Introduction

The big presentation day is tomorrow. Board members are eager to know the level of customer satisfaction achieved by the company’s operations. On-time-in-full delivery (OTIF) is the number they want to know, and the supply chain management vice-president, Jane, has had her team crunching the numbers non-stop for the past couple weeks. After many long nights, she cannot stay focused on her daily job. Despite the eff ort, she is not confi dent that the number her team came up with is reliable. The fact that it looks wildly diff erent from the one presented last time will make the board members nervous.

The situation in which the SCM VP Jane fi nds herself is not unique. Two obstacles are in the way of the transparency she needs to confi dently measure performance and report metrics: 1) a challenged IT landscape and 2) the coexistence of diff erent process standards across organizations, for example customer order creation being manual in one subsidiary while relying on EDI in another.

In the worst of cases, this lack of transparency leads to poor resource allocation and subsequently to business performance that disappoints for board members. In such a situation Jane asks herself, how she can prove that she is running a successful organization.

WHITEPAPER

Achieving Transparency Where it Matters

Your OTIF number is most likely wrong!

Barkawi Management Consultants, a Genpact company | Whitepaper | 2

The benefits of Transparency

Organizations that improve their transparency reap three distinct rewards. First, central management teams can save on average over 6,000 hours of work per year that was originally destined to data collection and reporting and instead redirect the effort to core responsibilities. Second, by making use of the data with the certainty that it is correct, better operations plans can produce savings in the order of 5 % of overall inventory. Third, by exploiting data analytics to prioritize and act on improvement levers, further operational improvements can be achieved: an additional 5 % reduction in overall inventory and, for each 5 % increment in OTIF, 1M€ of additional revenue per 1B€ of sales (Figures based on Barkawi and Genpact project experience).

Why Lack of Transparency is

a Problem for Supply Chain

Performance

At its most fundamental level, executives and managers have the job of taking decisions that effectively allocate limited resources to generate the most value possible. The quality of any given decision is affected, among other things, by the information completeness of the decision maker and by the uncertainty of the environment in which the decision is taken.

Both of the factors in this fundamental model, information completeness and uncertainty, are the reason why organizations that lack transparency perform below their potential. Take for example an organization with a heterogeneous IT landscape and inconsistent processes. Similar to SCM VP Jane, an executive of such an organization cannot take well informed decisions. The fact that the IT landscape is so heterogeneous makes reporting an error-prone and time-consuming exercise.

Moreover, the fact that different subsidiaries operate under different process standards means that even if the data can be gathered in a single report, there is no guarantee that the subsidiaries’ figures are comparable. In other words, despite having all the information, there is uncertainty whether the processes that generated the data are consistent and this uncertainty is hindering effective decision making.

Under these circumstances, executives cannot distinguish which subsidiaries are most in need of help such as allocation of central production output, tolerance for higher inventory levels or applicability to continuous improvement programs to name some examples. The exercise of allocating these resources soon becomes a political game instead of a fact-based discussion. The opportunity to allocate them optimally, and thus get the most bang for the board members’ buck, is lost amidst the shouting.

By improving transparency in her supply chain, Jane will not only be able to prove to the board that she is leading a successful organization, but she will also have the information she needs to steer her supply chain towards higher performance levels. But what is the cost of transparency? Jane cannot afford neither the time nor the effort to fully integrate the multiple ERP systems across HQ and all the subsidiaries; not to mention homogenize all the processes.

The key is to realize that executives and management do not need complete information of everything – only for the questions worth answering.

1. Are we fulfilling the market demand? Then we need total quantity delivered against total quantity ordered by customers to calculate PFR

2. Are customers satisfied? Then we need in addition whether orders were on time or not to calculate OTIF

3. Were we prepared to (efficiently) serve customer demand? Then we need to compare sales against customer orders to calculate forecast accuracy

4. Is there too much bounded capital in the supply chain? Then we need to compare inventory levels and demand to calculate days of inventory

5. Are our suppliers helping us fulfill our customer demand? Then we need to calculate supplier OTIF

The benefits of transparency

1 2

3

Automated reporting

6,000 hours

1M€ revenue per 1B € sales

per 5 % OTIF

5 % inventory

5 % inventory

Apply planning best practices

Use analytics to act on improvement levers

Barkawi Management Consultants, a Genpact company | Whitepaper | 3

The approach drastically reduces the effort of integrating all IT systems and standardizing all processes to only the ones that affect the few key performance indicators (KPI) that steer the business. In other words, by ensuring the consistency of at least the few data streams related to the business’ KPI and the underlying processes, organizations can mitigate most of the problems associated with lack of transparency. We call the method to achieve this goal targeted transparency. This is a pragmatic approach to achieve results fast and can be a first step towards the state-of-the-art solution: the hyperconnected supply chain.

