Will performance trump visibility?
GM, P&G, and others benefit from event management, but is performance management the end game?
By Malcolm Wheatley, contributing editor -- Manufacturing Business Technology, 10/1/2002 12:00:00 AM
Shortly before a vehicle leaves a General Motors (GM) assembly line anywhere in North America, the automaker's computers send a signal to a server owned by Novi, Mich.-based Vector SCM. The computer runs an in-house-developed system christened Supply Chain Visibility Compliance, or SCVC. The system's job, explains Jim Commiskey, Vector's vice president of global services, is to provide visibility of the vehicle from the time it is produced to the time it reaches the dealer.
The signal received at Vector, says Commiskey, is the first critical part of that challenge: "It tells us the vehicle identification number, which plant it's coming from, and which dealer it's going to."
Vector, he explains, is a joint venture between Detroit-based GM and global logistics services provider CNF, a Palo Alto, Calif.-based company whose subsidiaries include Emery Worldwide and Menlo Logistics. Vector is 80-percent owned by CNF and 20 percent by GM. Its mission: squeezing operating efficiencies and improved performance out of GM's global $5.5-billion inbound and outbound logistics operations, of which more than $1.7 billion has so far been transferred to Vector's direct control. An early priority in that transferred spend—both in terms of cost savings and improved performance—was the shipping of almost five million assembled vehicles to North American dealers each year.
Once at Vector, explains Commiskey, the received signal is matched to a record specifying how each vehicle is to be transported to the dealer. Responsibility for making that shipment is then handed over to one of five rail companies, or a similar number of road haulers. Each shipper is responsible for sending out signals, in an agreed common format, as the vehicle travels though its network.
These messages are picked up by a system created by St. Louis-based Transentric LLC, a two-year-old technology offshoot of Union Pacific Railroad that offers supply chain event management (SCEM) functionality as a service. Transentric's system, in turn, forwards messages to Vector's SCVC system over its Internet-enabled value-added network (i-VAN). Here, the vehicle's actual progress toward the dealer is compared to its planned progress.
The result? For one thing, explains Commiskey, there are automated alerts when things don't go according to plan: a series of "green," "yellow," and "red" warnings. "It's exception management," he says. "We use them to focus on anything out of the norm."
But the SCVC also provides finely targeted analytics that help Vector and its transport partners pinpoint problems and find solutions. "We don't want to focus on the overall performance of a partner," says Commiskey. "We want to look at where the problems are. The overall performance is meaningless if it disguises the fact that you're having genuine problems getting vehicles to a particular dealership on-time."
To many people, the Vector system is a classic application of an SCEM solution, if "classic" is the right term for a concept that only goes back a little over three years. Why? Because in a nutshell, it's an implementation focused on the outbound, rather than the inbound, supply chain—and which has a strong logistics flavor. In other words, the events are concerned with the movement of goods, rather than their status or physical condition. Throw a stone at a SCEM implementation at random, and chances are you'll hit something not too dissimilar to the Vector application.
Trouble is, that's not necessarily where the concept delivers the most value. "The biggest return is almost never in the outbound supply chain, but in the inbound supply chain," asserts Lisa Hebert, an associate partner in the San Francisco office of New York-based information technology (IT) consulting firm Accenture. Why? Because, says Hebert, the opportunity for a return on the information that supply chain event management provides is so limited. "Typically, the in-transit time is so short that the shipment concerned is either already delivered, or about to be delivered," she says.
New priorities
In Hebert's eyes, event management vendors—and users—are afflicted by a kind of myopia. Time and again, she says, you'll hear SCEM expenditures justified in terms of staying on top of events such as broken-down trucks. "That's old hat now," she says. "In reality, that's now the price of admission for transport carriers."
Instead, she believes, event management will deliver greater value if focused on more significant foul-ups—such as production snafus, or order management problems. "Are critical components or materials going to be late or under-ordered? Are we about to launch a trade promotion or coupon drop with insufficient inventory in place? These are much more significant problems," she says.
Figuring out why event management found itself in this position isn't too difficult. Software vendors, keen to get products to market and sales revenue on the bottom line, have gone for low-hanging fruit, rather than those that were the ripest or largest. Users, too, have been focused on quick wins rather than big wins.
Take Overland Storage of San Diego, a manufacturer of computer tape drive and other data storage products. The company was an early adopter of SCEM, explains business systems analyst Lisa Denis, with its first venture into the area three years ago. Despite this, she says, the company is only just beginning to think about the inbound supply chain.
