Seeing Inventory in Real Time Lets You Have and NOT Hold
Global Logistics & Supply Chain Strategies, May, 2002- By Jean V. Murphy, Senior Editor

With customers demanding shorter cycle times, visibility is crucial. If you don’t know where everything is in the pipeline, you must build in costly buffer stock.

Inventory — everybody wants to have it, but nobody wants to hold it. Having it means complete customer orders, humming production lines, amply stocked shelves. Holding it means tied-up working capital, expensive storage costs and risk of obsolescence. That’s why every major supply-chain initiative of the past 20 years has been aimed at having just enough inventory, precisely where and when it’s needed.

In the past, lack of visibility to dispersed supply chains has been a major impediment to success. But new tools that leverage the internet to provide accurate, real-time inventory information within and across enterprises, along with exception management capabilities, are bringing companies closer to that goal than ever before.

“We think that event management and visibility solutions are going to enable operational excellence in a way that hasn’t been possible until now,” says Steve Banker, director of supply-chain solutions at ARC Advisory Group, Dedham, Mass. “We are starting to talk about Six Sigma supply chains because these applications are giving us the data we need to engage in those total quality processes.”

“Inventory is not just what’s sitting in a warehouse or DC, it is what is in transit.”
— Jim Davidson of NTE

The basic problem with a lack of visibility is that it causes time delays and therefore amplification in the supply chain, creating a bull-whip effect, says Richard Sherman, chief marketing officer of V3 Systems, a logistics execution vendor based in Charlotte, N.C. “One thing we know about all planning systems is they are always wrong. So what we need is simultaneous communication that compares actual events to plan, so that we can make corrections. Visibility and event management don’t decrease errors in the supply chain, because you never know what people are going to do on any given day, but they decrease the response time to errors.”

Jim Papineau, director of global visibility solutions at Descartes, a Waterloo, Ont.-based provider of network supply-chain solutions, also stresses that inventory is a consequence of uncertainty. “If you don’t know what is going on in the chain, if you don’t know where the stuff is, then you have to have more buffer and wherever that happens it costs you money,” he says. ‘This is particularly true in complex supply chains with many junctions where inventory tends to pool. It comes down to the basic fact that if you don’t know where inventory is, you can’t manage it.”

Real-time inventory visibility becomes increasingly important as customers demand ever-shorter cycle times, says Chris Heim, president of High Jump Software, Eden Prairie, Minn., which provides internet-based supply-chain execution solutions. “The time companies have to react between when they receive an order and when they need to ship has been scrunched way down,” he says. “Visibility is really all about gaining awareness of what is in the supply chain at any period so you can react quickly and intelligently.”

Inventory visibility solutions provide a centralized, real-time view of inventory, either within a corporation or among trading partners, that is continually updated as inventory levels change. When coupled with event management, these systems capture information about the life cycle of a product transaction, usually a purchase order. They monitor such events as when the order is received, confirmed, tendered, packed, shipped, delivered, etc. Business rules establish parameters and markers based on the expected course of events in the life of that transaction, and when an exception to these events occurs escalating alerts automatically are sent to appropriate people so that remedial action can be taken.

Visibility solutions are used in a number of ways. One of the most basic is to enable quick and complete answers when a customer asks, “Where’s my stuff?” Lanier, which uses Provia’s ViaWare visibility solution, eliminated nearly 100,000 such phone calls a year into its customer service department when it provided dealers web access to the status of their orders, from pick-and-pack all the way to delivery.

Even without self-service, a “global” view of inventory across facilities has many internal benefits and is a standard first-phase deployment for companies, according to John Pulling, chief operating officer at Provia, an execution vendor based in Grand Rapids, Mich. “All of a sudden, companies can see the whole picture instead of having to look at one facility at a time,” he says.

Combining that view with exception management can alert a company to potential problems with inventory levels in time to react. When orders threaten to exceed available inventory, for example, an alert can be sent. “This allows you to run a little closer to the edge, knowing the system will notify you, so you don’t need as much safety stock,” Pulling says.