How to Achieve Targeted

Transparency

Jane decided that OTIF and PFR will be the first KPI to become fully transparent and comparable. Other KPI will have to wait. On the process side, Jane’s supply chain organization defines and communicates exactly how to calculate OTIF and PFR to the subsidiaries, and subsequently homogenizes the processes that generate customer order data streams. On the IT side, Jane collaborates with the IT organization to consolidate only those data streams that influence OTIF and PFR into a data warehouse, an IT layer above the ERP instances. With this in place, Business Intelligence tools are deployed for automated reporting to support reliable data-driven decision making. Let’s follow Jane’ steps:

• Selection of the few essential KPI. Jane’s SCM organization is already using a wide range of KPI. While they serve a purpose for local decision making, not all of them need to be consolidated centrally. The first step in Jane’s plan is to identify the few KPI that are most aligned with the business’ key success factors – no more than five she thinks, at least for the first implementation. The KPI should be easy to understand,

easy to communicate, useful for reporting to the board and useful as a measuring stick to compare subsidiaries. Careful thought should be placed in this strategic phase since its outcome will shape future conversations between the board, Jane and her central managers, and subsidiaries. The board and the commercial organization are Jane’s two most important stakeholders and they are interested in customer satisfaction and market demand fulfillment, measured with OTIF and PFR respectively. These are also very useful SCM metrics since they give insight into the supply chain’s degree of operational excellence and are demonstrated to have positive effects on other KPI such as cost to serve. Jane focuses the transparency efforts solely on these two KPI.

• Precise definition and communication of KPI. It is common, and even expected, that subsidiaries use different versions of a KPI – with different thresholds and bases of calculation. In this phase, Jane’s team establishes a common, precise and agnostic definition of the selected KPI. Let’s break this down: definitions are common, as all subsidiaries use the exact same calculation method; definitions are precise, as the calculation method, its components and its intent are rigorously set; and they are agnostic, as precalculations and baked in assumptions are avoided.

The three symptoms of lack of transparency1. Inability to determine the relative performance of

subsidiaries2. High manual effort by management whenever there is a

need for consolidated information 3. Delayed decision making on all levels due to unreliable

and potentially obsolete dataThe result: poor resource allocation decisions.

Combination of essential KPIWhen selecting KPI, it is recommendable to consider their interactions and how new insights might be generated by looking at two or more KPI simultaneously. For example, the supply chain management vice-president of a major European pharmaceutical company combined OTIF and pack fill-rate (PFR) into a framework that not only stakeholders with the information they needed, but also helped in deriving operational insights as shown below.

Hig

hPF

RLo

w

Low

Chronically late or short by few units, look for the cause!

Serious problems to be fixed

Having a hard time fulfilling large orders

PFR too high? Check if inventory is too high

Perfect!

HighOTIF

Barkawi Management Consultants, a Genpact company | Whitepaper | 4

IT setup

The communication of the KPI to subsidiaries must not be underestimated. Indeed, Jane received pushback from some subsidiaries who insisted on reporting their own numbers but overcame it by proving the benefi ts for the subsidiaries: 1) the automated centralized reporting reduces eff ort for subsidiaries, 2) everyone is measured the same way and 3) besides the report, an analytics dashboard is provided in which subsidiaries can drill down into the data for insights and audit of the measurements.

• Include the defi nition of KPI in the service level agreements with third parties. The previous step considered the internal communication of KPI defi nitions but what if a third party is a key player in achieving targets? This might be third party logistics providers or even the customers themselves. Jane had the latter situation. In order to ensure that the customers had the same understanding of OTIF that her

SCM organization has, Jane included the mathematical defi nition in the contracts and agreed with them that the basis of calculation (and audits) would be the electronic proof of delivery, which the customers must provide for every shipment.

