CSCMP's Supply Chain Quarterly
December 19, 2018

Information without borders

For companies with international supply chains, developing an information technology strategy that successfully balances global and local requirements is not easy. Here are some considerations to keep in mind.

It's almost a given that companies these days have global supply chains. But although they are a critical element in many companies' success, global supply chains come with a drawback: the more segments a supply chain encompasses, the more opportunities there are for disruption. And when a supply chain extends across multiple regions, the opportunities for disruption increase exponentially. For example, the debt crisis in Greece, last year's congestion and strikes at U.S. West Coast ports, and the 2011 earthquake and tsunami in Japan all disrupted supply chains far beyond their immediate areas, with costly and long-lasting consequences. As these and many other examples make clear, in our interconnected economy a disturbance in just a single country can have a ripple effect across the globe.

Accepting a modicum of risk is part of any good business practice. The important thing is being smart about how to address it. Companies must have intelligent processes in place that help them adjust with agility when business interruptions arise. It's crucial to have such contingency plans ready before disruptions occur—because they will occur, and they have the potential to cause ever-greater disturbances. This is an increasing concern as industry moves toward omnichannel strategies.

In the past, an ocean container typically carried a single product in large quantity to one location, risking only that piece of the product mix in transport. But in an omnichannel environment, where small quantities of many items ship together in a "blended" container, an entire cross-section of product could be lost, jeopardizing multiple orders in the process. In short, small quantities of diverse products consolidated in a single shipment increase the value at risk.

In an interconnected world where global supply chains are a requirement and supply risk appears to be on the rise, a well-functioning, integrated supply chain is more important than ever. If a company that does business internationally is to be successful, an integrated information technology (IT) strategy that supports and enhances cross-border business must be part of its supply chain framework.

Enabling the free flow of data
So many companies depend on the manufacture, assembly, and movement of products across borders that integrating IT across the supply chain is absolutely necessary—indeed, mandatory—not just for mitigating risk, but also simply for functioning efficiently. Ideally configured as cloud-enabled data sharing, communications, and operating systems, this "cross-border" IT integration gives buyers, sellers, manufacturers, shippers, and carriers across the supply chain a single version of the truth on any given order—at any point in time, over any connected device. As a result, companies that conduct business internationally gain the visibility to manage their supply chains effectively, constantly improve their ability to meet customer needs, and get the right product to the right party at the right time. Moreover, when information is shared flexibly in real time across the distributed supply chain, purchasing decisions are improved, finance departments function at a higher level, and fewer business disruptions occur, thus improving customer satisfaction and enhancing brand integrity.

For this to happen consistently, supplier relationships and service-level agreements (SLAs) must be designed to ensure that every link in the supply chain understands what it's trying to accomplish, and why. Think of it this way: in an omnichannel business environment, issues of timing, availability, quality control, and other supply and demand variables must be understood and managed by all parties to efficiently meet fulfillment requirements and customer expectations.

Moreover, it takes good supplier relations and SLAs to ensure accountability. This can only be achieved if supply chain partners are able to share information freely while trusting its accuracy and completeness. As discussed in more detail later, adopting technology that is easy to use and update and doesn't require significant modification to work in different business environments is a key enabler of the free flow of data in international supply chains.

Technology that will be applied across borders, therefore, should be implemented through a holistic approach that considers processes, supplier relationships, the culture in the various countries that are part of the supply chain, and the level of trust companies share with their partners. The simplest way to do this is through Internet-based systems—in the cloud—that enable information to pass efficiently between operations so managers know where products are at any given time, and where they're going next.

Even if information has the ability to flow freely, there are some potential roadblocks to making it useful as it moves between countries. A major reason such roadblocks exist is that there are so many players in any global supplier network. Having more supply chain partners provides access to more and different solutions; while that can be an advantage, it becomes a drawback when they present various levels of sophistication, maturity, and robustness, making basic information exchange difficult at best. The amount of manual effort expended to compensate for this is a drain on profits and a risk to customer relationships.

