Supply chains — the total movement of goods from suppliers, through manufacturing, inventory, and finally to customers — are critical parts of businesses. In a hospital, for example, supply chain costs can represent as much as 40 percent of the total operating budget.
Some academics suggest that in any type of company, the “true cost of carrying inventory” is at least 25 percent per year of the inventory value. It doesn’t take a business administration degree and years of experience to realize just how big an impact such numbers make on a company’s bottom line. For the last 20 years, many businesses have focused on improving their supply chain management and costs.
Geographic information systems (GIS) — technology that allows people to associate data with locations and then manipulate and analyze it — offer new types of tools that can give managers even more insight into supply chains and how they can take better control. To better understand how GIS can help, it’s important to know where the big weaknesses are in supply chains. According to respondents to a 2010 survey conducted by logistics and supply chain vendor UPS and IDC Manufacturing Insights, among the most commonly cited weaknesses were the following:
- lack of end-to-end visibility (48 percent)
- unstable suppliers (44 percent)
- challenges with demand planning (44 percent)
- inventory management (38 percent)
GIS can help to at least some degree each of these problem areas. Start with end-to-end visibility. A GIS implementation can let a company follow the progress of goods from materials to manufacturing, even incorporating GPS tracking on trucks carrying shipments from one place to another. At any stage, location can be associated with factors that affect the movement of goods, allowing managers to find bottlenecks and points to increase efficiency.
GIS can’t suddenly make suppliers more stable. But by finding patterns of slow shipments or goods of substandard quality, including their location of origin, you can identify companies that are more frequently associated with conditions that adversely affect the supply chain. Similarly, one reason inventory management is difficult is because products and materials can literally be anywhere: a truck that someone had lost track of, a ship that takes three months to travel from an Asian outsourced factory to a final destination, or a warehouse.
A system that can keep tabs on location and other factors can help bring greater insight into inventory management. Being able to see patterns of product sales along with location-based factors that might affect it can’t help but improve demand planning. Combined with other technologies such as remote sensors, wireless communications, and GPS systems, managers can use GIS to help manage supply chain risk and improve operational efficiency while reducing costs.