Visibility is a buzzword word that is thrown around supply chain circles that seems to have lost all meaning. While everyone talks about it, it means something different to different people. In the post, I’m going to describe five levels of visibility, ranging from level 1-Low to level 5 high.To draw a line in the sand, I would say that true visibility is achieved only when the fifth level has been achieved. Supply chain professionals should be on a quest to evolve their processes and technology stack to achieve each successive level of visibility, as each level of achievement represents a dramatic unlocking of value to their organization.
Visibility Level 1: Where is the shipment?
With each discussion I have with the trade, this seems to be the single biggest articulated challenge that supply chain professionals have. And it is a challenge. For most organizations, they utilize multiple service providers within their supply chain: freight forwarder(s), steamship line(s), air carriers, drayage companies, customs broker(s), and so on.This visibility challenge, however, is reasonably straightforward. Most service providers know exactly where your shipment is. They have systems that enable you to understand where the shipment is. It is just a lot of work. Each service provider has their own system. It just seems to be a lot of work for an employee to survey each system and look for a status update.There are several solutions to solving this problem. The first, most obvious, and likely most complicated solution is to attempt to integrate your service providers’ system into your system. This gets geometrically more complicated and expensive with each incremental service provider. But it ultimately solves your problem. You should be able to get automated updates as to the movement of your containers.The second method of solving this problem is to acquire the services of a solution such as INTTRA, Winweb Connect, or Project44. While each service is slightly different, they aggregate the updates from various services, so integration becomes simpler and less expensive.Ultimately, answering the question Where is a container? should be reasonably straightforward (if expensive and technologically complex).
Visibility Level 2: Where is the product?
Depending on where you sit within your organization or how your organization operates, you may or may not see this as a challenge. If you are always selling out of inventory, then you likely don’t care where your product is before it gets to the warehouse. All you care about is that it is there or not. Companies that operate this way carry excess inventory (read: operate with high costs) because they don’t have sufficient control over their inbound supply chain to operate with less.But there are invariably people within your organization that do care about where their product is. Buyers, Sales people, Chief Supply Chain Officers, and often senior executives care about where their product is. They don’t care about the location of a container...they have promised a certain product or set of products to their customers, and they want to understand the location of a product.This is challenge of a more complex nature, and it is important to understand why your company’s technology infrastructure likely isn’t currently capable of solving this problem.Look at it this way: your buyer’s buy product. They likely use your Enterprise Resource Planning (ERP) system for this function. Your sales people sell product. They either use the ERP or a Customer Relationship Management (CRM) for this purpose. In either case, they are selling product. But your transportation people ship containers (or airtainers, or boxes, or pallets, etc.). They use a Transport Management System (TMS), and TMS systems manage containers (or airtainers, or boxes…). TMS’s do not typically understand product.So, you have a big black hole in the middle of your supply chain that looks something like this:
ERP → TMS → ERP
The currently solution is for a buyer to ask a transportation person where their product is. Then, the transportation person will look in their files or excel to find that product and which shipment it is on. Then, they need to go to the tracking system of that service provider to track where the shipment is. Human intervention is your only solution to this challenge.Simply stated, here the problem: Your ERP doesn’t understand transportation; and your TMS doesn’t understand product.The only solution to this problem is to find a platform that is capable of understanding both transportation and product. There are not many of these platforms around.
Visibility Level 3: Where is a container/product in relation to where it should be?
While it is nice to know where your product and shipments actually are, it would be more useful to understand where they should be. Only when you are capable of establishing estimates for where your product or shipment should be are you able to determine if you are early, late, or on time.It might not be evident as to why you want to achieve this level of visibility, so let’s explore a few different reasons.
- If you are able to understand your expectation, you are able to improve. Is your expectation reasonable? If not, you can get better on creating your expectations. If your expectations get better, you should be able to plan more optimally. Planning more optimally has dramatic impact on your costs and revenue.