A different twist on that, says V3’s Sherman, is to be notified when you have too much of a product. “You can set a rule that says, ‘tell me all items that haven’t had any activity against them over X number of days.’” Seeing what isn’t moving, he says, may impact what products a company decides to promote. “After all, the No. 1 method for reducing inventory is to sell it.”

Enterprise-wide visibility also helps companies spot quality problems much earlier than might otherwise be the case. “If you have different warehouses doing inspections on inbound materials, they might all put something on hold, each thinking they had received a bad batch and it’s no big deal,” Pulling says. “But if you can see that this happened at three warehouses in the same week or the same day with the same or a similar product, you know that something more is going on.”

Visibility systems that keep track of granular inventory information, such as lot and serial numbers and expiration dates, can help companies that have to be prepared to locate and recall specific groups of products.

Quality Assurance

McHugh Software’s visibility solution has enabled several customers, including Unilever, to automate pro- cesses around quality assurance and product recalls, says Dan Gilmore, vice president of marketing at McHugh, Waukesha, Wis. “Because of the level of control and confidence they now have in managing inventory issues across their network, not only can they automate what had been in some cases very manual processes, but they can also reduce their work-in-progress inventory by anywhere from one to three days,” says Gilmore. “At Unilever, rather than having to wait for the quality assurance testing to be finalized before they ship products from plants, they now ship immediately with full confidence if a QA issue arises, they can isolate and lock down that inventory. That’s a level of control and visibility they never had before.”

Knowing inventory availability at other locations addresses a common allocation problem that today is often solved by ordering additional quantities or paying more to have an existing order expedited. “Companies usually have the appropriate level of inventory within their network,” says Gilmore. “The problem is they have SKU A in the Northeast and they need it in the South. So one of the things inventory visibility and visibility to demand can do is help improve deployment.”

Having a global view of inventory also can give much needed support to available-to-promise (ATP) applications.

This is how Sharp Electronics is using a visibility solution from Celarix, Cambridge, Mass., explains Nathan Pieri, vice president of product management and marketing. The issue was that Sharp, which imports most of its products from Asia, was unable to see what was inbound on ships when major retailers like Best Buy or Circuit City wanted to run a promotion, and so it could not accurately commit to orders. “We gave Sharp visibility to exactly what was in each inbound container and fed that information back up to its SAP system to support the ATP program,” he says.

Adding visibility to inventory in transit is the first step that many companies take to expand their view outside the enterprise. Execution software companies like McHugh, Provia and Irista that have both warehouse and transportation management applications are able to smoothly integrate information on inventory in motion with that on inventory at rest. But companies also can receive transit information direct from carriers or by using services like BridgePoint, Descartes, Celarix or NTE.

These companies partner with large numbers of carriers to receive status information, translating the information into customer-preferred formats. Other companies like Savi Technologies and eLogicity track assets through electronic tags. eLogicity, which is owned by the Port of Singapore Authority and P&O Ports, has installed readers in global terminals around the world and along some rail lines, says Marc Buehler, vice president of sales. “An electronic seal affixed to the container updates the user of our system on the status of the container, where it is, who has it, whether it is on time. If there is a delay, we automatically update the shipper and all his service providers.”

BridgePoint, Cary, N.C., recently began adding rail visibility to its multi-modal visibility product. “In order to track a shipment or product that moves between ocean, rail and road, a person would previously have had to go to three separate carriers,” says Ken Pikulik, director of business strategy. “What we have done is worked with carriers to say, ‘OK, give us the information, we will put it in one place and provide it to your client. Your customer is happy and you don’t have to deal with those phone calls anymore.’”

BridgePoint provides a critical service that is part of all visibility solutions —screening incoming data for completeness and accuracy and correlating different identifiers to the same product or order.

“What we have is a master reference data base developed over 10 years,” says Pikulik. “When we set up a private network, we work with the customer’s trading partners to understand how they classify a shipment or unit.” A trucking company, railroad and ocean carrier may have different identifiers for the same container, for example. “We match that information up and combine it with information already in the system collected from the origin shipper, so we know where that container is and what it contains.”

