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SupplySolution sells supply chain visibility software to Tier 1 and Tier 2 suppliers in the automotive industry. The software's limited functionality (visibility only and reorder point replenishment) may eventually provoke customers to seek other solutions, but until then, its focus on a single application and single industry mean that it provides a real value that a number of customers are getting today.

The Product

The core SupplySolution product exists in a single instance on a single database.

At the heart, it has four components:

• A user management system, which allows people to log on, determines which language they see (8 are supported), determines the time zone of the user, and authorizes their access. (Access is controlled by company; if a user's company has a relationship with another company, all data involving the two companies is shown.)
• A user interface, which displays current inventory information and highlights areas that need attention. The interface is secure; the language of the display is determined by the user; and the display is adjusted for the time zone of the user.
• A repository where the information is stored.
• Interfaces into the sources of the information. Usually, these sources are the ERP system(s) at the Tier 1 supplier.

The users sees the inventory positions of individual products at the Tier 1 company site(s), the minimum and maximum inventory levels expected for those products, current orders, and whether the current inventory position requires adjustment. (Going below the min or over the max also generates an alert.)

That's it. The idea is that suppliers use this for real-time reorder-point replenishment. If inventory is below the minimum or close, they can hurry up an order. If it is high or above the max, they can wait.

Value

What is the value of a tool that does nothing more than provide visibility?

At the core, the value is what we call "this-week cost reduction." All the costs involved in making sure that the needed inventory really does arrive in time and just in time are reduced when both sides can see what is needed. In particular:

• Premium freight costs, overtime, and time lost doing expediting are reduced, because both sides get an accurate picture right now of what needs to be done.
• Suppliers can schedule production runs more accurately and reduce setup times because they can determine more accurately when a run needs to be made.
• Overall inventory should be reduced if companies aggressively manage min-max levels.

According to SupplySolution, the relatively small number of sites implemented so far have experienced 20% reductions in inventory, 30% reductions in premium freight costs, and 20% reduction in administrative costs. We believe these numbers as much as we believe any numbers from software companies: nevertheless, they're indicative. We do agree that particularly in automotive, this-week costs are quite high, and real-time visibility should reduce them.

We should add that the overall value of any such tool depends heavily on the quality of the information. One side effect of implementing SupplySolution should be an overall improvement of inventory availability information and, in many cases for the first time, min-max levels for the inventory. This in itself is a value.

Assessment

POSITIVE: We believe that simple visibility tools can provide value, especially in the automotive industry, where this week's orders always vary considerably from what was planned. The cost of installation for the Tier 1 suppliers is high, but not unreasonable, given what is required to provide connections to the ERP systems and massage the data. Reorder point replenishment is arguably not the best replenishment strategy, but it has the merit of being simple. Supply chain theorists may scoff, but they should also recognize that reorder point gets better as a strategy they closer one gets to the time when the product is needed.

NEGATIVE: At the heart, the replenishment strategy supported by SupplySolution is similar to VMI (vendor managed inventory). In the consumer packaged goods industry, which has the most experience with this approach, it has proven to be somewhat unsatisfactory There are situations and products where VMI is clearly best. But by itself, just letting the suppliers replenish has proven to be a cost-shifting measure as much as it has been a cost-saving measure.

Obviously, all such visibility strategies or rip-and-read strategies have one clear problem: they impose a burden on the supplier. The person managing orders at the supplier has to go to the site, figure out what needs to be done, enter it into his or her own system, then enter it again into the customer's system. This costs them money which usually shows up in higher prices, eventually.

BOTTOM LINE: SupplySolution is probably best seen as a way station on the road to better communication with suppliers. Eventually, as all companies learn to expect real-time connectivity and visibility as a standard, systems that provide only that and provide only reorder point replenishment will be considered inadequate. If SupplySolution becomes an industry standard, as it hopes to be, it may eventually retard progress into more advanced supply chain optimization, but in the meantime, having it as an industry standard would certainly produce savings for both Tier 1 buyers and Tier 2 sellers.

A longer version of this report is also available.

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