Policing The Supply Chain

Two and A half years ago, Cardinal Glass IG's legacy systems were making it a weak link in one key customer's supply chain. The system, a hodgepodge of homegrown and third-party applications, caused so many errors that it was "shameful and embarrassing," says Dan Peterson, director of corporate information systems at the Minneapolis-based maker of glass products. But when the customer decided that its products required delivery on a just-in-time basis, with lead times of just hours, there was no way the existing supply chain management applications could keep up the pace.

Luckily, Cardinal found that by bolting on supply chain event management (SCEM) applications from Minneapolis-based HighJump Software, it could deliver products at nearly 100% accuracy. "We probably cut the error rate by 90%," Peterson says.

Cardinal, like more and more companies, is using SCEM applications to speed up and smooth out connections with suppliers and customers.

SCEM applications let companies see - in real time, or as close as possible - if their existing supply chain management (SCM) systems are working. The applications run on or are attached to an SCM server and get updates on supply chain activity through software connectors. Depending on preset rules and benchmarks, SCEM software can monitor SCM applications, run simulations of supply chain scenarios, automatically take control of the supply chain or send out alerts to end users.

Anomalies, such as a discrepancy in an order, will trigger responses, making the system more sensitive to real-time needs, say analysts.

Cardinal did contemplate replacing its legacy enterprise resource planning (ERP) system but felt that a new ERP system wouldn't provide the adaptability and forecasting abilities required to meet the challenges it faced in optimizing order fulfillment execution, says Peterson. Cardinal officials decided that they needed software that would address errors in the system on the fly, he explains - something traditional supply chain management and ERP systems wouldn't be able to do.

At Cardinal, when an order is received, inventory is checked immediately for availability. If a shortage is detected, the HighJump system will send an alert via e-mail to the customer. This speeds up the supply chain, reducing lead times and meeting the customer's goals, says Peterson.

There were bottom-line benefits, too: The new system cut by about two-thirds the amount of manpower needed to compensate for errors such as inventory erroneously being marked "in" when it wasn't there or shipments being sent incorrectly.

While SCEM elements have been around for some time, the market has begun to come into its own only during the past year or so. SCEM applications attach to current SCM, warehouse management and legacy supply chain execution systems and view and report on their activities. More specifically, SCEM applications can write and modify purchase orders, mark goods received and trigger payments to suppliers. Some vendors are embedding SCEM components into their offerings - SAP AG and J.D. Edwards & Co. are beginning to add new modules, for example - or offering them as stand-alone products. The fledgling SCEM software market will be worth $100 million in 2001, says Michael Bittner, an analyst at AMR Research Inc. in Boston.

Analysts note that the products come in a variety of flavors: Some let companies monitor their extended supply chains, which includes checking suppliers' and carriers' performances - how they're meeting their deadlines and where inventory is at any given point in the supply chain.

The key is the real-time visibility and the ability to react to events such as the breakdown of a truck on a highway. For example, the system that originally planned such a trip may have been using variables that are now weeks old; the SCEM system starts doing calculations based on a new cycle based on days or hours as opposed to weeks of lead time, according to Bittner.

"SCEM is like the watchdog of the supply chain," notes an SAP spokesman.

The cost of SCEM software varies depending on the size of the implementation, but it typically starts in the hundreds of thousands of dollars and will "probably make you choke before you finish," says Sharon Ward, an analyst at Hurwitz Group Inc. in Framingham, Mass. But firms with unpredictability in their supply chains, such as those that make consumer goods or fashion products, find SCEM products especially worth the price, Ward says.

That's because their greatest usefulness is their ability to respond to unplanned events and anomalies in a supply chain operation, says Ward.

SCEM-related tools are just now starting to replace manual methods of event management, which rely on time-consuming phone and fax procedures, says Karen Peterson, an analyst at Gartner Inc. in Stamford, Conn. "[SCEM applications] all have various levels of integration capabilities and real-time information," she says.

SCEM applications will eventually become standard in large enterprises, say analysts. "ERP and supply chain planning systems are dismal at helping companies understand real-time events in their supply chain," says Peterson. "As a result, most enterprises are forced to operate off of static lead times, standard costs and predefined transportation modes and routes, with little insight into the true opportunities and problems brewing in their supply chain."