This issue also comes up with suppliers and contract manufacturers. “One of the things we have built in Vizional is the ability to rationalize in real time responses where my contract manufacturer calls a product XYZ and I call it ABC,” says Jon Kirkegaard, executive vice president of Vizional. “So If I have 50 ABCs and my contractor has 500 XYZs, the customer service person knows that there are 550 and he can commit to an order of 530, rather than having to make a dozen phone calls to get that answer.” Vizional Technologies, based in Santa Monica, Calif., provides solutions for distributed order fulfillment, including monitoring and visibility of the process. “If you can pool inventory logically you don’t necessarily have to do it physically and that can create a lot better profitability and a lot better customer service than we have today,” says Kirkegaard.

Data quality is really the key to visibility systems, notes Pieri of Celarix. “It’s not about the software. It’s easy for a dumb alerting engine to send alerts off bad information. You have to be very close to 100 percent accurate for people to trust the information and for the alerts to mean something.”

Inbound Control

Visibility to incoming shipments plays into companies’ increasing interest in gaining control of their inbound operations, and it’s an area where many providers are focusing.

“When we were developing our product, we thought the real value-add was on the inbound side,” says Jim Davidson, president of NTE, Downers Grove, Ill, which recently introduced a visibility product called ClearView. “Our customers were telling us that what they wanted to see was when their orders were going to move, what is already moving, what is supposed to be moving, and am I going to get it on time,” he says.

Target is one of the first users. The mass retailer receives thousands of shipments each week into its 20 distribution centers, a process that previously had been managed largely with faxes and phone calls between the company, its vendors and carriers. ClearView is automating the process and enabling Target to better manage its transportation, says Davidson. By getting earlier visibility to product orders, he says, Target’s DCs are able to optimize shipments, consolidating some less-than-truckload into truckload. They also are able to better plan the receiving process.

“Inventory is not just what’s sitting in a warehouse or DC, it is what is in transit, and when you actually get control of that you can save on inventory, on holding costs and on transportation costs,” says Davidson.

Often, however, it is not easy for managers to trust inventory they can’t feel or see, says Ned Blinick, vice president of sales and marketing for Blinco Systems, Toronto, Ont. “When inventory is at a supplier or in transit, people have trouble taking it into account in the same way they would if it was on the floor,” he says. This can be particularly true with global shipments that have long transit times, but in those cases counting that inventory is perhaps even more important.

J.F. Braun & Sons, an importer of dried fruits and nuts, uses Blinco 3rdwave to gain visibility to its incoming inventory. Braun sells goods on contract that it does not yet have, promising to deliver a specified quantity over a set period, explains Stephen O’Mara, manager. “If it is going to take 45 days to get here from Asia and we have a contract for delivery in June, then we need to know at the end of April that those goods are on the water,” he says. “In the old system, we would run a report at the end of month, but that’s too late. When you have a transit time of 30 to 45 days you are already 30 days behind.”

Now Braun has up to the minute information and “we know the data is accurate,” O’Mara says, “We can go in and on one screen see outstanding sales, commitments against that product, inbound inventory and where that is in the process, and what we have on hand, so we know very quickly exactly where we are.”

Schneider National, a trucking and logistics company based in Green Bay, Wis., also is focusing on inbound with its Supply Chain Integrator product, which provides visibility into its customers’ supplier base.

Schneider uses this solution in managing General Motors’ service parts operation. GM’s suppliers were reasonably good about supplying ordered quantities into manufacturing sites, but when supplying to the aftermarket parts organization their adherence to shipping requirements was less strict, explains Steve Matheys, chief information officer at Schneider. “The suppliers had what was called freedom-of-the-week shipment,” he says. “They could ship on whatever days they wanted with as much product as they had.”

Working closely with GM, Schneider built a process based on end-to-end visibility. GM has open-ended purchase orders with its suppliers and it issues releases against the PO. Those releases now contain specific shipping instructions: I need 1,000 widgets and I want them shipped on Thursday at 2 PM. The supplier then has a certain amount of time to respond to that request, with a confirmation typically due 48 hours before ship time: I have received your release against this PO and I am confirming I will ship your thousand widgets on Thursday. “That is all visible in the chain now,” says Matheys. “People know these widgets are coming and they can plan for that.”

