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  April 13 , 2006 - Supply Chain Digest Newsletter
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First Thoughts by Dan Gilmore, Editor

The Intelligent Supply Chain


Many companies have developed very efficient supply chains, but are they smart? What makes an intelligent supply chain? Or is it a silly question to begin with?


Well, actually I tried to answer the question a few years ago. As some of you know, I took a brief spin as an analyst at META Group (recently acquired by Gartner) a number of years ago, and in 1999 I wrote a piece on “Crafting the Intelligent Supply Chain” that garnered some reasonable attention at the time. I thought it would be interesting to review that piece almost seven years later to see how the model played out, and to serve as a catalyst to thinking abut intelligent supply chains today.


Here are the capabilities I said we needed to build a “smarter” supply chain:


True visibility to actual demand: My take then: “Understanding true customer demand is essential for a pull-driven approach to supply chain management. A company’s own internal processes and technologies must also flow true demand information freely to all parts of the organization.”


My take now: We still haven’t really solved the bullwhip effect after all these years, though our understanding of the problem and the opportunity has increased substantially. Many companies are making solid progress to be more “demand-driven.” Better visibility to actual demand and a supply chain that can respond appropriately to those signals across functions seems a fundamental requirement of an intelligent supply chain. We also have examples such as retailer Canadian Tire, which has used granular forecasting data to align its internal and external supply chain in a way I would argue is highly intelligent.


Web-enabled global visibility: My take then: “Near-real-time track and trace of inventory at the SKU-level must be established for both international and domestic logistics activities.”


My take now: In 1999, visibility was a vague concept that hadn’t really gained a lot of traction. It’s gone mainstream now, though it still means different things to different companies. The “global” part is essential to manage offshoring and globalization efforts, and we’ve reported on these pages on the visibility efforts and results of companies such as Cisco, HP, Payless Shoes, and others. “Visibility” is clearly part of an intelligent supply chain, though I believe the definition has expanded from what I wrote then. For many supply chains, visibility to multi-levels of their supply chains is also a key element of intelligence, for example.


Componentized application architectures: My take then: “Componentry at increasingly granular levels will enable tighter systems integration, deployment of specific capabilities as rapidly as needed in company-owned and third-party facilities, faster customization of functionality without destroying upgrade paths, and event-driven architectures in which awareness of events triggers intelligent reaction and processing.”


My take now: This sounds like analyst gobbledygook, frankly, but contains buried within it the principles of Service Oriented Architectures (SOA) that are all the rage now from a technology perspective. SOA enables flexibility, which I suppose is related to “intelligence” but isn’t quite the same. What SOA can do, however, is enable more true event-based processing, which can improve how information flows and enables things like alerts for exceptions or potential problems.


Real-time planning/execution linkage: My take then: “Linkages between supply chain planning and execution systems must occur both at the data and process levels.”


My take now: The walls that existed then between planning and execution still need to come down, and we need more “smarts” embedded in our transactionally-focused execution systems. This one is easy to say, but harder to get specific on, but “real-time optimization” is partially here and will expand.


Reporting and analytics: My take then: “Deployment of supply chain analytic applications that compare planned results to actual performance. This will give rise to the new concept of "logistics statistical process control,” using concepts widely deployed in manufacturing environments to inform supply chain operations around predefined tolerance bands and reduced performance and service variability.”


My take now: I don’t know if we’ll ever really develop the concept of supply chain or logistics SPC, but we have certainly seen broad and growing use of Six Sigma methodologies within our supply chain processes.  There’s also no question the use and sophistication of supply chain metrics has increased substantially since 1999. Metrics are critical to the intelligent supply chain, and we are likely to see them become increasingly “real-time.”


Common messaging-alert system backbone: My take then: “Messaging and alert systems that cross multiple applications should be deployed to achieve supply-chain-wide intelligence.”


My take now: This basically meant we should have “event management systems” that ultimately covered the entire supply chain. Very few companies have moved much beyond very basic event management/ exception systems. There are some exceptions, such as Best Buy tying inbound logistics visibility with merchandising and store delivery programs. More intelligent event management will be an important attribute of a smart supply chain, but I don’t think we’ll have or even need an “uber” event management systems across all supply chain processes.


I think I didn’t do too bad back in 1999. As was common at the time, the analysis was heavy on technology and to a lesser degree process, and sort of ignored the people part. Clearly part of an intelligent supply chain today would also be how we organized and incented our people, but that’s for another day. I think this also shows how long it really takes things to change. Seven years later, we’ve made progress, but most companies and technology vendors are still working on these same issues.


What do you think makes an “intelligent supply chain?” Is it just another word for responsive? What would you add or subtract from this model?

Let us know your thoughts.

