Supply Chain Data: Keeping It Clean
The call came on Dec. 27, 2002. The U.S. Navy hospital ship USNS Comfort would deploy to Southwest Asia within one week to support Operation Enduring Freedom in Iraq.
The medical directorate, Defense Supply Center Philadelphia (DSCP), faced the daunting task of outfitting the vessel with all pharmaceutical, medical/surgical, and capital equipment items required for war.
The Navy submitted its requirements, mainly via fax, for the USNS Comfort and DSCP went to work.
DSCP’s pharmaceutical business unit quickly identified and matched the requested pharmaceutical items with supply sources using the National Drug Code, a set of federally mandated pharmaceutical industry numbers that uniquely identifies every drug in its various packaging formats.
However, no such “standard” exists for medical/surgical products. The DSCP’s medical/surgical business unit struggled simply to determine what was required for the ship, a task that involved a great deal of manual research and continuous discussion with the Navy.
Of the 995 medical/surgical items the Navy ordered, 224 had unidentifiable product identifiers and 205 had obsolete product identifiers. Because universal product numbers did not exist, the Department of Defense (DoD) was unable to electronically cross-reference for equivalent products. It took 15 people two days to manually resolve what could have been electronically processed in seconds.
Situations such as this are the reason DSCP instituted the Federal Data Synchronization Working Group, dedicated to developing synchronized product information across the health care industry.
“To be an effective supply chain manager for the DoD, we need to be able to communicate quickly and accurately with all our trading partners,” says U.S. Army Colonel Donald Buchwald, director of DSCP’s Medical Directorate and creator of the Working Group. “Our data synchronization efforts are important not only for the DoD, but for the entire health care industry.”
When data is properly synchronized, all members of the supply chain can identify the same item in the same packaging configuration. They can therefore determine the most advantageous procurement terms, the item’s complete procurement history, the total demand, and potential substitutes and equivalents.
The DoD estimates it could save more than $25 million per year by improving identification on its medical/surgical purchases of more than $500 million annually.
At the same time, the DoD believes implementing data synchronization will enhance medical readiness and improve health care delivery for U.S. soldiers, sailors, and airmen.
The health care sector isn’t the only one plagued by data accuracy and synchronization problems. Manufacturers and retailers will squander $2.1 billion over the next five years on business-to-business initiatives that fail to realize their potential largely because of a lack of data synchronization, predicts Boston-based AMR Research.
Garbage at the Speed of Light
Attempts to streamline supply chain costs by implementing new technologies are sabotaged by inaccurate item data. In turn, these efforts merely accelerate error generation—a process termed “garbage at the speed of light” by Craig Wigginton, vice president, chief technical strategist at supply chain solutions provider Neoforma.
The “garbage” problem was studied in detail by A.T. Kearney for the Grocery Manufacturers of America’s Food Marketing Institute. The study found:
- Thirty percent of item data in retail catalogs is incorrect.
- Correcting catalog errors costs retailers $60 to $80 per error.
- Each SKU requires 25 minutes of manual cleansing per year.
- Every invoice error costs $40 to $400 to reconcile.
- Sixty percent of all invoices contain errors, and 43 percent of all invoices result in deductions.
- The average product roll-in takes six weeks.
- 3.5 percent of lost sales are due to inaccurate data.
The net result is $40 billion lost in grocery industry supply chain inefficiencies each year, reports A.T. Kearney.
“Leading consumer product goods (CPG) companies spend significant time and resources preparing, cleansing, and aggregating data on a one-time basis so they can send that data to their retail partners to comply with an expressed need for synchronized data,” says Tom Mongoven, senior manager in the consumer business practice of Deloitte Consulting LLP. “Then they repeat the process for the next retail partner.
“Unfortunately, this means the only time data is accurate is right before it is transmitted to the retailer.
“Likewise, the typical large retail organization can receive data but has not yet invested in understanding and addressing the organizational, technical, and management issues required to rapidly syndicate data across different business units and business systems within the enterprise,” Mongoven continues. “Manual distribution and transcription is still the leading data distribution ‘tool’ in retail.”
“Never before have we needed data accuracy the way we need it today,” says Nigel Bagley, head of customer e-business at CPG giant Unilever.
“Take product dimension data, for example. It’s common for people to transpose product width and depth dimensions—4″ x 3″ becomes 3″ x 4,” for example. In a manual world, that doesn’t make a difference. Now, with retail shelf space planned out to the inch, it makes a huge difference. You end up with a whole supermarket shelf of product with side views facing out.
“This problem becomes amplified in the warehouse,” Bagley continues. “If our dimension information is wrong, the warehouse won’t work. Pallet stacking and automated putaway planning go out the window if our height information is flawed. And, if our transportation information is incorrect, we can’t fully utilize our truck fleets.”
