In this article, we will learn how to begin correctly the development of a Supply Chain System, which business processes should be taken into account, and how to achieve your goals.
The topic of supply change and technical solutions is so broad that it’s difficult to cover everything in one article. So I’ve created a series. We started with the topic What modern Supply Chain System is and learned the needs of companies in the supply chain, what system functionality a Supply Chain Management System has, and what value it brings for business.
Modern technologies allow the development of a software solution for any need or goal. However, it’s not enough to just develop a software solution and expect it to work as planned. There are always human factors, business confines, processes and external factors. That’s the main reason why, prior to starting development or integrating the SCM System, it is better to think through a number of nuances. It will help to ensure the correct operation of the system and bring the expected value. So let’s talk about the challenges of integrating an SCM System and some recommendations on the business adaptations necessary for a new work model.
First of all, remember the objectives of SCM system integration:
- Tracking the current state of the product, its history of origin, and movement in the Supply Chain
- Electronic document management
- Quality control
- Managing demand and purchasing resources
- Optimization and automation of production and logistics processes
- Supply Chain transparency for all participants of the chain, enabling access to important product information
I want to draw your attention to the fact that, even while discussing the integration of the SCM system and business adaptation, it is very important to begin all work with a high-quality discovery phase. This is where all the planning, projection of the SCM system, and adaptation to business take place. Here is an example of how the following problems could be solved in the initial discovery phase. A poorly performed discovery phase can have the largest impact on system integration and operational problems.
In 1995 the airport in Denver was opened to the public, but not as scheduled. Different problems caused delay, some problems were related to the automatic baggage handling system. The problems themselves were the result of inconsistencies in the architecture of the building and the capabilities of the baggage system. Trying to complete the task in a hurry, the designers hadn’t tested the system with adequate loads and quality tests prior to opening. The airport faced the following problems: bags were delivered incorrectly, baggage was damaged, cars were derailed, and tracks jammed. Given the Denver airport’s circumstances, due to operation mode, it wasn’t feasible to correct these problems and the airport had to revert to manual baggage handling. It was the largest fiasco in the cargo handling industry that had been seen to date.
After you make a decision on the necessity of an SCM system, it’s better to source a reliable partner capable of developing, delivering, and integrating the system according to the specifications of your business activities and processes. The project team should help you comprehensively evaluate the business, technical requirements, opportunities and challenges, possible risks, and of course goals and targets.
Integrating a Supply Chain Planning module involves the introduction of a large amount of information necessary for modeling and optimization of logistic processes. The customer does not usually carry out analytical work before the start of the software development project, and can often have false expectations and goals. As a result, the integration team begins to source information after the development project has already begun. The project is delayed, and the goals and content of the project may change. With time pressures emerging, important data is introduced without care given to prior analysis and verification, and the prototyping result is inaccurate.
Given such a scenario, you can understand why the development process should begin with the discovery phase. In such a case you would conduct a detailed analysis of the business’ situation, needs, pains, and processes. You should be able to gather all the data and define the role of the SCM System for business. Ideally, the selected partner should do this in tandem with your in-house experts.
Let’s move on with identifying major risks while matching your business needs with an SCM system, and how to eliminate those risks. I will analyze risks according to the business situation.
Tracking the current state of the product, its history of origin and movement in the Supply Chain
This is a complex module and it should be designed correctly. So there are certain potential risks:
The risk of data inconsistency in the system with actual product data.
If your process relies only on back-office managers working with an SCM System, and they upload logistic documents, supplier contracts, and product data, but without actually verifying the information at manufactures and warehouses, then this information is not tied to production, nor controlled alongside the sending and receiving of goods under those documents.
There is no guarantee, in such a system, that the data is reliable, as there is no controlling role. This can lead to problems with stock shortfalls, goods can be moved to the wrong place following the wrong document, the substitution of goods may occur, or even data loss. In order to maintain complete and reliable data in the system, with fewer errors, those who physically receive, dispatch and produce of goods should also verify and record information in the System on their behalf. These operators need integrated equipment: QR scanners, production scanners, terminals, etc. And, of course, unique tags for each product. The process of checking and scanning can even be automated, for example using RFID tags and readers.