Dan Gilmore


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Q.  Which automotive company produces the most vehicles in flexible manufacturing plants?

A. Click to find the answer below


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Feedback is coming in at a rate greater than we can publish it - thanks for your response.

We had a tremendous amount of feedback on last week's First Thougths piece on Delphi, the UAW, and the Supply Chain - we'll publish many of these next week. Tsake a look at the story and give us your thoughts - we'd love to hear more. We 've also had several good leters on SCDigest Contributing Editor Gene Tyndall's Executive View column on Strategic Trends and Issues in Supply Chain Management, including our feedback of the week from Arnold Maltz of Arizona State University. You'll find more letters on this topic, and feedback on our piece on The Wisdom of the Troops, below, including one wroter who disagrees that the mass of employees are likely to identify opportunities for transformational change.


Keep the dialog going! Give us your thoughts on this week's Supply Chain topics. As always, we’ll keep your name anonymous if required.

Feedback of the week - on Strategic Trends in Supply Chain:

I certainly agree with the issues identified in this strategy level treatment of globalization and supply chain.  I would add the following into the mix:

1)  The need to develop expertise in each country to deal with that country's government.  The extractive industries (oil, mining, etc.) have faced this issue for some time, as the governments consider themselves joint venture partners with the private companies involved.  So you have government bureaucrats involved in capital equipment decisions, sourcing decisions, etc. in the country and often insisting on "local content."  As it becomes clear that any country's long term development requires more knowledge intensive industries, I would expect that national governments will become even more insistent on transferring knowledge-rich functions to remote locations as the price for tapping low cost labor and high growth markets.  The technology companies are already seeing this in China, particularly. 


2)  The reality that global networks are always potentially in flux.  The challenge is to know both where the opportunities are now and where they will be 3, 5, and even 10 years out.  Hence the concern with inland China as the coast gets more expensive, then the likely onset of Vietnam and then...?  This issue is complicated in that even now supply chains usually take significant time to implement changes, and that the future possibilities are even less capable in terms of infrastructure.

Yes, globalization is discussed everywhere; but there are still many mountains to climb.


Arnold Maltz

Arizona State University

More on strategic trends:

Supply chain managers will be pressing their sourcing counterparts that multi-country sourcing is key wherever large and strategic materials exist.  Significant political change has a higher probability in various global sourcing points and assessments of these risks should be a key priority for each company's supply chain analysis.  We will see a growing consultancy work being offered in this area of geopolitical assessments for risk aversion since there are probably less than 1% of even multi-national companies that employ these key resources.  


With regional protectionalism growing as seen by most favored regional trade agreements, it will also be important to updated on tariffs, potential embargoes, labor laws and other issues that will impact long term supply capabilities.   Supply and demand will create larger vessels, more flexibility in supply chains, open bottlenecks around ports and create infrastructures to move goods, perhaps not at the speed we think we need, but the real collapse of our supply chains will be driven by any political collapses that are encountered either in a specific country or a region in the world.


Ralph Alleman


On the wisdom of the troops:

You touched upon a very interesting subject matter in your "The Wisdom of the Troops" article. It bring up some memories from 20 years ago when I was working on my MBA at Loyola University. During the program, in one of the management classes, we studied the difference between American and Japanese style of management. It just happens to be that we in America use the "Top to bottom" technique, and in Japan, it's "from bottom up". What you're suggesting "... there is a darn good chance if you collected the wisdom of all those involved, there would be a strong and accurate consensus on what the problems are and what needs to be done." - is an example of the classical Japanese management style. However, if you are suggesting this method (by the way, I was absolutely facinated with the Japanese management style) then your following comment "... groups are not likely to suggest major transformations" - I do not agree with.

Your suggestion falls right in the middle of American/Japanese style. In other words, you know well how it works in America (the Top management makes a decision, and the rest of the company is paying for it if the decision is poor). In Japan, in order to make a decision, the experienced employee is being asked for his opinion, the ideas are passed on to the supervisor, the supervisor reviews and forwards this up to his manager, and if the suggestion is worthy, a "quality circle" is assembled to discuss this issue further and make a final recommendation. Once this "quality circle" = "group" makes a recommendation, it is delivered to the Top management and the final decision is made. My point is that "groups are likely to suggest major transformations".

Edward A. Batko
Director of Alliances, IBM BCS
Logistics Services

Bang on! I often learn more during a fifteen minute smoke break out in the "back 40" with "the troops" than I do in a three-hour conference room session with management!

Workforce engagement is critical to identifying real issues, crafting solutions and building the enterprise-wide ownership of new initiatives so fundamental to success.

John M. Hill



Q. Which automotive company produces the most vehicles in flexible manufacturing plants?


A. Nissan, at 88%

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