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Our group conducted research about the potential for managing risks in Supply Chain Management. Firms had information of what goes on in other parts of their supply chain. An issue on information was not suggested. Managers seemed satisfied with their supply chain group’s performance on “Visibility” (detailed knowledge of what goes on in other parts of the supply chain – e.g., finished goods inventory, material inventory, WIP, pipeline inventory, actual demands and forecasts, production plans, capacity, yields, and order status). There was also strong agreement that their company uses real-time inventory information and analytics in managing the supply chain. Furthermore, they also said information gathering and establishing good communications with suppliers was extensively used. Information delays, scarcity, sharing, & infrastructure breakdown was seen overwhelmingly as one of the lowest rated risk factors both currently and for the future.
These findings are not surprising given that firms showed that a wide variety of information-based technology and applications are being spent for their SCM efforts (e.g., ERP configuration systems, electronics reverse auctioning, radio frequency identification, Collaborative Planning Forecasting and Replenishment – CPFR, etc.), but very few firms showed that their technologies are being used to support risk considerations. They agreed that the key to improved supply chain visibility was sharing information among supply chain members. However, there was only one company that demonstrated an increased focus on inventory optimization to deal with the risk of out-of-stocks or to buffer against the increased risk of supply disruptions. The role of supply network design and optimizations tools is still evolving on the SCM side. Some of the firms do indeed make use of network design tools for infrequent, long-range decision making, such as manufacturing location or distribution capacity given long-term demand expectations. However, there was no indication that there are new cases of usage, such as helping companies understand, model, and cope with increasing levels of uncertainty in the supply chain or network.
Few of the firms used technology applications to do the following (with the exception of the 3 electronics and 1 food manufacturer): joint technology development initiatives, data warehousing, network design analysis programs, demand signal repositories, inventory optimization tools, and forecasting techniques (e.g., to pre-build & carry additional inventory of critical items). These techniques would be useful in managing risk and continuity with regard to new product launches as might be more required for electronics manufacturers than say automotive. These firms were more inclined to embrace techniques such as scenario planning and capacity modeling. The electronics industry is known for risk stemming from short product lifecycles and high demand uncertainty. The food manufacturer made use of exploring a range of alternative supply sources and transportation routes between its distribution centers and customers. This was the only indication of a firm turning network analysis into a continuous process of refinement that allows them to reduce risk while identifying opportunities.
The firms did not use their technology to evaluate their supply chain networks and lacked disciplined network-analysis programs. The more advanced firms did leverage their technology to periodically assess strategic decisions about where to locate distribution centers and manufacturing capacity. They did look at what network design would allow them to service customer demand at the lowest cost and risk. None of them however were using network-design tools in innovative ways such as modeling the networks of their key competitors to test various scenarios and to perform frequent what-if analysis. None were also employing network-design tools to assess risks in the design of the network or even using simulation techniques to test network-configuration options.
Most of the technology supported the following SCM applications for the purposes of managing risk: information gathering, partnership formation and long-term agreements, supplier development initiatives, supplier performance measurement systems, consistent monitoring and auditing of a supplier’s processes, using an approved list of suppliers, visiting supplier operations, establishing good communications with suppliers, inventory management (buffers, safety stock levels, optimal order & production qty.), spend management and analysis, credit and financial data analysis, business process management, contract mgmt (e.g., leverage tools to monitor performance against commitments), and contingency planning (jointly with suppliers).
Inventory management in particular was a critical SCM application used to buffer risk and serve as a de-coupler between echelons of the supply chain. Some companies have adopted software tools to address multi-echelon inventory optimization. Firms are using these tools to apply probabilistic forecasting techniques to make inventory policy and configuration decisions and to evaluate different inventory strategies, though none of them used it to evaluate postponement strategies. Used effectively, they can help companies improve customer-service levels and fill rates, dampen the impact of supply disruptions, reduce risk, and yield better trade-off decisions between customer-service levels and required inventory investment.
Overall, the firms did not engage in proactive modeling exercises as part of a concerted sales and operations planning process. As an example, they lacked a strong what-if capability and could not do cost versus delivery trade-offs. It was agreed though that internet-based systems will become the common platform for supply chain integration and that the use of supply chain planning software will increase dramatically.
Technology has emerged as a key enabler to realize data and information integration in the supply chain. Making use of technology in general, results in reducing disruption risks in the supply chain. Current information technologies allow for improved integration of information flows and supply chain visibility among all participants. Shared information reduces uncertainty and reduces the need for non-value added cost drivers such as safety stocks. As a result, the system becomes more responsive and eventually could become demand driven rather than forecast driven. A few select samples from this study demonstrates that information driven supply chains hold the potential to perform significantly better than those that do not have access to information beyond their corporate boundaries.
Confidence in a supply chain is weakened when the length of time it takes to complete all the needed steps in the end-to-end pipeline process is longer and inconsistent. Associated with this length and inconsistency is the lack of visible, accurate, and real-time data. A key element in dealing with supply chain risk goes beyond documenting the likelihood and impact of risks, but also getting visibility to risks when they occur and translating that risk information to key decision makers so that they can evaluate and act on information. Throughout the supply chain, key operational data and information such as inventory, demand, forecasts, production and shipment plans, work in progress, yields, capacities and backlogs should be accessible easily by key members of the supply chains. Such information should be accurate and timely, rendering it useful for all parties for planning and re-planning purposes. Thus, it is important that data and information are tightly managed and that any updates are made as timely as possible. The accuracy of the data should be a source of confidence to the parties using the data.
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Please reach out for white papers and reports. Thank you. Sime
Sample Lectures & Should You Major in Supply Chain Management?
Dr. Sime (Sheema) Curkovic, Ph.D., Professor, Operations/Supply Chain
Western Michigan University, Haworth College of Business
“WMU Integrated Supply Management (ISM)…Nation’s best undergraduate SCM program (Gartner); 2nd in SCM technology (SoftwareAdvice); 2nd in top global SCM talent (SCM World)”