Shared Supply Chain Control Towers: Key Features and Considerations
As we join the year end recap bonanza, we can’t miss one of our highlights of 2018: a joint Professional Development Event with the APICS Golden Gate chapter. We welcomed members and guests to our San Francisco office in November to discuss “Implementing a Shared Supply Chain Control Tower.”
In the world of supply chain, the function of a “control tower” is similar to that of its namesake in aviation: provide visibility into the movement of products and “direct traffic” to optimize operations. The concept has been around for many years, but primarily focused within a company’s own four walls.
A control tower that is shared across trading partners, including manufacturers, suppliers, and retailers, can unlock even more value. By serving as a single source of truth and fostering trust and collaboration across enterprises, it enables all parties in the supply chain to achieve goals like reducing costs and improving customer service — beyond what any one party can achieve on their own.
For example, consider a manufacturer that’s looking to reduce working capital and decides to decrease its working inventory. When a demand spike occurs, they don’t have sufficient safety stock to cover it, and so have to quickly place a large order, passing on the the demand spike to their supplier. The supplier then increases their own inventory levels to handle these types of shocks, and subsequently increases their prices to protect their margins. That increase translates to higher Cost of Goods Sold for the manufacturer, so while they may have reduced working capital, they are paying for it in another way.
Many will recognize this illustration as the bullwhip effect, which results in a zero sum game as costs simply get shifted around and companies see limited, short-term benefits. By contrast, if manufacturers and suppliers work together, quickly passing on information when demand or supply changes occur and taking into account mutual inventory levels to form a joint response, they can both improve working capital and costs.
A shared supply chain control tower aims to break the deadlock of companies optimizing on their own by driving collaboration, which leads to more value for all partners. To achieve this vision, a shared supply chain control tower should include:
- End-to-end supply chain visibility
- Predictive modeling and recommendations
- Management by exception with analytics and smart alerts
- Internal/external collaboration tools
These features are key to overcoming one of the first challenges companies come across when embarking on any visibility project: gaining partner buy-in to share the required data. The concept of a shared control tower makes data sharing a two-way street and provides transparency into the analytics and recommendations for improvement, facilitating collaboration toward common goals. They also make the insights from the data actionable, so that partners can see clear value from the data sharing, without significant additional resource investment.
As a result, companies implementing shared supply chain control towers have realized benefits ranging from faster crisis response to elevated supplier relationships to reductions in expedited shipping costs and inventory carrying costs. So does it make sense for your business? Below are a few questions you can ask to help determine if a shared supply chain control tower is a good fit for your company.
- How long is my supply chain? If you already control the majority of your supply chain, you probably have good visibility into the data you need for informed decision-making. On the other hand, a longer supply chain can have more opportunities for optimization, and may also benefit from the near real-time data that a control tower can provide.
- How do my partners fit into my supply chain? If your company only makes up a very small portion of your supplier’s business, they may be less receptive to the idea of a shared control tower. If optimizations in the supply chain would really move the needle for your partners, however, they’re much more likely to engage with the idea.
- Where can I start and trigger a snowball effect? If there are specific partners you can think of that would really see the benefit of sharing data, you have a clear starting point. You then use those experiences to gather proof points for further integrations and grow the number of partners and value that you get from a shared control tower.
If you’d like to discuss these questions with one of our experts and learn how a Fortune 500 CPG worked with Alloy to implement a shared supply chain control tower, please reach out to us at email@example.com.