Schneider then goes out to obtain transportation for that move, taking advantage of optimization tools. It tenders the load, gets a confirmation that the carrier will pick it up on Thursday and notifies the supplier and the customer who the carrier is and when it will arrive. If anything goes wrong, alerts are sent and the customer knows immediately.

“If you have a visibility application, but it doesn’t do anything else, then it really is not of tremendous value,” says Schneider. “You have to have behind it the ability to manage information, the ability to manage compliance in the supply chain, the ability to put together and orchestrate processes that interconnect all the different players. What customers want is to be able to manage the flow of goods.”

Order management and supply-chain vendor Industri-Matematik International (IMI), Mt. Laurel, N.J., believes the best way to achieve that goal is to tie visibility into order management, which it has done with its Vivaldi products. “It all starts with the order, and visibility is important only in so far as it supports the fulfillment of that order,” says Steve D’Angelo, president of IMI Americas. “The criticality of visibility is that it gives you the data you need to manage the order in the best way.” As an example, he cites Canadian Tire, which is using IMI’s order management and visibility software to match orders from its stores with the inbound flow of goods from suppliers, improving its ability to allocate inventory.

“The first step is visibility, but what you do with that visibility is what will get you bottom-line improvements,” says Steve Belko, vice president of the supply-chain practice as Technology Solutions Co., Chicago. And while the focus has been on real-time information, an equally valuable byproduct of better visibility may be to feed exceptions and events into an analytic engine that will identify trends. “If you see where you are continually having problems then you can take some action to solve that at its source.”

Developers already are providing such analytic capability. “Most people have realized that when you solve a problem at the source, all problems down the line get better,” says Papineau of Descartes. “So there is a wonderful domino effect with visibility. You really start to get an appreciation for where the inconsistencies are.”

Optimally, a system should provide analysis and decision support for both real-time and historical data, says Scott Rishel, vice president of market development at Irista, a supply-chain execution vendor in Milwaukee, Wis. “You can start to do some analysis in real time, for example, by looking at whether a particular warehouse is at capacity. If I release another order in there, will it go out today based upon the number of orders already in that warehouse?”

Additionally, analysis of data collected over a period of time “allows you to look at bottlenecks and performance at a network level versus a warehouse-by-warehouse basis,” he says. “Why is this carrier always late? Maybe it’s because we are late getting the shipment from the yard to the warehouse.”

The next phase of development will be to have automated responses to exceptions. “Eighty percent of the time, exceptions are things that happen on a regular basis,” says Rishel. “We’ll get to the point where when these things happen, the system will automatically make a decision.”

Provia is introducing a workflow integration package that will allow customers to automate the response to certain problems, says Pulling. He suggests a situation where a customer requires that only complete orders be shipped and a supplier is unexpectedly short. “Rather than have somebody make a phone call, the workflow engine would automatically fire off a notice to the customer that gives him several options about how to handle it: cancel the order, hold it until it is complete, ship it short, etc. The customer can then reply and click on submit and the system will automatically respond to that without anyone from customer service having to get involved. This starts to close the loop as opposed to just notifications.”

Burlington, Mass.-based Logistics.com also allows for some automated responses, says Joe Wagner, senior vice president of the provider of transportation management and procurement solutions. When there is a customer-defined critical change to an order, such as a change in carrier, an update is sent that allows the user to respond with a point and click. “At every step the customer can define what they want to have happen and the system will be as automated or as manual as they want,” he says.

Another innovation will be to extend visibility information to PDAs and other wireless devices, which is what High Jump is doing. “You can have a warehouse manager sitting at his son’s softball game and checking on inventory availability,” says Heim.

“We believe that before too long, many companies will be providing this type of order visibility directly over their web site or through a customer portal, or even integrating information to a customer’s web site,” says McHugh’s Gilmore. “The bar on providing information will just keep rising.”

For more information, please see:
3rdwave Global Logistics
3rdwave Inventory Management
3rdwave Customer Relationship Management