Supply Chain Visibility Example #1: Upstream Visibility for Retailers

Visibility Example #1: Upstream Shipments

I’m posting here the first of an ongoing series of real-life examples of where supply chain visibility is used. In all of them, the goal is to describe them so that they can be understood without an advanced knowledge of supply chain management.

The Setup:

This example is probably the most common visibility application in the retail industry in North America and Europe. In setup it involves the following:

  • A Retailer who Imports Merchandise
  • Suppliers in Asia, probably P.R. of China
  • Product lifecycles that necessitate launch-and-retire activities

 

The Business Problem:

The retailer is preparing for a new product launch. This could be a seasonal launch (Valentine’s Day, for example), a new technology launch (Apple’s iPod 4G), a public event (movie premier featuring new Ray-Ban glasses), etc. The retailer has a number of business decisions that can be more impactful by greater knowledge of what is in transit and when it is expected to arrive.

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Understanding the Business Problem’s Impact:

The situation described above is clearly impactful in that a number of business operations are being managed in an environment of limited certainty and control, all in an effort to maximize the company’s performance. If this decision was repeated continuously, such as every four weeks with a monthly product release, the decisions above would have major financial impacts on the company. For a publicly listed company, we’d be able to see impacts on:

  • Return on Assets
  • Inventory Turn
  • Sell-through rates
  • Inventory restatement frequency, after closing months or quarters
  • Labor or staffing costs
  • Operations costs
  • Gross Margin

Typical Visibility Solutions:

One of the reasons I chose this example to start with is that it is so commonly solved through very basic, entry-level visibility initiatives. Most solutions will use a formula that looks something like:

  1. Capture the end-of-production Work in Progress (WIP) events
  2. Capture the contents of shipments leaving the supplier
  3. Match shipment events to the shipment contents
  4. Use the shipment content and transport events to create forecasted delivery dates for specific items, POs, locations, etc.
  5. Publish the forecasts to decision makers

The five steps above are broad-strokes of course, but they represent probably 95% of solutions to the business problem of upstream shipment visibility. Now let’s spend just a little more time on each step to explain what gets done.

1st: Capture the end-of-production Work in Progress (WIP) events

As the supplier nears the completion of their production, the retailer will expect some kind of signal to indicate the production status. This can be very low-tech, such as a telephone call or email. It can be consistent or only for special orders. It can be direct or via an agent.

2nd : Capture the contents of shipments

In reality, only the supplier knows what they pack into a container or air freight shipment. In some situations, they don’t even know it with high accuracy. Retailers facing this upstream visibility problem will ask suppliers for shipment contents. This can be an excel spreadsheet, an ASN, an EDI transmission, or even an emailed scan of the packing list.

3rd : Match shipment events to shipment contents

Transporters will not generally know what is in a sealed container, truck, or pallet. But they can be made to report events to the retailer at the level of the shipment. For example, they may inform the retailer that a pallet #1234 was delayed on its departure from an air freight hub. The retailer or visibility solution is usually responsible for connecting the event from the shipment-level back to product on the shipment. 3PLs also provide this detailed visibility as a service, using their visibility tools.

4th: Create or Update Product-Availability Forecasts

The retailer (or sometimes the 3PL) will take the information about shipment contents, and shipment milestones, along with other information, and produce product-level forecasts. This process can be very simple, or rather complex. For example, analysts may use historical data about transport timeliness and warehouse processing times to make their estimates. They may also plan for selected or random QA holds. On the simpler end of the spectrum of practices, the retailer may just take the expected delivery date and add an arbitrary number (say two days) as the estimate for availability. Weather, working hours, upcoming holidays, and other factors all can be used in this process.

5th:  Publish forecasts to decision makers

The last step, and often times the weakest, is the publishing of forecasts to decision makers. This can be done through scheduled publications (every Monday, for example), through on-demand publishing, or through alerts. Questions of timeliness, consistency, usability, and user trust are all given attention in this step. For companies with a weak visibility solution, the publishing is almost informal and prone to be poorly integrated with decision making. Organizations with mature visibility solutions will have fully integrated decision support from the forecasts, perhaps including monitoring of the decision outcome compared to the forecast inputs. As an example, a warehouse manager may be reviewed by her boss by comparing her receiving-dock labor overtime as compared to delivery forecast accuracy. If delivery forecast accuracy is high, the receiving labor overtime would be expected to be minimal.

Visibility Example #1 Summary:

As in most of my articles, I’ll wrap-up with some key points to be used immediately by supply chain leaders. From this example of visibility I’d suggest the following points:

  • This example discussed a very common business problem addressed by supply chain visibility: a retailer maximizing their performance by knowing about its inbound merchandise
  • It’s important to notice that no single department within the retailer is likely to absolutely require the visibility services to upstream shipments. In other words, for each department this is a “nice to have”.
  • Likewise, the benefits of having the visibility to upstream shipments is spread around the retailer’s organization, and no single department is likely to have enough benefit to justify the initiative alone.
  • Because of the dispersed benefits and dispersed need, this visibility problem requires top down leadership, or middle-out leadership with a strong project champion above. Bottom-up management or middle-out management without a champion will likely fail.

 

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