One company that's relying on supply chain vigilance is Hunt Corp., a Statesville, N.C.-based maker and distributor of office supplies and graphics products. "We constantly monitor critical success factors within the supply chain to ensure that we are meeting both our and our customers' objectives," says Ted Raiman, director of supply chain logistics at Hunt. Since 1998, the firm has relied on MFG/Pro software from Carpinteria, Calif.-based QAD Inc. for procurement and supply chain automation.

"Without the capability to monitor critical supply chain processes, we could never achieve our objectives to improve productivity, lower costs and improve service," Raiman says. Hunt is investigating attaching decision support software to its system as well. The company relies on a few software tools that periodically capture data about days to ship, inventory turns and purchase price variations.

Such a responsive system is key at Atlanta-based K&G Mens Center Co., a high-volume clothing retailer with 63 warehouses nationwide.

Before K&G started using an SCEM system, resolving problems such as ordering discrepancies could take as long as two weeks. Scott Saban, president of operations and information systems at K&G, says the system the company recently deployed can handle exceptions within 48 hours, which is key because the stores are open only three days a week and timely inventory placement is crucial.

Before its StoreWorks SCEM system went live, K&G had to handle all inventory, order processing and exceptions manually.

"This system worked fine, as long as there were no problems," Saban says. But if problems arose, it meant "goods would still be sitting in the back room and not on the selling floor."

Using the Connected Store application from STS Systems, part of the Quebec-based NSB Group, K&G monitors its receipts daily and generates flags when it detects anomalies. By flagging problems right from the store floor, the company has saved about $100,000 in savings by not having to do emergency drop shipments.

Connected Store, installed this past year, links to the company's core STS R12 merchandise system, which handles purchase orders, automatically matches invoices and prepares the checks.

K&G can resolve almost 100% of problems on the spot. Saban says he expects to see a reduction of $250,000 in inventory costs and about 100 days of saved time during receiving processes this year.

At Fort Worth, Texas-based furniture maker Bombay Co., there are "inventory police" applications in place to take action on glitches, says Roger Tyler, vice president of planning and allocations at the firm. The company uses STS software, as well as Score, a forecasting and replenishment application from NonStop Solutions Inc. San Francisco.

Score automatically matches Bombay's current product levels to its stores' needs, sending daily messages to distribution planners to alert them to any problems such as late-arriving inventory or shortouts. Additionally, the Bombay system continually reviews supply chain statistics to evaluate the most cost-efficient process of maintaining product levels. "This has allowed us to become proactive to a problem, rather than reactive," says Tyler. The company's goal is to shave average inventory-carrying costs 15% to 20% this year and cut a similar amount next year.

Not everyone is rushing to implement SCEM products. Such applications may now be more appropriate only for the biggest enterprises, such as a Ford Motor Co. or other global giants, says David Caldwell, vice president of logistics at the pool products division of flow control maker Hayward Industries Inc. in Elizabeth, N.J. The firm is now rolling out a multimillion-dollar supply chain optimization system based on software from SynQuest Inc. in Atlanta. Hayward plans to slash $10 million the first year by reducing carrying costs and aims to double that savings within the next two years, Caldwell says.

While Caldwell thinks SCEM software products will become a commonplace, Hayward has to get its basic supply chain system in place before rolling them out, he says. "We've got to get our internal house in order," he says. "I don't anticipate [implementing SCEM] in the next 12 months."

To make the technology work, a company must have departments and partners that are willing to share SCM data, says AMR's Bittner.

Moreover, SCEM can require special software hooks to tie into legacy systems to extract data, he says, but there are enterprise application integration connectors that can be used.

Despite obstacles, analysts say they believe there's room for growth for the technology - particularly in the wireless world. Peterson predicts that SCEM will become key in places where users don't have PC access but need supply chain data, such as in the fields of transportation and warehouse management.

Links in the Chain
SCEM lets users simulate, analyze, monitor, control and automate functions in the supply chain. Some of the players offering such products include the following:
ViewlocityApplication called Supply Web provides logistics visibility
VigilanceMonitoring suite extracts data and makes notifications
SeeCommerceSeeChain suite combines analysis with workflow
Industri-Matematik International Corp.Vivaldi Net Series views physical movement of inventory
Manhattan Associates Inc.Collaborate gives visibility to online data
J.D. Edwards & Co., SAP AGOffer SCEM functions as part of ERP and SCM offerings
SupplyWorks Inc.SupplyWorks Max provides supplier-oriented SCEM functions


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