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Order Out o Chaos: The Case or Building a Frontline Supply Chain Control Towere2open.com

The competitive dynamics o globalization have led most companies to rely

increasingly on outsourcing to a web o loosely connected manuacturing and

distribution partners to better satisy the ever-increasing demands o theirglobal customer base. The extended nature o these trading partner networks

requires a more agile, exible control structure—a Supply Chain Control

Tower—to provide a centralized view o rontline supply chain operations while

enabling aster response to requent change.

ORDER OUT OF CHAOS: THE CASE FORBUILDING A FRONTLINE SUPPLY CHAINCONTROL TOWER

White Paper




Background

More than a decade ater its emergence as a critical corporate unction, Supply

Chain Management (SCM) has not, or the most part, signicantly advanced—at

least when compared to the orward charge o globalization. Businesses all over

the world have invested heavily in ERP, planning, and execution systems, butonly a ew can credibly claim positive return on investment (ROI). The problem

is that these systems were built to manage discrete scopes o activity, in rela-

tively static environments, only addressing change on a periodic basis.

Today’s business environment consists o volatile demand, constantly changing

product mixes with relatively short lives, and ever-changing supply partnerships

attempting to serve them. Frontline management and decision making in this

environment is challenging and pressure-lled.

Frontline management can be described as “daily S&OP”—planning between

the plans—characterized by requent, complex challenges requiring urgent

response. And the stakes continue to increase, as the value o customer ex-

pectations, supplier responses, inventory, and shipping costs weigh heavily on

decisions and timing. To compete eectively in this environment, supply chain

proessionals have to address both common (e.g., missed shipment) and crisis

(e.g., tsunami, re) situations.

I need a decision—fast!

Frontline proessionals struggle to make decisions—both simple and complex—

quickly and condently:

• Can I accept a “hot order” rom a key customer and let them know right away?

• How is end demand impacted by a sudden supplier component shortage?

• What orders should I prioritize to minimize late shipment impacts?

• Can I ulll orders earlier to meet my end o quarter numbers?

• How should I respond to the widespread disruptions generated by a natural

disaster?

With complex, global ulllment networks ar ung and lled with communication

gaps, how can rontline proessionals better manage continuous change?

Three Factors Drive the Urgent Need or Change

1. The game has changed—but technology hasn’t kept up.

The progressive dismantling o vertical integration and linear supply chains

(in avor o outsourced manuacturing and ulllment) has let brand

owners struggling to manage supply and demand with sotware tools that

“A big part o the problem

is that many o the systems

have been architected to

ocus on improving internal

processes and operations,

while much o the businessstrategy has shited to a

network-based orientation.”

— Dennis Gaughan,

Gartner Research,

June 2010




were designed or actory-centric supply chains. Instead o ERP and plan-

ning systems that ocus on actory asset-utilization, brand owners now need

centralized, cross-network visibility, recognition, and responsiveness to

assure lean product velocity. These capabilities require many-to-many rela-

tionship synchronization across a network o partners and heterogeneous

systems. Brand owners need a dierent solution to tackle this new class o

challenges.

2. Data sharing is no longer taboo.

Lack o trust and reluctance to share demand data have long been the

hallmarks o many supply chain relationships. As a result, many suppli-

ers second guess their customer orders and pass along distorted views o

demand to their own suppliers—who, in turn, treat the inormation with

equal suspicion. The end result o this dynamic is commonly known as

the “Bullwhip Eect.” But in an age that values time above all other com-

modities, companies are quickly recognizing the need to restructure theirrelationships with external partners in avor o more open, collaborative

operations. The most protable and innovative supply chains in the world

share this critical ability to collaborate and exchange data (e.g., exceptions

and orecast changes) in near real time.

3. Frontline decisions must be made quickly and condently.

In this environment o complex demand ulllment networks, sensing

change and being responsive is straight-jacketed by inormation ragmen-

tation and latency. With an increasing number o partners, systems, and

spreadsheets, or example, it has become exceedingly dicult to gather,

consolidate, and rationalize data quickly and reliably. Supply chain proes-sionals are thereore orced to make decisions based on partial inormation

or to wait until complete inormation is received. Both approaches result in

sub-optimal decisions that are oten too late to aect positive change. This

ailure lowers customer service levels, strains supply partner relationships,

increases costs or the entire network, and damages both brand reputation

and nancial results—sometimes irreparably.

In the absence o eective technology, even leading companies bridge the in-

tercompany inormation and process gaps with band-aid workarounds, relying

on “management by spreadsheet” and ofine communications via phone, ax,

and email. In an attempt to prepare or unoreseen shits in demand, they alsobuild up high levels o buer inventory at all major nodes in the network. The

impact: precious working capital is tied up in excess inventory, expediting costs

skyrocket, and protability suers as a result o high inventory obsolescence.

These and other dynamics have positioned the supply chain eld or a new

stage in its evolution—a stage in which multi-tier network coordination is a




oundational, not aspirational, element o how leading companies approach

their trading network planning and execution.

The Need or an End-to-End Visibility Solution

Cross-network visibility is one o the key requirements or protable demand

ulllment in today’s highly volatile, complex, and outsourced marketplace.