• Setup of the necessary IT infrastructure. In parallel, Jane is setting up the IT infrastructure to support her targeted transparency initiative. Jane does not intend to combine all the diff erent ERP systems in one. She only needs a separate instance where she can collect only the data of interest and the company’s data warehouse fi ts the purpose perfectly. Jane aligns with IT on how to bring data from the diff erent subsidiaries in there and how to make it available to business intelligence tools. With this setup, Jane has essentially split data integration from business analytics, meaning that her analysts can focus on their job without being burdened with data integration tasks.

An example of agnostic KPI and how to extract profound insightsOTIF is a very popular customer satisfaction KPI. Sadly, it lends itself to baked-in assumptions. What counts as “on time”? Do we penalize deliveries that come in too early? Likewise, what counts as “in full”? And do we penalize over-delivering? Some subsidiaries may count from 5 days early to 3 days late as on time and from 95% to 105% fi ll-rate as in full. Others may use diff erent thresholds. Our recommendation is to load the underlying data free any precalculations. In this OTIF example that means to load the lateness and fi ll-rate per order instead of only its OTIF with arbitrary thresholds. This way, fl exible analyses with Business Intelligence tools yield more profound insights. As shown in the example, by dynamically adjusting thresholds analysts can discover that most late deliveries where only one day late. This already gives management an indication of where to focus eff orts for major performance improvements.

Lateness [days]

Lateness [days]

-5 -5(or less) (or less)(or more) (or more)

0 0+5 +5

Fill rate threshold:+/-5%

Fill rate threshold:+/-5%

Fill

rate

[%]

Fill

rate

[%]

Lateness threshold:+/-1 period

Lateness threshold:+/-2 period

OTIF 75% OTIF 90%

85 85

95 95

105 105

115 115

125(or more)

125(or more)

75(or less)

75(or less)

Commonly used model – As is

Targeted Transparency model – To be

Report

BI Layer

Analytics

Manual work

ERP AERP A

ERP BERP B

ERP CERP C

3PL3PL

80/20approach

Defi nition+ Audit

Subsidiary 1

Subsidiary 1

Subsidiary 2

Subsidiary 2

Subsidiary 3

Subsidiary 3

Business Collection Layer

Barkawi Management Consultants, a Genpact company | Whitepaper | 5

• Achieve information completeness: locate, analyze and join data streams. With the exact operational definitions for OTIF and PFR on hand, Jane sets up a combined SCM and IT taskforce to identify the required data streams – in this case customer order data at its granular level (i.e. before any aggregations) from the different subsidiaries. To be able to match data correctly, the team pays special attention to master data and transactional data. If it is not well maintained, a separate initiative for its cleansing will be required. Jane knows that in this complicated setup, she cannot expect that all data streams can be seamlessly combined. Her team takes an 80/20 approach: collect the data in the data warehouse, determine the most common inconsistencies and iron them out with automated workflows. Once this is done, the data can be visualized in business intelligence tools and used for root cause analysis and decision making.

• Reduce uncertainty: homogenize critical process steps. Both OTIF and PFR rely on customer order data. Jane knows that the subsidiaries have different processes that affect the customer order data streams. Aided by the first root cause analyses on the gathered data and her knowledge of the subsidiaries, she identifies the ones that have the greatest distorting effect and the heaviest weight on the KPI (in this case, by revenue) and begins

an initiative to standardize customer order processing. Typical actions are getting subsidiaries to complete the process within ERP (as opposed to working on Excel extracts) and ensuring that order statuses (e.g. open, confirmed, rejected, etc.) are used consistently. Again, her team takes an 80/20 approach, going through the subsidiaries by priority and implementing automated workflows on the data streams whenever there is an easy, automatable calculation to make the numbers consistent.

• Further steps. Having the IT architecture and the essential KPI in place drastically lowers the barrier to expansion of transparency. The next step is for Jane to create a KPI roadmap that allows the company and the board to prioritize the KPI that will generate valuable insights the fastest. Once the roadmap is established, the company can apply the targeted transparency method to a new batch of KPI. As more KPI are integrated, the centralized data will grow and this in turn enables the interesting possibility of deploying advanced analytics models. The more digitally mature the organization, the stronger the capabilities to identify root cases of low performance and to create optimal plans to further improve and better measure performance.

KPI roadmapThere are multitudes of KPI that could help refine decision making. In order to prioritize their implementation in the various rounds of targeted transparency to come, a roadmap must be created. Both practical and strategic aspects are important. It is useful to score potential KPI based on strategic importance, speed of implementation and effort of implementation (the latter two considering data and process challenges to overcome).

