Sense-and-Respond: The Next Generation Of
Supply Networks

Consultants, analysts and shippers don't necessarily define ‘sense-and-respond' the same way, and their views on the need for greater technology investment may vary as well.

The best supply chain wins at the end of the day," says Jeff Hehir, senior director, supply chain solutions, Georgia-Pacific. "No matter what the product, there is limited consumption in the market and the most efficient supply chain that meets the customers' needs at the best value is going to survive and prosper."

Hehir, like many others, believes companies must adopt a "sense-and-respond" supply chain or risk extinction. In Georgia-Pacific's case, that means creating company—and supplier-wide data repositories, supply chain technologies and processes.

Georgia-Pacific is one of the world's leading manufacturers and distributors of tissue, pulp, paper, packaging, building products and related chemicals. For the year ended Jan. 1, 2005, the Atlanta-based company reported net sales of $19.7bn.

"We have a lot of different supply chains requiring different elements," says Hehir. "When you are serving multiple markets with multiple products there is not a lot of value in consolidating into one supply chain system. At some point it becomes too complicated to be valuable." To create a sense-and-respond supply chain, Georgia-Pacific has created a centralized supply chain group with authority to standardize best practices within its supply-chain systems. The group is led by the company's CIO. Key elements in Georgia-Pacific's new supply chain strategy are "a strong information flow across the entire supply chain," as well as scorecards and analytical tools, says Hehir.

Not every company is taking the same approach to adopting a sense-and-respond supply chain, because there is no one-size-fits-all solution. John A. Gentle, global leader of transportation affairs at Toledo, Ohio-based Owens Corning, believes the way to a sense-and-respond supply chain is through accurate forecasting. Glass fiber insulation and home building products are among Owens Corning's products. Founded in 1938, the company had sales of $5bn in 2003. "It is all based on forecasting and reliability—product reliability," says Gentle. Yet "there has to be a reconciliation of the forecast to the real world. Those in building materials have to deal with code changes. Cities and towns continuously change codes. After the hurricanes in Florida some municipalities now require shingles in Florida to meet a certain wind resistance, up to 120 miles an hour. I would suspect a really good organization spends a fair amount of time reconciling forecast to demand and translating that to reality," he says.

Gentle believes companies need to pick the right supply chain partners, work closely with them and utilize their manufacturing plants well to achieve a sense-and-respond supply chain. "At Owens Corning we spend our time making sure of two things. What does the customer want and when does he want it. The second part is delivering on time," he says.

One reason for the disparity in how companies are working toward a sense-and-respond supply chain may have to do with the definition of the term, says John Fontanella, vice president of supply-chain services for advisory firm The Yankee Group. "I define it as a transparent view of time/place status and content of product and information flowing through the supply chain. I'd probably include money in that, too," he says.

"Demand driven" is the way AMR Research defines a sense-and-respond supply chain. "It is the transformation of a company from a push supply chain to more pull-based," says Greg Aimi, research director with the advisory firm.

Both Aimi and Fontanella agree that, while companies are working toward achieving sense-and-respond supply chains, it is a goal that is a way off. Fewer than 5 percent of Fortune 1,000 companies have such a supply chain, says Aimi.

Fontanella believes the number is even smaller. "As far as companies connecting multiple systems, applications, multiple partners outside the enterprise, I can count companies on one hand that are trying to do something there. GT Nexus and BridgePoint customers are doing it to a degree, but not to where there is an automated lights-out supply chain brain pulsating in some back room that optimizes responses to every breakdown. A lot of it is manually intensive," he says.

A Tough Path
The reason so few companies today have these capabilities is that it requires the adoption of myriad new technologies and integration of them to existing technologies as well as a complete reversal of how companies traditionally run their supply chains, from major culture shifts to new processes, says Aimi.

"The ability to supply demand is a reverse orientation for many companies. It's actually a major transformation companies have to go through. There are a bunch of inhibitors. The biggest is corporate culture and organizational dynamics," he says.