The Path To Synchronization
One solution to the data synchronization challenge is Global Data Synchronization (GDS)—the ability to make timely and accurate updates to any finished product information across enterprises and borders based on a single, global registry that connects data sources from around the world. This enables trading partners to standardize and synchronize data by on a near real-time basis.
Originally, the GDS initiative was established by the Global Commerce Initiative (GCI)—an industry group aimed at improving the consumer goods supply chain by developing and implementing best practices and standards—and GS1 (formerly known as EAN International and the Uniform Code Council) to define the processes and standards for cleaning and synchronizing information.
The GDS vision is now enabled by the Global Data Synchronization Network, a network of interoperable data pools; the GS1 Global Registry, a set of global standards established by the Global Standards Management Process; and enterprise software for product information management.
A Fundamental Change
GDS is not an IT initiative, nor is it managed solely by a company’s IT department. Rather, it is a fundamental change in the approach to managing data. Companies embracing GDS understand that data exists beyond the walls of the organization and needs to be collaboratively managed with trading partners.
Data standards and synchronization have advanced since the late 1990s. In 2004, 83 percent of consumer packaged goods companies had active GDS efforts underway and 67 percent were working to synchronize their item data. Implementation of item and price synchronization was widely enabled by 31 percent of industry retailers in 2003 and another 26 percent anticipated implementation by 2005.
This rate of progress is not fast enough for Tom Mongoven, however. Only 16 percent of sales worldwide are conducted with synchronized master data between trading partners via standards-compliant data pools, he notes.
What’s holding up progress?
“GDS is not a sexy business topic,” says Kees Jacobs, principal consultant with CapGemini. “Many IT and data management professionals, and some corporate executives, support the value of GDS. But operational executives in supply chain, sales and marketing, and buying and merchandising are not as committed.”
GDS offers companies three main business benefits, says Jacobs:
1. Increased sales. A causal relationship exists between the lack of data accuracy and synchronization and the number of out-of-stock items. Out of stocks mean lost sales for retailers and manufacturers.
2. Productivity. Retailers and manufacturers have many employees whose job is to reenter data from one system to another, correct data errors, rework data, and resolve orders and invoice mismatches.
3. Cost savings. Data issues cause many problems in the supply chain. “A retailer’s distribution center, for example, will reject a manufacturer’s shipment because the retailer’s information system doesn’t recognize the shipment due to some data error,” Jacobs says. “The cost is tremendous.”
Unilever has achieved similar benefits with its GDS project. It is using GDS to address a variety of issues, including:
Item maintenance. “We have an inordinate number of people involved in the mundane task of updating different databases,” Bagley reports.
New item introduction. Today, if Unilever introduces a new salad dressing, it has to complete stacks of forms for each retailer selling the product.
“This is costly, slows down the process of new item introduction, and complicates business,” says Bagley. “Manual work is also prone to error. We may find out the new item doesn’t fit on the store shelf because the dimension data was wrong.”
Order to cash. Unilever spends 1 percent of revenue reconciling all data internally and with its customers. Effectively aligning data would help it reduce these costs.
Product growth. “Category managers spend 50 percent of their time formatting and manipulating information before they can analyze sales,” Bagley says. “Sharing common data through GDS helps the company save time and lets us respond to retail promotions while they occur.
“It is difficult to scale up our collaborative forecasting and replenishment plans because of the amount of data that constantly needs to be aligned. GDS takes care of this.”
RFID in the supply chain. “What is the point of having RFID if you don’t know what product you are tracking? GDS is the foundation for RFID,” notes Bagley.
But while it is essential to the future effectiveness of the supply chain, GDS is only part of the data picture.
“GDS is a component of a much larger and more strategically important infrastructure—Enterprise Data Management (EDM),” Mongoven explains. “EDM ensures that a strategy is in place to link data management and each of these specific supply chain challenges to a corporation’s overall objectives.”
Enterprise data management is critical for a company to achieve data consistency and process integration both internally and with specific trading partners. By implementing an EDM solution, a company creates “one version of truth” for all data within the company.
A dedicated number of pioneering companies have scored wins with GDS pilot programs.
In the grocery sector, for example, Procter & Gamble and supermarket chain H.E. Butt collaborated on a GDS project that cut costs by $130,000 per year, and helped the companies reduce time spent on administrative paperwork, boost time to market for new products, and improve in-store scanning accuracy.
Here’s what the two trading partners did.
By checking H.E.B.’s data tables manually, P&G learned more than 30 percent of its product information in the tables was incorrect.
These mistakes affected the accuracy of all downstream systems and processes for both companies, resulting in order rework, additional receiving and warehouse costs, returned product, invoice deductions, warehouse and retail scanning errors, and retailer credibility issues on pricing.
