The great guessing game -- Supply chains made stronger with a Web link

Imagine having to predict how many cans of cordovan shoe polish are going to be sold (or not) by every Wal-Mart and Kmart and mini-mart in the world. Knowing could be important. Is the ad campaign working? Does the manufacturer have enough burnt umber to put the color in cordovan? Will there be enough precious shelf space?

Welcome to the world of supply chain management (SCM). Counting what was sold yesterday, to predict today what will be bought tomorrow. All the logistical details to manufacture, transport, stock, sell and replenish. Unfortunately, the crystal ball is often cloudy. Buying habits are fickle. Weather changes. Fads fade. Successful organizations must overcome a lack of premonition by their ability to respond quickly to change.

Roland Langlais, a sales executive at Sara Lee's Household and Body Care division (formerly Kiwi brands), oversees the world's top name in shoe care. The company is in the midst of a global relaunch of the Kiwi brand, which is marketed in 122 countries, hoping to boost geographic expansion as well as strengthen positions in mature markets.

According to Langlais, Sara Lee's mission is to go from $150 million to $500 million by 2005. Toward that goal, the company is automating its supply chain. Sara Lee has sold its Kiwi manufacturing plant in the United States and is purchasing its products under a contract with the new owner. Sara Lee enlists SCM analysis tools in two distinct stages--forecast and analysis. Running on IBM's IBM AS/400, analysis applications forecast demand to ensure the company stocks enough product in each of its four regional distribution centers.

Follow-up reporting using traditional data mining and transaction processing tools offers insight into any change and can substantiate predictions. However, when those predictions fall short, being able to react to being wrong is almost as good as being right.

The tools of knowledge management include many intended to help predict and respond. In addition to the tools of transaction analysis--data mining, business intelligence, OLAP--organizations are relying on the search, retrieval, forecasting and communication tools of knowledge management. Much of Sara Lee's analysis comes from comparing known data, such as factory shipments to a particular customer, with historical information. In turn, that data is compared against variables such as marketing efforts, and further weighed against available consumer market research.

"The key is understanding the reasons behind a change in the supply chain," said Langlais. "Is that group adding stores or at a standstill? We look for spikes as well as trends in the market. Or afterward we can go back and see how effective a promotion was, which helps us get enough raw material on hand."

Combining information such as Commerce Department figures and consumer research with internal sales data can greatly improve the accuracy of forecasting. In Sara Lee's case, Langlais reported that the system has provided sales forecasting accuracy within 10% over the past 12 months. The company has developed a proprietary information system called "Kiwi Kwick," which offers daily analysis to 12 field managers.

"They can slice and dice it according to their needs," said Langlais. "All that data is now available over the Internet." In the future, Sara Lee will make more widespread use of consumer information. Currently, syndicated data is forwarded to the managers a week or two after it's available (monthly), but in the future, Langlais expects it to be accessed directly. Eventually allowing the Household and Body Care unit to track its products by key customer. What Langlais called "mini-forecasting."

"Our whole focus is going toward a global positioning," said Langlais. "Sara Lee's vision is not to be a manufacturing company, but to be a sales and marketing company."

Similarly, a unit of Royal Dutch Shell, supply chain management consultancy Shell Services International (SSI) has customized its own supply chain management application--Supplier Inventory Management Order Network (SIMON).

SIMON is the central element of SSI's supplier-managed inventory (SMI) program, focused on streamlining the supply chains of its and others' process-oriented manufacturing industries. SIMON is built on the Lotus Lotus Domino application, which runs on IBM servers.

The system enables suppliers to assume the inventory management role on behalf of their customers. In addition to inventory and consumption monitoring, SIMON generates demand forecasts, calculates stock, tracks shipment status and generates a resupply plan.

While SIMON was first designed for internal use within Shell Chemical, it has been extended to more than 50 Shell customer sites over the three years since its development. Those are industries that tend to purchase or manufacture products in large quantities. According to Kay Burns, marketing manager with Shell Services, the company has begun offering SIMON as a solution to other process industries.

"SIMON is an enabler for supplier-managed inventory," she said. "It involves process changes as well as tools." In addition to a packaged solution, Shell offers subscription-based services, serving as the host at rates as low as $400 a month. An interface with a number of ERP platforms, including SAP R/3, allows companies to create their own supply chain management applications.

