15. The Visual and Visible Supply Chain

The visual supply chain and the visible supply chain mean different things in the world of logistics. It is important to note that the difference between the visible and the visual supply chain is often overlooked or not understood. The visible supply chain shows the network and allows the user to see the movement of traffic and bottlenecks. This visible display of assets on the move is important to the business planners. There is no simulation in the visible supply chain. The simulation is performed in the visual supply chain methodology.

The hub-and-spoke arrangement is one in which the warehouse delivers to an outlying center that is not as large as the central warehouse. The spoke acts as a relief warehouse when the transportation distances are large. This is an excellent way to extend the reach of the product delivery. The hub and spoke can also be used as a temporary bridge until expansion with another central warehouse in the area is possible. The hub can also act as a consolidation point for deliveries before they are delivered to the customer. The consolidation point could also receive merchandise from peddle runs from other main centers.

The regular Tier1, Tier2, and Tier3 warehouse allows the merchandise to be picked up at several centers. This is the network arrangement from the supplier’s standpoint. Tier1 would represent the supplier-only exports. Tier2 implies that the supplier ships to a wholesaler who then delivers the goods. Tier3 represents the supplier having a distribution center network and also supplying the retailer. The advantages of the systems are obvious and the complexity of the system increases at each upgrade in the tiers.

Another network arrangement is the dead run, in which the merchandise is just delivered straight from the supplier to the retailer. This implies that the truck will come back empty. This is mileage for the supplier.

In the back-haul, the merchandise is delivered by a common carrier or the supplier’s truck. It helps resolve the delivery back to the supplier with empty miles as in the preceding text. The system is more complicated than the dead run and it will increase lead times. The lead-time increase can range from a half-day to two days. The reason the lead time increases is due to the extra stops on the way back and also the additional lead time in receiving. Many times, the receiving personnel are reluctant to put away this merchandise first as compared to a common carrier load, which will charge demurrage if it is not unloaded at a specific time. The decrease in cost has to be weighed against the increase in safety stocks.

A consolidation-points network is one in which merchandise is consolidated for full freight charges, as compared to LTL freight rates. The system definitely offers transportation savings. The downside is the extra lead time and extra personnel needed to consolidate each supplier’s merchandise before delivery.

The next network is the peddle run. It is usually used when the retailer wants to pick up the merchandise on their own truck close to its distribution point. It will follow a designated path before coming back to its home distribution center. The saving can be gained only with access capacity and when freight rates are less than those of the suppliers or common carriers.

Finally, there is dynamic routing, in which the retailer usually controls the delivery and it is picked up at predestined times from each supplier in a route that saves transportation dollars. The list is not exhaustive but includes some of the common network configurations.

To make the network analysis possible, the analytics must be input into the system. The system uses electronic information received through the Internet from its trading partners and suppliers in the visual supply chain. The data can also be read in the form of a dashboard. The system uses real demand data from the demand management system. The demand management system could be giving information on the current supply chain equilibrium or information from a trading partner. The inputs to the demand solutions program are used to balance the supply with the demand. A list of the inputs is as follows:

• Forecast method and smoothing—This includes the forecast model in use. It can be a moving average, a trend, a regression, or an exponential smoothing model.

• Seasonality method and smoothing—This includes the use of base indexing with three or more years of demand.

• The review of the statistical models—This can represent the class of fixed- and variable-period models introduced earlier. It may also represent a change in the forecasting model used in the past.

• OQ Order Quantity calculations and safety stock—This will be used, as introduced in the service-level option, in the demand forecasting. The example is OQ = D * LT + k * MAD * .76. This model includes all the safety stock and lead-time calculations with the required service level. This model will show the result of different simulations on inventory levels with changes in lead times or safety stock.

• Review of expediting opportunities—This should determine whether it’s time to expedite or prolong the shipment. In modeling the event, the forecast program should show what ramifications to the network will result in changes to the ship dates. The ramifications are measured in total overall cost (TOC). Each change is associated with a change in TOC. The system gives you a chance to see all the network scenarios that will minimize the TOC.

• Review of any network changes and schedule changes—The network changes will result in road closings or different route configurations. The schedule changes will result from priority changes in the need of the merchandise at the designated times.

The supply chain network is a visual modeler which allows users to drag and drop changes to their network design. These changes can be used to see what strains are caused on the inbound or outbound network as changes to the system are made. Will deliveries be held up by the changes? Will customers miss their deadlines? What effect on the overall service level will these changes make to the system? Finally, the system highlights the new inventory scenario of the changed network relationship. Extra stock may need to be added to the inventory because of the network changes, which adds extra lead times to the system.

An entire supply chain can be designed and mapped against the Google Map service. Visually, the movement of goods and services is viewed at the actual street level or on geographical maps. The supply chain can be created by importing the shipment file and demand files from the system. The following issues can be resolved using the visual system:

• Inventory—What would a change in inventory policy do to the network as far as frequency of deliveries? Will it require more or less personnel? Would the added benefit subsidize the increase in cost?

• Sourcing—Which vendors or suppliers are the best choice to use? What are their locations and how does this influence the transportation costs? Is it best to follow the proverbial Keiretsu network of keeping the supplier as close to the facility as possible?

• Transportation policies—This issue can be included when seeking solutions to the future locations of warehousing and/or new hub-and-spoke opportunities. The choices will affect the network to the distributors and to the customers in an exponential fashion. It is also possible to measure what the effect of dynamic routing would be on the transportation policy.

The supply chain becomes event-driven in the visual supply chain model because it will be motivated by Business Intelligence. The system notifies the user when there are problems with late shipments or adverse demand. It will even recommend solutions, if needed, using the analytics from the business intelligence module. The interesting part of this concept is that the manager will need to work on only the exceptions, freeing a great amount of his time to work on creative projects. The output of the system will also include score carding and evaluation of supplier performance. The performance will be measured in metrics and key performance indicators, tracking performance from last month or last year, as well as by industry.

The difference between visual and visible is because the terms are used almost interactively. An example of this is the use of Sterling Commerce visible supply chain software. The software measures critical bottlenecks and supplier performance along the way. It makes it easy to monitor and measure inbound supply activities. The system will include a dashboard of the integrated supply and demand. At any moment, purchase orders, shipment, and inventory information is available upon request. As supply disruptions occur, the system is alerted; it notifies the user through integrated business intelligence and offers intelligent alternatives.

The use of the business intelligence actually makes the system visual in some respects. When purchase orders on shipments are sent to the customer, several decisions should be made. Is it best to expedite the shipment, transfer from another warehouse, use a substitute item, or increase the purchase system’s ordering? The system also automates supplier performance for score carding and evaluation. Score carding is accomplished with predetermined KPIs. The suppliers can also share the information with their customers, as well as retailers with their suppliers.

The shared information can show on-time delivery, damaged goods, and order fulfillment measurements. This allows for complete integration, flexibility, and configurability, with lower inventories and higher customer satisfaction. The visible supply chain is what makes the rest of the technologies introduced in the book more meaningful and easier to use.