"We think there are stages of evolution in a supply chain event management implementation—a sort of Maslow's hierarchy," observes Denis, in a reference to the early behavioral scientist who first figured out what drives humans. "If you've never used supply chain event management before, you see it as a firefighting tool. Only later do you get around to seeing it as something more than that."
A SCEM system recently developed at Overland, for example, checks incoming electronic orders for missing information in critical fields, or that shipments won't be endangered by shortfalls of relatively minor accessory items, such as cables or instruction booklets. It's a subtle distinction, but it's firefighting before the event, rather than after it.
Even so, Denis is careful to qualify SCEM with a few caveats. The tool that Overland uses—an event management engine developed by Categoric Software, Leatherhead, U.K.—is powerful, but needs judicious handling, she believes. "You can alert too many events to the same user, with the result that they become event-overloaded, and consequently wind up ignoring them," she says. "Unsophisticated users also can ask for too much: they'll want something checked every 10 minutes, for example, and so they get swamped when they get the same alert every 10 minutes."
Gradually, evidence is emerging that software vendors are becoming aware of these criticisms. "A tighter economy and a jaded IT community have analysts trying harder to define supply chain event management, and corporate managers working diligently to understand whether or not they need it," acknowledges Deb Marabotti, application product manager at Silvon Software, a Westmont, Ill.-based vendor of performance analytics software.
The real value?
Consequently, several vendors are arguing that the real value of the technology lies more in its ability to generate information that can be linked to analytics software to generate insights not attainable with event management on its own.
"Seeing a problem is 90 percent of fixing it," argues Marabotti, pointing out that event management provides a wealth of visibility. But without careful analysis, that visibility, on its own, may be vulnerable to misinterpretation. "An event management system might detect missed production and late shipments, but without analytics, the fact that material is ordered late might be missed," she says.
Similarly, Mike Mansbach, vice president of business development at SeeCommerce, a Palo Alto, Calif.-based vendor of what it terms a supply chain performance management solution, concedes that the commonly held transaction-based view of event management does little to drive improvements in performance. All too often, he says, "companies are managing the same event over and over again, but without doing any analysis to evaluate the underlying problem." As such, he believes, they are missing out. "The real value of supply chain event management is its highly useful data feed. It's one more data source to help drive performance upward."
Users, too, are getting the message. Stephen David, CIO at Cincinnati-based consumer goods giant Procter & Gamble (P&G), points to the company's SCEM-augmented changes as part of "a renaissance in our supply chain capability."
From the consumer's perspective, he points out, P&G historically hasn't been doing a very good job. "Our out-of-stock performance ranged from between 8 percent and 15 percent, with the average well into double digits. We need more visibility, and more understanding of events in the supply chain."
The era of huge IT projects that take years to fulfill their promises is long gone, he asserts. Accordingly, P&G is taking a step-by-step approach to transforming its supply chain, with each individual step having its own return-on-investment. With improved shelf availability, for example, the objective is to use event management to both improve stock positions, while reducing inventory holdings. "In a company like Procter & Gamble," says David, "taking a day's inventory out really does have an impact."
Clearly, says David, such an ambitious undertaking requires solutions that cut across the supply chain management application space. "No one vendor has the entire capability," he reports. "This is going to be a best-of-breed project."
In terms of pure event management, P&G's experience reflects a growing realism. "We don't believe that you need to alert everybody to everything that the SCEM software suppliers say you do," says Larry Kellam, P&G's director of B2B Supply Chain Innovation. "We think there are lots of ways to cover things that go wrong in the supply chain without having customers or suppliers know that you've got a problem."
For P&G, alerts are, for the time being, a one-way street, with actions recommended by the company's global enterprise system being posted to "self-service" supplier or customer portals as appropriate. The rule is bent in the case of a handful of critical suppliers or customers—Wal-Mart, for example—but the alerts then come by electronic data interchange, e-mail or telephone, and are strictly exceptions.
For SCEM vendors, finding a niche within the plans of manufacturers like P&G could keep sales rolling for quite some time. Then again, given the belief that performance management may trump the benefits of pure event management, the future appears strongest for vendors that can pair analytics and improvement methodologies with visibility and control over events.
| Who's inside | ||
| Categoric Software: www.categoric.com | Schneider Logistics: www.schneiderlogistics.com | SeeCommerce: www.seecommerce.com |
| Silvon Software: www.silvon.com | Transentric LLC: www.transentric.com | Vector SCM: www.menloworldwide.com |
| WhereNet: www.wherenet.com | ||