Many companies are struggling to make these changes, although over the next five years companies will adopt sense-and-respond supply chain technology, says Steve DeFrancesco, vice president of operations and product management at Timogen Systems, a Mountain View, Calif.-based provider of supply chain visibility and analytic software to enable sense-and-respond supply chains.

Today, "companies are still doing the same thing they were doing 10 years ago. They are having early morning meetings…and bending over backwards to help the customer that complains without regard to the rest of the business," he says. A few may never make the switch, says Dave Cooper, vice president of supply chain solutions for Solectron, a manufacturing outsourcer for the electronics and high-tech industries and provider of sense-and-respond solutions to its customers.

Still, while creating a sense-and-respond supply chain is difficult, it's something that has to be done, says Ann Drake, CEO of DSC Logistics, a third-party logistics provider based in Des Plaines, Ill., and a partner to Georgia-Pacific.

Customer demand prompted DSC Logistics to adopt a sense-and-respond supply chain in 1995. The transformation "has been a long, exciting journey," says Drake. "There weren't any blueprints to do it." At the corporate level, managers needed to understand that they had to be ready for the unpredictable, she says. "How do you get ready without reacting? It is a neverending process," she says.

Today having a sense-and-respond supply chain is a vision, rather than reality, for most companies, says Drake. "But I tell people it took 100 years to get manufacturing right. We need to realize we need to get on that diet and stick to it. It is a mega-shift approach to business, working with partners, getting out of silos and truly collaborating and sharing information." Drake believes any company can obtain a sense-and-respond supply chain—with perseverance. In fact, companies don't have the option of choosing not to, because "we have driven cost reductions to the nth degree. We have to go find a better way. I think we are going to get there," she says.

In the meantime, companies adopting sense-and-respond technologies are focused on centrally managing their supply chains and adjusting their operations accordingly, says Fontanella. "Where I really see particularly large global companies is—they are collecting data and starting to look at trends of data," to correct supply chain issues, he says. "That is where companies are getting value."

Although Cooper and Gentle disagree, both Fontanella and Aimi believe companies need to install and integrate a wide variety of technologies, either through purchase or through a third party logistics partner, to achieve sense-and-respond status. These technologies help companies manage their suppliers, track orders throughout the supply chain, forecast demand, enable a hub for data management and deal with government, border and security issues. Most importantly they enable collaboration and communication across the supply chain.

Companies need these additional capabilities as they have moved from domestic to international sourcing, says Aimi. In particular, companies need to manage increased costs and variability, including managing increased inventory buffer stock, sometimes 20 to 25 days or more, compared to five to seven days for a domestic move; increasing global security regulations; greater number of parties participating in a global supply chain; and ever-increasing transportation costs.

Companies today are wrestling with whether to adapt older technologies or purchase new technologies to address these issues. The advent of the internet and internet-based technologies companies has given companies better tools to manage global supply chains, says John Murphy, director of product marketing for Global Logistics Technologies, or G-Log, an international logistics software provider headquartered in Shelton, Conn.

In the past many processes and procedures were "very silo-based, functionally siloed or geographically siloed. They didn't lend themselves to offer a holistic view of the supply chain," and couldn't support a sense-and-respond supply chain initiative, he says.

"Twelve different products loosely integrated is not a success strategy," says Murphy. "The reality is if a product is not web-based, it does have limitations in its ability to help you collaborate with partners and how flexible they are to use."

Collaboration is Key
Working harmoniously with your trading partners—collaboration—is a key part of an effective sense-and-respond supply chain. The company that doesn't effectively respond to customer demand risks losing those customers to competitors, says Murphy. That is a potential loss that many companies, including those in the high-tech, automotive and consumer packaged goods markets, can't afford.

Dennis Young, vice president of operations for Entrisphere of Santa Clara, Calif., a four-year old telecommunications technology provider, firmly believes companies need to have a sense-and-respond supply chain, and the technology to support it, to compete effectively. "I can't understand why more people haven't figured out why the Japanese have been so successful. They have been in that position for decades. It is how they run their supply chains. The whole thing about collaboration is key," says Young.

