A recent article by KPI dashboard provider Klipfolio called out the top ten warehouse inventory metrics its customers were monitoring. Watching these metrics could be a big help to anyone looking to keep the fruit from spoiling:  

1. Inventory turnover: As one of the most important inventory metrics for any organization to measure, it examines how often you are able to turn over inventory each year by calculating the cost of inventory sold and dividing the balance left over at the end of the year.

2. Inventory accuracy: This metric measures how accurate your accounting is compared to in-stock inventory. The result can be telling, revealing costly gaps in your books.

3. Rate of demand: This indicator measures the rate of demand for each product carried. It is an important measure of product turnover rate and an integral part of any inventory organization's business intelligence strategy.

4. Average days on hand: While this is largely the inverse of the rate of demand, average days on hand is important to monitor because it highlights which products move quickly and which ones are stagnant.

5. Carrying cost of inventory: This indicator measures how much it costs to hold and store inventory over a given period of time; it is strongly connected to understanding the profit margin on in-stock inventory.

6. Rate of return: This metric measures the rate at which shipped products are returned; it points to further analysis to understand why they are being returned.

7. Perfect order rate: This indicator gauges your organization's ability to put together an accurate order, ship it without damage, deliver on time, and invoice correctly. It provides an important measure of the efficiency of your practices, as well as indicating where they might be improved.

8. Back order rate: This metric measures the amount of orders that cannot be filled immediately, causing customers to wait. It is a prime indicator of customer satisfaction.

9. Percentage of out-of-stock items: This indicator measures the percentage of items that you are committed to carrying, but that are currently out of stock. It tells you what items need to be restocked and is usually a strong gauge of what items are popular.

10. Inventory to sales ratio: This metric measures your ratio of in-stock inventory to the amount of sales orders you are filing. This metric is a good barometer of organizational well-being, as well as an indicator of the state of the economy.

Understanding these key performance indicators (KPIs) can be helpful in avoiding E&O problems, as well as better understanding their bottom-line impact. Estimates have placed the cost of E&O to a typical business in the range of 15 to 25 percent of original inventory value. Assigning adequate resources to monitor and analyze inventory could drive these levels down considerably.

Some key takeaways:

• Business intelligence tends to be backward-looking, while Big Data is real time and actionable.  Operational intelligence is key. The most useful data (i.e., the data that creates sustainable competitive advantage) is real-time, fresh, forward-looking, and actionable.
• Effective Big Data means the democratization of data and decision-making. In order to reap the benefits of Big Data, all levels of the organization need to be empowered to act on the data in real time. The top of the pyramid is just the starting point; management, operational-level employees, suppliers, and customers all need the ability to access, interpret, and make decisions based on the data flowing through the trading network. (One might argue that the increasingly-popular social/mobile applications are democratization enablers.)
• Focus on the questions, not the analytics. Push aside your love of cool analysis, and create systems that allow you to evolve and improve the questions you are asking.
• It’s all about the data. Pretty charts are the easy part, but only after you consolidate the data from myriad sources.
• Data is external. Jane Griffin from Deloitte suggests that data is moving from structured/internal to unstructured/external—i.e., less and less of the data lives within the traditional four walls of the organization.

The underlying concepts are simple and basic, even if the buzzwords change every year. Ju-kay Kwek from Google’s Cloud Platform Team pointed out that “Big Data” and “business analytics” are just the latest incarnation of high tech buzzwords likely to show up in your corporate marketing materials, following in the footsteps of “cloud,” Web2.0, etc. The Global Language Monitor contains a great summary of these.

So, what’s the big takeaway on Big Data? I like to think about Big Data along two dimensions: (1) the ability to access large quantities of structured and unstructured data, most of which is external to your organization; and (2) the ability to get it into the hands of decision-makers across the organization so that they can collaborate and make smarter decisions, faster. 

“Our research indicates that rather than employ a ‘one-size-fits-all’ strategy for procurement, firms should think strategically about supply chain management. To optimize purchasing effectiveness, executives should strategically segment their suppliers into strategic partners and durable arm’s-length suppliers in order to allocate different levels of resources to each group.”

This was at a time when many enterprises were just beginning to consider the implications of their supply chains; the idea of segmenting them was a dot on the horizon. It’s a dot no more.