The process of tracking the status of the goods may not function at all.
There are a number of tagging technologies to track product condition: QR codes, bar codes, RFID tags, etc. It is very important to identify, from the outset, which type of tags to use, and what to tag. It’s possible to make a sub-optimal choice and complicate the process throughout the chain; in a worst-case scenario, your tagging may simply not function.
Consider the example of a Spanish winemaking company, buys its inputs (grapes) from private farms. There is a single collection point, to which grapes are brought from private vineyards. The company’s personnel sorts, grades, and juices the grapes, before the barrels of juice are taken to the wine factory. And here is the question: does the winemaker need to tag grapes starting from harvesting at the vineyards by, for instance, sticking barcodes on the crates of grapes? We usually hear an affirmative response, to maintain information about the grapes’ origin and varieties at the collection point. But the answer should probably be ‘no’. There is no value for the end-user in knowing which farm the grapes came from, as the grapes are mixed during processing. The end-user wants to know the grape itself, year, region, and sometimes the production volumes. The operator can add all this information in the system at the collection point. When sending barrels of grape juice, the operator marks the barrels with a barcode and ties in the above information. Further, the whole chain of the grape juice and the following production process of wine is tracked in the system and there are no additional costs for the integration of tracking systems at the vineyards, however our system consists all needed information about the primary grape analysis for the internal record of the winery and further analyses of the wine made from these grapes. However, a tracking system at the vineyards might be needed for premium-class wine or some organic labels, where it’s important to track the exact origin of the wine, or in case of wines with denomination of origin (i.e. DO Rioja, DO Rias Baixas etc).
It’s extremely important to choose the right tagging system to match your goals. It’s possible to mark raw materials, finished products, containers with products; you can even label company employees. In the gold supply chain, specialized hammers are used to mark gold bars with a unique ID. Adding laboratory tests at all stages of the chain, faking or replacing gold simply becomes unprofitable. Even if a lower-quality gold bar receives a forged ID, it remains impossible to fool the laboratory tests.
The integrity of the data in the SCM System is impossible to ensure if the system is vulnerable.
Let’s imagine that the operator sends a batch of licensed audio discs from one warehouse to another. He or she hands over the accompanying documentation to the truck driver but forgets to track it in the system. The truck driver delivers the batch to the second warehouse; the operator of this warehouse accepts the goods but can’t find its information in the system. The status of the batch is not updated – there is no information in the chain about the batch. This means that anything could happen to it, including fraud to non-licensed discs.
When we manage the whole process in such a way that it’s mandatory, rather than optional, to use the SCM System, the driver will not be able to receive the goods from the first operator without verification in the System, and the second operator won’t be able to receive goods from the driver without verification. All documentation flows within the Supply Chain System. We make it impossible to operate without the system as all processes go through it: document generation at the moment of sending /receiving, tag generation, digital signature of employees, etc. Even if there are several companies in the chain it should be one processes standard within the Supply Chain Management System.
The risk of data obfuscation in the SCM system.
There is always a risk of data masking, and the larger the chain is, the bigger the risk is. To avoid such risks you should build the right System from the beginning.
- Participants in the chain should be clearly defined, with a strong identity and access system;
- The technology used should avoid fraud and data obfuscation, and detect such incidents (blockchains are very popular for such objectives);
- The entire history of goods’ movement and condition must be stored safely so that you can identify at which stage failures have occurred;
- The product status flow should make it impossible to cheat and ignore the process (it’s possible to code such rules within Smart Contracts).
Products and services quality control
It is mandatory to arrange processes ensuring the quality and relevance of digital data for the SCM System to work as expected. Our advice:
- Each action with raw material or product should be recorded in the system alongside information about the responsible executors; thus, each employee will identify their own responsibility.
- Digital signatures help every employee to understand that all data and actions are recorded within the system. It’s better to apply regular additional checks of data compliance and error detection. This could involve random goods checks, laboratory tests to check quality compliance, etc.
