Supply Chain visibility article and permission to publish here provided by Adam Miglio.
The Internet of Things (IoT) and digital transformation have opened the doors to what should be limitless transparency across the most complex supply chains. It would seem that the Fourth Industrial Revolution (4IR) and Industry 4.0 would demand its implementation.
I’ve worked for major manufacturers in CPG, Automotive, and Defense Contracting, and I can honestly say that some of the largest organizations are nowhere near accomplishing this. In the past 5 years, I’ve found myself constantly asking the question, “Isn’t there some sort of software that can do that?”.
Every single organization I have been a part of has been dependent on Excel spreadsheets for order tracking and expediting – and in some cases – even demand planning. Even the most robust ERP systems seem to lack the visibility that organizations are desperate to acquire, and in real-time.
After researching this particular challenge and looking back at my own experiences, I will have to offer a not-so-popular solution.
My experience has mostly been in material acquisition – arguably the first step in the true “kick-off” of some sort of supply chain event. By event I am referring to both LRIP (low-rate initial production) and full rate production. And the limitations in supply chain visibility seem to start right here.
Buyers and expeditors alike tend to place Purchase Orders with suppliers and then check the box as if the task is complete. The order is placed, so the material will arrive according to the contractual due dates, because mistakes never happen – correct?
If we apply Pareto’s 80/20 Principle here, we know that this is faulty thinking and that the placement of the PO is only 20% of the equation with regards to material receipt. The equation becomes even more disproportionate when we apply ABC classification to our material purchases and consider long-lead, high-dollar items.
Refer to the below illustration (pardon the crudeness):
“A” Item Example – BOM complexity, long lead time
PO Placement Supplier Receipt and acknowledgement Supplier Procurement of 800 unique parts from 50 other suppliers ——————————————————————Material Receipt and build———————————————————Shipment to customer
“C” Item Example – Distributor stock, low complexity, short lead time
PO Placement Supplier Receipt and acknowledgement Supplier pulls from stock Shipment to customer
When comparing the above examples, the long arrows are where the holes exist – the opportunity for error. Every day that passes between nodes in the supply chain where an operation is missed, or worse – forgotten, is a delay in the supply chain.
If you were to extrapolate the lengths between each node, the 80/20 rule becomes more like the 95/5 rule – 95% of the buying process is in the hands of the supplier, and only 5% is in the hands of the customer’s order placement. This does not necessarily guarantee a complete failure of the customer’s manufacturing plan, but it can if the communication is not made. And that’s where we continually fail.
I cannot count how many times I’ve seen a buyer place a PO only to find out the below has, or hasn’t occurred:
- Supplier never acknowledged receipt of order (worst case scenario of them all).
- Due date has slipped. Buyer or expeditor reaches out to the supplier, only to find out there was a delay that was never communicated back to the customer.
Both scenarios could have possibly been mitigated (note I say “mitigated” here because hiccups on the supplier’s side cannot always be avoided, but they can always be communicated). Had the buyer or expeditor reached out on a weekly cadence for status, the errors would have been uncovered and contingency plans could have been put in place (altering the manufacturing schedule, informing the end-customer of a delay, seeking out another supplier).
It seems that the answer to this dilemma is a simple one – call the supplier. Weekly. Daily. Base the rhythm on the complexity of the part at hand, its importance to your end customer/manufacturing build, cost, and lead time. But is this all just time wasted? I continue educating myself on the possibilities involved with IoT and digital transformation, and I continue to ask the question – why do we need to behave in this way?
In 2021, why do buyers and expeditors need to make daily phone calls to order takers? Shouldn’t order status be visible, in real time, through online portals and other EDI related communication channels? Can’t every part have RFID which sends a signal through EDI to both the supplier and the customer, effectively communicating its exact coordinates in the supply chain?
There are exceptions. Smaller operations without the capital to invest in such expensive supply chain solutions will probably not be able to justify the cost – and rightfully so. Their product lines are more limited and less complex, and they don’t have the large supplier network where they are tracking overwhelming amounts of orders each week. Let the phone calls and emails continue.
But what about the large automotive manufacturers? Or the mission-critical defense contractors spending inordinate amounts of the taxpayers’ dollars? Surely, they would want to take their procurement practices a bit more seriously and invest in a platform that eliminates any possibility for a missed shipment – especially when the topic becomes “mission critical”.
According to the 2020 Supply Chain Visibility Report, only 60% of manufacturers and retailers claim to have end-to-end supply chain visibility. This is a surprising number, given the fact that technology offers us more opportunity than ever before to have a clear lens through the entire chain. But what’s even more fascinating about this report is that organizations claim that collaboration is the largest missing attribute to supply chain visibility.
The report goes on to state that a lack of trust between organizations, as well as a fear of sharing proprietary information, are reasons for this degradation in collaboration. According to the data, 83% of retailers and manufacturers stated that increased data sharing would improve visibility and planning.
Given the feedback from organizations around the world, the solution to the supply chain visibility problem doesn’t necessarily exist in technological advancement and implementation – or at least it doesn’t start there. It starts with increased human interaction. This is actually good news, especially in a world where people have to fear their jobs being replaced by robots and AI.
It’s also promising in that organizations that don’t have the capital or intellectual capacity to take on a major technological implementation can shift their focus to improving their current human capital – without feeling like they are missing out on some magical technological implementation that will solve all of their visibility problems in an instant. But is this solution, improved collaboration along the supply chain, the end all be all?
The study of economics has proven that every “solution” is really a tradeoff of some king. According to world-renowned economist Thomas Sowell, “There are no solutions, there are only trade-offs; and you try to get the best trade-off you can get, that’s all you can hope for.”
If we look at supply chains in the same manner, it’s understood that every scheduling decision that is made is a tradeoff of some kind. If lead times are compressed, inventory will rise and so will costs. If a lean initiative is put in place, inventory may decrease but so will agility, and lead time may inevitably increase as well.
I think the supply chain terminology which deals with tradeoffs may be best exemplified by the Theory of Constraints – which suggests that whenever one bottleneck is eliminated, a new bottleneck is sure to arise somewhere else along the chain. So, we need solutions that put the bottleneck where we are most able to accept it. Provided demand forecasts are relatively accurate, safety stock can be increased which would ultimately lessen the need for constant surveillance of component traffic from suppliers. But this will cost more.
The data gathered by the research conducted by Blue Yonder suggests that the solution to supply chain visibility issues should involve greater collaboration along partners in the supply chain. ERP updates can still be made in real-time, only at the expense of human data entry as opposed to entry from a scanner or some sort of RFID signal.
Weekly, or even daily cadences of communication to ensure the flow of material along the chain is being executed to the plan is a basic human task, but even this comes with the cost of time; simply put, time is spent on the phone or in meetings when it could be spent placing more orders for future needs. There is always some sort of tradeoff.
Solutions aren’t always as concrete – or as obvious – as we like to think they are. Sometimes we must accept certain risks in order to avoid others. The situation is no different when it comes to increasing supply chain visibility. The simple solution is more frequent customer and supplier collaboration – at the cost of time.
In 2021, it would seem that a buyer’s time is better spent on RFQ’s and order placement. Even expeditors would be better off to receive order updates via EDI, where they can quickly disseminate the data down into what’s ancillary and what’s not – freeing up focus for the most pressing matters. In a time when spending more money and advancing technology seems to be the go-to, it’s ironic – while also promising – that it seems we just need to start being more human.