By the time the first decade of this century had passed, analysts from Gartner to McKinsey had buried the idea of the one-size-fits-all supply chain. Whereas supply chains used to be built from the inside-out, Gartner notes that in these complex times the best ones are created outside-in, starting with the customer and working back through trading partners. A McKinsey publication refers to the idea of the one-size-fits-all supply chain as “a fantasy.”

Why have we come so far so fast? With the rise of globalization and outsourcing, it has become increasingly difficult for single supply-chain companies to meet the requirements of all their major customers. Complexity and interdependence are unavoidable realities for modern supply chains, and adapting supply chain processes to meet these new realities is crucial for survival.

At one level, it’s about customers; in simple terms, supply chain segmentation is about grouping customers with similar fulfillment needs and developing distinctive supply chain operations to meet those particular requirements. The objective of segmentation is to develop distinct supply chains that are able to more efficiently and profitably meet a wide range of customer needs. Given that most international supply chains today cater to hundreds of different customers—at various points along the distribution channel, each with unique requirements—a single supply chain often comes up short.

At another level, as the University of Köln notes in its abstract for a seminar on supply chain segmentation, it’s about products:

“The first step in devising an effective supply chain strategy is to consider the nature of the demand for the products one’s company supplies. Many aspects are important—for example, product life cycle, demand predictability, product variety, and market standards for lead times and service (the percentage of demand filled from in-stock goods). If one classifies products on the basis of their demand patterns, they fall into one of two categories: they are either primarily functional or primarily innovative. And each category requires a distinctly different kind of supply chain. The root cause of the problems plaguing many supply chains is a mismatch between the type of product and the type of supply chain.”

You know that these ideas have left the ivy-covered halls and marble towers and reached the manufacturing floor when you see a company such as Dell, canonized for its make-to-order supply chain, reinvent and segment that chain.

As Dan Gilmore, the editor-in-chief of Supply Chain Digest, put it about a year ago: “There really is something going on here that I believe will be the key new supply chain trend over the next decade. Effectively ‘building the supply chain from the customer back’ will be a new expertise that companies need to acquire.”     

Ah yes, outside-in. That has and will continue as a best practice. The reason is simple: surviving and thriving in today’s volatile, rapidly changing markets.

So what can we do? A recent Gartner report on cloud computing trends recommends that IT teams act as “cloud services brokers” (CSBs), meaning that IT establishes “a purchasing process that accommodates cloud adoption and encourages business units to come to the IT organization for advice and support.”

What is clear is that CIOs (including me) need to adapt. E2open is a major cloud services provider, but we are also a major cloud consumer, using cloud services for email, marketing, CRM, HR, support, and other functions. This has given me a unique perspective on some of the best—and worst—practices for implementing cloud services. Below are some of my key takeaways:

• IT can no longer be a gatekeeper; it needs to be an enabler.
  Most IT departments still don't get it, which is why up to 60 percent of IT projects go around IT entirely.

• Listening to the business is critical.
  Strategically, IT needs to ensure that IT investment and execution reflect business priorities across the enterprise. For a very interesting discussion of business/IT alignment, see the Bain brief on "Capability-driven IT."

• Enabling cloud services requires a focus on governance for security, process, and technical integration.
  Where the business is driving functional requirements, IT still adds significant value at a tactical level, helping with process and security due diligence and thinking through questions regarding technical integration.

• IT needs to staff itself differently as an enabler.
  To be an “enabler,” you need a good grasp on what you are enabling. In addition to people who can manage due diligence and integration, IT needs more people who understand the business process—hands-on leaders who can translate business requirements into hybrids of internally and externally-provisioned services. Requirements for project management support will vary depending on the capabilities of the business group; some groups will be able to manage as they are, while other departments will need help to get things moving.

To many of our readers, these recommendations may seem like common sense—but in my experience, translating “common sense” into actual IT and business practices is anything but common.

The survey results indicate that, contrary to popular belief, issues around trust and governance are not significant hurdles to developing and maintaining collaborative relationships. Only 31 percent of respondents felt that trust and governance were significant concerns, while more respondents dismissed this barrier to collaboration than even considered it neutral. Less than one-in-three were concerned with partners using information in a negative way.