- Video security. It’s a very strong argument for all employees and motivates to work transparently and with better results.
- End-user feedback in case of damaged or poor-quality goods but satisfactory good customer service; this could involve customer surveys. Make it easy for the customer to provide his feedback.
- Machine learning allows users to analyze data in the SCM System, determine errors and identify chain participants’ incorrect usage.
Electronic document management
It’s worth considering making electronic document flow mandatory, and only when required in particular chain points allow to print documents. Even with active take-up of electronic document flow in all sectors, it’s not always easy to completely eliminate paper copies. For instance, customs may require stamped sales documents at the border. However, electronic document management should be the main focus of the whole supply chain. If electronic document flow is one option among many, documents may still be misplaced, or not be uploaded into the system, and you will lose data integrity.
Transparent access for all participants of the supply chain to important goods information
It’s not difficult to create identity and access management solutions inside the organization or SCM System. The critical aspect is to provide accurate communication for end-users if there is such a need. Internal participants will already be aware of the benefits of the system and the technologies it uses. They understand the reasons for using blockchain, video control, lab tests, and other tools to ensure the high-quality of products for the end-users. Would those end-users want to know how blockchain solutions work in your SCM System? You should communicate transparently with your end-users, and share the information that they might value, understand, and trust. This will also increase interest in your products and services. When you create a parcel delivery service, you should also create a simple and easy-to-use interface for parcel tracking. It is possible to integrate GPS or GSM chips for online tracking so that the customer has the opportunity to track the movement on the map and not just view the status as “delivering”.
If there’s a possibility that the parcel delivery could be delayed by bureaucratic procedures, it’s better to divide the delivery into several sub-phases so the end-user can see the dynamics. It’s much better and creates more loyalty than maintaining the same status update for several days.
When it comes to growing food or goods production, the user might want to view an online video stream from the production point and then track the product from that exact location. This also creates trust and loyalty of customers. The user can see that vegetables are grown in organic and ecological conditions, free from labor violations or chemicals use. It’s also worthwhile creating a video of harvesting and production, then tracking these goods in the system. It’s easy to implement with video control, tagging, and supply chain tracking system. So if your goal is to increase your customers’ trust, consider the information about your supply chain that would bring the most value and hold the most interest to the end-users.
Automation of production logistics processes
This is the final objective and you should start working on it after you have integrated the SCM System completely and perfectly, and are already bringing value for your business. It’s possible to automate almost everything: replace manual handling with robotic equipment, automate procurement processes based on data, automate the scanning and management of goods, etc. However, such automation has its own risks. So carefully consider what should be automated and where there is a need for manual labor. In some cases, automation processes can be implemented slowly, step-by-step. For instance, the system could analyze procurement needs and automatically form orders, but a human manager should check and correct where needed before authorizing the order. This will speed up the procurement process and retain the quality of orders, with manual control at a high level. In the module Supply Chain Planning, there are several functions for automation, such as: generating forecasts on the level of demand for products, analyzing production capacity, procurement with minimum manual management involvement, etc. It’s also possible to integrate the module, whereby each warehouse worker would receive a list of tasks.
We’ve taken a deep look into possible risks during the integration of SCM System and possible solutions to eliminate those risks. It’s better to be aware of all possible risks and learn from others. So when you start thinking about developing and integrating your new SCM System, spend some time determining the objectives, needs, processes of your business. Identify the main roles within the system (in most cases, this includes the Procurement Manager, Logistics Manager, transportation operators, inputs suppliers, Quality Inspector, Supervisor, etc). You should also think about staff development and education, and a program of motivation. Staff can have difficulty with managing change, and with integrating new systems or processes. Think ahead about making the process of integration less painful and more comfortable for stakeholders. The first step is getting the support of top managers, who should take an active role in integrating your SCM System. They should understand that it’s not simply the purchase of a new tool – it’s an important innovation, a transformation of the whole business, and an investment into future success and development.
Need help pitching to top management in order to get the budget and support for SCM system integration?
This article is written by Dmytro Grebennikov, Senior Project Manager.