Red alert overload

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Supply chain event management (SCEM) is the latest link in the supply chain. SCEM software allows managers to see into their existing supply chain management systems and direct events taking place in real time. Controlled by preset rules and benchmarks, SCEM can monitor supply chain systems for exceptions, send out alerts to end-users or automatically take control of the supply chain, potentially improving the performance of supply chain management.

SCEM is a relatively new application that has been around for little more than two or three years, but most of the major ERP companies such as SAP, Intentia, IFS and Baan offer SCEM modules in their software suites. Companies already selling supply chain software, Manugistics, Descartes and Manhattan Associates among them, have also added the new feature to their products, while a raft of specialist suppliers including Categoric, Eqos and Yantra have also jumped on the bandwagon. SCEM is also available as a service from application service providers such as Wesupply.

A growth market
Increasing numbers of companies are adopting SCEM. Sales of SCEM in Europe are predicted to rise from €10.4 million in 2002 to €147 million in 2007, as it becomes an integral part of the supply chain management applications that are already in use, according to research company Frost & Sullivan.

‘SCEM bridges the chasm between supply chain planning and supply chain execution, enhancing the value of each component process step. By compressing the timeframes associated with traditional reporting and notification cycles, SCEM furthermore reduces cycle times, offering cost savings through greater efficiencies,’ says Andrew Ball, Industry Analyst at Frost & Sullivan.

Managers no longer need to pour over lengthy and complicated reports, they can receive alerts wherever they are. Many of the day-to-day clerical routines of checking and ordering stock can be automated. ‘The advance is that you can set up the system so that if at any time your inventory falls below two days you can say “send me an email, a fax or a SMS message”,’ says Ron Kubera, senior vice president of Northern European Operations for Manugustics. ‘Instead of getting a report, the system scans through exceptions in a priority order. I come from a business planning background, I would have liked to have had that.’

One of the main drivers of SCEM is the growing complexity of supply chain management. Manufacturing, distribution and retail organisations are increasingly using networks of partners in order to design, build and deliver products. This is in response to improvements in communication technologies and the continued cost differences between individual countries.

When Mike Nugent, IT director of Jewson, the builder’s merchant chain, introduced a SCEM service from application service provider Wesupply, information sharing was an important part of the package offered to the company’s suppliers. ‘As a technology solution it was a no brainer for suppliers. But it was part of a broader strategy of trying to instigate better sharing of information on stock supply and customers. The aim was to get suppliers working on better customer offers.’

It wasn’t a question either of just foisting the new service on suppliers. Jewson did a lot of research on the benefits to its partners to justify the subscription that it charges. The company bundled SCEM with a supplier extranet and its network of instore TVs.

The complexity of running supply chain networks heightens the risk associated with exceptions. To manage this risk, manufacturers can stockpile more inventory than is needed, but significant cost is associated with this strategy. SCEM has the potential to manage this risk without the costs of carrying inventory.

Another reason that the use of SCEM is likely to grow is cost avoidance. If a production line shuts today because of a shortage that could have been identified the day before, the costs to an enterprise are considerable. SCEM compresses the time delays associated with traditional reporting and notification procedures.

Exception in real-time
The exception is identified in real-time, instead of identification having to wait until the production of a regular report. Routing this information to the correct individual for resolution or automating the procedure for sorting out problems further compresses the time it takes. This compression can prevent a production line shutting down.

‘If you are trying to run an extended network across multiple nodes you need visibility,’ says Chris Turner, managing director of aerospace logistics firm Ulogistics, which runs a network of 170 suppliers on behalf of aerospace OEMs. ‘If you work within agreed levels of inventory you can potentially exert more control over events – you need alerts in real-time.’

SCEM can also deliver cost reduction. In the absence of SCEM, staff have to spend time chasing down orders due to missed delivery dates. SCEM acts as a second set of eyes for companies. This enables the existing team to process a larger number of orders and to do a better job. Processing more orders increases efficiency, but it is also important to investigate why an exception has occurred. With less time spent on fire fighting there is the opportunity to do this.

Jewson and sister company Graham, which specialises in plumbing supplies, deployed SCEM specifically to cut down on the clerical effort involved in matching purchase orders with goods received notes. ‘Purchase orders were created on our system, printed out and phoned through to suppliers. Goods arrived and you kept your fingers crossed that the original order was grned (goods received noted),’ explains Nugent.

Sorting out mismatches
In the past, stores ordered from appointed suppliers and most of the paperwork was sent to Huddersfield for matching. The process involved a considerable amount of effort in sorting out mismatches with goods received notes clerks in the two firms’ 600 stores. With a Web service based on an exchange hub, all the stores have to do is press a button to dispatch purchase orders that can be matched online. Before the service was introduced around 70 per cent of transactions were successfully matched, now the figure is in the high nineties, according to Nugent.

‘It is much more structured, even when there is an error, the paperwork is immediately obvious. Our ultimate aim is to move to vendor managed inventory with barcodes to aid grning and matching,’ he notes.

The three main functions of the typical SCEM package are to monitor activity, notify users of exceptions and help them control events in the supply chain.

Monitoring usually involves providing continuous data about supply chain events, including the current status of products, inventories, orders and shipments and detecting any data that shows a deviation from the norm. The norm from which exceptions are measured is defined by the user through a simple interface.

