IT leaders can be excused for feeling like their supply chains are one link away from disintegration these days. The news over the past few months has been alarming, from outcries over horsemeat in Europe and mislabeled fish in New York to the longer-term impacts on supply chains from environmental events like the tsunami in Japan, monsoons in Thailand and the volcano in Iceland.
And those are just the highly publicized issues. Increasingly, CIOs are challenged to protect their supply chain from physical and cybertheft, counterfeiting, potential scarcity of materials and regulatory mandates such as removing lead from materials. Welcome to Whack-a-Mole, supply chain-style, where you attack one problem, only to have another pop up elsewhere.
Experts say the problem is only going to get worse. "Globalization lengthens supply chains and increases complexity," says Emma Scott, spokesperson for the Chartered Institute of Procurement and Supply (CIPS) in London, the professional organization of procurement professionals. "When supply chains are leaner, any disruption affects you more" -- and, thanks to a decade or more of globalization and cost-cutting, supply chains these days are very lean.
This makes the issue of visibility into the supply chain -- or the lack of same -- that much more critical, says Matt Smith, founder and chief strategy officer of Icix, a cloud-based exchange for supply chain partners based in South San Francisco, Calif. "Companies have visibility into purchasing and logistics, but not into where materials or ingredients or components are actually grown or manufactured. When you lose visibility, you get horsemeat in meatballs, e coli in spinach, lead in toys and worse."
Then there's velocity to consider. "You have to move information faster to enable the supply chain to react to changes. Velocity allows us to plan more aggressively. That's what wakes me up in the morning," says Nathan Johnson, CIO of Ports America, which manages 42 ports around the United States. One of his big concerns: spikes in transport costs because of fuel prices. "The only way to get around that is more productivity and more efficiency."
The good news: Technology can address the issues of productivity, efficiency, visibility and risk. The challenge: When supply chain experts say "technology," they're talking about more than RFID tags, GPS and temperature sensors.
The world is changing at such a fast pace, people have to think on their feet. The risks are unprecedented. Emma Scott, Chartered Institute of Procurement and Supply
CIOs need to think about supply chain metadata -- the information about the supply chain that's stored, transmitted and updated in such a way that IT can help procurement experts monitor and protect all of the intricate, interconnected pieces of the supply chain.
"The world is changing at such a fast pace," sums up CIPS' Scott. "People have to think on their feet because the risks are unprecedented."
Monitor multiple points of vulnerability
Perhaps the biggest challenge relating to supply chain vulnerability comes from the unforeseen risk that any given link will fail, an increased scenario given today's extended, multi-tier supply chains. "The points of vulnerability are greater than they ever were," says Ben Zelinsky, director of the supply chain technology practice at PricewaterhouseCoopers. "Because supply chains are outsourced and subcontracted, controlling each point becomes more difficult."
Explains his colleague Glen Goldbach, director of operations and supply chain practice, "You may have protected yourself by having two tier-1 suppliers for the same component, but if the same tier-2 supplier serves both of them, and that company fails, you lose the entire chain."
At the same time, analyzing all the elements of an entire supply chain is "an arduous and complex task," says Goldbach. Even documenting something as simple as a fast food burger with just seven ingredients might involve as many as 20 tier-1 suppliers, and even more at the next tier down. "You have to understand where the potential is for failure and contamination."
It's not just a question within the food supply chain, either, as prevalent as that is in the news. Big-ticket items such as fashion, perfume, pharmaceuticals and wine face challenges of authenticity -- without knowing all of your suppliers, it's impossible to determine where counterfeit articles might have been introduced into the supply chain. "You'll never eliminate all your risk," says Icix's Smith. "You have to mitigate it."
(Article continues on next page)
Supply chain shopping list
George Lawrie, principal analyst at Forrester Research looking at retail technologies, co-wrote a report in 2011 about supply chain visibility technologies that he says still applies today.
His recommendations:
- Establish a firm foundation of master data and processes.
- Consider sensor technologies.
- Use the cloud to syndicate supply chain data among suppliers.
More specifically, Lawrie divides supply chain visibility tools into four categories of software, encompassing both data and metadata about the supply chain:
- Asset tracking and management solutions
- Goods-in-transit visibility solutions
- Solutions based on highly granular supply chain visibility
- Solutions based on document-level supply chain visibility
In the report, Lawrie and colleagues identified a half-dozen vendors in each category, some of whom -- epcSolutions, Exterprise, IBM, SAP and Savi Technology -- have products in multiple categories and thus overlap in functionality. The key, of course, is to identify which products fit a given company's needs, but all still represent today, as the report says, "visibility [which] benefits buyers and sellers in complex value chains while reducing wasteful fluctuations in logistics capacity utilization."
Everyone derives benefits in that scenario: the ship is unloaded faster, the logistics carrier waits a shorter time, and the customer gets the shipment faster, Johnson says.
In pharmaceutics, security is a big issue, according to Ian Rosenblum, associate director for IT at Weston, Mass.-based Biogen Idec. "Counterfeit products endanger patients, but also diminish revenue," he says, noting that he's seen reports that as much as 40% of pharmaceutical products in developing countries may be counterfeit. "The entire industry is concerned about it, and we're starting to see global regulations aimed at preventing it."
Counterfeit products endanger patients and diminish revenue. The entire industry is concerned about it. Ian Rosenblum, Biogen Idec
The result is a marked increase in traceability and serialization mechanisms. Traceability at Biogen Idec involves using two-dimensional data matrix bar codes (similar to QR codes) to label packaging. While these barcodes require line of sight, Rosenblum says, they bring additional functionality: You can read each code, create a new label for the case, scan the cases, and create a label that's associated with everything on the pallet. (RFID isn't feasible, he adds, because "with biologic products, we have to make sure the RFID waves don't affect their efficacy.")
Carlos Alvarenga, global lead for operations, finance and risk at consulting firm Accenture, sees these track-and-trace capabilities being used more frequently with high-end items such as cosmetics and wine, which are more vulnerable to theft and counterfeiting. "You apply the track-and-trace seal to the bottle. You can see if the seal has been tampered with, but it also tracks where the bottle has been to determine if it deviated from its designated route. It's like a product passport that authenticates where it's been before it arrived, while at the same time ensuring that the content hasn't been compromised."
Serialization involves creating unique numbering on each unit to be sold. "The number conforms to a standard GS1 that lets you track a container from the time it's manufactured to the time it's dispensed, the same way you'd track a package," says Rosenblum. Within Biogen Idec, the supply chain team and the security team are working to implement these capabilities.
In addition to potentially smoothing out the supply chain at the beginning of the process, analytics technology can also help later in the process. Ranjit Thaker is CIO of Broomfield, Colo.-based Network Global Logistics, a third-party logistics (3PL) provider specializing in time-critical deliveries and aftermarket service support for the healthcare industry. "The supply chain challenges are totally different when you're a manufacturer getting supplies to a retailer versus getting an organ to the hospital when someone is being prepped for surgery."
Thaker cites the example of one client, a manufacturer whose medical devices cost six to seven figures each. "There's a high level of analytics involved in calculating where you need to warehouse replacement parts for those devices," he says. In order to avoid warehousing expensive parts that may be used infrequently, NGL's analytics involves mapping the physical location of manufacturers' warehouses, the ages of the machines at the medical facilities, the mean time between failure (MBTF) of those machines, the criticality of the parts and the cost of getting equipment to locations.
"It's complicated, because the parts may be critical but they cost thousands of dollars and may only have been needed ten times in the past five years," Thaker explains. "Doing the analytics helps them optimize their inventory."