So, if trust is largely a non-issue, where do the problems lie? More than anything, supply chain professionals indicated a need for faster problem resolution between trading partners. For the most part, onboarding of trading partners has ceased to be a major challenge, but the quality of information still poses significant challenges. According to respondents, the most significant barriers to collaboration centered on connecting information flows across various trading partners and synchronizing that information for quick problem solving.  Along these lines, timeliness of information was identified as a problem, with 44 percent of respondents indicating that this was a barrier to effective collaboration, and a fairly high 13 percent “strongly agreeing” that this was a significant barrier.

The final barrier to collaboration examined in the research was organizational inability to learn from past issue resolution cycles. This question measures whether collaborative, execution-oriented partnerships and processes can create lasting business value. The portion of respondents that “strongly agree” that they can was the highest of any barriers investigated—clear recognition of the opportunity for creating sustainable competitive advantage from collaborative execution.

From an E2open perspective, effective collaboration is about having the right people, processes, and technologies in place to gather and normalize multiple sources of data, flag exceptions as they arise, and work across multiple enterprises to make and implement intelligent decisions based on timely information. Creating a truly collaborative trading network is a non-trivial process—with a number of sizeable barriers to knock down—but the upside is significant: reduced inventory buffers, better risk mitigation, and improved organizational learning and innovation, to name a few. To learn more about the barriers and benefits of collaboration, check out the complete SCM World report here—or drop me a line.

A recent study of 374 supply chain professionals by SCM World’s Kevin O’Marah suggests that the learning curve is significantly steeper (as much as 50 percent) in truly collaborative trading relationships. Results show that operational metrics such as inventory days, total landed cost, and cash-to-cash cycle time can be expected to improve one and a half times as quickly as would be the case without collaborative execution.

Over time, companies can leverage this learning curve for a strategic competitive advantage over companies slower to adopt collaborative execution enabling technologies. The SCM World report also revealed that 92 percent of surveyed participants agree that quick problem resolution is an important aspect of good collaboration. Respondents were asked to quantify how much faster process problems are resolved in “truly collaborative” relationships. The overwhelming majority indicated that the speed of problem solving was two or three times as fast in collaborative relationships—meaning that there is a major cycle time benefit to collaborative execution.

In short, collaborative execution offers a more effective way for all partners in the trading network to work together, to more quickly resolve issues, and to better prepare for unforeseen disruptions. Faster problem resolution means more than simply damage control—it also gives companies (and their partners) more opportunities to learn. In O’Marah’s words: “The best collaborative relationships, which include not only trust and solid governance procedures but also high quality, well-synchronized information flows, mean more iterations in any given time period. More iteration means more learning.” And that’s something any company should work towards.

What is not surprising is that the Sherlock Holmes unlocking the mystery is Big Data. A bump in final data from Fermilab’s Tevatron accelerator mirrors a bump in recent data from CERN’s Large Hadron Collider, bolstering the case that the Higgs has been snagged at last.

At the outset of McKinsey Global Institute’s seminal report on Big Data, a number of facts are called out to illustrate the exponential growth and potential value of Big Data:

Growth

• $600 can buy a disk drive that stores all of the world’s music
• 5,000,000,000 mobile phones were in use at the start of this decade
• 30 billion pieces of content are shared on Facebook every month
• Global data is growing at 40 percent annually; IT spending only at 5 percent
• 235 terabytes of data were collected by the U.S. Library of Congress in April 2011
• 15 out of 17 market sectors in the United States have more data stored per company than the U.S. Library of Congress

Value

• $300 billion— potential annual value of Big Data to U.S. healthcare, more than double the total annual healthcare spending in Spain
• €250 billion— potential annual value of Big Data to Europe’s public sector administration, more than the GDP of Greece
• 60 percent potential increase in retailers' operating margins possible with Big Data
• 140,000 to 190,000 more deep analytical positions and 1.5 million more data-savvy managers are needed to take full advantage of Big Data in the United States

There is a huge amount of data available in the global trading network, but where companies fall short is in making sense of and acting upon this data while it is still relevant. Companies will realize a strategic advantage if they are able to retain, maintain, and leverage the talent and expertise of analytical and data-savvy supply chain personnel to make timely decisions with this information. Increasingly, the continuous monitoring of trading networks is a requisite for commercial vitality; the sophisticated human resources needed for this task are considerable.