With suppliers, contract manuacturing service providers, third-party logistics

providers (3PLs), and customers spanning the globe, the lack o timely, accu-

rate inormation can result in high levels o supply chain risk, strained supplier

relations, poor planning, excess and obsolete inventories, and missed revenue

opportunities. It is thereore critical to enable near real-time visibility and col-

laboration across major operations and transactions, including orecasts, orders,

shipments, receipts, inventory inormation, and stock-in-channel and point-o-

sale (POS) data. Without this visibility, it is nearly impossible to make intelligent,

timely decisions to correct supply chain disruptions or to meet uctuating

customer demand.

Furthermore, obstacles to collaboration hinder the establishment o truly stra-

tegic partnerships, which require working across both nancial and operational

boundaries. All too oten, brand owners make decisions to advance their own

nancial advantage at the expense o their partners. In order to develop trust-

ing, symbiotic relationships, it is imperative to enable near real-time inorma-

tion exchange and collaboration across all tiers—and to share value among all

parties involved in the extended supply network.

Another key enabler o multi-tier supply network coordination is solid B2B con-nectivity and seamless supply chain process management—both o which help

to create a solid oundation or sophisticated business intelligence. This busi-

ness intelligence “oundation” enables event recognition during supply chain

disruptions and acilitates more eective risk mitigation. Supply chain business

intelligence also provides an advantage by integrating data across the entire

value chain to provide unique insights about demand patterns, operations, and

customer service requirements. The lack o eective business intelligence tools

hinders a company’s ability to monitor operations and trading partner peror-

mance—oten leading to poor operational eciency and lost revenue.

Using a Supply Chain Control Tower to Gain Visibility and

Control the Chaos

A Supply Chain Control Tower can provide the extended supply chain with a

more exible and agile control structure—one that oers a centralized view

o planning and execution systems and a consolidated platorm or enabling

rapid recognition and aster response to change. A Control Tower turns raw data




eeds into “right-time” inormation in a central location that monitors the ow o

orders, inventory, and consumption across the network. Much like the control

towers used by regional utility companies, telecommunication carriers, or even

NASA space centers, a Supply Chain Control Tower monitors system status and

highlights business rule exceptions in real time. Frontline supply chain proes-

sionals are able to leverage the Control Tower unctionalities to collaborate with

partners online or aster, more intelligent decision making.

The complexity o global supply chain integration.

The Control Tower continuously projects uture demand and required inventory

levels based on the latest macro and micro customer demands, planned pro-

duction, in-transit and hub inventory, as well as near real-time customer con-

sumption. However, inormation without action has little value, and beyond its

critical role as an aggregator o supply chain execution data, the Control Tower

should also drive rontline decision making in response to exceptions. Given

the ragmented nature o today’s supply chains, it is imperative that the Control

Tower has a dedicated team o cross-unctional proessionals that is willing to

work closely with strategic trading partners to ensure data accuracy and acili-

tate goal alignment.

Control Tower Maturity

AMR Research, a leading industry research rm, developed a maturity model

that demonstrates the margin and market share improvements that come

with an increasingly sophisticated ability to balance supply and demand. At

each stage o the model, companies can benet rom improving their business

processes and supporting inormation technologies. The ability to implement




a Control Tower maps to the highest stage o the model—“Orchestrating”—in

which brand owners work with their trading partners to balance supply and

demand in near real time. However, companies at lower levels o maturity can

also benet rom taking the steps that build toward a Control Tower model.

AMR Research supply chain maturity model.

Conclusion

Today’s brand owners and global manuacturers get their products to market

through the orchestration o a complex network o trading partners, including

suppliers, outsourced manuacturers, logistics providers, and distributors. They

rely on thousands o businesses across the globe to work together to deliver the

right products to the right customers at the right times. For this reason, supply

chains today are perhaps better described as ”business networks,” sprawling

across dierent geographies and tiers o trading partners. For brand owners to

most protably manage the delivery o their products to market, they require a

Supply Chain Control Tower to provide visibility and control over their multi-tier

business network.

E2open’s role is to integrate these complex trading partner networks to enable

easy data exchange and business process orchestration across the extended

value chain. Using E2open, manuacturers are able to quickly detect unex-

pected changes in supply or demand and leverage this inormation to make

inormed, timely decisions or improved protability and market share. This is

how leading-edge brand owners like Cisco, Dell, IBM, and Vodaone keep supply

aligned with demand and maintain control over costs, product quality, and

service levels—even with so much o the manuacturing process outsourced.




Addendum: Design and Implementation

Design Principles o a Supply Chain Control Tower

The ollowing design principles outline the unctional criteria or developing asuccessul Supply Chain Control Tower.

• Partner connectivity is critical.

The key challenge o a ragmented supply chain is the many-to-many syn-

chronization o the inormation ows that are needed to source, make, and

deliver a product—as well as handle all the planning and execution excep-

tions that need prompt response. A solid integration backbone that accom-

modates various inormation systems and data ormats—including man-

agement by spreadsheet—is a oundational element o the Control Tower.

