E-business is revolutionising the way supply chains are configured and managed and, in response, many supply chains are becoming more ‘virtual’. They are developing into looser affiliations of companies, organised as a supply network, where direct ownership is changing dramatically. Central to supporting this move towards supply networks is the development of integration capabilities that can control and co-ordinate actions across the whole network.
E-business pressures on supply chains are not just increased demands and more of them, the customers and suppliers can also cut out the middle man
In all sectors E-business is increasing the pressure for supply chain responsiveness. Many of these pressures can be grouped into a general category of ‘increased demands and more of them’:
- Increased competition – easier market entry, enabling new entrants to steal significant market share at the expense of unresponsive
existing suppliers
- Increased volumes and speed of data – the requirement to gather, process and act on massively increasing volumes of data in a rapid and intelligent manner
- More demanding customer requirements – including reduced cost, shorter lead times and reliability of supply.
Additionally, what is not well recognised is the increased capability of customers to bypass their traditional supplier and cut out the middle man. This threat is equally applicable right along the supply chain, from the consumer bypassing the retailer, and businesses bypassing tiers of
their suppliers.
To remain in the chain, companies do not just have to demonstrate the physical value they add, but also demonstrate that they add value through their ability to manage their own suppliers. They need to exploit the new channels and leverage-increased geographic access better than their existing competition and the new market entrants.
Manufacturing supply chains must respond by evolving into co-ordinated supply chain networks
To respond to these two sets of pressures, manufacturing supply chains must move away from the relatively static and simple supply chains in which the process flow is linear and predetermined, into a more complex supply chain network. This network, a looser affiliation of more interchangeable partnerships and alliances, can adapt more quickly to the demands of the consumer market.
An example supply chain network with its e-business linkages is illustrated in diagram 1.
Diagram 1
The network is enabled through e-business links such as the web and EDI, and a core and critical skill is the ability to integrate and manage the whole network response.
The supply chain networks have two types of player: the integrators and the producers
Fundamentally there are two types of organisation in the network: integrators, who manage the supply network and effectively ‘own’ the end customer contact, and producers, who have core competencies in production schedule execution.
The focus of the integrating firms is on managing the end customer relationship and on developing a core competence in integrating and controlling the response of the whole network to customer requirements. This includes the difficult task of synchronising the responses and performance of multi-tiered networks, where the leverage of direct ownership is no longer available, and of outsourced services such as warehousing and logistics.
Producers, on the other hand, must focus on delivery to schedule and within cost. The sales driver within these companies is on ensuring that their capacity is fully sold through their networking with co-ordinators. Producer are often servicing multiple chains, so managing and avoiding capacity and commercial conflicts becomes key.
The traditional role of the producer is well known, that of the supply chain network integrator is not
A supply chain network integrator needs to develop and establish the capability for network control, the key to virtual supply chain effectiveness. This requires the formulation of a clear market-driven business model where response agility is incorporated into the design concept. The business model must include as a core competence the management of partnerships along the supply chain as a demonstrably value-adding activity.
Responsive business processes, rapid information flows and overall control of the supply chain network must support the business model. Combining the planning and purchasing processes at a tactical level achieves process responsiveness and speed. The rapid flow of information involves introducing intelligent automated decision making capabilities to the current functionality of ERP systems, using advanced planning systems, and integrating the E-business linkages. Control of the overall supply chain network requires the management of capacity rather than the management of physical entities through a flexible supply chain structure. This includes how the reserved capacity is used (ie sequence of orders/activities).
The people in the business are the final piece in the jigsaw. The structure and culture of the organisation required to support the processes needs to be defined and then populated only with individuals with the required capabilities who can demonstrate the desired flexibility and behaviour.
The business challenge
E-business has now become a reality at a startling speed and businesses really don’t have the option to ‘do nothing’. The adoption of the supply chain network concept and development of integration capabilities are essential components of a move to the virtual manufacturing supply chain.
The more rapidly businesses develop their supply chain networks, the lower the inherent business risk. Speed is of the essence – PA Consulting Group is currently working with a start-up company that will provide its customers with laboratory supplies but does not own any supply chain assets. The start-up involved raising the venture capital, establishing the supply partnerships, developing the processes for cross-border movement of hazardous and dutiable goods, management of the taxation implications, implementation of the business system and design of the logistics network. Amazingly, the time from initial business concept to the first customer deliveries into a $5bn market will be six months!!