- +

Customer Order Backlog

Forecast Value Add

OTIF Supplier

PFR

Forecast Accuracy

OTIF Customer

Ease Score

Spee

d Sc

ore

+-

Days of inventory

Inventory age

Getting the data that counts from over 50 ERP systemsIntegration of data does not necessarily need to be done internally. In some cases, external cloud services are more appropriate, especially if data originating from many systems needs to be used for coordination of the various entities. A major agricultural company used ClearOps, a specialized supply chain management cloud platform, to successfully create transparency that enable cross-organization inventory planning. Over 50 different systems from different organizations all over the world continuously provide the data needed to generate a crystal-clear view of inventories. This information is used to precisely and automatically plan inventories for more than 1000 dealerships. The results: 9 % parts sales increase, an inventory-reduction of non-moving parts of 8 %, and an average reduction of planning time by 3 hours.

Barkawi Management Consultants, a Genpact company | Whitepaper | 6

Call to Action

Supply chain analytics is phasing out of being a competitive advantage and into becoming a mandatory requirement to even play the game. Companies that do not use their information to make smarter decisions are likelier to fall behind industry peers in terms of economic performance. The loss of competitiveness can be even worse if completely wrong data informs decision processes – garbage in, garbage out.

To avoid losing the race, it is essential that companies build transparency in their systems so that the right information can be used to make optimal decisions. This includes the cases of companies with multiple organizations and potentially as many different ERP systems. The task is understandably hard when various systems with potentially incompatible configurations are already in place. With targeted transparency, we offer an approach to improve transparency without undergoing full integration.

If you are a supply chain executive who wants to bring back clarity and effectiveness into the organization’s and the subsidiaries’ decisions, our advice is to be very selective with the KPI that best measure success and apply the framework presented here. Doing so will help you1. retain or even improve transparency to make effective

decisions,2. reduce manual effort in reporting and 3. provide you with a playbook for rolling out additional

KPI

Targeted transparency is a pragmatic approach that will not only provide transparency fast, but it will also help your organization improve its digital maturity to test the waters for progressive system integration and the adoption of end-to-end visibility and supply chain orchestration tools. With superior supply chain digitalization, companies are equipped to play and win the game.

About Genpact

Genpact (NYSE: G) is a global professional services firm that makes business transformation real. We drive digital-led innovation and digitally-

enabled intelligent operations for our clients, guided by our experience running thousands of processes primarily for Global Fortune 500

companies. We think with design, dream in digital, and solve problems with data and analytics. Combining our expertise in end-to-end

operations and our AI-based platform, Genpact Cora, we focus on the details – all 87,000+ of us. From New York to New Delhi and more than

25 countries in between, we connect every dot, reimagine every process, and reinvent companies’ ways of working. We know that reimagining

each step from start to finish creates better business outcomes. Whatever it is, we’ll be there with you – accelerating digital transformation to

create bold, lasting results – because transformation happens here.

About Barkawi Management Consultants, a Genpact company and the authors

All authors work for Barkawi Management Consultants, a Genpact company. The firm is a leading supply chain management consultancy

with experience in many industries and, now as part of the larger Genpact organization, has the capability to deliver management

consulting, managed services and digital transformation at a global scale.

Jan Diederichsen, Vice President

Jan Diederichsen is a consulting executive with focus on M&A, SCM and IT strategy. He is currently responsible for Life

Sciences and Medical Devices accounts in Europe. Prior to joining Barkawi-Genpact in January 2018, he worked for AT

Kearney, IBM and Cognizant in a variety of leadership positions. Jan has a MBA in Supply Chain and Operations Management.

Luis Dominguez, Senior Consultant

Luis Dominguez is an expert in analytics, algorithmic augmentation of planning decisions and supply chain planning. Luis

Dominguez gathered industry experience at different major firms before joining Barkawi Management Consultants’ Munich

office in 2017. Luis Dominguez holds a Master of Science in mechatronics and an MBA.

Felix Götzinger, Consultant

Felix is an expert in mathematical optimization, analytics, and supply chain management. He gathered experience through

different industries and research projects in logistics and transportation before joining Barkawi Management Consultants in

2018. Felix holds a Master of Science in Industrial Engineering and Management from Karlsruhe Institute of Technology.

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