The depths of visibility

by Arun Samuga

Supply chain by its very name implies a chain consisting of multiple nodes: suppliers sell to buyers who in turn move these products to end customers.

The chain is made up of—at a minimum—three nodes or trading partners. In reality, modern supply chains are not straight lines, but instead are networks of multiple nodes, multiple operations, and multiple relationships. Multiple companies are buying, selling, and moving products for each other in a multi-tiered or multi-echelon environment. Within each tier, multiple relationships and processes are operating simultaneously and dynamically. Companies that are customers to one set of nodes can be suppliers to another.

The first dimension

A supply chain’s first dimension can be seen as multiple nodes (or trading partners) with dependencies on each other but without co-operation agreements or partnerships. Companies buying from and sell to each other, while other businesses supporting the sale of the goods by moving them to end customers.

Because this dimension is linear and sequential in nature, a delay at any point translates into big delays in other parts of the chain. This is commonly known as the bullwhip effect.

Unfortunately, in this first dimension, each supply chain participant (whether a buyer, seller or shipper) makes its own decisions with little regard to the impact of those decisions on other parts of the supply chain. In the case of inventory, this results in high inventory levels and low inventory turns. In the case of shipping, a delay at one gate can translate into unsatisfied customers.

The first dimension is where businesses have the least amount of visibility into what their suppliers and customers are doing.

The second dimension

The second dimension adds more depth by enabling formal business relationships between any two partners.

Both nodes have to agree on each business process they plan to conduct with each other, such as traditional order-to-cash or logistics load or vendor managed inventory. These processes encompass everything from engaging in strategic planning, to issuing bills of materials, to receiving shipments, to invoicing. Each partner has to make adjustments in their processes to make sure they can work properly with their trading partners.

In this type of relationship, such as between a vendor and a buyer, both partners both offer and gain visibility to drive process efficiencies. One vendor, for example, can manage a buyer’s inventory but the buyer must trust the vendor to manage it properly. To enable this trust, both parties must agree to share data on the same level and must orchestrate processes consistently.

Visibility into this type of arrangement reduces errors and improves working capital.

The third dimension

In the third dimension of supply chain processes, each node is part of an inter-co-operating network. Each company transacts with multiple partners who work together in tandem (while running their own internal processes). In this type of network, each partners orchestrates multiple processes across multiple nodes. The third dimension requires the whole network to have consistent visibility. There is an exchange of real-time information across nodes in this multi-nodal arrangement.

Even though they are connected, in order for the network to be powerful, partners require flexibility in how they do business. They need to be able to pick the organizations they do business with and to have the option, for example, to engage in vendor managed inventory arrangements, outsourced logistics, etc. The entire network still has visibility into what’s going on in these relationships, and can see how the trading partners are performing.

The creation and use of clean metrics based on business processes not only enables the cross-network visibility, but gives the businesses using outside suppliers tools to help them meet the network’s goals for on-time deliveries, comply to its collective standards and mitigate risks.

Other powerful tools within a network are the communications platforms and social media outlets that each participating business can participate access. The ability to communicate easily and openly helps resolve supply chain issues and aids in the making of time- sensitive decisions. Social media can provide a holistic picture of real-time demand information, empowering supply chain managers to respond quicker to changes in the trading network. Mitigating risk is another advantage of a social trading network as participants can be alerted to problems in a shipping lane, with a supplier, or in an entire geographic region.

Arun Samuga is director of technology and product development at Elemica.