- If you are able to manage against expectation, you can improve your execution. Building a reliable supply chain is difficult. Unreliable supply chains are expensive and result in customer (and employee) dissatisfaction. Reliable supply chains are capable of being optimized for performance, and will deliver happy customers.
- Your lead times reduce...drastically. It is amazing how much buffer gets built into supply chains. Every time a handoff occurs, buffer is added in. And buffer gets measured in days or weeks. Think about how much you would save if you could remove three or four days out of your lead times. What about a week or two?
- Headcount gets dramatically minimized. It is incredible how much of your supply chain headcount is spent managing planning and execution. Spreadsheets proliferate. Data proliferates. Jobs proliferate. With every new spreadsheet and plan and job, things get more complex. Having a system that does all this automatically results in a simpler and more efficient supply chain.
- Costs drop. This is perhaps the clearest win for companies. Freight is one of their biggest costs, and their leverage is pretty low when it comes to freight providers. Negotiating better rates is a real challenge, especially when your data is poor compared to that of your freight providers. Now, imagine you control the data for performance. When were shipments supposed to be delivered? How frequently were they late? All of a sudden your negotiation position changes, and you are able to negotiate better rates.
Visibility Level 4: How much does my product cost?
Being able to calculate total landed cost is somewhat of a holy grail for companies. I’m continually surprised to learn how totally incapable companies are at accurately determine total landed cost. I’m also surprised at the shortcuts that companies take to fool themselves. (Grossly allocating an extra 30% to the purchase cost does NOT give you total landed cost. It gives you an approximation that doesn’t enable anyone to make any real decision on improvement.)Why do companies have such a hard time determining total landed cost? The challenge is related to that of Level 3. As the cost elements are accumulated and recorded in your enterprise systems, they are not able to be appropriately allocated to the product.Let’s be concrete. Let’s imagine that you have 1000 widgets in a container, and the transportation cost is $2000. It’s trivial to determine that the transportation cost of each widget is $2 per widget. While this is a simple example, most ERP systems are not capable of accomplishing this simple example. But let’s get a little more complicated.Imagine that there are 500 widget type A's that cost $1 to buy, weigh 10 lbs. each, and have a volume of 5 cube; and the other 500 widget B's that cost $2 to buy, weight 20 lbs. each and have a volume of two cube. How should the cost of the shipment be allocated?The correct answer is that it depends. It is a business decision about how costs should be allocated: by value, by weight, by volume, by dim weight, etc. In order to be able to allocate appropriately, your system must be able to understand both transportation and product. As previously discussed, most systems can’t handle this.
Visibility Level 5: How much will a product cost?
The capability of understanding how much products cost is incredibly valuable as it allows you to make better decisions in the future. But understanding how much products will cost ahead of time enables you to make better decisions today.To achieve this level, your system needs to be able to understand the plan, and all the cost elements and business rules that go into the acquisition of product. The plan is multifaceted. It comprises all components that go into the creation and movement of the product. The system, therefore, needs to be able to comprehend the various elements and understand how they impact the cost of the product. That requires that a system is multidimensional. It needs to understand all of the following components:
- Purchase cost, including Terms and Conditions
- Duties, fees, & taxes
- Merchandise processing fees and harbor maintenance fees
- Warehousing, including handling
- Customs brokerage costs
- Freight forwarder fees
Getting to this level of visibility and control enables organizations creates an incredible competitive advantage for your organization. It enables you to become more organized, capable, and faster at decision making. It allows you to plan, execute, adjust, and succeed. Finally, it also creates an environment where your employees are empowered to make the required decisions with the appropriate level of information and knowledge.Invariably, you have spoken about visibility within your organization and with various technology providers. When you are talking visibility, what level are you talking about? I challenge you to push yourself and use the term with a level of deference to what it really should mean. Most importantly, as a senior leader in supply chain, you should be building towards level five visibility. Anything short of that will create a complex environment that will never achieve your ultimate goals.