~ Contributed by Ritu Jain ~

Tough market conditions and a sluggish economy have made manufacturers focus even more on supply chain costs. Per an IDC survey earlier in the year of 400+ manufacturers and about 180 retailers “reducing procurement, production, transportation, and logistics costs” came out to be the number one priority.

But cutting costs without understanding their impact on long-term profitability can be suicidal – imagine switching suppliers just based on price, without much insight into new supplier’s reliability, quality, or how important you are to that supplier’s viability. Remember Mattel’s sourcing woes?

So how can manufacturers cut supply chain costs while staying true to their long term objectives of quality and profitability?

Supply Chain analytics can help organizations improve visibility, flexibility and efficiency of their operations thus reducing costs while improving profitability. But before we talk about how supply chain analytics can help, let’s stop for a minute to talk about what supply chain analytics really mean.
Supply Chain Analytics in the simplest form refer to the ability to analyze data within your supply chain systems so that the derived information can be used to guide future business decisions.

Supply chains today are complex, globally extended, and riddled with departmental and geographic silos. Supply Chain Managers work with thousands of suppliers, third party logistics providers and channel partners worldwide, and most times lack insights into what other departments and geographies are doing. They lack a consolidated view of their supply chain to answer tough questions such as:

• Who are their best suppliers? How much are they spending with each supplier? Which suppliers are most at risk for non-delivery?
• What will be the impact of a promotion or marketing event, change in fuel prices, weather or a competitive activity on product demand?
• How much inventory should they maintain of particular product, part, or sub-system to meet customer service level requirements without incurring the over or under-stocking costs?

Supply chain analytics help manufacturers answer these questions by providing them data driven insights so that they can streamline their operations and improve process efficiency.

Companies like AmBev, GM Shanghai and POSCO have shown that there is a strong correlation between higher operational performance and use of analytics to drive business decisions.

Here’s my triple “A” approach for improving your own supply chain:

Access Supply Chain Data: No matter where you are in terms of your current capabilities or what your performance metrics are, always remember that they key to unlocking the potential of supply chain lies in the data. Supply chain systems can contain terabytes of data in various transactional and operational systems – the problem is that most these systems don’t talk to each other; different systems contain different instances of data, and there are geographic and departmental silos. Imagine if you had a complete and accurate view of all your inventory across your entire distribution system. What if you could reduce trans-shipments, reordering of existing parts and expediting costs while improving customer service levels like Klune industries did. By collecting, cleansing and harmonizing supply chain data, you can get a unified, comprehensive view of your supply chain leading to better visibility and improved operations.

Analyze: Once you have a comprehensive view of your supply chain data, you can analyze it to not only to get a historic perspective i.e., what happened, why it happened and how it happened, but also to understand the future impact of your actions. Imagine the impact on profitability if you could not only forecast your demand accurately but also calculate optimal stock levels for each product to improve your customer service levels while minimizing inventory like this Belgian pharmaceutical company. Business reporting tools along with advanced analytics such as statistical modeling, forecasting and optimization techniques can help align your cost-cutting initiatives with long-term business strategies resulting in increased market share, improved profitability and better customer satisfaction.

Act and Adapt: Finally, all the analysis will not yield any results if you don’t take the information derived and share it with key decision makers so that they can act in a timely manner on that information. A large manufacturer of wireless consumer products did just that and was able to save US$4 million by not only analyzing the claims data to detect product quality issues early but also by sharing that information with production and quality departments.

The company, set to ship 2.5 million units of wireless devices in a phased distribution, detected an issue with the product six weeks earlier than the shipment date because of warranty analytics. With the timely delivery of this information to its quality engineers, the company was able to limit exposure to 70,000 units and about 25,000 customers, which kept repair costs under $1 million.

If that company had not detected the issue and shared the information with appropriate teams in time, more than 600,000 units would have had to be serviced - affecting more than 500,000 customers at a cost of more than $5 million in repairs. By analyzing the information and sharing it so that decision-makers can take timely action, the company saved $4 million in repair costs and untold millions in brand equity.

Final thoughts

Supply chains of future cannot be managed just by traditional SCM/ ERP systems. These systems while great at automating processes do not provide the insights required to improve efficiency and optimize results. You need business analytics to uncover the golden nuggets of information hidden in your supply chain data and to share it with appropriate people in your organization in a timely manner so that you can improve process efficiency and optimize business decisions.