Supply Chain e-Business

— October, 2001

Taking Exception to Supply-Chain Problems

By Marcia Jedd, Contributing Editor

Within the new frontier of supply-chain event management (SCEM), alerting and exception management, users build in intelligence to deal with supply-chain problems automatically.

You’ve just found out a critical ocean consolidation from Taipei is delayed. You found out by dialing into your voice mail and hearing an automated message informing you of this supply-chain exception.

“Press 1 to reschedule to the next available sailing, press 2 to arrange premium transportation, or press 3 to speak to a customer service representative,” the voice says.

Safi Captan, founder and chief technology officer (CTO) of Categoric, the event management solutions provider based in Leatherhead, U.K., suggests this scenario has arrived. It’s all part of the exploding category of alerting and exception management within the realm of supply chain event management (SCEM). Outside of the typical e-mails, faxes and pages, alert messaging is easily relayed to mobile phones, personal digital assistants (PDAs) and web-based systems such as company intranets, and other electronic means.

If SCEM is the ability to respond to unplanned events on an exception basis, exception management is all about managing situations such as late shipments, low stock levels or delays of raw material that will impact production.

In the brave new world of proactive supply-chain alerting, smart systems leech data from disparate sources and use decision-support technology to convey what action to take.

“There’s also the importance of escalation,” says Steve Banker, director of supply chain research at ARC Advisory Group technology consulting firm in Dedham, Mass. “So if the machine goes down, and the maintenance manager is alerted, if it’s not fixed in another two hours, the system will alert someone higher up.”

Banker prefers the term process management rather event management because the emphasis should be on monitoring and measuring activities across the supply chain, not just looking for exceptions that happen within the enterprise.

Spotting potential problems
“The advent of real-time event management is really taking off,” Captan says. “You want to turn a passive application into an active one. In every discipline you want it to be alive and talk to you. Literally within days, we can build our software within the customer’s constraints to bring the whole product to life.”

Within two weeks of an SCEM implementation at RHM Foodservice, a Redding, U.K.-based supplier to caterers, Toby Barber, information technology (IT) manager at RHM says the use of Categoric alerting had become “business critical.” Users realized its worth when an unforeseen problem caused a temporary shut down. RHM started using Categoric’s Xalerts messaging system during 2000 following its use of other Categoric software.

“We’ve found Categoric versatile enough to suit any exceptions, not just supply chain management. We use it for invoice analysis and trend analysis,” Barber says.

For example, the system tells accounts payable when to pay suppliers to take advantage of invoice terms and alerts if an invoice is being paid to a non-vendor account number.



	“Exception management allows you to turn a passive application into an active one.” — Safi Captan, Categoric

Categoric’s Xalerts system is used by RHM staff including its sales force primarily in the form of e-mails, text messaging to mobile phones and HTML reports generated from the company intranet. Currently RHM’s use of Xalerts is limited to its own systems, but Barber says it will soon push it out to direct wholesale customers, as well as its suppliers. Xalerts will also be used for what Barber terms as “cascading,” or the initiation of processes within the company’s enterprise resource planning (ERP) system to manage low stock.

For example, when order management staff at RHM enter in a product order, an alert may communicate that the supplier has low stock on the particular product.

Since using Xalerts, RHM has optimized inventories, far fewer stockouts or overstocks are occurring. One telling sign of success is in spotting slow-moving stock that is approaching its sell-by date. A case in point is RHM’s expired dry chili mix, which when past is sell-by date was typically unloaded to pig food companies. RHM needed a better solution. It established a set of rules around the product to create alerts when stock is reaching expiration. Alerts are then pushed out to company supply-chain and sales staff to offer the product at reduced prices, so there is far less expired merchandize.

Also in the realm of the food service industry, another food distributor uses alerting systems by Vizional Technologies, a Santa Monica, Calif.-based SCEM provider. The food distributor is the cafeteria division of the Swedish furniture company, IKEA, which is a customer to ProLogis’ unit Frigoscandia. FrigoScandia is a European-based logistics company specializing in frozen food and a sister company to CSI, the North American cold storage subsidiary of ProLogis. Vizional is also partially owned by ProLogis, a global real estate company specializing in distribution facilities.

In addition to being an internationally known furniture retailer, IKEA operates food service at its retail stores in Europe as Sweden’s largest food distributor. Tim Harvie, CTO and managing director at ProLogis, says IKEA hit the ground running with VizionalNet applications in June and already has seen savings from exception management functions for order processing and inventory management.

“IKEA has a view of inventory in its warehouses but all the facilities they have access to through their supplier bases,” Harvie says, adding that the Vizional solutions for order, inventory and other supply chain data act as an IT interface. “It does much more than talk to the platforms, it maintains a data repository of information.”

According to Harvie, users don’t have to replace their existing systems when they use Vizional.

“A lot of other products force our customers to upgrade everything they have in order to take advantage of the tool,” he says. As a result of Vizional’s capabilities, ProLogis is pushing out the software to other divisions and customers within its network.

Much of Vizional’s success and uniqueness in the marketplace is from its reliance on private exchanges and ability to process data extra-enterprise or outside a company.

