Within Supply Chains, and at the Enterprise level, at the moment we have many business methods and processes that are not significantly different to what was being done in the 1990’s.
Viewed from the network level we can see a “whole supply chain” - Each organisation goes about doing work separately (generally in isolation) to produce what it considers to be an Economic Order Quantity (EOQ) and a material Forecast.
Using traditional techniques each participating organisation crunches the numbers using their ERP / MRP2 Systems to work out (based on historical data and assumptions about demand / supply lead times) what levels of inventory we should hold and when orders should be placed and synchronised.
That scenario is silo based and definitely not an “aligned supply chain”. At some time in that cycle data is passed to the Suppliers & transport providers all of whom make their calculations.
The only thing that links that stream is the data and messages that are sent between the various trading entities. The typical medium being Electronic Data Interchange (EDI) which currently has a value proposition based on it being a slightly more secure / reliable version of a Fax or e-mail.
In the early days of the internet the ability to do these exchanges had a slightly higher value proposition than it does now – now it is routine. There is adequate bandwidth in the internet and even large file transfers (several gigabytes) can be accomplished and verified quite easily. Even using EDI, traditionally there is very little in the way of end-to-end visibility and no “timeliness” in the data flows...Most participants have no way of knowing the stock positions until someone responds to a forecast or provides an Advanced Shipping Notification (ASN).
As a consequence at every step the whole chain gets a sub-optimal inventory & EOQ position, that isolated planning, is repeated at each node in that supply chain. This is reflected in the “overstock” and “understocks”. This method and the associated planning scenarios also produce the classic “bullwhip” effect.
There is a better way:
The Chain needs to share Process not Data.
Sharing a Process establishes Context & Timeliness in the shared data – these are attributes that do not exist in a raw EDI stream.
Post courtesy of Rob McWhirter
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