Fortifying your supply chain stability through enterprise information management

© Hexaware Technologies. All rights reserved. www.hexaware.com

Fortifying Supply Chain Stability throughEnterprise Information Management

Whitepaper

Author’s BioSatesh Kumar ([email protected]) is a Business Intelligence Analyst working at Hexaware Technologies in Business Intelligence and Analytics Practice. His interest area primarily involves the application of BI technology to enhance business processes and in defining different use cases for BI initiatives.

WhitepaperFortifying Supply Chain Stability through Enterprise Information Management

Table of ContentsExecutive Summary

Need for Fortifying Supply Chains: An Introduction

Supply Chain: The Journey So Far

Supply Chain Stability: A Success Story

Supply Chain Risk: A Reality Check

Importance of KPIs for Supply Chain Stability

Enterprise Information Management (EIM) to Fortify Supply Chain

References

03

03

03

04

04

05

05

07

2© Hexaware Technologies. All rights reserved. www.hexaware.com2© Hexaware Technologies. All rights reserved. www.hexaware.com

3

Whitepaper


Fortifying Supply Chain Stability through Enterprise Information Management

1 Executive Summary

Global sourcing, which predominantly involves sourcing from low-cost countries, has created supply chains with opportunities and challenges on par. With companies focusing on best practices such as lean manufacturing and Just in Time (JIT) inventory, the lead-time for supply has reduced significantly, increasing the need for greater supply chain responsiveness. Many questions arise with the increasing complexities in current supply chain systems. For example, how can organizations tackle supplier risk when the supplier base spans from Singapore to Seattle or Bangalore to Buffalo? A 2012 survey of chief supply chain officers found that 70 percent believe their organization needs to improve the existing processes or add capabilities to improve their supplier risk management.

This whitepaper briefly glances through the evolution of supply chain and briefs on the existing supply chains. Later, it analyzes the need for stability in the existing supply chains and provides a framework for companies to assess the resilience of their supply chains. It also focuses on the importance of Key Performance Indicators (KPIs) in ensuring supply chain stability. Finally, it explains how an Enterprise Information Management (EIM) would help organizations minimize supply chain risks and maintain a robust supply chain in line with the corporate strategy. For better focus, the discussion of this whitepaper is pertained to the supply-side of the chain.

2 Need for Fortifying Supply Chains: An Introduction

In the year 2000, the popularity of mobile phones had reached its zenith. Thus, the demand for cell phones increased manifold.

At such a crucial juncture, a lightning bolt set fire to a Philips semiconductor manufacturing plant in Mexico, which supplied semiconductor chips to Ericsson and Nokia. Although the fire was contained immediately, the damage caused was magnanimous, resulting in shutting down of the plant for two months. However, the outcomes of this incident were different for the two companies.

For Ericsson, this plant was the sole supplier of semiconductor chips. As a result, their mobile handset production was halted and the losses incurred in sales amounted to as huge as USD 400 million.

On the other hand, Nokia immediately performed a damage assessment. Nokia also reached out to other companies for alternate supplies and accordingly, reconfigured its handsets. As a result, Nokia maintained its dominant market position and did not suffer losses as severe as Ericsson did.

An important lesson learnt is that had both the companies been equipped with an intelligent robust system that would predict the occurrence of a probable supply disruption; such a disaster could have been averted. At the very least, the losses ensuing from such a disaster could have been minimized.

This incident aptly demonstrates how a single event created a massive supply side disruption. This event had a huge impact as it hit a supply chain that was not adequately resilient. Consider the financial crisis of 2008, which not only questioned the stability of global financial systems, but also dramatically emphasized the insecurity of existing supply chains. Thus, a robust framework to fortify existing supply chains is the need of the hour.

Before delving into the specifics of a robust framework to fortify existing supply chains, let us understand the evolution of supply chains.

3 Supply Chain: The Journey So Far

The early days of industrial revolution in the nineteenth century saw companies implement a rudimentary model of supply chain. Companies setup factories wherever resources were available and used local talent for production. They manufactured products and sold them predominantly in the local markets. All of this changed with the World War II. After the war, governments lowered trade barriers and became open to the concept of globalization and companies became vertically integrated. Vertical integration was the incorporation of much or all of the supply chain into one company. At this phase, the supply chain was stable but inflexible, predictable but slow. Globalization and economic liberalization of countries in the 20th century changed the supply chain archetype. Companies started to optimize processes and reduce manufacturing costs with global procurement and production. Adopting industry best practices such as Just-in-Time (JIT), lean manufacturing, outsourcing non-core activities, and investing in R&D helped them evolve. In addition, advances in e-commerce in the late 1990s and early 2000s eradicated the barriers of time and distance.