“When you create concurrent sharing of orders in a private exchange or network with your suppliers and transportation providers, you gain better control over these partners as well as greater customer commitment,” says Jon Kirkegaard, chief marketing officer at Vizional. Vizional tends to partner with other solutions providers that package its solutions, including its recent deal with i2 Technologies to resell its distributed inventory solution.
Alerts can also be used effectively within the realm of advanced planning and scheduling (APS) especially during simulations, suggests Steen Jorgenson, APS product director for the Americas at Intentia Americas, the Schaumburg, IL-based division to Intentia of Sweden.

“All our advanced planning is exception driven,” Jorgenson says.

Planning Alerts
Intentia’s Movex solution features a supply-chain planner module used for strategic forecasting. Jorgenson says that a tight integration between supply chain planning and execution, combined with proactive alerting that ripples throughout the chain can be a powerful tool to help people do their jobs better. Movex utilizes “scoreboards” to reveal exceptions, such as overbooked resources. The alerting tool is heavily used in simulations to determine if the supply chain has enough capacity to meet demand.

“The software automatically handles exceptions for you in pushing through the scenario when you run the simulation again,” Jorgenson says.

Alerting is critical when multi-sites are involved in production planning and can be employed on through item-level detail.

“You can see the impact on the finished-good level of a late purchase order for example,” Jorgenson says. “The alert tells you there’s a material shortage in facility number one, which impacts the order into facility two. You can run a material synchronization to automatically postpone the process so that making the order doesn’t start until the purchase order comes through.”

Movex also extensively uses alerting at the operational level such as for scheduling production. The alerts can be used to help guide the planner to maximize the running time of a machine and minimize cleaning and maintenance. Jorgenson gives example of a pharmaceutical company that experienced excessive maintenance downtime because of pills producing a lot of dust in the packaging process, and was able to alter its packaging sequence.

Vigilance, of Sunnyvale, Calif., is another SCEM provider with a strong background in planning and manufacturing. The thrust of its software is to inject “process control” into forecasting and planning to ensure execution goes as planned. Dave Busch, vice president of marketing at Vigilance, stresses process control is vital for factory automation which includes sensors to translate physical phenomenon, data historians and process-tracking systems so that production can be optimized.

“The Vigilance product design encompasses all of these aspects of process control but applies it to business processes such as the supply chain,” he says.

One such user of Vigilance is Seagate, the world’s largest disc drive and magnetic disc maker. Seagate uses alerts and collaboration to manage unplanned demand or “upside orders” and optimize vendor managed inventory (VMI) globally from its just-in-time (JIT) hubs. Seagate relies on alerting when upside orders come in from personal computer (PC) maker Dell. Seagate is required to quickly respond back to Dell about its ability fulfill the order.

“Seagate checks local VMI if they can fulfill the order,” says Busch. “If they check local VMI and find it insufficient, they begin building more disc drives. With Vigilance they learn of the upside opportunity and reply within the time period Dell sets, usually hours, and can thus get the order.”

Taking the scenario further, Busch says Seagate can run the simulation on Vigilance to ascertain if there is inventory in one of their other hubs that could be flown in instead of building the product.

Like other applications presented, Vigilance allows its customers to execute inventory-level
strategies. In the case of Seagate, Vigilance monitors inventory levels so Seagate is instantly notified when inventory levels exceed a maximum threshold or fall below a minimum. Vigilance also detects stagnant inventory that has not moved in a pre-defined number of days. Vigilance then allows them to collaboratively resolve the problem before it affects the customer.

Setting rules
Users of alerting software need to be able to easily set and change the rules or parameters for establishing exception alerts. There also must be a variety of options for delivery methods depending on the users, whether internal or external to the company.

Before setting up alerts, Banker at ARC cautions users to determine whether alerts are actionable to avoid setting too many. He also warns that because the category is so new to give it time and that many traditional ERP providers may not have capabilities yet to pull data from outside a company let alone effectively synthesize it in real time. “The ERP companies do have event management or alert but it is alerting based upon internal information to their particular application such as forecasting,” he says.

A long way to go to extend the enterprise

Reaching outside the enterprise and delving deep into business processes across the supply chain is imperative for making alert messaging comprehensive and truly actionable.

“What users need to pay attention to when they buy event management solutions from an existing SCM or ERP company is to understand the events they are getting alerted on are internal to the applications or if the capability exist to be alerted to external events from their key suppliers, carriers or customers,” says Steve Banker, director of supply chain research at ARC Advisory Group. Of course the latter scenario is optimal and many solutions providers offering exception/alerting capabilities are scrambling to figure out ways to do this.

How the alert data is captured and processed should also be examined. Banker says electronic data interchange (EDI) is the classic way. So too are direct links or direct integration into supplier’s systems such as the case of Vizional’s private exchanges. Banker adds that internet portals may require users to manually enter data.

“You can require supply-chain partners to directly integrate their systems into your private exchange, so you have visibility into what they’re doing,” he says.

Remote frequency or RF technology is another excellent way to capture data and Banker notes advances are rapidly occurring such as hidden barcode labels woven into labels or used on pallets for remote identification. As applications providers show, SCEM and alerting is an emerging field where providers are still eking out niches. It’s in this category. Which the ARC Advisory Group calls supply chain process management (SCPM), that logged software sales of some $125 million market last year and will soon quadruple by the end of 2005. Banker suggests providers have a long way to go in their sophistication levels such as using real-time data and data-capture methods not to mention integrating with other systems. He rates the maturity of the market at a one or a two currently out of a scale of one to 10.