Event management software is designed to cope with unexpected
problems in the supply chain. But, as Mark Vernon reports, although
some users have implemented it successfully, analysts warn it may
prove to be no more than a stopgap.
Supply chain event management (SCEM) is a relatively new module
added to the portfolio of products aimed at tightening up supply
chain operations. The question is whether companies can realise any
significant gains from yet another collaboration tool, or whether
it is just a ploy to squeeze more out of an already saturated
supply chain software market.
SCEM evolved as an extension of process control. It targets the
gaps that even the best laid plans cannot forestall, such as an
interruption to supply because of unexpected events. "SCEM software
enables companies to respond rapidly - and sometimes automatically
to unplanned events without having to completely regenerate their
plans," says Mark Mahara, regional managing director and
vice-president of Silvon Software, the enterprise performance
management specialist.
"SCEM applications accomplish this by notifying supply chain
managers when specific events occur, such as when inventories are
depleted, shipments delayed and so on. Automated responses can
often resolve these issues promptly, but in all cases, managers
have the opportunity to analyse problems and determine solutions,"
says Mahara.
SCEM aims to enhance supply chain visibility, providing supply
chain managers with data to anticipate problems in the early stages
of their evolution. Conversely, it can reduce reactive management,
whereby managers have to wade through reports after something has
gone wrong in an attempt at damage limitation and to mitigate the
impact of lagging production schedules, missed shipments or
spiralling costs.
Gaining more proactive capability has become a critical issue,
particularly in international business. Many of the UK's leading
retailers source in excess of 85% of their products from outside
the EU, whereas only 10 years ago a fair proportion of these goods
came from within the UK.
"As manufacturing has moved overseas, the process of managing the
inbound flow has become more complex as additional modes of
transport, customs processes, languages and currencies are needed,"
says Steve Wilson, associate partner in Accenture's supply chain
practice.
"Although the immediate response by some retailers was to build
increased levels of safety stock, this has become inappropriate as
retail product ranges grow and reduce the effectiveness of demand
forecasting," he added.
However, this has not lessened the demand for high product
availability "on the shelf". The idea is that by investing in
supply chain visibility applications, the progress of inbound goods
can be understood and used to inform ranging and pricing
decisions.
"The essence of the technology is to allow the sharing of data
across multiple organisations, or within an individual organisation
by interfacing cheaply and easily and extracting data from a number
of different systems," says Wilson. "Some of the more advanced
technologies can suggest alternatives to assist with resolving the
issues as they arise."
But can the organisation act on the information it already has? The
inability to respond to incoming information has stymied many
businesses on more fronts than just the supply chain. SCEM may
generate fancy reports, but the real issue is whether the
organisation and its suppliers can respond to events with
appropriate speed and efficiency.
"To reap the benefits of SCEM, companies must have an effective
trading partner management strategy," says Eddie Capel,
vice-president of trading partner management at Manhattan
Associates, specialist consultants in the supply chain. At a basic
level this means that factories must be able to generate advanced
shipping notices electronically, or that carriers must be able to
provide shipment status updates using technology such as radio
frequency identification (RFID) tags.
"This level of detailed data is the foundation of inventory and
order visibility, and serves as the basis for sophisticated supply
chain analysis and monitoring capabilities," Capel says. He points
out that the output from SCEM can be acted upon by parties across
the supply chain: an advanced shipping notice allows the factory to
respond to a new demand from a retailer, and an RFID update means
that the supply can be switched if it needs to be speeded up.
"This concept of execution creating visibility and visibility, in
turn, enabling execution, is known as 'the execution cycle'. This
closed loop capability helps to complete the execution cycle," he
says.
So is SCEM working and what returns does it deliver? Some companies
report dramatic benefits. The parts and logistics division of
automobile giant Ford, for example, installed an SCEM capability
based on Teradata business intelligence, which paid for itself in
just over a month, and was an important part of a package that
returned a 20% reduction in inventory costs and a 30% reduction in
supply chain cycle times.
However, analyst Gartner has recently called SCEM's value into
question. Its research shows SCEM applications reached what it
called a "peak of inflated expectations" in 2002, but says that
suppliers are failing to meet these expectations. Gartner says
there is evidence that "customers are abandoning implementations,
realising that the early solutions were too simplistic and required
them to rebuild business process knowledge - that is, logic already
residing in the applications that sit underneath the SCEM
solution."
This is another way of saying that although SCEM may have delivered
returns for some organisations it may have failed to plug the gap
in supply chain knowledge it has claimed to. This is the belief of
Vinay Asgekar, research director at AMR Research. The problem he
sees is that SCEM often sits on top of a supply chain planning
layer which is itself set by targets. Although the targets are one
step removed from what is happening in the supply chain, and SCEM
may detect exceptions and deviations, it might only be doing so in
relation to predetermined plans.