• Establish meaningul key perormance indicators (KPIs).

Dening and building a perormance measurement platorm will dene

the underlying logic to the Control Tower mission. The tracked KPIs must

be meaningul and their number manageable. Furthermore, a good rule o

thumb when dening/selecting a KPI is to measure only what you can inu-

ence.

• Dene a clear governance model.

Ensure that the cross-unctional team that orms the ull-time sta o the

Control Tower has the authority and underlying processes to act on excep-

tions. Periodic assessments o the group perormance will help ne tune the

working model (with regard to exception thresholds, or example).

• Don’t underestimate the importance o change management.

Ensuring cross-unctional alignment and partner adoption will be critical to

the success o a Supply Chain Control Tower. Working across organizational

boundaries by ensuring ull-time unctional representation and tight inte-

gration with key trading partners (e.g., suppliers, contract manuacturers,

3PLs, etc.) cannot be underestimated.

• It’s not planning. It’s execution!

The primary mission o a Control Tower is superior execution o supply

chain plans and management o change in between plans. The modus

operandi is “sense and respond,” which requires constant monitoring o system health indicators and exceptions (e.g., a delayed shipment or non-

adherence to schedule) and prompt intervention to resolve or mitigate the

impact o the exceptions.

• Dene an exception-handling model.

The exception management ramework—which outlines the metrics to

be tracked based on business needs, the tolerances that trigger alerts, and




the work ows that implement corrective actions—needs to be properly

dened and built. Furthermore, a continuous improvement mind set

is needed to ensure that this exception-handling model is constantly

assessed and improved.

The central role o a Supply Chain Control Tower.

Implementation Approach

The implementation approach should be based on the specic business re-

quirements or the Control Tower. It is thereore important to make sure those

requirements are derived rom the business objectives or visibility and control.

Successul implementations rely on a process that takes the objectives and

matches them to the strategies and practices to be deployed—taking into con-

sideration the current capabilities—and then builds upon them to deliver the

Control Tower. The design should include key perormance indicators or the

measurement o success, with targets set as part o the roll out.

The most successul implementation approach to date has been to break the

delivery into a series o iterative “business releases” that meet specic businessrequirements, with each release orming a building block (e.g., unctionality,

data, business and system processes, policies, perormance measurements,

new customer and trading partner B2B connections) o the Control Tower.




High-level overview o the implementation methodology.

At the end o each major program phase, a Phase Gate Exit meeting should be

held with appropriate stakeholders to review the status and major deliverables

o the project. The sign o on a particular Phase Gate indicates that all deliver-

ables in the current phase have been completed to the stakeholders’ satisac-

tion, all critical issues have been identied and reviewed, and the project is

ready to progress to the next phase.

Change management and adoption, within both the lead company and its

trading partners, are critical to the success o the Control Tower. This starts with

clear executive sponsorship o the initiative. The executive sponsor is respon-

sible or ensuring that the implementation and operation o the Control Tower

is aorded adequate sta and that success can be measured. This includes

holding the teams accountable or measurable targets on the specic KPIs that

will be used to drive perormance improvement and measure the success o the

Control Tower. Typically some o these KPIs are directly related to the business

case, requiring participation rom the nance organization to “audit” the busi-

ness benets.

In the most successul Supply Chain Control Tower implementations, the

metrics cascade down to individual perormance metrics and incentive com-

pensation plans or Control Tower and trading partner users to ensure align-

ment with the KPIs—including bonuses or successul business releases and

trading partner onboarding and solution adoption.

A continuous improvement process should also be put in place, whereby ex-

ceptions and business trends are analyzed ater each business release and root

causes o any problems are addressed.




About E2openE2open is a leading provider o cloud-based supply chain management solutions. The company

provides sotware and services that enable visibility, collaboration, and control across large trading

partner networks. Brand owners and global manuacturers with complex supply chains use the

company’s B2B integration services and supply chain business process management solutions to

maintain optimal alignment o supply and demand or lower costs and better service. By enabling

complete transparency and perormance management across the extended network, E2open

also ensures that trading partners comply with both quality and environmental regulations.

E2open customers include Cisco, Dell, Hitachi, IBM, LSI Corporation, Motorola, Panasonic,

Research In Motion, Seagate Technology, and Vodaone. Headquartered in Foster City, Caliornia

with operations worldwide, E2open is recognized by Gartner Research as a leader among SaaS

integration service providers.

E2open Americas

Foster City, Caliornia (HQ)

Dallas, Texas

Austin, Texas

E2open Europe

Reading, England

Düsseldor, Germany

E2open Asia-Pacic

Kuala Lumpur, Malaysia

Taipei City, Taiwan

Oces

© 2011 E2open, Inc. E2open and the E2open logo are registered

trademarks o E2open, Inc. All other marks are trademarks,

service marks, or registered trademarks o their respective

owners. All rights reserved.

Published:

Finally, executive sponsors need to incentivize their sta to embrace the

changes driven by the Supply Chain Control Tower. A critical starting point is to

ensure that all participants view the Control Tower as the main execution plat-

orm and “single version o the truth” or all supply chain-related exceptions.

wp e2open supply chain control tower

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