Of course, the right technologies are also a critical piece of the puzzle. Before supply chain personnel can assess their options and make decisions, the data in the extended trading network (think: multiple tiers of partners) needs to be normalized, time sequenced, aggregated, and computed. A cloud-based platform can offer a shared “view” of the trading network, plus the ability to make real-time, collaborative decisions to resolve disruptions as they occur in the marketplace.

But here again, the most successful companies build upon the right technologies with the human expertise and resources needed to continuously innovate for better operations and service levels—and to respond creatively when things don’t go according to plan. After all, things have a way of going bump in the night.

Recent events remind us how exposed this asset can be: hurricanes in the Gulf, volcanoes in the North Atlantic, and unpredictable criminal and terrorist acts worldwide. The Strategy is designed to address the challenges posed by such threats.

A recent report by Sean K. Moon, senior policy advisor, Transportation and Cargo Policy Development at the U.S. Department of Homeland Security, condenses the essentials of The Strategy, which has two goals:

(1) To promote the efficient and secure movement of goods

(2) To foster a global supply chain system that is prepared for and can withstand evolving threats and hazards, and can rapidly recover from disruptions

The strategic approach is to manage risk through focused measures of deterrence, such as implementing security measures throughout the global supply chain system sufficient to deter terrorist or other bad actors from exploiting it as a channel for delivering harm, protecting infrastructure critical to the continued operation of the global supply chain system as a whole, and embedding resilience through the ability to surge, flex, and quickly recover from any disruptions that occur. It will also ensure that investments improve the efficiency of the system for moving commerce.

Over the next six months, as a next step in implementing The Strategy, the federal government will be contacting foreign and domestic stakeholders for their input on how to best implement the plan and foster a secure, efficient, and resilient global system. Specifically, the government is interested in recommendations regarding (but not limited to) the following areas:

• Specific opportunities to implement the goals of The Strategy and enhance the efficiency and resilience of the global supply chain
• Understanding evolving threats (terrorist as well as natural) and vulnerabilities in the global supply chain as a whole and among different modes of transportation
• International best practices, standards, or guidelines for reducing threats/vulnerabilities and opportunities to encourage global implementation of them
• Opportunities for the U.S. Government to work in concert with industry and the international community to further strengthen the global supply chain, including ways to increase participation in and improve the effectiveness of private-public partnership programs
• Assumptions that currently inform supply chain security policies and programs that may be incorrect, dated, or obsolete

This outreach is an acknowledgement that collaboration is an essential step in strengthening the supply chain, something the president underscores in his introduction to The Strategy: “The federal government cannot achieve this alone. Partnerships with state, local, and tribal governments, the private sector, and the international community are critical to realizing our shared goal of building a new framework to strengthen and protect this vital system.”

Both the need for a strategic approach to the global supply chain and the importance of collaboration in securing that chain were anticipated in the 2008 research report by E2open and Aberdeen that underscored the risk of supply chain disruptions and gaps in risk management that increased vulnerabilities. Not surprisingly, improved collaboration across the supply chain was pointed to as the number one action to be taken for better risk management.

That thinking holds even more strongly today, so we encourage all to contribute in the outreach program and thereby support The Strategy as it moves forward to enhance global supply chain security.

At its most complex, a BOM is a multi-level document that provides build data for multiple sub-assemblies (products within products) and includes for each item the part number, approved manufacturers list (AML), mechanical characteristics, and a range of component descriptors. It may also include reference files, such as part specifications, CAD files, and schematics.

Originally used internally within a company, the BOM served as a way to track product changes and maintain an accurate list of required components. As manufacturing has become increasingly distributed, however, the BOM has taken on even greater importance. It serves as the primary reference file for product data when transferring product information from the original equipment manufacturer (OEM) to the manufacturing service provider, and from that provider to its suppliers and vendors.

