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Achieving interoperability within supply chain management can improve supply chain efficiency and reduce operating costs. This article defines interoperability as it pertains to supply chain management, and explores strategies for creating effective interoperability, including the adoption of standard technologies, shared platforms and collaborative processes.
From a supply chain management standpoint, interoperability is the ability of two or more supply chain software systems, platforms or components to exchange information—and then use the information that’s been exchanged.
Companies can share information and deploy that information to work together to protect and optimize buyer, supplier and carrier transactions via supply chain software. Interoperability is mission-critical in delivering streamlined supply chain performance and a seamless experience for trading partners.
Improved decision quality
Reduced operating costs
More productive use of capital
Improved service levels
So reaching a state of interoperability, at least with key supply chain trading partners, is well worth the effort.
There are five major barriers to interoperability as it pertains to supply chain management: scale and complexity, semantics and standards, general economics, fear and, lastly, the actual technology. All of these can be overcome, but they still slow down efforts to integrate supply chain systems.
Scale and complexity is often an issue because there are so many environments and variables. For example, aerospace companies have, on average, more than 12,000 suppliers—and around 200 Tier 1 suppliers. Each supplier has its own enterprise environment, tech platforms, security protocols, documentation, etc. In addition, supply chain transactions have the potential to quickly become complicated with a number of variables in play at once.
Semantics and standards can also be an issue. For example, two supply chains can look almost 100 percent identical in terms of workflows, processes, systems, software and so forth. And, yet, the two supply chain software environments could be semantically inoperable.
Product numbers, business units, transaction types, quality documents; before interoperability can be reached, mechanisms must be put into place to standardize semantics across trading partners. On the other hand, businesses could also have completely dissimilar and incompatible processes or data, making it tough to get on the same page in terms of supply chain management. It’s easy for the tech to get past differences in semantics, standards or systems, but it takes time and teamwork to hash it all through.
The economics of bringing supply chain software interoperability to a specific trading partner also takes time and resources. In our aerospace example, with which of the 12,000 suppliers does it really make sense to integrate? And in what order? This kind of decision takes careful consideration of the economics surrounding interoperability efforts for each individual trading partner.
Fear can also hold back interoperability efforts. Firstly, people are resistant to change. But, beyond that, digital supply chains bring about transparency. This isn’t necessarily good for all trading partners. A company may not want interoperability if it is over-leveraging legacy relationships, banking on asymmetrical information or isn’t truly competitive with performance, price or terms.
Lastly, there is the technology itself. Some organizations may not have the technological capacity or means to adopt the latest supply chain systems necessary for true interoperability.
Because you can take action to improve interoperability, you need to map out your supply chain management processes and tools as they exist right now. This can take some time and collaboration. Once you have that in place, consider these four basics: strategy, standards, platforms and real-world reach.
From a strategic standpoint, it’s best to start your digital supply chain efforts with interoperability in mind—rather than signing onto ad hoc systems. Oftentimes companies digitize, automate and connect transactions within a specific business or operational function that they deem to be a priority at the time. They find the best solution for the problem at hand without consideration of how that solution scales or works with other systems. Down the road, you’re left with a patchwork of solutions which may or may not work well together.
Next, standardize data and processes wherever possible. Standardizing data and processes between all parties in the supply chain can help improve interoperability. This includes defining and agreeing to common standards for data formats, communication protocols, business processes and digital documents. Digital documents can encompass XML-based standard UBL (Universal Business Language) documents that help standardize transactions ranging from sales to inventory and even ESG activity.
Once data standards have been established, you can explore supply chain-focused connectivity platforms and technologies. Digital supply chain management tools such as Electronic Data Interchange (EDI) systems, enterprise resource planning (ERP) solutions, carrier networks, customer relationship management (CRM) systems, supply chain management (SCM) systems and warehouse management systems (WMS) can all be connected through specialized platforms to facilitate data exchange and collaboration between different stakeholders. Moving data and processes to the cloud can also provide an integrated platform used across trading partners.
Lastly, don’t forget to bring the real-world online. Internet of Things (IoT) technology can be harnessed to track goods, provide real-time updates, and enable data-driven decisions. Business automation processes such as robot-assisted picking and packing, automated multimodal routing, time slot automation and using artificial intelligence to improve warehouse efficiency can help reduce time and cost while improving accuracy.
Teams must be shown that supply chain software interoperability isn’t just a technology issue or a supply chain issue—or even an operations issue. Leadership must tie this mission-critical supply chain management initiative back to the core business strategy and then champion the effort going forward. They must actively sell its importance, and demonstrate that it’s not a nice-to-have in today’s competitive corporate environment; it’s a necessity.
A few years ago, the Asahi group was on a mission to deliver the perfect order, bringing the same commitment to attentiveness and quality of its administration as the crafting of its world-class products. The company had a strong foundation of business automation, but still had a challenge: A significant number of orders came from Non-EDI buyers. Many buyer systems were simply off grid from an order visibility standpoint. Orders came in via email in a variety of different formats, demanding manual order entry into the company’s ERP environment.
What’s worse, unlike Asahi’s high-volume buyers, these companies were never going to undergo an EDI-based connection that would allow interoperability because the economics just weren’t there.
So to bring these rogue buyers into an interoperable environment, the company implemented an email-based system that automatically extracted order data from customer documents, translated the data into Universal Business Documents and brought the order data into Asahi’s ERP environment as orders were received.
With this technology, Asahi enabled this class of buyer, which had completely disparate purchasing, ERP and TMS systems, to exchange order information seamlessly. Orders were automatically digitized and entered into the company’s ERP system for processing. Real-time updates were issued to buyers, and every part of the order-to-cash process was streamlined where not possible before the use of this technology.
Order accuracy reached 99.80 percent, and the initiative paid for itself in just over a year with the help of their new order interoperability initiative.
Interoperability is the ability of two or more supply chain software systems, platforms or components to exchange information—and then use the information to work together more effectively and efficiently. It delivers all kinds of advantages ranging from increased visibility to a more efficient use of capital. Issues such as complexity and fear of change often slow down implementation.
But establishing data and process standards across the supply chain can help integrate the systems across your supply chain. Plan implementations for interoperability and scale from the outset. And make sure executive leadership gives the initiative total support. Because at a certain level, supply chain interoperability is necessary to run your business in a way that’s streamlined, customer-friendly and financially responsible.