With globalization, companies face a new spectrum of challenges. These include political, economic, and social and technology (PEST) risks. These geographically specific PEST factors influence the logistics and supply front.

On the logistics front, flow of information, resources, and capital has become complex. The supply front risks such as supplier failure namely Environment Protection Agency (EPA) violations and Occupational Safety and Health Administration (OSHA) incidents, production disruption, and operational failures can have a ripple effect on the entire chain. In a survey conducted by Aberdeen Group in 2012, 43% of 132 survey respondents indicated that incomplete information regarding corporate supplier relationships is a top business pressure affecting supplier management and eventually their supply chain.

These issues indicate that although selecting the right supplier is important, tracking the various aspects of supply chain on a regular basis is also critical.

4

Whitepaper



4 Supply Chain Stability: A Success Story

There is no doubt that supply chains offer tremendous value to companies and boost their performance by effectively aiding in planning, execution, design, monitoring, and control of businesses. Consider the following success story that aptly portrays the benefits of a supply chain.

“A global, diversified industrial manufacturing company with over $40 billion in annual revenue implemented a supply risk management solution after investing significantly in lean, eProcurement, strategic sourcing, reverse auctions, and other related supply management programs. As a result of these programs, the company saved hundreds of millions of dollars from unit cost reduction efforts, increased inventory turns by 28%, and reduced the cost of non-quality by 32%. Before embarking on its supply risk management formation, the company monitored less than 5% of its suppliers, but today, is actively monitoring 23,000 global suppliers for financial stability, quality and delivery, debarment, suits, EPA and OSHA compliance, and natural disasters.” Jim Lawton vice president and general manager, Open Ratings, a D&B Company.

Nevertheless, the fact remains that instability in supply chain leads to disruption causing huge monetary losses. This instability could be attributed to a wide range of factors. Before a major disaster or disruption strikes, some small events take place. These events are often ignored. The opening story on Ericsson and Nokia demonstrated culmination of a series of events leading to supply chain disruption.

These events merely provide an outline of the risks and uncertainties faced by the global supply chains. For example, a change in political, economic or environmental factors in one part of the globe can disrupt the operations in a factory situated miles away. Simply consider the case of the recent Japanese earthquake; it severely affected electronics production worldwide and led to prolonged business disruptions for the automotive industry. This is why companies today are fraught with the need for stability in supply chain.

5 Supply Chain Risk: A Reality Check

Although the supply chain has undergone transformations for operational efficiencies, infiltrations of a multitude of factors challenge its stability. Few high-level supply chain risks are:

• Supplies not reaching on time due to supplier failure • Issues in transit route• Unfavorable environmental factors

For efficient supply chain operations, one needs to have information about the different facets of the chain such as location, production, inventory, and transportation. The absence of certain aspects of supplier data and processing may lead to supply chain disruption. Few of them are described below:

1. Do you have information on all aspects of your supplier? – Data AttributesEvaluating a supplier and selecting the best must be done in a manner that best fits the strategic goals of the company. Awarding contracts based only on cost and time will not sustain in the end. According to W Edwards Deming, a quality guru, "Do not award business based on price tag alone". Information visibility with respect to price and other generic details (such as supplier name, address, product portfolio, contact) must be combined with supplier’s financial stability, on-boarding status, R&D initiatives, transit routes and legal aspects among others to get a 360o view of the supplier.

2. What is the source of supplier information? – Data SourcesAfter identifying the types of information to be tracked, the next step is identifying the source of information. This could be available in several disparate systems within the organization that contain past transactions. However, in today’s dynamic economic scenario this information alone would not suffice. A complete portfolio of supplier information (from internet, social media) that could track the day-to-day supplier actions and product rates is imperative to handle supply uncertainties.

3. What are your supply risk mitigation plans? – Multi-dimensional view of supplierBest practices help in improving process efficiency, but also increase the supplier risk. For example, best practices such as One Source One Supplier, Just-in-Time inventory, lean manufacturing lead to significant cost savings, increased throughput, and reduced lead-time. However, they also increase the vulnerability of the supply chain as they focus on strict timelines and increased dependency on suppliers. With the volatile economic scenario forcing global and local suppliers to shut shops, companies must have systems that facilitate analysis and rate the suppliers taking into account the risks, probability of their occurrence and their impact.

