November 2004 | Commentary | IT Matters

Streamlining Communication Creates Change and Opportunities

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From walking factory floors for more than two decades, I know it doesn't take long to build a car. Fender to tail lights, it takes about 72 hours. But it takes another six weeks for the car to reach the consumer. Why? Demand data takes about one week to travel from one tier to the next in the supply chain, according to Automotive Industry Action Group (AIAG) research.

If a supplier could receive requests, reschedule production, and pass requirements to other vendors in a matter of minutes, the car that took six weeks to deliver could drive off the assembly line in days. Squeezing out excess communication time would do a great deal to advance lean manufacturing and produce tangible benefits.

That's why transforming supply chain execution is a priority in the automotive and other manufacturing sectors. Such change will reshape where and how companies do business—redefining logistics, and affording more global ventures. Third-party logistics providers (3PLs) must stay abreast of this change, to keep pace and capitalize on revenue potential.

Software vendors have introduced a number of products to streamline point-to-point communication among suppliers and customers. In the automotive industry, suppliers can choose from about two dozen different inventory visibility applications to check their customers' inventory.

And that's just the beginning. Technology now replicates physical processes such as Kanban, the card-based system used to signal and trigger events on the production floor. Other products collate inventory, production, and logistics information to generate warehouse management instructions.

These specialized technologies make it possible for companies to do more than just understand the status of their supplier relationships. The technologies help automate supply chain execution, including logistics.

When suppliers embrace visibility software, they must support all the applications their customers use. Although the systems speak the same language thanks to programming standards such as XML and SOAP, they can't converse—that is, exchange information in a meaningful way—because they don't subscribe to the same definitions.

Resolving the Issue

Software vendors and industry associations are tackling procedural and communication standards to resolve this problem. The AIAG, for example, is spearheading an initiative for inventory visibility and interoperability, including conventions for programming semantics and syntax. The initiative ensures that suppliers and customers can use whatever inventory visibility product they choose, with confidence that every software application interprets "quantity" the same—and only—way.

The result will be a more conversational supply chain for all parties, including third-party logistics providers.

The ramifications of supply chain execution and breakthrough technology reach beyond a single industry or geographic region.

For example, a completed order from China takes about 21 days to arrive at its U.S. destination. Based on demand projected months earlier—and now outdated—orders are delayed further by inefficient communications. As a result, Chinese suppliers and their U.S. customers are left with excess or insufficient inventory, obsolete goods, and lost revenue.

By finding ways to communicate in real time, manufacturers can better control error. Using technology to align production with customer need, Chinese suppliers will be able to monitor changes in the rate of demand in the United States, and adjust their rate of manufacture accordingly.

Manufacturers long have relied on 3PLs to make up the difference by expediting a supply of raw materials, or rushing finished goods to the customer. A "lingua franca" for supply chain technology will accelerate adoption by manufacturers worldwide. As trading partners match supply to demand, that 21-day voyage to the United States may become a less important consideration, even as global trade expands.

With the advent of more sophisticated supply chain infrastructure, 3PLs and their customers should prepare for subtle but significant change—and opportunity—ahead.

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