Historically, buying organizations have mandated that vendors comply with specific supply chain rules in order to coordinate processes, avoid supply chain failures and maintain consistency in order fulfillment and delivery timelines.
Some of these compliance rules required vendors to invest in automation that would streamline the supply chain process, increase operational flexibility, enhance collaboration and ensure scalability. Without automation, there’s an increased risk of operational disruption, which could lead to diminished profit margins.
Having spent the past 20 years as the co-founder of DiCentral, a leading provider of technology solutions that help businesses streamline and improve the productivity of their supply chains, I've seen just how complex those supply chains have become over the past decade due to the rapid rate of increase in supply-chain globalization.
Modern Supply Chains Are No Longer Vertically Integrated
Most companies have done away with vertically integrated supply chains, which typically require companies to take in raw material and have several cycles of manufacturing to create a finished product. Today, companies are more integrated with their suppliers/vendors to source sub-components that, in turn, are integrated or assembled into the final product.
This enhanced reliance on sub-component suppliers requires the supplier to agree to strict compliance requirements defined in routing guides. These requirements can be increasingly complex and even result in fines, which are commonly referred to as chargebacks or quality deductions.
Chargebacks can be imposed on late shipments, incorrectly labeled shipments, incorrectly packing the shipment, sending substitute products, short shipping, sending incorrect or late electronic signals associated with the shipment of goods, using the wrong transportation company to ship the products and the list goes on. These business rules and associated fines are designed to encourage the vendor to more tightly integrate to their retailer customers’ processes.
For suppliers, these business rules can be challenging to manage, given that each buying organization might have, on average, hundreds of unique business rules. A supplier with 50 customers might have 5,000 unique business rules to manage.
Applying Artificial Intelligence To Supply Chain Compliance
Managing thousands of unique business rules is a challenge for any enterprise resource planning (ERP), order management, transportation management or manufacturing replenishment system. Alerts and reports are critical to managing supply chain exceptions in a successful business rules management program.
Using artificial intelligence capabilities that can monitor compliance with the business rules established by retailer customers is becoming easier for suppliers who adopt a cloud-based environment. While errors may occur using internal systems, which attempt to monitor these compliance rules, there is often a second opportunity to monitor compliance.
In these highly automated ecosystems, there are electronic transactions that communicate information between buying organizations and their suppliers. These electronic transactions can be monitored to ensure that internal systems process the information in a manner that satisfies the imposed business rule. The artificial intelligence can quarantine a bad transaction before it is transmitted to a trading partner, alert personnel to retroactively fix the issue and save thousands -- potentially millions -- of dollars in fines.
Is Anyone Keeping Score?
In short, yes. Both buyer organizations and suppliers keep score. Buyers often have formal supplier scorecards and annual reviews with metrics and key performance indicators. These scorecards track violations of noncompliance, gauge profitability and assess fill rates. Buyers use such information to negotiate renewed business terms and potentially replace problematic suppliers.
Suppliers are increasingly wanting to know where they stand relative to their clients' supply chain compliance criteria. Going blind into your customers' annual review of your supply chain performance is not recommended. Knowing that you performed well better prepares you for contract renegotiation discussions.
How Do I Monitor My Supply Chain Compliance?
Like many IT projects, a cross-functional team of people is likely needed to address using artificial intelligence to monitor supply chain compliance. A typical group might include representatives from logistics, e-commerce, customer service and merchandising.
Most buying organizations have already created their scorecards, and therefore, there is very little work to implement artificial intelligence to monitor the transactions for compliance within the scorecard framework. The real work is with suppliers who have potentially thousands of unique rules to monitor. Given that these business rules are imposed upon the organization, an individual should be tasked with collecting these business rules and indexing them by function, such as order-related rules, shipping-related rules, inventory-related rules, labeling-related rules, etc.
It is often a good idea to have some level of prioritization by customer, revenue, financial impact or some other measure that might allow the company to prioritize which business rules should be monitored first.
Play To Win
In gameplay, the rules can be used to the player’s advantage, and business rules are no different. With a firm understanding of how to set business rules, resolve exceptions, keep score and leverage the expertise of your entire team, your company can develop a winning game plan for business rules management.
