What exactly is the real-time supply chain?

Think of it as the China to United States journey. And, figuring out how to manufacture, warehouse and distribute products on a global basis cheaper than the next guy is the competitive challenge facing almost every business today.

Unfortunately, that challenge is complicated by two opposing forces.

On the one hand, anyone who wants to remain competitive is looking to source some portion of their goods from a low-cost provider. That means the supply chain is longer than ever and probably includes more participants than in the past. A manufacturer may be: producing in its own plants or using contract manufacturers around the globe; distributing from its own warehouses as well as using third-party logistics (3PL) providers; using its own trucks or multiple carriers along with many modes of transportation.

On the other hand, all of those handoffs, not to mention all of that distance, suggest a need for longer lead times. But that's a luxury no one can afford.

That's because today's customer wants more options and better service. "The customer is driving the move to real time," says Jim Tompkins, CEO of Tompkins Associates (800-789-1257). "People click online and they expect the package at their door. What's more, personalization is huge. Customers want it their way. That affects the retailer who relays that demand signal up the supply chain to distributors and manufacturers."

The result is a different view of the supply chain, says Greg Aimi, director of supply chain research for AMR Research (617-542-6600). The point, Aimi says, isn't just to optimize the processes inside a plant or DC. Rather, it's to look at the entire supply chain as one big production line that can be optimized for profitablility—a concept AMR calls the demand-driven supply network (DDSN).

"What we're talking about is looking at the process flow from the origin of raw materials all the way through production to delivery to the final customer," says Aimi. "That gets you to asking: 'What types of technologies do I need to communicate since my processes are no longer taking place in the same building but across geographies?'"

The answer to that question, according to Aimi and others, is real-time information that allows you to manage the China to U.S. supply chain.

There is no question that there have been fundamental changes in the supply chain pushing companies to work in real time.

Beyond that, there are new challenges. "Business today is simultaneously addressing what traditionally were either/or choices," says Tom Comstock, senior vice president of marketing and product management for Apriso (562-951-8000). "They are being asked to lower their prices while also being asked to expand their product offerings, improve customer service and improve quality."

The traditional way for a business to offer multiple products and better customer service was to stock more inventory—at a cost. "But if I have to simultaneously reduce my costs, I can't maintain the inventory buffers I used to maintain," says Comstock. "Yet I still have to be responsive in my supply chain and deliver quality at a cheap price."

And it's not just the China to U.S. supply chain. That same complexity is present in the automotive supply chain, where suppliers located just down the road from an auto assembly plant are sequencing components and parts to arrive at the line just as a specific vehicle is arriving at a workstation. That takes a level of real-time synchronization between the auto manufacturers and their suppliers that was unimagined a decade ago.

There's one other new twist: As supply chains compete against supply chains, the cost of not performing has never been higher. Fail to deliver on time to a major retailer, and you might be fined; fail to deliver on time to your manufacturing customer, and you shut down a plant.

"The Holy Grail for manufacturing used to be available to promise," says Comstock. "Do I have it in stock and can I ship it? Now, it's capable to promise, which is the ability to make it and deliver it when I say I can because it's just not cost-effective to carry inventory."

The goal of those systems, adds Lori Mitchell-Keller, senior vice president of product management for JDA (800-479-7382) "is to remove the huge latencies that have been built up in the supply chain. The only way you can shrink those is to give better visibility to your trading partners. You give them visibility into how much you think you're going to need, and as you move closer to the point of execution, you're sharing more refined information. Instead of reacting, you're being more proactive."

Real-time information enables that complex supply chain to work. But what we're really talking about when we use the term real time is visibility, says Ralph Rio, director of research for ARC Advisory Group (781-471-1000).

"We recently did some research into why people are implementing manufacturing execution systems," says Rio. "The No. 1 reason wasn't quality, it was visibility."

The idea was that the pace of business has increased so much that companies need visibility just to keep track of things. For instance, manufacturers that implement a lean manufacturing system go from setting up to run a lot size of 1,000 to running a lot size of 10. "Assuming you ship the same volume of product, you now have 100 times as many transactions as you used to have," says Rio. "But you can't have 100 times as many expediters or material planners. Instead, you need systems that can give you visibility into your operations and track your processes."

But visibility in and of itself, isn't a solution, adds Jon Chorley, vice president of supply chain strategy for Oracle Applications (800-672-2531). "Yes, you need accurate and timely information that is aligned to the kinds of decisions that you need to make," says Chorley. "But you also need the ability to use that information to accurately forecast demand; share that information in your organization to create an operational plan; and push that information to the transportation, warehouse management and manufacturing systems that are going to execute the plan."

Real-time information shared across applications and across trading partners enables new processes that allow a company to be more responsive, like crossdocking, merge-in-transit and dynamic rerouting of deliveries.

"To operate in real time, you have to understand the state of your supply chain," Chorley adds. "That means goods at rest, goods in movement and goods in transition. Those goods may be owned by you or they may be on your suppliers' premises. With real-time systems, we have visibility into product that is in the middle of being produced, the middle of being received and the middle of being picked."

In the stories that follow in this special issue, Modern Materials Handling will look at how real time is changing the way companies manufacture and distribute products and enabling the new processes that make the China to U.S. supply chain possible.