Here's an example. Suppose you make a business phone call and have to wait to speak to an operator, and then the response is delayed because of system incompatibilities. You risk losing the customer's business altogether because of technical inefficiencies. Worse, if you have no way of holding your technology partners accountable or even measuring their performance, and if their way of engaging with the customer is not compatible with yours, then disconnects in service and unmet expectations could threaten to disintegrate the entire transaction. Similar considerations apply in international business.

It takes both process and technology working hand in hand to overcome these challenges and run an efficient operation in today's fast-moving and unpredictable global marketplace. Most importantly, companies need a conduit that allows data to cross borders easily—that's where an Internet-based solution, such as managed services in the cloud, comes into play. Cloud-based solutions provide standardized protocols and application program interfaces (APIs) that eradicate the barriers between disparate systems, facilitating and enhancing collaboration. A simple software toolset provided by the host vendor allows cooperative suppliers to connect through a browser and engage without elaborate workarounds.

The human element
More difficult to manage are the processes and relationships that ensure data is entered efficiently, accurately, and completely. It's crucial to spend significant time drafting and communicating clear SLAs that outline each party's responsibilities while also making sure that those responsibilities are ingrained in the culture of the business relationship. Who will be responsible for each task in the order fulfillment process? What workflows are required to ensure a satisfactory outcome? Who has the authority to intercede when problems occur? What specific response times, fulfillment rates, or other objective criteria must be met before financial penalties kick in or bonuses take effect? All links in the supply chain must act as if they are part of the same company working toward the same objective.

Getting that buy-in can be more challenging than actually integrating the technology. Companies need to be very clear about how they're going to work with their international suppliers. It's important, therefore, to establish and reinforce that the relationship is an ongoing partnership instead of a one-off transaction. Companies can do this by sharing forecasts so suppliers understand long-term goals, and by explaining the elements of a mutually beneficial relationship, including consistent on-time performance. It's helpful to offer ratings so suppliers know how they're performing against stated objectives. Companies can also incentivize suppliers for a job well done: if they meet certain expectations, more business will come their way. Once these practices are in place, companies can measure performance at each level in their supply chain. This allows them to provide regular feedback, identify weaknesses, and quickly make improvements. When partners know that the "hub company" is monitoring them, they'll focus more on doing their part well and will react more quickly.

None of this can happen, however, without an effective data management strategy for collecting supply chain information in every country and from every participant. Impeccable on-time performance is obviously the end game—companies that do that well become industry leaders. But to perform at that elite level, companies must collect and analyze data at every stage of the supply chain, from the ability to move inventory to the level of available inventory to the rate of inventory turnover. They also need "softer" data, such as the number of complaints received, which can help companies calculate the true cost of making mistakes and gauge customer satisfaction. Monitoring comments on social media and measuring customers' willingness to recommend the brand can provide an "early warning system" for localized complaint issues and support a proactive approach to protecting corporate integrity.

For the data management strategy to be effective—especially when multiple countries with diverse languages and cultural styles are involved—it's crucial to clearly define how data should be reported. Dates, for example, are written differently in the U.S. versus in most of Europe. Product names can be very different from country to country; for example, the footwear Americans call "sneakers" are "trainers" to the British. One stock-keeping unit (SKU) identifier could relate to two entirely separate products, depending on which country you are dealing with. And so on.

It's vital, then, to make the terminology (including what the processes for reporting are called) consistent through every step of the chain, so everyone is communicating the same way about the same things. Whenever possible supply chain partners should be able to look at the shared software in their local languages, which means it's necessary to ensure accurate translation not only of screen prompts, but also of error messages, alerts, and even data itself, such as item descriptions, so that everyone understands what's going on in the same terms at the same time.

In some cases, companies might have to perform in-person audits of their suppliers to verify and ensure product quality, their ability to meet terms of service-level agreements, and their adherence to corporate governance standards. This kind of on-site review is especially valuable for companies that work with suppliers in a region known for human rights violations. (Even large, well-managed supply chains can run into trouble in this regard. The Associated Press, for example, recently uncovered that several major U.S. companies, including Wal-Mart and the restaurant chain Red Lobster, were selling shrimp that had been harvested by slaves in Thailand.) Service-level agreements should make it clear that management can drop in for unannounced spot checks so they can get a realistic view of what's actually going on. From an IT perspective, it's a good idea to have a system that's equipped to record the results of audits, both past and present, so the company doesn't give business to a supplier with previous serious violations.