4. Do you have a hold on your maverick spend? - ActionAccording to Accenture's study on "Procurement to Payment Processes," which surveyed and interviewed 50 large companies on procurement practices, maverick spend accounts for as much as 32 percent of overall buying of the company.

An unexpected failure from the preferred supplier may hamper an organization's production process. As a result, companies procure supplies in an ad-hoc manner leading to off-the-track purchasing. This is due to the absence of proper supplier tracking mechanisms.In such cases, merely gathering data is insufficient. Converting the data into right actions is the key differentiator.

5

Whitepaper



6 Importance of KPIs for Supply Chain Stability

There are risks associated with every facet of business, and supply chain risk is one of them. Key Performance Indicators (KPIs), methodologies, and processes can mitigate these risks.

What gets measured gets improved. In the current scenario, supply chain is not just flow of goods but also flow of information. Let us explore the different areas in supply chain and the KPIs associated with these areas by referring to Supply Chain Operations Reference (SCOR) Model. SCOR is a reference model developed by Supply Chain Council, an independent NPO for supply chain organizations and professionals.

In addition to the above mentioned KPIs that are calculated predominantly from the internal systems, intelligence can also be garnered from external sources such as social media news feeds etc. available via the internet. These KPIs when defined and tracked appropriately can aid an organization by insulating its supply chain from major supply chain disruptions.

7 Enterprise Information Management (EIM) to Fortify Supply Chain

The KPIs defined in the above section aid in continuous monitoring of supply chain processes and provide risk mitigation options by clearly defining remedial measures. Nevertheless, it is important to have a robust information infrastructure in order to deliver the KPIs. This is where Enterprise Information Management (EIM) is indispensable.

An indicative road map that would help companies with different information maturity levels to adapt to the EIM platform is illustrated below.

Level 1 OrganizationsOrganizations at Level 1 face data quality issues due to multiple versions being maintained on excel or disparate systems. Questions that these organizations need to address include:

1. Am I losing cost benefits of large-scale procurements?2. Are multiple channels of my business viewing the same product versions? (up to product parameters)3. I am planning for a supplier consolidation program, but who are my critical suppliers?

EIM’s Master Data Management – MDM (Supplier and Product Data Management) component provides end-to-end data management capabilities, comprising of five key parameters:

• Strategy – To understand the long-term and short term objectives• People – Establish a data governance organization and invoke organization level commitment• Data – Understand the data landscape and build a cleansing model• Process – Evaluate the current model and redefine as appropriate• Technology – Develop a technology road map to implement the redefined process

MDM initiative aids in creation of a ‘single version of truth’ that lays the foundation for data governance practice resulting in data quality of the highest standards.

SCOR Model - Stage of Supply Chain

Strategy

Plan

Source

Make

Deliver

• Supply chain cycle time• New product launched count• COGS as % of revenue• SG&A as % of revenue• Indirect supply chain costs as % of revenue• # direct supply chain FTEs• Span of control• New product development cycle time• New product revenue rate• Cash-to-cash cycle time• Return on working capital• Return on supply chain

• Perfect order fulfillment• Case fill rate• Indirect supply chain costs: plan % of revenue• Forecast accuracy• Inventory accuracy • Inventory days (raw materials, work in process, finished goods)• Inventory carrying cost• Inventory write-offs as a % of revenue

• Indirect supply chain costs: source % of Revenue• Direct materials spend $/FTE• Direct materials spend on contract• Direct materials spend with single/sole source• Direct materials received on time• Direct materials LCC spend• Indirect materials spend sourced by procurement• Indirect materials spend $/FTE• Indirect materials spend on contract• Direct materials supplier perform• Total make costs: % of revenue• Direct labor % of revenue• Indirect supply chain costs make — % of revenue• Overall equipment efficiency• Capacity utilization• Manufacturing outsource rate• Direct wage rate• Direct make FTEs

• Return cycle time• Customer returns• Indirect supply chain costs: deliver % of revenue• Order management costs % of revenue• Distribution operations costs % of revenue• Transportation cost as % of revenue• Returns cost as % of revenue

KPIs

Courtesy: Deloitte Supply Chain Book of Metrics

6

Whitepaper



Level 2 Organizations

Organizations at level 2 face issues on integrating both structured and unstructured data from various disparate traditional sources such as ERP, legacy systems, excels etc. and non-traditional sources such as email, social media, and internet feeds. Questions that these organizations need to address include:

• The maverick spend of my organization is rising, details of which are in the email. How do I fetch this data?• Are any of my suppliers likely to become delinquent?• Am I paying the right price for the product? I want to analyze geographically specific commodity pricing on a daily basis.

