Crafting the Intelligent Supply Chain: Part 1
META Group, Inc., ADS Delta, 2000

Companies must move beyond individual supply chain process optimization and focus on local site excellence to the development of intelligent, event-driven systems that span the entire supply chain.

The Internet has significantly accelerated the trend toward adoption of real-time, reactive supply chains capable of synchronizing supply and demand fulfillment across multiple supply chain participants. The promise of using information technology to replace inventory, now touted as the chief benefit of supply chain planning applications, was actually first delivered through supply chain execution systems within the context of facility-specific, “four-wall” implementations. The combination of several execution technologies (see Figure 1 in Addendum) forms the basis of what can be referred to as the “intelligent distribution center,” in which inventory reduction is accompanied by optimization of space and labor resources and improved customer service (see ADS Deltas 748, 22 Jun 1999, and 751 and 750, 23 Jun 1999).

Through 2000, Internet-related pressures and changing distribution models (e.g., more customer direct shipments) will drive significant investments in supply chain execution technologies (e.g., warehouse management, automated data collection, transportation management, track and trace). By 2001, lines between planning and execution activities will be increasingly blurred as tight, real-time integration between planning and execution components is achieved, through prebuilt integrations and mergers between planning and execution vendors. By 2003, dominant enterprises will have crafted intelligent supply chains, with global pipeline-wide visibility to inventory and events, network-wide alert messaging systems, and event-driven architectures that provide high flexibility for responding to changes in both macro- and micro-level supply chain events [note: 3rdwave had all these capabilities at the time this article appeared in 2000].

The Intelligent Supply Chain As many companies refocus their efforts on execution technologies to meet changing customer fulfillment demands, the intelligent distribution center paradigm will be superseded by a new model. The “intelligent supply chain” takes similar local intelligence concepts and applies them across intra- and intercompany supply chain systems. The intelligence is derived from a technology stack that enables supply-chain-wide visibility and responsiveness, planning and execution based on real-time event triggers, and a focus on “customer pull” versus "supply chain push" pipeline management.

The following capabilities and technologies are necessary to create the intelligent supply chain:

True visibility to actual demand: Understanding true customer demand is essential for a pull-driven approach to supply chain management. Obtaining this view is more difficult than most companies realize. For consumer goods manufacturers (CGMs), this includes obtaining store-level point-of-sale data from retailers. For CGMs and other types of companies, it should also include Web-based data sharing and collaborative planning applications. A company’s own internal processes and technologies must also flow true demand information freely to all parts of the organization.

Web-enabled global visibility: Near-real-time track and trace of inventory at the SKU-level must be established for both international and domestic logistics activities. Although traditional EDI technologies will continue to be deployed to facilitate status updates due to existing infrastructure investments, Internet-based applications will support much more flexible capabilities to collect carrier information and enable hosted visibility applications. Vendor support comes from software providers such as Blinco Systems (3rdwave global solutions), Descartes Systems, i2, Rockport Trade, and Syncra as well as new service-oriented providers such as Global Logistics Village and Global Technology Services.

Componentized application architectures: Componentry at increasingly granular levels will enable tighter systems integration, deployment of specific capabilities as rapidly as needed in company-owned and third-party facilities, faster customization of functionality without destroying upgrade paths, and event-driven architectures in which awareness of events triggers intelligent reaction and processing. Although a warehouse management system (WMS) approach currently predominates, vendors such as EXE, Logility, Manhattan Associates, and HK Systems are moving down the componentry path; McHugh Software has taken the most aggressive approach toward componentry with its DCS WMS application.

Real-time planning/execution linkage: Linkages between supply chain planning and execution systems must occur both at the data and process levels. Data-level integration enables the transportation plan to be delivered to the WMS for order pick sequencing. Process level integration enables transportation planning and the WMS to “negotiate” to determine optimal cost trade-offs between the size of a pick wave and the optimal transportation loading plan. The logistics execution suite of McHugh Software and the developing relationship between planning vendor i2 and execution vendor EXE envision this type of process integration, while Manugistics achieves somewhat less ambitious integration with WMS vendor Catalyst.

New application modules: Both planning and execution vendors are releasing new application modules that add components necessary to create intelligent supply chains. These include more robust cross-docking applications to enable continuous flow logistics operations, dynamic allocation and routing of inventory based on both customer demand and fulfillment exception events across the pipeline, and high-performance available-to-promise engines that provide increasingly complex calculations of delivery commitments that can be made to customers.

Reporting and analytics: We will soon see increased deployment of supply chain analytic applications (e.g., new OLAP vendor VIT) that compare planned results to actual performance. This will give rise to the new concept of "logistics statistical process control,” using concepts widely deployed in manufacturing environments to inform supply chain operations around predefined tolerance bands and reduced performance and service variability.

Common messaging-alert system backbone: With most supply chain application vendors in early stages of messaging and alert capabilities, supply chains will be vulnerable to "alert systems chaos” and difficulty "cascading" alerts to consider the criticality of events across multiple systems. Messaging and alert systems that cross multiple applications should be deployed to achieve supply-chain-wide intelligence. Packaged alert systems solutions will come from EIA-oriented vendors (e.g., Viewlocity), supply chain vendors (e.g., Numetrix, acquired by JD Edwards), and new alert specialist vendors (e.g., Categoric Software).

The components of the intelligent supply chain must be assembled from multiple providers, and sequencing and integration will be the most significant challenges. Real-time interoperability will be facilitated by prebuilt integrations between some supply chain vendors, the continued evolution of EAI and message broker tools, and XML and Web-based communications vehicles. Sequencing must be approached based on current portfolio assessment, industry-and company-specific supply chain drivers, and recognition that visibility of inventory and events across the supply chain is a fundamental element of supply chain intelligence.

Business Impact: Developing an intelligent supply chain is a strategic initiative that goes well beyond internal cost reduction to provide competitive advantage and market leadership through dramatically improved logistics responsiveness and flexibility.

Bottom Line: Intelligent supply chain architectures enable rapid response to changes in customer requirements and events as well as continuous improvement initiatives. Companies must assess their current portfolios and begin building or acquiring the requisite components to craft an intelligent supply chain system that will win in the e-business economy.

Figure 1 - The Intelligent Distribution Center
The intelligent distribution center is characterized by use of the following technologies: Bar code data collection (in combination with radio frequency identification in the future) to provide near 100 percent data accuracy (high level of current adoption in G2000 companies). Real-time radio frequency data communications (RFDC): RFDC terminals and data collections networks eliminate “information float,” the delay from when information or transactions are created to when they are communicated to and available from the computer system. RFDC also enables interactive dialog between mobile operators and logistics software such as WMS (moderate level of current adoption). Warehouse management systems (WMSs): WMSs support end-to-end, real-time tracking of all material movements and provide sophisticated direction of operators’ activities through use of RFDC technology and event-driven order fulfillment processing (relatively low level of adoption of high-end applications).

Source: 2000 META Group, Inc.