But as outsourced manufacturing expands—and with it the global scope of outsourcing—the number of companies involved in the manufacture of a particular product increases, and the need for accuracy in the BOM becomes more critical and difficult to attain. According to a major industry consortium, errors in bills of materials typically fall into one of three categories: completeness, consistency, or correctness. As these categories cross borders and involve increasingly disparate participants (in geographical distance, size, and technological sophistication), the task of keeping a clean BOM becomes ever more complex.

Sean Rollings recently compared the difficulties of managing a BOM in today’s trading networks to Heisenberg’s uncertainty principle. While we think this is a brilliant metaphor for capturing the speed and evanescence of the global supply chain, we’re glad that manufacturing isn’t quantum mechanics.

E2open’s Multi-Tier Cost Management (MTCM) solution is proof of that. By providing an “execution BOM” to keep up with the inevitable changes that impact costs throughout the product life cycle, MTCM allows supply chain participants to optimize costs associated with proliferating SKUs, assemblies, and subassemblies. The dynamic execution BOM enables them to handle execution, innovation, new product introductions, and frequent engineering change orders as gracefully as Heisenberg handled higher mathematics.

So while the sun never sets on today’s manufacturing networks, the greater scope and speed involved has given rise to a new and necessary tool: the execution BOM. Today we salute its dawning.

It’s easy enough to slap a “control tower” label on a piece of software, but actually delivering a more agile, intelligent control structure is quite a different feat. A true supply chain control tower isn’t something you purchase from a software vendor – it’s something you build, and it requires a careful combination of the right people, processes, and technologies.

For the most part, supply chain technologies haven’t kept up with the changing needs of today’s global companies: access to accurate, timely information; the ability to collaborate and make decisions across multiple tiers of partners; advanced business analytics that help you work smarter and develop more strategic partnerships.

Interested in learning more about true supply chain control towers – and separating out fact from fiction? Check out our new, 2-minute video on the topic: Supply Chain Control Towers: Don’t Believe the Hype.

As always, feel free to drop me a line with any questions.

A survey by FM Global published in early 2011 indicated that a growing share of supply chain losses was caused by sub-tier suppliers (upwards of 50 percent). Additionally, in a December 2011 publication in Harvard Business Review, co-authors Thomas Choi and Tom Linton suggest that “Lower-tier suppliers that serve a number of markets often spot shifts in the economy early on—and can warn customers about them.”

As I discuss in more detail in a recent article in SupplyChainBrain, these trends are pointing us towards a new way of managing business in today’s complex, multi-tier environments. Here are some of my key takeaways:

• The ability to rapidly “sense and resolve” supply chain disruptions (be they natural disasters, component shortages, or spikes in demand) is at the crux of modern supply chain risk management. Global supply chains are beginning to re-think network design in order to more effectively identify risk probabilities and prepare recovery scenarios in advance.

• As part of their new risk management strategies, leading companies are deploying business networks to manage “assets in motion” from end to end. Beginning with any-to-and electronic connectivity across multiple tiers, business networks provide the business process logic needed to put real-time information into action.

• Brand owners should keep a close eye on their suppliers’ key performance indicators for signs of trouble at the sub-tier level (e.g., order responsiveness, on-time delivery, frequency of partial shipments). Keep in mind that small suppliers are the most vulnerable to disruptions because they tend to keep their businesses very lean.

• Dual sourcing is becoming a new requirement of supplier rationalization. Supply chains that are accustomed to using single sourcing to reap short-term cost reductions will have to find new ways to manage this increase in complexity.

For more on this topic, check out my complete article here: Risky Business: Re-Thinking Supply Chain Risk and Resiliency.

1. There’s more to procurement than cutting costs. Many of us look at procurement as a function that is tasked with balancing cost cutting and product quality. However, procurement leaders are also burdened with managing risk, controlling cash flow, establishing company-wide standards, and investing in new technologies to improve efficiencies and customer service.

2. Outsourcing is a great way to reduce costs initially, but it can cause bigger issues down the line by clouding visibility. Outsourcing is a key strategy for today’s industry-leading companies, helping to drive lower costs, reduce capital assets, and get products to market more efficiently than the competition. However, outsourcing also increases the complexity of the supply chain, decreasing visibility and control over the manufacturing process. Procurement officers who leverage multi-tier functionality can easily manage the supply chain that resides beyond the four walls to capture the core benefits of outsourced manufacturing while mitigating the associated supply chain risks.

