potential material shortage in future and thereby alerts the planner to to fix the potential problems. Below has been shown one of the views of Supply Chain Dashboard, where d1, d2, depicts Day1, Day2 respectively w1, w2 depicts Week 1, Week 2 respectively Expected receipts is the commits made by the supplier The Red color indicates that the Inventory Level is either zero or below zero and an alert is generated to the respective Planner to take appropriate action 14

15 The yellow color indicates that the Inventory Level is above maximum stock level (it is having extra material than what is required and is thus locking money and space) and an alert is generated to the respective Planner to take appropriate action Conclusion The retail and consumer packaged goods industries are adopting Supply Chain Visibility as a concept. An SCV framework can add value through the addition of standardized supply chain metrics, increased continuity in definitions and terminology across the supply chain, and is helping industries increase their ROI leveraging existing investments in the currently deployed IT environment. The SCV framework developed by HCL can enable organizations achieve supply chain resiliency and the below mentioned benefits: Synchronize the details of promotional events to alleviate out-of-stock and excess inventory situations Co-ordinate demand planning between retailers and suppliers to increase forecast visibility; improve forecast accuracy results; and the overall trading relationships; and Carefully plan prior to release and close monitoring of sales results, to have higher supply chain responsiveness, increased sales, and reduced inventory About the Author Ranjan Arora Associate General Manager Ranjan Arora is an expert in supply chain management who has led supply chain transformation projects for many Fortune 500 companies in his career span of over 12 years. He also holds a Production and Inventory Management (CPIM) certification from The Association for Operations Management(APICS), USA. 15

16 ENGINEERING AND R&D SERVICES CUSTOM APPLICATION SERVICES ENTERPRISE APPLICATION SERVICES ENTERPRISE TRANSFORMATION SERVICES IT INFRASTRUCTURE MANAGEMENT BUSINESS PROCESS OUTSOURCING About HCL About HCL Technologies HCL Technologies is a leading global IT services company, working with clients in the areas that impact and redefine the core of their businesses. Since its inception into the global landscape after its IPO in 1999, HCL focuses on transformational outsourcing, underlined by innovation and value creation, and offers integrated portfolio of services including software-led IT solutions, remote infrastructure management, engineering and R&D services and BPO. HCL leverages its extensive global offshore infrastructure and network of offices in 26 countries to provide holistic, multi-service delivery in key industry verticals including Financial Services, Manufacturing, Consumer Services, Public Services and Healthcare. HCL takes pride in its philosophy of Employees First, Customers Second which empowers our 84,319 transformers to create a real value for the customers. HCL Technologies, along with its subsidiaries, had consolidated revenues of US$ 4.2 billion (Rs 21,031 crores), as on 30 June 2012 (on FY 12 basis). For more information, please visit About HCL Enterprise HCL is a $6.2 billion leading global technology and IT enterprise comprising two companies listed in India HCL Technologies and HCL Infosystems. Founded in 1976, HCL is one of India s original IT garage start-ups. A pioneer of modern computing, HCL is a global transformational enterprise today. Its range of offerings includes product engineering, custom & package applications, BPO, IT infrastructure services, IT hardware, systems integration, and distribution of information and communications technology (ICT) products across a wide range of focused industry verticals. The HCL team consists of over 90,000 professionals of diverse nationalities, who operate from 31 countries including over 500 points of presence in India. HCL has partnerships with several leading global 1000 firms, including leading IT and technology firms. For more on HCL, please visit