Tap Into The Power of Analytics
Tap Into The Power of Analytics
Tap Into The Power of Analytics
GLOBAL
LOGISTICS
MANUFACTURING
PROCUREMENT
[STRATEGY]
TECHNOLOGY
New ways of applying supply chain analytics can lead to dramatically higher levels of performance. Heres where to find the best opportunities.
MANY COMPANIES TODAY are aggres-
power of analytics
[BY THOMAS H. DAVENPORT AND JERRY ODWYER] 28
CSCMPs Supply Chain Quarterly [QUARTER 4/2011] www.SupplyChainQuarterly.com
sively employing analyticsthe systematic use of quantitative and statistical decision methodsin their businesses. There are many different application domains for analytics, ranging from marketing to human resources to finance. It is only natural, then, that the next generation of supply chains should incorporate a higher and more sophisticated level of analytics. Applying analytics in supply chain management is not a new idea. The U.S. military adopted a variety of logistical models in World War II, and companies adopted related approaches in the postwar period. UPS, for example, established a logistical analytics group in 1954. Since then, many companies have successfully employed analytical approaches to distribution networks, inventory optimization, forecasting, demand planning, risk management, and other applications. Large retailers, such as Wal-Mart Stores and Target, have had considerable success with supply chain analytics, often working in collaboration with suppliers. And carriers like UPS, FedEx, and Schneider National wouldnt dream of managing their operations without a variety of analytical models. Yet supply chain-related analytics activities have plateaued in many organizations in recent years. Other than the occasional re-tuning of supply networks that has principally focused on cost management, companies have not taken advantage of all that supply chain analytics can offer to their businesses. Further, even when analytical tools are available to front-line supply chain personnel, the tools often go unused because of a lack of skills or understanding. We believe that there will be a set of new frontiers in supply chain analytics that will lead to dramatically higher levels of performance. If companies are to achieve these rewards, however, they will have to be more ambitious in their analytical goals and investments. In this article we describe a number of relawww.SupplyChainQuarterly.com
tively new domains for supply chain analytics as well as the opportunities and primary obstacles for each. We also describe several ways in which the day-to-day usage of supply chain analytics will change in the future.
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multiple transaction systems, in a way that allows companies to make informed decisions in real time.
expands, new sensorsin particular, radio frequency identification (RFID)will make dramatic amounts of data increasingly available for the next generation of supply chains. For more than a decade, supply chain managers have been bombarded with warnings that RFID devices and networks will change their lives. Thus far, however, the high price of RFID technology has prevented widespread deployment from taking place. But prices for RFID tags and readers continue to fall, albeit slowly, and the adoption rate is gradually rising. At some point in the next several years, most manufacturers and retailers are expected to deploy some degree of RFID capability. When that happens, a great deal of RFID-generated data will be available for analysis. Initial applications using RFID data will primarily be transactional, but shortly thereafter organizations will want to monitor and optimize the efficiency and effectiveness of their RFID networks. This set of applications will demand the use of sophisticated supply chain analytics. Some companies have employed RFID analytics for several years. For example, Daisy Brand, a dairy products manufacturer in the United States, began using RFID analytics in 2007 to track how long it takes products to reach the store shelf as well as replenishment rates. Prediction of replenishment rates is particularly important during promotions. In addition to RFID data, Daisy Brand also makes extensive use of WalMart Stores Retail Link data, which provides suppliers with weekly point-of-sale and inventory information, in its analyses.1 Sensors for more expensive and substantial supply chain assets are already in wide use. Some major carriers, for example, are deploying geographic positioning system (GPS)-based telematics devices in trucks and trains. These devices provide a wide variety of data about driving behavior, speeds under various conditions, traffic, and fuel consumption. Companies such as UPS and Schneider have already employed telematics data to redesign logistical networks in whole or in part. UPS, in fact, is using telematics data to redesign and optimize its entire delivery network for only the third time in its more than 100-year history. Other types of sensors are likely to lead to a flood of additional dataand opportunities to analyze it. RFID and telematics sensors primarily track location, but so-called ILC (identification, location, condition) sensors can also monitor the condition of goods in the supply chain. ILC sensors monitor such variables as
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light, temperature, tilt angle, gravitational forces, and whether a package has been opened. They can transfer data in real time via cellular networks. Obviously, the potential to identify supply chain problems in real time and take immediate corrective action is greatly enhanced with this technology. We have only begun to consider how analytics might be used to enhance the value of ILC-derived data.
skills. Analytical apps that have already been developed for supply chain functions include tools for supplier evaluation, inventory performance analysis, transportation analytics, and transportation contract compliance. There undoubtedly will be many others over the next several years. Perhaps the only way to guarantee the use of analytics in supply chain management is to embed them into supply chain-oriented systems and processes. No human would be involved in the decision unless there is an exception. For example, certain supply chain decisions made at least partially on the basis of statistics and probability (such as available-to-promise inventory, or the likelihood that an ordered product will be returned by the customer) could be embedded in an order management system. Vendors of ERP systems expect to have such capabilities in the next several years.
THOMAS H. DAVENPORT ([email protected]) IS RESEARCH DIRECTOR OF THE INTERNATIONAL INSTITUTE FOR ANALYTICS, PRESIDENTS DISTINGUISHED PROFESSOR OF IT AND MANAGEMENT AT BABSON COLLEGE, AND A SENIOR ADVISOR TO DELOITTE. JERRY ODWYER ([email protected]) IS A PRINCIPAL WITH DELOITTE CONSULTING LLP, WHERE HE LEADS DELOITTE ANALYTICS FOR THE STRATEGY AND OPERATIONS PRACTICE.
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