3. Improving product quality and cutting costs is a major struggle. Particularly in today’s cash-constrained economy, it is critical that financial and procurement professionals are able to balance the need to keep overall spending down with the competitive imperative to continue investing in product development and innovation. Procurement officers struggle to simultaneously improve product quality and cut costs. To improve customer service without increasing spending, procurement professionals can leverage new technologies and services to boost operational efficiencies and divert human resources back to the core functions of the business.

4. There is a high demand for skilled procurement experts, which will increase with the growth of globalization and cost pressures. Attracting and retaining talent in the procurement space is one of the top concerns for companies dealing with today's complex pricing pressures. Today's global economy puts pressure on procurement officers to respond quickly to a number of difficult issues. The continuous downward pressure on prices and price fluctuations of commodities has increased the demand for talent in the procurement field.

5. All employees and partners in the supply chain need to speak the same language. Procurement officers are responsible for making sure that the appropriate communication standards and performance measures are in place so that processes run efficiently and external trading partners act in the best interest of the organization. Procurement professionals must develop a “single version of the truth” by establishing company-wide standards for systems, data, processes, and partner performance. Company-wide standards allow internal and external parties to collaborate and carry out business processes in an automated, seamless fashion. Procurement officers must be able to facilitate sophisticated performance management with standard metrics and reporting, enabling them to continually monitor suppliers and ensure that all parties are aligned to common goals.

The Japanese tsunami and the flooding in Thailand last year were wake-up calls for many companies, forcing them to see the need for serious investments in better collaborative execution tools.

Over the past 20 years, companies have invested large amounts of money on internal systems: warehouse management systems, planning systems, financial reporting systems, and of course ERP. Unfortunately, these investments do not improve the responsiveness of global, distributed supply chains in the face of supply disruptions like we saw in Japan and Thailand last year.

If you are a CIO, don't wait for the next disaster:

• Review alignment of the strategic IT investment portfolio with the corporate strategy - if the company is outsourcing large parts of the supply and distribution network but investments are internally focused, reassess your priorities
• Discuss your supply chain strategy with your VP Supply Chain or CPO, and jointly evaluate whether current IT capabilities are sufficient
• Assess the completeness of your systems approach. Make sure they:
  • Enable complete business processes, not limited to just technical systems integration (e.g., B2B integration)
  • Provide visibility for company and trading partners – customers, distribution networks, logistics providers, and manufacturing partners
  • Support collaborative execution for managing exceptions, without inefficient replanning cycles
  • Include multiple tiers of the supply chain

 If you have questions or comments about driving supply chain initiatives as a CIO, drop me a line.

For industry-leading manufacturers and brand owners, tier-1 suppliers are just the tip of iceberg. With few exceptions, today's international trading networks extend across two, three, four, and more tiers of suppliers, sub-component suppliers, raw materials providers, contract manufacturers, and logistics providers. Without real-time insight across these next-tier partners, disruptions in the extended supply chain are often identified too late to make money-saving course corrections.

So what are best-in-class companies doing to stay ahead of the curve? They're starting by building interconnected, collaborative supplier communities. These communities are often hosted in the cloud, and enable brand owners and their partners to exchange information and make decisions collaboratively – with the insight that what's best for individual partners is the success and profitability of the trading network at large.

Not only do these communities have the advantage of fostering stronger, more reciprocal partner relationships, they also enable brand owners to leverage the collective "brain power" of the network (i.e., technology, components, engineering, human resources) to resolve disruptions faster and increase supply chain agility and resiliency.

Watch UC Berkeley's Phil Kaminsky on the growing importance of multi-tier visibility and collaboration on E2openTV

Editor's note: Thanks to Phil Kaminsky, Department Chair, Industrial Engineering and Operations Research, University of California, Berkeley, for this contribution to E2open Blogs!

For me, this conversation took me back to my high school physics course and Brother Julius Mahoney. (Brother Julius was a tough old bird!) I remember him explaining the “Uncertainty Principle,” which states you cannot know both the momentum and position of an electron at the same time—you can only know one. Caffeine brought me back to reality, and then it struck me:  This sounded an awful lot like our customers, who typically come to us, pulling their hair out and lamenting, “How can I manage what I can’t see?  How do I meet demand I can’t predict with supply I don’t control?” Same problems, more symptoms.