"Companies need to move beyond traditional supply chain exception
management to inter-enterprise supply chain co-ordination as they
connect the dots between planning and execution through the
extended supply chain," Asgekar says.
"SCEM is not enough. Through outsourcing and changing business
models, topologies of supply chains have changed significantly and
at an ever-increasing rate. Key partners that need to be involved
in the exceptions and events lie outside the company."
In its relatively brief lifetime, such analysis suggests that SCEM
may not have come as far as its advocates thought.
Where does SCEM have most effect?
In tightening up disjointed supply chain
systems. If, for example, the warehouse management system
is not linked to the customer service system, the two can easily
fall out of sync when shipments are late. SCEM aggregates all
supply chain systems at a global level.
In monitoring multiple supply chain channels, suppliers
and products. Activity in the supply chain must, for the
most part, be automated as there are simply too many elements to
constantly watch. So when things go wrong, alerts must sound. With
SCEM, managers can focus on exceptions to maintain supply as a
whole.
In supporting new product launches. These are
unknown quantities, so variations in demand trigger specific
actions at the end of the supply chain. This triggers SCEM alerts,
which come to the attention of managers, who take action.
In tracking key performance indicators. SCEM
can fill in the gaps of performance indicators, analysing so-called
"out-of-range" alerts.
In balancing supply and demand. Fast-paced
markets require organisations to continually balance supply and
demand. SCEM is becoming one of the best means of implementing and
monitoring both.
Case study: Sainsbury's
Sainsbury's recognises that collaborative planning and supply
chain solutions are critical for competing in the fast-moving and
commercially important areas of new product introduction and
promotion.
The supermarket chain has been working with Eqos and an in-house
team of consultants from Accenture to build a web services-based
system within the Microsoft .net framework.
Recently, the retailer invested in a product that generates an
electronic tap on the shoulder to alert Sainsbury's and its
suppliers when a potential problem arises, along with a management
process to help resolve the issue.
Analysis by Accenture for Sainsbury's has shown that the
breakdown in processes between the retailer and its suppliers can
lead to up to 20% of products being unavailable at the
point-of-sale. The issue becomes particularly critical with
promotional sales, which represent up to 30% of Sainsbury's overall
sales, since by definition they make exceptional demands on the
supply chain.
"We believe this investment will help us to work with suppliers
more effectively, irrespective of their size, and enable us to be
more responsive to customer demand through jointly identifying
problems earlier and being able to manage issues through to
resolution," says Diane Carter, supply chain operations director at
Sainsbury's.
Sure enough, promotional sales have risen by 10% as a result.
Relationships with suppliers are closer too, and Carter also
believes that Sainsbury's can avoid the bigger supply chain issues
that bugged the company in the past.
Sainsbury's suppliers have also reported benefits. "We have
achieved a lot through collaborative working in recent years, with
benefits to both parties," says Chris Tyas, supply chain director
for Nestle. "We have seen improved availability and better sales
and stock management, which leads to fresher product for the
consumer and less stock write downs."
Case study: Lucent Technologies
Lucent Technologies has implemented Tradestream, a supply chain
event management (SCEM) platform from Optum that tracks the
components needed to fill individual orders in real time.
Ultimately, everyone associated with the management of customer
orders will have access to the platform, including parts
distributors, contract manufacturers and logistics providers.
"Communication with external supply and logistics partners is
extremely important in Lucent's new virtual supply chain model,"
says Jim Schoessling, senior manager at Lucent for IT planning and
strategy. "Real time communication is critical to managing customer
orders."
SCEM enables data to flow from one entity to another within the
supply chain. It brings together real time data from across the
chain so that key events or milestones can be tracked. When events
occur, or do not, Tradestream sends out alerts or reports to the
people responsible.
For example, "If a supplier has not shipped an order based on a
promise date, or if an order is staged in a warehouse awaiting
installation, an alert would be generated," says Schoessling.
"Tradestream allows the supply chain to be proactive in addressing
potential customer problems before they happen."
Lucent discussed with suppliers what Tradestream would demand of
them and, so far, very little investment has been required. Lucent
has provided the key integration and translation software at no
cost. However, suppliers need to make a minimum investment in the
software required for encryption and security.
"We have been able to improve communication flow between Lucent
and suppliers on the Tradestream network," says Schoessling. "We
have improved communication into Lucent's legacy systems but, most
importantly, we have improved communication with customers.
"Customers can now get real-time shipping details on their
orders, as well as alerts detailing key milestones on their
orders," he says.