Centralized or customized?
Companies that are spread across multiple countries must make educated decisions about how much of their IT system should fall under centralized control and how much latitude can be given to regional organizations. Most people's instinct, not surprisingly, is to centralize control as much as possible. And it's true that an overarching IT strategy is necessary—to a certain degree. Ultimately, the best approach will be a balance: providing local flexibility while still maintaining central control over corporate responsibility and regulatory compliance.

A successful model installs a global corporate IT framework that allows individual locations to customize certain aspects to fit their needs. This could be something along the lines of an 80/20 model, where corporate controls 80 percent of the hardware and software requirements or configuration, and regions can customize the remaining 20 percent in order to adhere to local laws, regulations, and unique regional variations. This creates an overall architecture that will ensure, companywide, that each location maintains corporate standards. Within that framework, however, regions feel empowered to modify aspects within a set rubric so that the business functions efficiently in their specific environments.

Consider the case of Sweden, which has a strong union for office workers. When companies have to move or close offices there, it can be a lengthy, painful process to get both government and union approvals. Even changing just one person's job title can be burdensome, as it requires multiple steps to accomplish. Compare that to the United States, where changing a job title is often as simple as submitting a form to the human resources department to request the proper approvals. It doesn't make sense, then, to require a Swedish subsidiary to use the same IT processes around labor as in the U.S.; in fact, it could end up causing the company legal trouble. Obviously, it doesn't make sense to enforce Sweden's rules on the rest of the company, either.

This is just one example of why international companies must be sensitive to differences in government policies across regions. They must be aware of such nuances and create an IT solution that includes both hardware and software that is configurable to the local requirements. An important step for achieving this is hiring local people who can be trustworthy guides for implementing an IT framework at the local level in a way that meets corporate standards as well as unique regional needs.

Local experts also play an important role when it comes to managing risk. Systems alone don't fully mitigate supply chain and business risk. However, when intelligent human guidance builds regulatory compliance and other regional considerations into its framework, a well-run IT system can go a long way toward reducing such risk.

For example, suppose a company works with a supplier in a politically unstable country. Managers could use modules within the IT system to identify and implement ways to mitigate supply chain risk, such as by coordinating larger, less frequent shipments from that supplier, which will bypass some of the risk associated with smaller, frequent shipments. Depending on its capabilities, the system could also help to quickly identify and swiftly bring online an alternate link in the supply chain if one element becomes unreliable.

Toward a successful global IT strategy
A truly centralized global IT strategy is possible, but it comes with additional overhead and risks. If a company centralizes its IT infrastructure in one location, for example, it takes on risks that range from service disruptions to maintaining service-level agreements to managing all of the company's hardware from a single place. Ultimately, the decision depends on the company, its risk tolerance, and its willingness to invest in a solution that supports a global strategy at all levels.

People generally think that a single technology solution will be quicker and cheaper, and in some cases it can be, but it's important to consider all of the costs. For instance, cloud solutions often have lower start-up costs, provide a predictable monthly spend, and require less day-to-day involvement of IT staff. At the other end of the spectrum, some companies will never go into the cloud because they want their IT solutions centralized on-premise at a corporate data center to maintain data security, leverage existing hardware investments, or ensure against network outages. While the trend today is toward cloud-based solutions, it's essential to carefully examine your company's operations and tailor the solution to its particular needs.

At the end of the day, what's really going to set a global IT strategy apart is its ability to sustain a holistic view that considers not only the technology, but also the people and processes that participate in and support it. Companies must be clear about their expectations and focus on setting up relationships that will enable IT to function efficiently and effectively, no matter how many borders it crosses. After all, a truly successful global IT strategy is one-of-a-kind, not one-size-fits-all.

Bill Tomasi is senior vice president of product management at IBS, a global provider of distribution resource management software.

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