Why event-response capability is critical for a successful supply chain operation

Although companies have invested enormous sums on advanced planning and scheduling, forecasting, master planning and similar systems to improve supply-chain effectiveness, every day things still can -- and do -- fail to go according to plan. Historically, the weak link in all of these sophisticated planning tools was that they were just that -- planning tools. They generally were incapable of providing any warning when execution of the plans was failing, particularly in advance of the actual failure. These limitations are now being addressed by supply-chain event-management (SCEM) systems. Supply-chain event-management capability is enabled by technology solutions that monitor specific supply-chain-related events and alert operations personnel when conditions are outside pre-defined boundaries, such as delays in production operations or low stock levels. Supply-Chain Event-Management Marketplace Supply chain event management is generating a lot of attention these days. According to ARC Advisory Group, the SCEM market is projected to grow at a 50%-plus annual rate to $1.4 billion by 2006. Although some providers of SCEM solutions are familiar names in the world of supply-chain software, such as i2 Technologies and Manugistics, there are several niche firms that are being recognized for their unique capabilities and leading-edge solutions, including Descartes Systems and Yantra. Studies by AMR Research also indicate that supply-chain event management is growing in importance, as measured by the inflow of investor capital to the growing number of SCEM solution providers. In a recent survey of more than 30 companies using SCEM solutions, AMR reported that these companies believed SCEM solutions had a high degree of value. Application of Supply Chain Event Management Although the application of SCEM solutions can vary significantly by company and industry, some common themes emerge. SCEM solutions are most likely to provide significant gains for companies that must deal with large numbers of products, customers and suppliers. The enormous volume of data to be continuously monitored fits perfectly with the "manage by exception" philosophy of SCEM applications. Activities operating outside prescribed boundaries receive immediate attention because they are readily identifiable. SCEM also is appropriate for companies that must continually adjust the balance between supply and demand. Sophisticated supply-chain planning systems benefit from the constant monitoring of SCEM applications, enabling rapid responses to surplus or shortage conditions. SCEM provides the "early warning" capabilities to help effectively execute the established plans. Consider the following example: Assume your company has many distribution points, each receiving large numbers of inbound shipments and managing large numbers of outbound shipments each day. Your SCEM software monitors and analyzes the results of thousands of transactions daily, providing your supply-chain managers with early warning of exceptions. Analytical tools evaluate potential options and suggest solutions, helping your supply-chain personnel quickly determine answers to the following types of questions:

• What is the impact of a late receipt on customer commitments?
• What alternative freight options are available to rectify a problem?
• Should inventory in short supply be allocated to key customers?
• Can a shipment be delayed without adversely impacting your customer?

The ability to answer these types of questions quickly and efficiently creates an opportunity to significantly improve performance and lower operating costs. Benefits of Supply-Chain Event Management Supply-chain event-management solutions enable users to quickly respond to unplanned events, such as late shipments, parts shortages or production delays. In some cases the SCEM response is activated automatically according to pre-determined criteria. For example, should a parts shortage result from production defects, the SCEM system can be configured to automatically issue a new production order to replace the defective parts. This capability is achieved by linking SCEM software to other enterprise systems, such as planning and scheduling applications. The key to SCEM software is its ability to identify potential problems before they become really significant problems. Once an out-of-tolerance condition is recognized, the SCEM "early warning" flags go up, alerting supply-chain personnel to the impending problem. This provides the extra time necessary to avert more serious problems, potentially saving cost, time and customer goodwill. However, without supply-chain personnel taking action as a result of the early warnings provided by the SCEM software, little is gained. SCEM is most effective when the exception alerts it generates reach decision-making personnel quickly and corrective actions are initiated. This capability is even more dramatic when the total system (SCEM and other enterprise systems) provides recommended solutions to the identified variance. For example, when the SCEM identifies that stocks of a component have dropped below a pre-defined level, it sends a signal to the scheduling system to release a production order to the plant, enabling supply-chain personnel to quickly handle the situation in a single transaction. SCEM can also alert managers to upside opportunities as well. In fact, the ability to identify potentially favorable events often provides opportunities to improve schedules and increase throughput. A less obvious, but equally important, benefit of supply-chain event-management solutions is that these systems help companies make the most of their already large investments in their primary supply-chain-management applications. Because SCEM solutions are relatively inexpensive compared with supply-chain planning systems, the added functionality is seen as an effective means of getting the most value from current solutions. Kevin O'Brien is managing principal of MidWest Group, a management consulting firm specializing in supply-chain/operations and customer-relationship-management process improvement and related solutions. He can be reached at .