The P&G-H.E.B. data synchronization project encompassed:
- UPC numbers
- Case and package dimensions
- Weight and cube
- Pallet configuration
- The single price that H.E.B. expected to load into its tables for each authorized item.
- Off-invoice and billback promotions
Pricing, Promotion on Paper
In the past, P&G communicated pricing, promotions, and product specifications using standard paper forms designed by H.E.B. P&G sales managers received price, product, and promotion information monthly and quarterly, and used this data to fill in H.E.B.’s paper forms.
Frequently, the critical product specification or order sizing information was overlooked or incorrectly transferred to the H.E.B. forms.
Next, P&G sales managers delivered the information to H.E.B. during a one-hour appointment. Forty-five minutes of the hour were used to communicate and validate the information that would be keyed into H.E.B.’s system. The companies had only the remaining time to determine sales strategies in the grocer’s stores.
And P&G sales managers spent up to three days per month processing and presenting the forms and reconciling discrepancies and deductions.
For every change in P&G product information, H.E.B. had to verify the data on the paper form for completeness and accuracy. The form remained in a queue to be keyed into H.E.B.’s system with other manufacturers’ forms.
Once the data was entered, any mistakes or omissions forced a repetition of the process until the data was correct. Processing and managing forms took H.E.B. eight hours per month for each P&G sales manager.
When H.E.B. and P&G embarked on their data synchronization project, they did not set out merely to automate the current communication process. They carefully analyzed existing processes and streamlined and improved them wherever possible.
P&G made significant changes to its processes to ensure accurate and timely communication of its data in a format consistent with the business need to simplify and standardize.
These process changes included:
Deploying national prices and off-invoice promotions. Regional differences in pricing and promotions only added complexity and inefficiencies to P&G’s ordering, billing, and shipping systems.
Setting new product introductions on quarterly timing to improve planning, communication, and deployment.
Standardizing the capability to customize profile information for trading partners and building that capability into P&G sales managers’ laptops.
Now, P&G sales managers present new price, product, and promotion information to H.E.B., secure the grocer’s agreement, and send the completed information electronically to H.E.B. the following day. The face-to-face appointments are now largely used to develop business-building strategies.
The new paperless communication system saves P&G sales managers up to three days per month in administrative time and effort.
H.E.B. began its simplification efforts by documenting the paper form processing for three manual functions: new item setup and item specification change, new price and price change, and promotion announcement and change.
The retailer validated the need for each step by asking, “Would the vendor be willing to pay for this?” If the answer was “no,” H.E.B. eliminated the step.
H.E.B. developed an electronic data interchange (EDI) transaction set in order to establish all product data in an item file. This product information became the data source for all downstream H.E.B. systems.
Now, once H.E.B. agrees to accept a new item or promotion, P&G transmits the information to H.E.B.’s EDI mailbox the next day.
When H.E.B. receives P&G’s EDI transmission, it compares the information appearing on the PC screen to its agreement with the P&G sales manager, and adds any H.E.B.-specific information, such as retail price. If the data matches expectations, the information is electronically loaded into the H.E.B. item file to facilitate integration to all necessary downstream systems.
If a question arises about the electronic data received, H.E.B. contacts the P&G sales manager to clarify or resend the data.
Other leading companies are experiencing similar benefits from GDS programs. Johnson & Johnson, for instance, embarked on a GDS project with Wal-Mart covering 1,300 SKUs in 75 categories. The project aimed to decrease J&J’s out-of-stock volume at the Wal-Mart.
Thanks to GDS, J&J was able to achieve the following benefits:
Improve on-shelf availability. Eliminated 2.5 percent of out-of-stocks that were related to data integrity.
Simplify item setup and maintenance. Before GDS, item setup was a manual process averaging 10 days, but at times taking up to one month to complete. Item maintenance was also manual and could take up to 10 days. Now, J&J’s item setup is automated, and takes only two days to complete. Item maintenance, also automated, is completed in less than 24 hours.
Optimize transportation costs and freight utilization. J&J’s ability to plan and optimize truckload transport was limited due to inaccurate or incomplete dimension data. After GDS, J&J expects significant savings.
Reduce deductions. J&J no longer receives any data integrity-related deductions from Wal-Mart.
The pharmaceutical company is two years into its GDS project with Wal-Mart, and is working on a staged rollout to include additional product configurations, such as displays. It also expects to use GDS with other retail customers.
More Work to Do
Successfully addressing data synchronization is not an easy task. It involves synchronizing information internally and with trading partners, as well as establishing a process for trading partners to stay in sync over time.
“We have a lot of hard work still to do,” Unilever’s Bagley acknowledges. “We know the technology will work. We just have to improve the quality of our data across the supply chain.”
Bagley, Jacobs, Mongoven, and other GDS proponents believe progress will come. “In five to 10 years, GDS will be a mandatory element of trading relationships, the way the bar code is now in the United States,” predicts Jacobs.