EIM’s Enterprise Data Integration (EDI) and Big Data components help organizations to acquire, manage, and act upon the intelligence garnered by processing data both within enterprise walls and external unstructured data. Supply and demand planning can have valuable insights based on data (Big) collected from web clickstreams, Facebook likes, Twitter feeds, news articles, Dun & Bradstreet data, GPS, trailer/pallet tags, electronic on-board recorder (EOBRS).

On bringing these external data into enterprise boundaries and applying appropriate data, mining techniques and predictive analytics upon this data would deliver insights that were previously unavailable.


Organizations at level 3 face issues in converting/modeling the data from transaction systems into a form (view) that would aid them in analytical processing. Questions that these organizations need to address include:

• I have data in my procurement system, how do I derive intelligence out of it?• What is to be measured and with reference to what aspect of data?• What parameters do I need to consider to rate my supplier base?

Upon getting the required data, the next critical activity is an accurate data modeling process that would aid in linking the measurable data (Fact) with the perspectives (dimensions) for end-user analysis. The data model at a high level should have different subject areas e.g. vendor, warehouse and logistics analytics with reports and KPIs for that subject area. Interactive workshops that elucidate end-user needs provide an important input to the data modeling process.


Organizations at level 4 face issues in getting the right representations of data through new delivery channels and gap between analytics and action. Questions that these organizations need to address include:

• How can I analyze Business Intelligence (BI) reports on my smart phone or tablet?• Can there be a new yet meaningful way of BI representations?• How can I link data insights into action?

The latest release of leading BI products (with Next Gen BI offerings) enhances the user experience in terms of information delivery. Few of these enhancements include:

• Data representation on mobile devices• Disconnected analytics• Integrating BI with operational systems workflows (e.g. When a BI report indicates delay in shipments from suppliers, the system provides an option to invoke an email to the supplier or choose an alternate supplier) • Improved information representation such as geospatial integration

Having seen through the key EIM components and their applicability to organizations with different information maturity levels, let us match the supply chain risk elements (Section 5) with the EIM components:

As seen in this section, a well-strategized EIM platform will aid in garnering relevant (structured and unstructured) data, putting the information pieces together and representing data in an easily understandable manner. An effective collaboration between business and IT will help organizations mitigate the risks associated with supply chain.

Do you have information on all aspects of your supplier and products? – Data Attributes

What are your supply risk mitigation plans? – Multi-dimensional view of supplier

A well-defined data model with key measures (facts), dimensions and KPIs will help in determining what are the different data elements to be captured for analytics

What is the source of supplier/product information? – Data Sources

A well-structured data integration and big data practice will aid in sourcing the right information, applying logical transformations and storing the data in an easily consumable manner

Do you have a hold on your maverick spend? – Action

A well-strategized Next Gen BI tool and technology that links analytics with action (OLTP systems) e.g.: triggering a mail/SMS on the occurrence of a threshold breach

Risk EIM Component

7

Whitepaper



8 References

1. https://webforms.ey.com/Publication/vwLUAssets/The_evolving_world_of_supplier_risk/$FILE/The_evolving_world_of_supplier_risk.pdf

2. http://www.som.cranfield.ac.uk/som/dinamic-content/research/lscm/downloads/57081_Report_AW.pdf

3. http://www.lexisnexis.com/pdf/Aberdeen_Procurement_Insight_Report_-_September_2012.pdf

4. http://www.biia.com/library/Why%20Supply%20Chain%20Leaders%20Face%20the%20Greatest%20Supply%20Risk.pdf

5. http://www.aravo.com/newsroom/pr_071509_raisesindustrybar.php

6. http://www.deloitte.com/assets/Dcom-UnitedStates/Local%20Assets/Documents/us_consulting_scbenchmark2009supplychainbook_061410.pdf

8

Whitepaper



DisclaimerContents of this whitepaper are the exclusive property of Hexaware Technologies and may not be reproduced in any form without the prior written consent of Hexaware Technologies.

To learn more, visit http://www.hexaware.com

1095 Cranbury South River Road, Suite 10, Jamesburg, NJ 08831. Main: 609-409-6950 | Fax: 609-409-6910