Holder Says:

We believe that using historical data we can help the merchant create a more perfect PO that anticipates a vendor’s future performance based on their historical performance in similar situations. What Do You Say? Click Here to Send Us Your Comments Click Here to See Reader Feedback

SCDigest editor Dan Gilmore recently sat down with Greg Holder, CEO of Compliance Networks, to discuss supply chain visibility in the consumer goods to retail supply chain.

This interview is also exceprted in our ew SCDigest Letter on Supply Chain Visibility, which can be downloaded here: Supply Chain Visibility Information and Resources page.

Gilmore: What does visibility in the consumer goods to retail supply chain really mean to you?

Holder: In one word to me, visibility means cash. Cash in cost avoidance, cash in expense savings, cash in inventory savings and cash in capital expenditure delay or avoidance. At this point if I were the audience I would ask; how can you say this? It is quite simple. Visibility allows people in the supply chain to see problems before they occur and take necessary steps to avoid the expense in real time.

Visibility also provides insight to make more intelligent decisions early in the order cycle (just in time inventory) and perform more intelligent audits in the distribution centers on inbound shipments (expense savings). Finally visibility can also be a major driver increasing throughput in the existing distribution network and thus delaying the need for costly new DCs. Two drivers of this savings through visibility come from what we refer to as the PO Lifecycle and ASN (Inventory) Accuracy.

Gilmore: Let’s start with the PO Lifecycle.

Holder: In its simplest form the PO Lifecycle refers to all of the supply chain events relating to a purchase order from creation to consumption either at a retail DC or retail store. Think about it this way. A retail buyer or replenishment system can create the most perfect order for the known needs at the time of creation.

This is the last time that order will be perfect. Too many things can go wrong for too many reasons. The order is transmitted (via EDI) to the vendor or supplier. The supplier must pick or in some cases perform some value added service, audit and prepare the order to be shipped within the start/stop and cancel dates provided in the PO and to the appropriate location in the appropriate quantities for the items requested. In many cases, they must also create and transmit an accurate ASN. Increasingly, they must also request routing through a TMS, the routing gets approved, trucks get dispatched, the order is picked up and eventually delivered to the retail DC yard.

At some point the DC will unload the trailer, receive and audit the order, perhaps perform some other value added service before shipping the order to the stores and booking the order into inventory. Now, imagine if the order is shipped more than once from more than one location or if there are problems associated to the order (wrong items or quantity). All of these events are a part of the PO Lifecycle and important parts of reducing days in the inbound supply chain which ultimately reduces investments in inventory.

Gilmore: In the consumer goods to retail supply chain, the Advanced Ship Notice or ASN is really an essential building block of supply chain visibility, isn't it? How well penetrated is the ASN in retail today?

Holder: The ASN is a very essential building block of supply chain visibility. For the uninitiated, ASN is an acronym for Advanced Shipment Notice and is essentially an electronic packing slip of a vendor shipment. The idea is simple, as a vendor prepares a shipment from their location to a retail DC, they account for the items shipped, generally at the carton level, and transmit the carton labels, carton contents and some other data to the retailer in advance of shipping.

With this information, the retailer can do many things. In the perfect world they can use the information to staff DCs receiving departments and to cross-dock or fast track merchandise through the DC. In the event of a discrepancy to the purchase order they can attempt to resolve a problem before the shipment arrives at the DC causing a physical blockage or multiple handling. Inaccurate ASNs can cause significant inventory accuracy issues in the stores if not caught in an audit process somewhere in the inbound supply chain.

I don’t think anyone knows the penetration of ASN in retail today but I think it is safe to say that for a technology that has been around for more than 30 years, the penetration is far too low.

Gilmore: What do you see as the barriers to better ASN adoption?

Holder: This is a great question. From a supplier perspective, creating and transmitting an ASN from a technology standpoint is simple and can be done with very little investment. However, for those suppliers that ship containers that have multiple SKUs in them or on them, the process can sometimes be complicated. For multiple SKU cases, an often sighted method is the scan and pack method. Stated more simply after an order has been picked (or during the picking process) the items are scanned and packed into the shipping container at the same time. When the carton is full, the carton label is printed and applied. The contents are known and can be included in the ASN. For single-SKU cases, carton labels can be pre-printed and applied as the order is being filled. These are simply a couple of examples from a supplier perspective.

