The management of supply chains can be summed up in two challenges: being able to optimize entire systems, and managing the variability inherent in supply chain operations. The first challenge results from the restricted view of managers who are constrained by corporate boundaries, limited responsibilities and lack of supply chain-wide visibility. The best they can do in most cases is to suboptimise.
Challenges That No Business Can Control
The second challenge, variability management has always been important but is increasingly critical due to several current trends:
- Globalization – Requiring longer and more complicated supply lines, inventory systems and distribution networks.
- Outsourcing – Involving more entities in the supply chain.
- SKU Proliferation – Resulting in demand desegregation with the resulting increased coefficient of variation.
- Shorter product lifecycles – Resulting in lack of historical data, reducing organizations’ forecasting ability.
On top of this, the whole external environment has become less predictable. The rate of technological change is high, competition is intense, and new risks, such as terrorism and the government actions designed to fight it, introduce new costs and uncertainty. Essentially everything can be boiled down to two types of challenges that might influence a supply chain operation:
- External variability brought about by unexpected demand or supply fluctuations,
- Internal variability brought about by imperfect internal process control.
Better Forecasting is Not the Answer
Traditionally, demand uncertainty is managed by using a forecast, coupled with fixed level-of-service guidelines, to set operational parameters (such as inventory reorder levels and shipping schedules). Supply uncertainties are handled by using a yield forecast to inflate manufacturing requirements or set inbound buffer inventory.
Naturally variables are unpredictable, and forecasts are required to try to make sense of future demands. Unfortunately, all forecasts tend to be “wrong” and the resulting gap in reality and forecasting can only be handled by using buffer inventory or by building into the system a degree of ad hoc responsiveness, or agility.
Sources of internal variability typically include errors in determining the amount and location of inventory, errors in process yield or errors in predicting effort and time required for different operations. In addition to affecting stock holding and operational costs, these errors also hinder the ability to accurately determine whether demand can be genuinely satisfied, limiting the growth of the organization.
Better Information Leads to Better Decisions
The impact of internal variability on the ability to manage demand fluctuations is significant, and it is the combination of these two factors that is addressed by real-time location systems.
Many companies have realized that the key to success in environments with significant variability is to focus on their ability to predict while at the same time adapt to changes.
One of the most important aspects of ability is the ability to detect a variation, recognize its cause and act accordingly. Clearly, the earlier a problem is detected, the more time there is to recognize its nature and formulate an action plan. In fact, this is the promise of new supply chain management software tools.
RFID Visibility Solutions Are the Future of Supply Chain
With RFID-based visibility software supply chains are able to see in real-time the location of their parts, shipments, track inventory, or find missing components. With this information operations managers can adapt and act to fix problems with speed that was previously unheard of.
RFID provides a simple means of automatically obtaining the unique identity of an item, at increasingly low cost. These low-cost RFID systems can then be coupled with networked databases which enable access to additional product data.
An RFID-based location system generally comprises the following elements:
- An unique identification number which is assigned to a particular item
- A RFID tag which is attached to the item
- Networked RFID readers and data processing systems which are capable of collecting signals from multiple tags at high speed
- A platform to view and store the product information
As the trend for supply chains to become faster, and Leaner continues RFID-based visibility systems provide a likely catalyst for the development of a new opportunity for support and information. Such systems will be supported by more real-time information and therefore keep pushing the level of optimization to a new level, as optimization increases supply chain professional will reap the benefits of these new systems and continue to drive growth.