"For SIMON to be implemented, a customer needs to provide three pieces of information to the supplier," said Burns. "Current inventory, forecast info (how much will they need) and when they receive a shipment. The supplier then takes over inventory management." "Every supply chain represents a product going from a supplier to a specific customer location," Burns explained. "With SMI, each of those supply chains is presented in a database that sits on a Domino server that customers can access using a standard browser." While many of Shell's customers are running Lotus Notes as the client application, the SIMON system is platform-independent through Web browser access.

"They have a number of Notes clients, but it's mostly Web clients," confirmed Wayne Jansen, manufacturing and ERP industry manager with Lotus. "It's a Domino-based server, so it's extensible to clients. That is, the Web application server allows Shell to extend the application to its (SAP) ERP system and gives them the ability to tie into their customers' systems."

"Calling SIMON an inventory management system does it a disservice," said Jansen. "It's more of a forecasting and replenishment system. Domino provides a link between people, processes and the systems themselves; that's what we're calling collaboration."

Both Burns and Jansen compare the replenishment system to that of a water utility, which bills on a consumption basis rather than forecast basis and eliminates excess inventory held on site.

The system gives a view of all the different pieces of information, while the supplier can pull together information regarding such things as "safety stock" and stock in transit. This allows automated delivery, which can eliminate the need for customers to even place an order.

"The supplier looks at all that and forecasts the future for a resupply plan," said Burns. "A lot of communication goes away; but at times of abnormalities, they still have to notify each other."

"What SIMON brings is an infrastructure beyond the enterprise to suppliers and to customers," said Jansen. "From an extranet standpoint, what we're talking about is the push toward business-to-business integration. Not just a linkage from a communication standpoint (i.e. e-mail between trading partners), we're talking about the ability to integrate workflows and business processes," he said. "That's what Shell has done with the SIMON application."

Shell has found several ways to measure SIMON's success. "In one supply chain in the year prior to SMI, there were 64 emergency shipments; in the nine months after deploying SMI, there were zero," Burns said. In another example, inventory being held in the distribution chain was reduced 60% while consumption actually increased 50%.

The ability to deliver more products to market while shrinking in-stock inventory is consistent with the build-to-order expectation of today's consumer. Even traditional manufacturers such as automobile companies are retooling their supply chain for mass customization.

SCM and related change management and product data management (PDM) applications are addressing that mass customization trend. The trend is largely driven by the Internet, which promises customers the ability to find, configure and order a PC or a car online in the space of five minutes. But since those products can still take months to deliver, manufacturing companies must restructure their processes to actually deliver the product at Internet speed.

Motiva, a provider of change management software and Web-based product life cycle management software, has just launched a business-to-business e-commerce solution. Casting itself in an emerging class of "e-change" solutions, Motiva is developing a suite of five different software applications evolved from Motiva's existing DesignGroup products, which manage design-related technical data.

According to Bob Pinkerton, marketing VP at Motiva, the suite solves problems many producers face--becoming assemblers rather than manufacturers.

"Companies are relying on an ever-widening circle of specialized parts manufacturers to deliver just-in-time inventory," Pinkerton said. "Although this model does cut costs, it creates immense complexity as bills of materials, technical drawings, specifications and orders are sent, changed and approved throughout a global supply chain. Motiva's software manages that whole supply chain process, providing structure, access and accuracy."

Key to managing inventory and distribution is the inclusion of multiple component suppliers in the process. For instance, Ford Motor must coordinate the work of more than 300 suppliers in its manufacturing process.

"Motiva EChange solutions fulfill the promise of (Microsoft's) BizTalk Framework initiatives," said Scott Emigh, MDA industry manager for Microsoft. "The primary goal is to make our customers' software speak the language of their particular business in a consistent way. EChange solutions fulfill that reality for manufacturers and, in doing so, deliver a sustainable competitive advantage."

"How do you get a design change based on feedback from the market?" asked Pinkerton. "How do you plan that design change when you're not building your own material anymore? How can you help yourself using technology to be lighter on your feet?"