Why analytics is eating the supply chain

New tools are helping companies achieve the supply chain's 'holy grails,' says one CIO

A peculiar thing happens in northern Florida every year in the springtime. That's harvest season on the many fern farms scattered across the region, and it's also the time when demand for rattlesnake antivenom skyrockets there.

That's no coincidence. Rattlesnakes like to form dens under fern crops. That means trouble for those who harvest the plants, and it puts urgent pressure on local hospitals and healthcare providers, which must come up with the highly perishable antivenom on demand.

"A lot of times you never really know how much you're going to need," said Kyle Pudenz, senior director of purchasing for pharmaceutical wholesaler H.D. Smith. "But you also can't stock up and leave it on the shelf."

It's a classic problem in the world of supply-chain planning, and analytics tools are opening up new ways to solve it.

Working on weekends

For H.D. Smith, an analytics platform from FusionOps is bringing new visibility to the supply chain, enabling the wholesaler to better anticipate and meet demand and offer service levels it couldn't have previously.

With data dispersed across multiple subsidiaries and storage systems, the team at H.D. Smith found that getting everything in one place for analysis was a time-consuming challenge.

"I was spending a lot of weekends trying to pull data out to see what the current situation was," Pudenz said. "By the time I could access it, things had changed."

The supply-chain team was using Microsoft's Access and Excel tools for analysis. "That was the only way they could get the data in one place," said David Guzman, H.D. Smith's CIO.

H.D. Smith began rolling out FusionOps a few months after running pilot tests in the fall of 2013. FusionOps has modules for procurement, finance, inventory, sales, production planning and customer service and recently gained prescriptive analytics functionality, enabling users to simulate different scenarios for a better understanding of the pros and cons of alternative decisions.

Among the benefits for H.D. Smith has been better insight into "service exceptions" -- those times when a customer wanted a product but H.D. Smith couldn't supply it.

Today, team members create dashboards every morning to guide their efforts for the day. "We can slice and dice the data as needed," Pudenz explained.

FusionOps' proactive capabilities have also changed the way H.D. Smith understands and anticipates demand.

Say the company sells 500 units of a particular product in a single order every 10 weeks. A traditional approach would probably dictate that it should keep 50 units in stock per week on average. But then "you [would] never have enough to fill the account the one time they order. And the rest of the time, you have more than you need," Pudenz explained.

By segmenting its stock according to demand and other characteristics and focusing on high-value, high-volume and high-urgency items like that rattlesnake antivenom, H.D. Smith can now keep its inventory better aligned with what it will actually sell and when.

"We've achieved an actual reduction in inventory on hand and an improvement in service levels," said Guzman. "Those are the holy grails of supply chain."

Bottom line: H.D. Smith's target service level is to be able to meet demand 98.5% of the time. In 2014, before it began fully using FusionOps' analytics tools, it hit that target two months out of the year. Since July 2015, it has been hovering around 99%, beating its target every time.

Tens of millions of dollars in savings

This is not to say that supply-chain professionals are newcomers to the world of analytics. On the contrary: Demand forecasting, for example, has "been around forever" and has always relied heavily on data, said Paul Myerson, an author and professor of practice in supply chain management at Lehigh University.

What's new today are the tools.

"Today we have very visual tools that are much quicker to run," Myerson explained. "What used to take overnight can now be done in minutes."

New software is also enabling more collaboration among partners, including key customers and suppliers. Point-of-sale data provides better insight for everyone involved, leading to better forecasting decisions.

"It's about agreeing on forecasts and collaborating on inventory throughout the supply chain," Myerson said. "It really improves efficiency, cost and quality, and not just for manufacturers."

Equipped with better analytics, companies can achieve tens of millions of dollars in savings along with improved service levels, he said.

Multiple organizations are involved in any supply chain, each with its own profit motives and objectives, noted C. John Langley Jr., a professor of supply chain management at Penn State University.

"Each has to fight for their own existence, and each depends on the success of the supply chain to stay in business," Langley said.

All those many pieces mean that supply chains are often made up of many different software silos, said Gary Meyers, CEO of FusionOps.

"There's ERP, there's logistics software for moving the product, there's planning software and more," Meyers said. "The challenge is to see what's going on end to end. That's often a real struggle for customers."

An efficient supply chain is 'table stakes'

Volatility in the marketplace is adding particular urgency to that struggle. Factors such as changing customer preferences, commodity prices, global unrest and weather patterns are all "putting enormous pressure on supply-chain leaders to make sure they get the right product to customers at the right price and the right time," said Rod Johnson, a group vice president at Oracle, whose SCM Cloud offering focuses on providing new visibility across the supply chain.

"Most customers used to manage the supply chain in terms of what happened in the past," Johnson said. "Today we're relying on real-time signals to tell us what the real demand is. Most of the leading companies are trying to do same-day changes to production, sometimes even adjusting hourly."

New visualization tools, meanwhile, are bringing the dynamics of the supply chain to life, he added.

Historically, any time a company faced a shipment problem, "it would say, 'Let's build up more inventory,'" Meyers said. "That costs money, and it really hurts."

Today, it's not just consumers but also enterprises that expect Amazon levels of reliability, he added.

"Your supply chain is not just a competitive weapon," Meyers said. "It's table stakes for competing at all."

Copyright © 2016 IDG Communications, Inc.

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