A Critical Strategy to Optimize Cost and Service

Supply Chain Visibility

A Critical Strategy to Optimize Cost and Service

May 2013

Bob Heaney

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May 2013

Supply Chain Visibility: A Critical Strategy to Optimize Cost and Service

Numerous Aberdeen studies have indicated the importance of supply chain visibility (see Related Research). In this survey of 149 companies with predominantly global supply chains, 63% of respondents indicated supply chain visibility (SCV) as a high priority for improvement, with an additional 28% indicating it was a medium priority. Increasing visibility is a critical strategy for enterprises aimed at reducing costs and improving operational performance in the context of their increasingly complex and multi-tiered global supply-demand networks. The importance is only amplified for those with global supply chains and partners (Figure 1).

Figure 1: Global Supply Chain Execution Challenge

Source: Aberdeen Group, January 2011

Supply chain execution and responsiveness require the tight synchronization of supply and demand, as well as the orchestration of the three flows of commerce — the movement of goods, information, and funds — across an

Analyst Insight

Aberdeen’s Insights provide the analyst perspective of the research as drawn from an aggregated view of the research surveys, interviews, and data analysis.

Supply Chain Visibility: A Critical Strategy to Optimize Cost and Service

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increasingly large number of logistic and trading partners spanning wide geographic areas. It requires supply chain visibility — defined as the awareness of, and control over, specific information related to product orders and physical shipments, including transport and logistics activities, and the statuses of events and milestones that occur prior to and in-transit.

Gaining visibility requires much more than basic track-and-trace functionality. It involves a control tower approach (see sidebar) and closing the loop between planning and execution and synchronization of end-to-end activities — from raw material to the delivery to the end customer. In the sections that follow we examine a series of 11 inbound and nine outbound activities across the end-to-end supply chain. This research reveals that the increase in the number of suppliers, customers, carriers, and transport and logistics modes and channels changes the importance of collaborative synchronization between all parties in the multi-tiered global supply chain.

Visibility is a prerequisite to supply chain agility and responsiveness. But before a company can reduce inventory or landed cost, it needs visibility into them. Only then can it apply tools to agilely adapt to the information it collects. This report will identify best practices and potential improvements in revenue and profit margins that can be derived from enhanced visibility.

Globalization and Complexity is Overtaking the Supply Chain

According to Aberdeen’s study of Chief Supply Chain Officers, the top business pressures facing the discrete segment are the impact of increasing supply chain complexity (i.e., longer lead times and lead-time variability, or increasing numbers of suppliers, partners, carriers, customers, countries, and logistics channels, as shown above in Figure 1), as well as rising supply chain management costs (e.g., total landed costs, fuel costs, labor costs).

So what are the key drivers for focusing on improving visibility in the context of the complex global transport and logistics network? Figure 2 shows that operational pressures of growing global operations and complexity (45%), and the need to improve speed and accuracy (43%) are top of mind. The increased complexity and multi-party nature of global supply chains has led to longer lead times, more pipeline inventory, and the need to control downstream and upstream logistics. This, in turn, has contributed to increased supply chain management costs (supply chain visibility event accuracy at 30% is the third highest priority). It is not surprising that in light of global economic turmoil, many companies have turned to their supply chain organizations in search of ways to cut costs, while enabling faster and more efficient responses to changing customer demands as well as the chance to become more responsive and agile.

Reducing costs by driving down excessive inventory, both staged and in- transit, and proactively responding to inbound and outbound events (see sidebar) have become critical for companies in today’s supply chain environment.

Challenges and Definitions

Growing Globally – 85% of companies report imports and 88% report export shipments

More Challenging and Complex – eCommerce and multi-channel or cross-channel demands are way up

√ 65% of companies bypass their own DCs and ship direct to store via others (suppliers, 3PLs)

√ 45% have direct-to-home delivery models

Control tower approach –defined as a set of integrated processes and technologies that support a seamless flow of product from source to end consumer, regardless of global complexity, or sales and logistics preferences of customers

Leaders in Top 20% of performing companies are:

√ 61% more likely than All Others to gain visibility into international outbound shipment status within hours

√ 57% more likely than All Others to gain visibility into international inbound shipment status within hours

Supply Chain Visibility: A Critical Strategy to Optimize Cost and Service

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Figure 2: Top Pressures to Improve Supply Chain Visibility

Source: Aberdeen Group, May 2013

Top Supply Chain Strategic Actions

Figure 3 shows a comparison of the top strategic actions that companies pursue to alleviate the pressures associated with globalization and supply chain cost or complexity. Top among these strategies relates to internal collaboration as companies struggle to synchronize and integrate data across various management systems and internal groups (44%).

All companies need internal collaboration to operate, but the level of external collaboration and its relevance grows with the degree of overseas sourcing. And, as was shown in Figure 1, consistent with the level of overseas sourcing, leading companies have both better visibility and focus on collaborating and integrating. Indeed, users who adhere to GS1 (see sidebar) standards are more than twice as likely as the others to monitor transport and logistics activities at the unit and container levels.

It is not surprising to see that when it comes to strategic actions the leading companies (those in the top 20% of performance) desire higher levels of control and coordination with the external parties they depend on. For example, they are 1.85-times more likely “to consolidate or redesign sourcing geographies across multi-tier points,” and they are 1.62-times more likely to outsource, optimize, and manage logistics services.

13%15%26%30%43%45%0%10%20%30%40%50%Need to optimize the numbers of trading partners,suppliers, carriers, logistics service providers (LSPs)The need to reduce, proactively allocate, or manageinventory held at various stages in the supply chainThe business mandate to reduce supply chain executioncostsIncreased stakeholder and customer demand foraccuracy and timeliness of inbound / outbound shipmenteventsNeed to improve supply chain operational speed and / oraccuracyGrowing global operations / complexity (e.g. longer leadtimes and lead-time variability, or need to gain visibility)Percent of Respondents, n = 149

Emerging Multi-channel Logistics Formats

√ 65% shipping direct-to-consumer

√ 60% shipping to or through a traditional DC

√ 45% shipping through 3PL or e-fulfillment provider

√ 45% shipping through a break-bulk facility (i.e., cross dock, DC flowthrough facility to either store or end customer)

√ 44% shipping direct-to-store

√ 35% shipping through a free port, freeport zone, or transition point for customs

About GS1

GS1 is a neutral, not-for-profit, international organization that develops global standards and solutions to improve the efficiency and visibility of supply chains across industries. It engages a global community of trading partners, industry organizations and technology providers to understand their business needs and develops global standards in response to those needs. GS1 is driven by close to two million user companies, which execute more than six billion transactions daily in 150 countries using GS1 standards. GS1 has local Member Organizations in over 110 countries. More information at www.gs1.org.

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Figure 3: Top Strategic Actions — Collaboration, Visibility

Source: Aberdeen Group, May 2013

Visibility within the enterprise

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