(Supply Chain Trends and Issues Article - Continued Below)

For retailers the barrier to adoption is more of a function of being able to utilize the technology. If a retailer does not have a receiving system such as in a WMS that can utilize the ASN, they won’t ask for one.

Here is an interesting side note. Close to ten years ago I started noticing that more than 75% of cartons I would see on the docks in retail DCs had UCC128 labels, the labels that generally are created and associated with an ASN. This was no different whether I was in a DC of a retailer utilizing ASNs or a retailer not utilizing ASNs, which told me the vendors built the ASN process into their WMS and use it for their own inventory accuracy whether the retailer requested it or not. This should get some folks thinking.

Gilmore: You speak of ASN Accuracy as synonymous with inventory accuracy. Can you take a moment to explain that?

Holder: Too many retailers that utilize ASNs assume that once a vendor becomes a certified ASN vendor, they can decrease or eliminate any detail audits for the accuracy of the ASN. Many times, when this is the case, the retailer blindly accepts the vendor ASN as the final word. They book the ASN data as inventory and will pay invoices based on the same data. This practice sounds bad enough but imagine what happens when the vendor carton contents do not match the vendor ASN. The receipt is wrong, the invoice payment is wrong and even more damaging the store inventory is wrong!!

Based on our data for 2010 and 2011, 97% of the ASNs are correct at the item and quantity level. It does not sound bad until you consider the number of errors this can involve. This can have a significant impact on inventory and sales for both the retailer and the vendor. This concern for inventory accuracy led us to build our vendor classification system that uses ASN accuracy to determine audit penetration based on historical performance. This allows our customers to focus their efforts on the vendors with historical problems. In fact when using this intelligent audit, they can audit less while maintaining confidence in their inventory accuracy.

Gilmore: How does a retail compliance program support visibility?

Holder: Ten million dollar question. From my perspective, ten years ago, I missed the value of what we, Compliance Networks, were trying to do. We set out to help retailers automate what is typically a manual vendor compliance process. We were thinking it would be great because our customers could save some payroll expense, increase charge identification by automating a manual process, and ultimately remove days from the inbound supply chain by eliminating a lot of the supply chain disruptions. I understood that in order to automate supply chain failures we needed a process to gather supply chain transactions from retailer and supplier execution systems, such PO systems, WMS, etc.

With this data we could create sophisticated algorithms to interrogate the data and identify exceptions or violations to a retailer’s requirements. What I did not understand at the time was the value of the supply chain data in terms of visibility to things like vendor performance and profitability, supply chain days, carrier performance, DC performance and even merchandising performance.

Gilmore: You believe companies that reach high levels of visibility can reach an even more advanced state - predictability. What does that mean?

Holder: This is very exciting stuff. We discussed earlier the concept of the PO at the point of creation being the perfect PO and everything that follows else will be a negative impact to that PO and ultimately the retailer’s merchandising plan. We believe that using historical data we can help the merchant create a more perfect PO that anticipates a vendor’s future performance based on their historical performance in similar situations. A very simple example of this is knowing that a vendor consistently ships 3 days late or 80% of a purchase order. The merchant can either order earlier, find a vendor that can be timelier, or in the case of the fill rate problem order a larger quantity or order back stock from another vendor.

Gilmore: You have built a visibility solution on top of your existing compliance management solution - tell us a bit about that.

Holder: As mentioned earlier, this was really an unforeseen by product versus our original intent. We recognized that to accomplish our goal of automating the identification of supply chain failures; we would need tremendous amounts of supply chain data. Over the years, as we have continued to add more data from different data silos we realize we have a pretty good picture of the retail supply chain.

By layering in various information structures we end up with an environment for centralized access at various reporting levels for not only the vendor but for merchants, ship points and destinations, retailer department organizations, order types, etc. The list goes on and on and it is not just at a single structure but also at any combination of multiple structures down to the item level, if we need to go that deep. It is really an exciting thing.

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