Monday, March 09, 2009

The Death of the Supply Chain

The Death of the Supply Chain
Gone are the days when supply chains were linear, static, in-country and tightly coupled to the brand owner or OEM's internal manufacturing captivity.
March 9, 2009

The supply chain as it has traditionally been defined is no longer feasible. The changing nature of global business has had a dramatic effect on how companies design, build and deliver goods and services across virtually every industry. Gone are the days when supply chain were linear, static, in-country and tightly coupled to the brand owner or OEM's internal manufacturing captivity. Nowadays, globalization and outsourcing are pervasive -- thereby dramatically transforming the traditional notion of a supply chain from a traditional linear model to a highly dynamic demand-supply network.

Visibility: A Victim to a Highly Dynamic Demand-Supply Network

Often times, supply chain visibility is the first and most significant victim of this shift from a static, linear to a dynamic, networked model. Also militating against supply chain efficiency is the rapid pace of business: demand now moves at Internet speed, from around the globe, while supplies and finished goods can only travel as fast as a cargo jet, or, more often, an ocean-going freighter. This dichotomy between the speed of supply and demand makes the supply chain as much the problem as the solution to the problem. Without dramatically changing how the supply chain functions to compensate for this dichotomy, the supply chain itself becomes the main barrier to success for a modern, global company.

Visibility requires real-time information about not only what's happening inside the linear supply chain, but what's happening across a complex global network of suppliers, contract manufacturers (CMs), assemblers, distributors, channel partners, logistics companies, retailers, and, even, end consumers. These different stakeholders, by definition, have vastly different qualities and quantities of technology at their disposal in order to communicate with one another, and by themselves lack any self-organizing principle -- not to mention a common currency, time zone, and legal regime -- that could facilitate such a dialogue.

This makes the brand owner or OEM's task daunting at best. The Tower of Babel that has emerged from these dynamic demand-supply networks is largely incomprehensible to the vast majority of supply chain and ERP solutions today, most of which are designed to work within a linear supply chain largely defined by intra-company processes. These aging technologies have a singular difficulty in making the transition to supporting a networked, global, dynamic business model.

Technology Barriers

As the need for managing complex, multi-enterprise demand-supply networks vastly outpaces the ability of standard, on-premise supply chain management (SCM) and enterprise resource planning (ERP) systems, companies are increasingly realizing that their existing software and business models are inadequate for today's outsourced, multi-tiered, global 24/7 business world. Nowadays, companies require a new class of demand-supply management systems that are adept at managing external processes, partners and even buyers.

On top of this, the problems of integrating transactional data from multiple heterogeneous systems -- a key means by which a networked supply chain can automate supply chain operations -- is an ongoing issue across the enterprise, and one that is particularly problematic with respect to a demand-supply network. This limitation is due to the fact that heterogeneity among external suppliers and other partners is a given, and represents an enormous support burden for an on-premise system.

Five Requirements for Breaking the Supply Chain Barrier

With the shortfalls of on-premise ERP and SCM acting as a barrier to implementing the manufacturing enterprises of the 21st century, a growing number of companies have turned to an on-demand model to meet their demand-supply network goals.

Today's companies require a new class of demand-supply management systems that are adept at managing external processes, partners and even buyers. To support the kind of dynamic, demand-supply network that is needed today -- and well into the future -- companies must consider these five requirements:

  1. B2B Integration: The ability to connect multiple stakeholders in a single networked environment provides the basis for the process and data integration needed to support a twenty-first century demand-supply network
  2. Business Process Management: Managing a complex set of business processes from a single on-demand platform allows for a level of business process orchestration between partners that is largely impossible in an on-premise world.
  3. Exception and Event Management: Once process management and data are standardized, exception and event management can be greatly facilitated as well. One of the problems that has always limited exception management across trading partners has been inconsistencies in how exceptions are defined and communicated across the network. With a single on-demand environment functioning as a data and process management hub, exception and event management can become highly automated and remediation can be greatly accelerated.
  4. Business Intelligence: The ability to normalize and aggregate data and processes, and to directly connect all stakeholders across the demand-supply network, makes it an ideal launching pad for an expanded set of analytics and business intelligence services. The on-demand environment effectively creates its own data mart that readily lends itself to producing comprehensive analyses of a quality and reliability not possible in the on-premise world. This is a direct result of the increased visibility offered by on-demand services.
  5. Operations Management: None of the above would be possible without an extremely well designed, highly functional, secure on-demand platform. Having the on-demand network owner function as the domain expert removes this burden -- and its costs -- from the individual stakeholders
  6. By embracing an on-demand model, manufacturers who are shifting from a linear supply chain to a network system are able to work in concert with their entire demand-supply networks -- thereby maximizing visibility and better positioning themselves for success in this new paradigm of demand and supply management. The supply chain -- as we have known it -- is dead.

    Andrew Salzman is the Chief Marketing Officer for E2open Inc. E2open provides SaaS-based demand and supply network solutions.