SCEM software uses this information to notify managers of exceptions within the supply chain through real-time alert messaging. SCEM can support pagers, cell phones and voice mail, although the importance of these technologies is to ensure the appropriate person is notified.

By being more in control of the supply chain a manager can change a previous decision based on the events status that they have been alerted to. This may involve diverting a shipment or expediting an order. Control also extends to the automation of actions to replace human intervention. SCEM applications can write and modify purchase orders, mark goods received and trigger payments to suppliers.

Frost & Sullivan emphasises the importance of understanding business processes to set rules for SCEM applications. A key part of the value of SCEM is that managers are notified only about relevant exceptions. An exception, however, needs to be defined through business rules – and the formulation of these rules is not easy. For example, an organisation has to make sure that it understands both what it means by the word ‘late’ and who needs to be informed when lateness occurs

This takes time and is complicated by the need to ensure that triggers are set at an appropriate level. If this trigger is set at too sensitive a level, the manager will be inundated with alerts and will be unable to distinguish between those that require immediate action and those that do not. The particular characteristics of the supply chain – the ‘pain points’ – therefore need to be understood before SCEM is implemented.

Although SCEM applications vary by industry, business environment and organisational requirements, in every case the greatest pitfall is reacting to SCEM’s increased tracking ability rather than using it for analysis. Analytic applications counter this tendency by aggregating data from key business systems at a high level and presenting the implications of each exception and its solution.

‘Sometimes you get too many alerts,’ says Brian Marsden chief executive officer of Wesupply. ‘If you have a problem with (warehouse) gates you don’t want 500 alerts saying individual products are late. You want intelligent agents that alert you to the underlying problem and give you decision support.’

Making plans
Turner of Ulogistics, which is consolidating 30,000 bin locations into one signal for alerts, confirms the importance of planning for SCEM. ‘You’ve got to have a clear vision of what you are trying to achieve and accept that you have got to use technology to achieve it. But it is not just a matter of technology you have got to have supplers on your side.’

As in many areas of IT, integration is an important stumbling block to the widespread use of SCEM. Integration of SCEM is achieved through the use of application integration connectors, but this process adds to the time and cost of implementation. As a result partners are sometimes reluctant to join a supply chain in which they have to use SCEM.

SCEM is most powerful when its underlying system collects business intelligence from multiple sources across the supply chain, inside or outside the company. At the moment, however, companies are investing in internal systems before attempting to connect their systems to those of outside partners.

That makes sense, comments Kubera. ‘Typically you want alert messaging across multiple organisations. But you need to have your own processes in order first. It is important to have good business practices in place to avoid embrassment. You don’t need to have all the tools at once, you start with the areas that are most important and then extend them at the appropriate time.’

Users that Logistics Europe spoke to underlined the importance of ironing out cultural objections to the closer ties with supply chain partners demanded by SCEM. Partners are sometimes unwilling to share information. Careful attention is needed to drawing up contracts that lay down what information is going to be exposed to the supply chain and to making sure that cost savings and other benefits are shared.

In common with Jewson’s Nugent, Turner emphasises the soft issues in deploying SCEM. ‘If you are taking cost out of the supply chain you have to do that through removing processes to reduce inventory. You are introducing changes to the way you work and if the supplier won’t change, it won’t work.’

Compared with other supply chain software systems SCEM is relatively cheap. And for that reason it is particularly attractive to companies that don’t have the money or don’t want to get involved in major supply chain projects. At around €150,000 – half the cost of a supply chain planning system – SCEM offers to improve supply chain operations without breaking the bank.

‘In a recession it becomes harder to get people to invest in things like supply chain software and the focus often becomes about getting more value out of what they already have,’ says Steve Banker, director of supply chain research at ARC. ‘Event management and performance management increase the value of the solutions they already have.’

Although it is perfectly possible to run a SCEM system on its own, software suppliers are keen to underline that much of the value derived from SCEM implementation lies in the ability to follow through from the alerting of an exception. For instance, to understand the knock-on effect from an exception on the scheduled production or customer order, it is necessary to already own a planning system.

‘Suite vendors with ownership of that planning system can therefore deliver more value than pureplay vendors, whose offering can be described as being too thin – in that they lack ownership of the data,’ says Ball of Frost & Sullivan.

Sharp managers apply the benefit of supply-chain visibility as an important aid to continually fine-tuning processes and planning. This translates unplanned events and exceptions into opportunities to accelerate production schedules, prevent missed shipments and contain costs. SCEM software promises to not only improve efficiency, but to increase customer satisfaction as well.

However, SCEM is like the warehouse watchdog. It is valuable in providing early warning of problems, but, like a dog, it needs careful training to stop it chasing every rabbit it sees and a practised handler to ensure it works effectively.


Plugging the gap

Some of the gaps left by planning and execution systems that can be plugged by supply chain event management:

  • Lower than expected customer service levels
  • Higher than expected supply, component and finished goods levels
  • Late introduction of new products
  • Excessive costs associtaed with transportation costs, overtime and product obsolence
  • Ineffective forcasting and demand management
  • Undisciplined, mannual processes with unnecessary reconciliation
  • Inability to capture new customers
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