Many of Entrisphere's customers, large telecommunications providers operating in a very competitive environment, "expect delivery the same day or next day," he says. Entrisphere uses technology and processes from Solectron, Milpitas, Calif., to respond to these customer demands.

Volex, a $500m cable assembly manufacturer, including cables for data, telecommunications and medical uses, sees similar market dynamics, says Chris Rutherford, vice president of supply chain. "Nobody wants that wait, even a four-week lead time. They want [goods delivered] in days and hours," he says. Volex's customers include large telecoms and appliance companies. At the same time Volex is keeping fewer inventories. "In the old days people might order 5,000 items just in case. Today we order 50 items," says Rutherford. "Visibility to demand today in our business is a very short window. We enter monthly periods with maybe 70 percent of the backlog known to us. And the rest, the drop in business, we have to react to."

Entrisphere reacts and responds as well, through real-time communication with all suppliers as events happen, says Young. "Otherwise it could take three, four weeks to go through the process to meet new demand," he says. In addition Entrisphere is working with Solectron to reduce its cycle times, thereby improving its supply chain responsiveness and flexibility.

"We have to be pretty flexible to meet the supply chains of our customers," says Cooper. Solectron sometimes performs end-assembly for customers and delivers either to the customer or end-customer. The company has about $12bn in revenue and ships goods from all 69 of its locations in the United States, South America, Europe, Asia and Australia. Solectron also has a set of supply chain software tools and consulting services to help its customers better manage their supply chains, including tools for estimating landed cost, network design and visibility. However, tools alone won't create a responsive logistics network. Creating a sense-and-respond supply chain is very difficult, Cooper says. "It is not only transforming the supply chain but transforming relationships and corporate cultures. The technology, albeit difficult, is not the hardest thing to change. A few customers will understand. A few will understand more. Some customers are going to be very successful in the old model and will stay that way. I think we will have hybrid solutions going forward."

More Than Technology
Drake agrees that companies need to transform relationships and corporate cultures. "People assume technology will take care of [obtaining a sense and respond supply chain]. It won't. It's about communication, communication, communication. That is the big barrier that companies need to get around now," she says.

"Strategic planning needs to drive everything," says Drake. In the past, the company that executed the best on its five-year plan did the best. Today, because the market is so dynamic, companies need to change their plans "in real time, all the time," she says. "The approach has to be different. How to anticipate, sense what is happening and how to be ready even though things will go differently than what you originally thought and probably will. It is not about planning because [today's supply chain] is not predictable."

Young goes a step further. "The technology has outpaced the processes. I think in the future the supply chain will be run without a manufacturing resource planning system. It will be run on an ondemand basis with real-time communication and extremely short cycle times. By default an MRP is inaccurate because it is based on forecasts. Instead companies will respond to real demand." In the future, perhaps even in the next 10 years, Fontanella predicts a supplied and ready-to-operate sense-and-respond solution for companies.

In the meantime, Georgia-Pacific is in the middle of delving into minutia with its supply-chain initiative. The company installed its supply-chain committee last year to determine how to best achieve a flexible and responsive supply network across its 300 facilities in the United States, Canada and 11 other countries.

Georgia-Pacific's supply-chain committee is looking to communicate more effectively with its supply-chain partners and within the company, automate simple tasks, improve visibility across the supply chain, and improve decision-making processes.

Its first task is studying how to break down the project into manageable pieces. "A lot of projects or paths are so big it's hard to get traction to move forward," says Hehir. "The trick is figuring out how to avoid eating the elephant at one sitting."

In Georgia-Pacific's case, the company has a myriad of product lines and markets with different requirements and systems as the company has grown through acquisition. "In the last 10 to 20 years everybody ran their own business. This is a fairly new culture. We are working hard on that culture," he says. "While the final system is not completely implemented, the roadmap is in place and we are well down the road."
© Copyright Global Logistics & Supply Chain Strategies June 2005. SCM Technology, Kathleen Hickey.

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