While Business Intelligence (BI) has delivered powerful results for many companies over the past decade, the majority of applications focused on marketing, sales, and customer and financial analysis rather than operations and supply chain activities.
However, the tide is turning and there is a growing trend to leverage business intelligence for supply chain management.
Supply chain managers are now utilising BI capabilities such as analytics, reporting and dashboards to monitor supply chain performance, as well as to gain new insights into all aspects of their businesses.
BI is allowing them to drive performance improvement in individual functions, in business processes that span multiple functions, and in the “extended supply chain” through collaboration with customers, vendors and other trading partners.
And these BI tools are delivering significant benefits in terms of cost reduction, customer service improvements and lower inventory levels.
Moving from Transaction Efficiency to Insight Over the past two decades, many companies have invested significant dollars to enhance their information systems.
A centerpiece of this investment has been in Enterprise Resource Planning capabilities, or ERP systems, to manage their customer orders, billing, accounting & financials, inventory, procurement and human resource management transactions.
Many companies have also added Customer Relationship Management (CRM) systems, Transportation Management Systems (TMS), Warehouse Management Systems (WMS), Manufacturing Execution Systems (MES) and other transaction systems to better manage different aspects of their businesses.
Generally these systems have provided good value, adding efficiency, more timely information and control (compliance) to their operations.
However, most users of these transaction systems yearned for deeper and better analytics and reporting.
Users could not easily customise reports. In addition, they found it very difficult to extract data and conduct deeper, more insightful analysis, especially if it required tapping data from more than one module of their ERP system or data from multiple transaction systems.
They also lacked the ability to quickly and easily combine customer, operating and financial data to gain new insights into their businesses.
This need for better analytics and reporting has been amplified over the past decade as more managers become analytically oriented and data driven.
Business Intelligence emerged to fill this gap, providing a broad set of tools from reporting, dashboards, data mining, performance management, key metrics, performance indicators, and other analytics to help managers better understand and monitor their businesses.
And these tools are increasingly being used to better manage operations and supply chain management activities.
BI for Supply Chain Collaboration
The management of the extended supply chain is receiving increasing attention from supply chain professionals.
Access by all players in the extended supply chain to the same information on demand forecasts, orders, order status, shipments, promotions and inventories is a fundamental requirement for successful collaboration and operational coordination.
And the visibility, coordination and integration of both customers’ and vendors’ supply chain activities can create significant value for all players in the extended supply chain.
Effective execution of the extended supply chain can lower costs, improve customer service performance and enhance asset productivity.
As illustrated in the examples below, companies have used BI to develop and share vendor scorecards, and customer service metrics such as The Perfect Order, and have provided customers, vendors and third party logistics service providers with visibility into the status of orders, inventory, returns, delivery performance and other key operational parameters.
The Vendor Scorecard is a very effective tool to both monitor and manage suppliers.
Typically a company will define five to nine metrics that it considers to be key requirements to measure its suppliers as well as its own financial performance.
These can include metrics such as:
- Percentage of orders received on time.
- Item fill rate (the percentage of items received versus ordered).
- A quality metric such as the percentage of items damaged or out of compliance with specifications.
- Order fulfillment lead time versus standard lead time.
- The days of supply of inventory for a supplier.
- Carrier compliance or a measure of transportation charges versus standard costs.
- Invoice accuracy versus target.
- Sales of supplier products versus sales plan.
Companies can also weigh these metrics and then compute a weighted-average ranking for a supplier based on its performance on each of these criteria.
This tool helps a company identify which suppliers require attention—such as a supplier that falls in the bottom 50 per cent on one of the particular metrics noted above, or overall in the weighted average ranking.
Additionally, when a supplier is told it ranks poorly, e.g., 290th out of a customer’s 300 largest vendors and that it is dead last on two of the metrics, there is a clear and compelling message for the supplier to improve.
Improvement on the above metrics can have a significant impact on a company’s financial performance.
Shortening the lead time by a day can reduce cycle stock by over five percent for a company carrying approximately two weeks of inventory.
Staying within planned lead times or improving fill rate can reduce cycle stock and safety stock by a significant amount and result in substantially less inventory, as well as lower administrative costs since rush shipments are reduced.
High item-fill rates and on-time orders can reduce stock-outs and thereby increase sales, or avoid production disruptions in the case of raw material or component supplies.
Reducing damages and invoice errors have a meaningful impact on handling and administrative costs.
Collectively, I have seen companies add a full percentage point or more of margin to their bottom line through improvements in these metrics.
Conceptually, this scorecard is easy to envision.
The challenge that most companies face is having the resources and time required to assemble the above information and operationalise the vendor scorecard.
Most companies go through a very cumbersome and labor-intensive process to collect this information; therefore, most companies only assemble this information on a periodic basis, often just annually when they have a negotiation or major performance review with a supplier.
Very few companies are able to reliably create these scorecards on a weekly, monthly or quarterly basis, or actively use them to manage their supplier base and achieve margin improvements and other benefits.
For example, among food retailers, only a handful of companies proactively use this vendor scorecard to manage their suppliers—most notably Wal-Mart, Publix and Wegmans, who happen to be among the best-performing food retailers!
The encouraging news is that the wider use of business intelligence tools for operations and supply chain management—particularly a new breed of rapid deployment solutions that have evolved in recent years—makes it much easier and much more efficient to deploy these types of solutions.
Other opportunities for collaboration across the supply chain include customer service metrics such as the perfect order.
The perfect order received wide acclaim when it was created over two decades ago as a single metric for measuring multiple dimensions of customer service performance.
I am proud to have been one of the initiators of this tool.
There are many versions of it, but it generally measures the percentage of orders that meet multiple criteria such as orders shipped complete and delivered on time, with no damages and with fully accurate delivery and invoicing documents.
When this was first applied by food retailers, less than 10 per cent of orders met the above criteria for a perfect order.
Moreover, it was very difficult for any company to use this metric because the data was so difficult to collect.
Only a few companies annually or semi-annually conducted the arduous and cumbersome manual audits to generate this metric, so it was rarely used.
With the advent of rapid deployment BI, we are seeing more companies able to efficiently and effectively now use this powerful metric.
Similarly, BI solutions are now being used in other extended supply chain applications such as the sharing of operational metrics across the supply chain.
This has included a view of the full channel inventory; the status of orders and/or deliveries; a view of cycle times for cross-company processes such as order to receipt; capturing the reasons for a stock out; preempting a stock out by monitoring inventory and order status, and suggesting actions in exception reports; the analysis of the total cost to serve; and analyses of product, customer or channel profitability.
BI solutions are often most insightful and valuable when data needs to be assembled from multiple source information systems—either from distinct transaction systems within a company (such as orders, sales and selected cost items from an ERP system), combined with budgets or plans kept in an Excel spreadsheet, along with customer information from a CRM system, and/or other information from the source information systems for customers and partners across the channel.
BI solutions particularly add value for cross channel applications.
In summary, business intelligence is an ideal tool for supply chain analysis because, by definition, supply chain management involves integration across cross-functional processes or across processes that span the channel.
Because of the significant impact these activities have on a company’s cost, customer service and asset productivity performance, we will be seeing more and more companies turn to BI to provide a level of diagnosis and insight that has been unavailable in the past.
This will also enable them to measure and monitor operational status, and ensure collaboration of cross-functional processes and activities that span the extended supply chain.
Forward-thinking companies that use business intelligence to engage their customers and suppliers across the extended supply chain will gain substantial competitive advantage.
William (Bill) Copacino is the president and CEO of Oco, Inc. Bill can be reached at email@example.com.