Our industry supply chain challenge is often described as the irreconcilable differences between a very erratic demand pattern and a very rigid supply side. Customers want product in days even though their forecasts aren't always accurate. They are also willing to accept orders that can be difficult to fulfill.
On the other side, component manufacturers, although racing for more performance per silicon square meters, have not found a way to reduce manufacturing cycles averaging in the 16-weeks range. In this environment, distributors have developed their value proposition, keeping close to customers to better understand their demand on one side and building inventory to absorb the ups and downs on the other.
In this multi-tier supply chain, the “bullwhip” effect associated with demand fluctuation can be quite significant, creating shortages, unused manufacturing capacity, or excess inventory at different stages of the chain. It amplifies a company's exposure to supply risk and diminishes its ability to react appropriately.
Information visibility is one key amplification factor of the bullwhip effect. If we could remove all delay in information sharing and operate in real-time, every actor in the supply chain could then instantly take crucial decisions, capture business opportunities, and mitigate demand changes on the spot. Improving visibility is no longer an option; it's the foundation of any supply chain maturity model. Companies have realized years ago the importance of information sharing and developed B2B connectivity standards such as EDIFACT or ANSI X12, and many have developed collaborative tools to share inventory, production plans, order books, or lead times. The limits of those initiatives are related to the point-to-point character of those connections.
Over recent years the development of complex, multi-tier, multi-regional supply chains has encouraged the development of end-to-end solutions, allowing all supply chain actors to share information such as inventory, forecast, and POS reports and generate exception reports or alerts with relevant partners. Those solutions are called Control Towers and can be defined as “a solution having a centralized view with the ability to drill down to the root cause of a problem and resolve it from that view,” according to a report by the Aberdeen Group. It's also interesting to point out that those solutions are protocol independent and can integrate any communication format used by the various supply chain actors.
Enhancing visibility and developing collaborative processes allow companies to resolve supplier issues faster, assist in capturing growth opportunities, and provide information to efficiently monitor and mitigate supply chain risks in real-time. This collaboration has huge potential for “mitigating the bullwhip effect, providing inventory stability, limiting lumpy orders and enhancing customer service level,” according to the International Journal of Production Research in a report titled “On the Bullwhip Avoidance Phase: supply chain collaboration and order smoothing.”
The more global and complex the supply chain is, the more crucial it is to have visibility enablers, and the more substantial the associated benefits can be.
The questions in my mind are the following: Are your supply chains culturally mature enough to see this bigger picture? And would you happily collaborate and share crucial supply chain information upstream and downstream to supply chain partners for the benefit of the supply chain as a whole?
These issues will be discussed in a Webinar hosted by EBN/Avnet Velocity on Tuesday, Oct. 16, at 11:00 a.m. ET (8:00 a.m. PT): “Enabling Supply Chain Course Corrections Through Control Tower Capability .” It will feature presentations by Douglas Kent, Global VP, Avnet Velocity; and Rich Becks, General Manager, High Technology, at E2open. Click HERE to register.