Inventory management becomes a global problem when manufacturers get their raw materials or subassemblies from...
overseas. But before they can manage that inventory, they need know where it is.
They want visibility -- an overused buzzword in domestic supply chains that suddenly sounds fresh and meaningful, especially when the inventory is as likely to be moving on a freighter in the Pacific or sitting in Long Beach customs as it is to be in the warehouse down the street. And as more companies position their production and distribution overseas to be closer to emerging markets, the need for tight, transparent supply chains only intensifies.
“With the globalization of logistics and longer, more complex supply chains, inventory management becomes more critical,” said Evan Armstrong, president of Armstrong & Associates Inc., a Milwaukee-based analyst firm that specializes in logistics.
The answer, according to Armstrong, most often comes from outsourcing the entire problem to a third-party logistics provider (3PL) that specializes in global shipping.
“It’s important to really align yourself with providers that have significant capabilities on a global basis,” he said. “A lot of them manage the local providers and work with them as a lead logistics provider.”
Some of these lead logistics providers function as so-called 4PLs -- essentially supply chain integrators that bring together 3PLs and customers while providing support services like contract management and inventory visibility.
Several supply chain management applications are involved in tracking and managing the inventory, according to Armstrong. Most global 3PLs have their own proprietary systems for providing customers with inventory visibility, often piecing them together from third-party transportation management system (TMS) and warehouse management system (WMS) software.
“Every major 3PL has some kind of integrated system suite like that,” he said. “You can get down to the item level with these systems, usually.”
A few 3PLs can even take over functions normally performed by manufacturers, such as demand planning and kitting of related products.
What if you have your own WMS and TMS? “You might just tell your provider to use your system,” Armstrong said. “But 3PLs can save more money with their system.”
A smaller number of providers specialize in just the computer networks and don’t own a single truck or warehouse. Their goal is to be a single source of applications and data for all the major steps in global logistics, including inventory, transportation and order management, as well as compliance with international regulations.
Moving toward collaborative global inventory management
Analysts and vendors say these global logistics networks make it easier for manufacturers, suppliers and 3PLs to work together to optimize the supply chain and reduce inventory costs. Traceability of subassemblies and raw materials is another important driver of global visibility into inventory.
“If you don’t have that visibility, then you can’t do any contingency planning or workarounds if that component is in the critical path,” said Joseph Kemp, senior solutions architect at Patni Americas Inc., a consulting firm based in Cambridge, Mass.
But companies must first overcome trust and integration issues to use the networks, said Saverio Barbera, associate vice president for the supply chain practice at Patni Americas.
“You have to figure out how to relinquish the control,” Barbera said, adding that many owners of top-tier ERP systems have the misconception that it’s too expensive to push out inventory data to their global suppliers.
Large, multinational manufacturers rely heavily on electronic data interchange (EDI) for their inventory-related transactions. For smaller companies, cloud computing technologies like Software as a Service (SaaS) could help make global inventory visibility more affordable.
“The mom and pops don’t have EDI infrastructure,” Barbera said.
That makes it hard for them to get access to supplier network collaboration (SNC), a type of network offered by major ERP vendors that lets suppliers and manufacturers share information, including inventory data. Patni is working to convince the vendors to offer cloud-based “SCN lite” for easier access -- and as an ERP integrator for those same companies, it stands to profit if the idea takes hold.
Barbera said his previous employer, the home-appliance maker Whirlpool Corp., uses just such a cloud-based system to give its suppliers access through Web browsers.
Reaping the benefits of global trade
Inventory optimization, demand planning and other common methods for lowering inventory costs don’t work as well when goods sit in port awaiting customs clearance.
“If you have truly offshored your manufacturing, it’s very hard to handle the regulatory compliance,” Armstrong said. Manufacturers often turn to freight forwarders who specialize in moving goods across borders and, like 3PLs, maintain their own information systems to give customers real-time views into their inventory.
Other manufacturers use a SaaS global trade management (GTM) application to manage security clearances and compliance with import and export regulations (see the sidebar).
How should manufacturing IT departments respond to the need for global inventory management? “It’s important to be part of the team that helps do the selection for logistics providers,” Armstrong said.
Armstrong also advised hopping on the bandwagon with manufacturers that are consolidating their businesses on three or four 3PLs, which gives them more leverage and makes IT’s job easier.
“Most manufacturers are going to have a lead logistics provider,” he said. “The fewer the number of providers, the fewer data sets you have to handle and the fewer the integrations.”