Mickey Rizza North of Gartner hit on this very subject, in Predicts 2012: Supply Chain Predictions: Talent, Risk and Analytics Dominate, November 18, 2011 saying, “The markets are negatively reacting to enterprise’ focus on low cost, without considering currency fluctuations, emerging market wage increases, taxes, quality, product viability, and total cost to serve.  Global needs for design, source, manufacture, and sell-anywhere strategies require companies to rethink cost-value trade-offs, particularly when product and service demand are highly volatile.” 

So back to my customer’s dilemma: He was managing costs in a fast-paced, high-tech environment.  A big problem was that they used their PLM package to record contracted costs for assumed quantities. That’s doable, but once the products were in execution, he lost control.  While he had a static bill of material (BOM) for a design in PLM, he needed a dynamic BOM to keep up with execution, innovation, new product introductions, and frequent engineering change orders (ECOs).  He said procurement needed to manage buying based on cost, demand, and inventory.  His PLM system was engineering-oriented, not execution-oriented. With that cavernous gap between requirements and available technology, they tried to keep up via spreadsheets, phone, and email.  They knew they were leaving money on the table, but couldn’t see a way to address the problem with ERP and PLM systems.

His organization was already using the E2open Business Network. They used it to manage their segmented trading networks globally.  Based on the business benefits they’d seen from that, they asked us to jointly develop a cost management system—and it had to span the multiple tiers of suppliers in their network.  They didn’t want to just keep up with those electrons. They wanted to see every electron in every atom in what was actually a very complex molecule.

Well, today, Brother Julius would be proud. We announced E2open Multi-tier Cost Management (MTCM) this week, and it’s now helping my once-forlorn customer not just manage but optimize costs associated with those countless SKUs and assemblies. We even created the “execution BOM” to keep up with the inevitable changes that impact costs throughout the product lifecycle. Needless to say, he’s buying next time.

If you’re tackling some of these same challenges, let me hear from you. And be sure to check out E2open Multi-tier Cost Management.

What does this really mean? According to Gartner analyst Michael Dominy, it means that "North American enterprises underestimate the total supply chain costs of offshoring to Asia. Escalating oil prices, globally, and rising wages erode initial estimates for cost savings that did not account for inventory-carrying costs, lead times and product quality."

The bottom line is that it's extremely difficult to determine your real, total landed costs—and they will change all the time, as component costs shift, commodity prices bounce up and down, and transportation costs shadow the volatile price of fuel. 

Predictions from fellow Gartner analysts Mickey North Rizza and Richard Adams continue to build the case: “The next wave of offshore and local-market sourcing will include optimization of lead time, transportation costs, supply chain risk and a host of other factors to measure optimized country sourcing.”

Some real-world examples have been offered up. In the November 2011 article “When offshoring backfires” VoxEU.org columnists Xiaole Wu and Fuqiang Zhang wrote: “It should not come as a surprise that more US manufacturers are ‘reshoring’, ’onshoring’ and ‘backshoring’. General Electric announced last year that it is moving some of its appliance manufacturing from China to Louisville, Kentucky. NCR Corp. is pulling all of its ATM machine production from China, India, and Hungary back to a facility in Columbus, Georgia, in order to customise products and get them to clients faster. In their announcements, these firms emphasised that by being closer to the market, they can better understand the market and are able to respond quickly to market changes.”

Net-net? Forward-looking companies will need access to extensive, detailed, real-time data in order to design effective, competitive supply chains. This, of course, requires the ability to gather timely and accurate data from every tier of the trading network. And because most of this data is in a constant state of flux, companies will need to gather and manage it continuously. 

It’s a tricky task to say the least, but the following core capabilities will give you the means to get it done:

• Electronic connectivity across multiple tiers of trading partners
• A business process layer to normalize multiple sources of data and output the information in an actionable context
• A collaborative analytics layer to guide exception management and crisis resolution

Are you nearshoring, or thinking about it? Drop me a line and let me know what kinds of changes you are seeing in your supply chain.

