I'd like to start a series of blog entries titled "Close the Loop" and addressing how, through a better use of supply chain information, companies can improve their operations, creating a more agile ecosystem while reducing risk.

In this entry, I would like to give you an overview of the different elements required to close the loop and I will spend the following entries to go more in details in each of the components.

Yesterday I was at a conference titled "Achieving Excellence in Capacity Planning", and pointed out one of my favourites. "Forecasts are always wrong" and that is what we are starting from to manage our Supply Chain with the hope to have neither stock-outs nor excess stock. This is remarkable, isn't it? Over the years, companies invented many processes to achieve this; the latest is called S&OP, Sales and Operational Planning. This process is becoming the central subject of an increasing amount of conferences and white papers.

However, what we often lack is a deep understanding of how the Supply Chain really operates and reacts. To optimize it, reduce costs while increase responsiveness and agility, we fundamentally need a deeper understanding of how the system reacts. The only way to achieve this is by analysing specific events and how they rippled through the ecosystem. To be able to do this, you will need information of what happens at different points in the supply chain. You need visibility, which you can only obtain from working closely with your suppliers and distribution partners.

You can use this information in three different ways:

• First, understanding what happens now, gives you the opportunity to identify what goes wrong and react to it quickly, reducing the disruption that could be caused by the event. This is what I call the Operational use. It will; allow you to serve your customers better and to improve your service level agreements. Nevertheless, it will not help you to avoid the same problem appearing again in the future. You focus on the moment itself and react to it.
• To avoid the problem in the future, you need to understand why it is appearing at this moment in time. Going back and replaying what has lead up to the event may be an interesting way to find out. Actually what you do here is to add the time dimension. You look at trends, at cause and effect, at how the system ended up in that situation. This is what I call the Tactical use. The operational team does not have time to look at this; their objective is to keep things going. Typically, a business or process analysis team will take care of gaining this understanding.
• Through understanding how the ecosystem behaves, you can establish the key factors that drive it. This will allow you to develop a mathematical model that will react in a similar way as your supply chain. Why would you do this? Well, having such model available, allows you to test potential changes or key decisions you want to take and see how they would avoid the pitfalls you have fallen into previously. This is what I call the Strategic use.

The operational use tries to get you out of trouble with your customer, the tactical one will help reduce the risk of the same problem appearing again, and the strategic one allows you to change the way you operate, improving your responsiveness and make your supply chain more robust. Combining the three in a continuous improvement cycle is what I call closing the loop.

Many things need to be in place for you to implement all three use cases. In the next blog entries we will focus on what is required, how you can go after this and what the benefits will be.