The process of managing supply chains and other logistical elements of a business system has been a real source of value creation over the past quarter century. One of the most important factors behind this was the invention of the practical cargo container to replace break bulk stevedoring as well as its use in intermodal transportation systems. These changes completely transformed the transportation of goods, substantially cut their total delivery costs and facilitated the rapid expansion of global trade. The other key development has been the use of information technology to manage inventories as well as inbound and outbound supply chains more efficiently and more effectively. Automating inventory optimization was one of the first applications of business computing and has been the foundation of today’s ERP systems. Today, information technology and communications systems can give companies the ability to track their supply chains in near real time, plan all aspects their logistics, understand how to balance trade-offs to optimize decisions, respond rapidly to changing conditions, optimize sourcing and spend and rapidly assess performance. Supply chain analytics are at the heart of these capabilities.
“Manufacturing resource planning” (MRP) software was the outgrowth of the business objective of achieving greater efficiency in managing inventories. Paper-based systems were computerized by the mid-1970s by Oliver Wight and others to control inventory levels, automate bill of material processing and perform basic shop floor scheduling as well as managing purchasing and delivering activities. Since the 1980s, these systems have enabled companies in the United States to collectively increase their inventory turnover by ten percent – an amount that may seem insignificant but which translates into billions of dollars of savings every year.
Supply chain analytics include such activities as capacity- production- transportation- and demand planning, inventory management and operations scheduling. They are an important piece of IT’s contribution to reducing the costs (that is, improving efficiency) and improving the business value (enhancing effectiveness) of supply chain management. Effectiveness means being able to, for example, provide customers with consistently higher order fill rates, ensuring that production or inventory decisions favor the most valuable customers or providing customers with alerts as soon as any schedule changes occur. Analytics enable companies to develop and refine the critical metrics that represent the key drivers in their business and then use these to monitor their performance.
Analytics promote visibility and insight. “Visibility” is the ability to access relevant information quickly and in context. In this case visibility means being aware of the location and status of physical components in the inbound and outbound supply chain, from raw materials to finished goods, as they move from suppliers through the stages of production to delivery to customers. “Insight” occurs when executives and managers gain a deeper understanding of the underlying causes of a situation or the likely outcome of a course of action under consideration. It is particularly valuable in a world of data clutter because it can be difficult to discern meaning and the implications of decisions in today’s complex business environment.
Supply chain analytics complement those for products and services as well as sales.
Your company may have made substantial improvements to your supply chain management processes over the past decade, but it’s impossible to rest on your laurels. You need to be sure that your use of analytics is state of the art. If your supply chain performance is pretty much where it was five or ten years ago, you are probably lagging your competition, so better use of analytics will be key to greater performance. In either case, I encourage you to participate in our latest benchmark research on supply chain analytics. What you learn from the results can help you understand what’s possible and with that drive improvement in your organization.
Take the Supply Chain Analytics Benchmark Survey here.
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Robert D. Kugel CFA