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.