This is an unusual move for an industry that relies heavily on foreign component suppliers to drive margins, especially for Apple, a notoriously secretive company. According to Reuters, this move validates speculation that new Chief Executive Officer Tim Cook is driving for greater transparency.

On January 13, The Wall Street Journal disclosed rare information regarding Apple’s suppliers and its current efforts in the area of supplier responsibility and working environments. In the article, Cook stated Apple has long aimed to be more transparent and believes the steps it is taking, including nearly doubling the number of supplier audits it does, are raising the bar for the industry.

Bob Ferrari of Supply Chain Matters recently reviewed Apple’s latest “2012 Progress Report on Supplier Responsibility,” stating he was “positively impressed” by Apple’s new strategic approach. In the report, the company stated it became the first technology provider accepted by the Fair Labor Association (FLA). Apple is now opening its supply chain to the FLA’s independent auditing team who will measure performance against the FLA’s Workplace Code of Conduct, with results appearing for public view.

According to the Supply Chain Matters blog post, “Apple Provides Transparency to Supplier Social Responsibility Standards,” during 2011 alone, Apple’s Supplier Responsibility teams conducted 229 audits, 80 percent more than 2010. The audits are targeted at suppliers with the highest risk factors where findings and corrective actions can make the biggest difference.

At E2open, we are advocates for socially responsible supply chains, but also understand how difficult it can be for businesses to effectively manage multiple tiers of global suppliers to ensure they are in compliance, while still hitting their quotas.

An article in Harvard Business Review argues that it is critical to have visibility across the lower tiers of the supply chain, which often provide valuable information about the latest manufacturing advances and technological innovations. Such visibility has enabled companies to influence the development of emerging technologies, incorporate them into products before their rivals do, and secure supplies at advantageous prices.

E2open customers leverage our cloud-based solutions to gain real-time visibility across all tiers of the supply chain and the ability to quickly and effectively share information between manufacturers and suppliers to ensure targets and compliance are achieved. We are firm believers that visibility and collaborative execution are the lynchpins to a developing world-class supply chain organizations—and also bridge the gap between profitability and social responsibility.

Maybe you're a supply chain veteran and can't stomach reading yet another 20-page white paper – ever again. Maybe you're a supply chain newbie and can't imagine consuming any content that doesn't move and make noise. Maybe you're well aware of all the supply chain-related video content that's already in the ether and just want more, better, or different content. Well, we know you're out there, and we're committed to making E2openTV the place for you.

A big thanks goes to the wonderful customers, partners, and supply chain industry colleagues in our E2open community who have contributed to and participated in this effort. These include folks from Celestica, Dell, Flextronics, Hitachi, Lenovo, Motorola, Research In Motion, Seagate, and even UC Berkeley.

Check out some of the latest videos airing now on E2openTV, and let me know what else you’d like to be seeing or learning from us. We're open to feedback and ideas – post them here or comment directly on our E2openTV channel page. We'd love to hear from you.

We witnessed more than our fair share of natural disasters this past year, all of which served to expose some serious shortcomings in the world’s top manufacturing supply chains. Despite some really exciting advances in information technology and supply chain systems, today’s global manufacturers are still not flexible enough. And this is a problem whether you’re dealing with an 8.9 magnitude earthquake or the daily ups-and-downs of oil and transportation costs.

The bottom line is this: planning engines, reliable partners, and good products are not enough. Today’s global trading networks are more complex and volatile than ever before—and that’s before flash floods and fires are thrown into the mix.

To stay viable in today’s marketplace, flexibility and resiliency are game changers. Whether we like it or not, 2012 will invariably have a few wrenches to throw in the mix: port strikes, oil spills, missed deliveries, the possibilities are endless… We can’t plan for—or eliminate—these disruptions, but what we can do is start building smarter, more transparent, agile supply chains that won’t stall or break down when things go off course. The enabling technologies are out there, but leading supply chains certainly don’t build themselves...

Watch UC Berkeley's Phil Kaminsky on the Importance of Supply Chain Flexibility on E2openTV

Editor's note: Thanks to Phil Kaminsky, Department Chair, Industrial Engineering and Operations Research, University of California, Berkeley, for this contribution to E2open Blogs!