Predict, Not Just Respond

From The CEO: Adaptable Supply Chain Management Software


Enterprises are subject to a constantly changing world.  Survival and growth depend on their ability to adapt to the new environment. As witnessed recently, the state of the economy can have a drastic impact on the business and its survival. Competition, new products, strikes, and government regulations are a few of the influencing factors. However, changes to an enterprises’ supply chain can be even more erratic and frequent: Shortages of supply, changes in demand parameters, such as color and style, and changes in suppliers’ cost and quality, etc.

Given that almost all companies and their supply chains have to change and adapt, there is a great deal of emphasis on their ability to implement and communicate the change. This involves design of the business processes, the new rules, and the ability to enforce these rules, while constantly monitoring the status of the business in an almost real-time fashion.  The main challenges are:

1- Define the best rules for the company? e.g. where what and when to build and allocate

2- Communicate and enforce this rules-monitor and adjust

3- Make sure that rules are compatible-to avoid conflict

In order to know what is best for the company, one needs to define what the “best” is. There are often conflicting objectives and difficult to have a universal set of guiding indices. Even profitability of the company may not be appropriate depending if you are taking a short-term or long-term view. In certain cases, cash flow may prove to be more important than profitability. Many companies build predictive models that can show the future and the outcome of their options.  Spreadsheets are amongst the most popular model building tools. However, such spreadsheets are “back of the envelope” calculations based on some static criteria and fail to show the interaction of all the different factors including suppliers, capacity, inventory, the mix of products, demand and, more importantly, the link between operational decisions and financial outcomes. Today, the planning technology is moving toward a new breed of modeling tools called adaptable SCM (ASCM) solutions that can help the management in making the right decisions. Adaptable SCM solutions are a parametric and attribute-driven approach to the development of Supply Chain Management Software. They take into account the new business rules and present the users with optimized alternatives. They are capable of presenting multiple scenarios that have different merits and trade-offs so that the management can make an intelligent choice.  When and if something goes wrong, ASCM solutions can almost immediately make corrections to the plan.

The second point that was raised above has to do with communicating and enforcing the new business rules by monitoring the real-time status of the supply chain. Every system by itself can be very intelligent and adaptable, however, it requires to collaborate and monitor progress or else all the intelligence in the world would be of no consequence.  The collaborative aspect of ASCM is a necessary and critical part of the solution. In a collaborative environment, the system obtains information from the shop floor, suppliers, people, and other systems. Systems may also revise their decisions as new information becomes available. The key here is to recognize that the system has to do it in a time-critical manner and inform the right entities based on the exception. In other words, ASCM solutions have the intelligence of who should be informed and when based on the nature of the exception.

Any real organization faces many conflicting rules and opinions. Consider the following two objectives: “make sure the order is delivered on time” and “minimize transportation cost”. What do we do when air transportation becomes necessary because of late production? In the absence of more information, systems and people may make a decision one way or the other. But what if we called the customer and it was OK to deliver late? Detection of such conflicts imply exceptions that can be flagged. In this example, exceptions are “late delivery” and “premium transportation. An intelligent system would bring such instances to the attention of the right person(s). In our example, Sales VP, Finance and Logistics Manager need to be notified of what the conflict is and decide on a resolution. The final outcome may not necessarily the best for the company.  However, Adaptable SCM systems remember such instances and look for trends. The system would detect the number of air shipments and how it is correlated with the cost of transportation as well as late delivery of orders. So one conclusion is: production is the cause. The next question is why is production late? Is it a trend? Is it because of lack of capacity, late material, certain product quality issues, seasonal variations, or a surge in demand? All such possible causes can be analyzed by the system and users can be notified of the outcome.

ASCM solutions are the next generation of supply chain management software that combines supply chain planning with Business Intelligence and Causal reasoning.  This is an exciting area of research and development for planning technology today and we’ll be posting more related information about this topic in the future.



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