Friday, July 03, 2009


Thursday, July 02, 2009

Early March, Industry Week published an article, titled "The Dead of the Supply Chain", arguing that the supply chain as it has traditionally been defined is no longer feasible. Gone are the days when supply chains were linear, static, in-country and tightly coupled to the brand owner or OEM's internal manufacturing.

Having spent time in studying the HP supply chain, I can fully agree with the statement. Indeed, supply chains such as ours have become global, outsourced and demand driven. Balancing demand and supply is critical to set-up and manage lean supply chains these days. In the article, Andrew Salzman describes five requirements that need to be addressed to achieve this:

  • B2B Integration
  • Business Process Management
  • Exception and Event Management
  • Business Intelligent
  • Operations management

I believe he misses a major point. The approach he promotes is an operational approach, which only covers part of the needs. Yes, OEM's and Brand Owners need to be able to react quickly when something goes wrong, yes, data needs to be normalized and aggregated, and stakeholders need to be connected. However, that only provides information on what's happening now and how potential problems can be resolved. It does however not use the present situation to improve the future.

What we need is "closing the loop", in other words combine the information on what has and is happening to be able to improve operations both in real time and over the duration. What does this mean? Well, first, there is a need to integrate suppliers and channel partners alike. Yes, this requires a B to B integration, but more importantly, it can only be achieved if collaborative relationships are built between partners. Developing those is a whole discussion in its own right, and I will defer this one to another entry. Building the electronic data transfer mechanisms is reasonably easy; building the trustworthy relationships is more difficult. Data needs to be put in a common format and will be used, through an operational data store, for exception and event management. However, the time dimension is not taken into account here. Indeed, it is by understanding trends, what has happened prior to specific events etc. that the dynamics of the supply chain is understood. Business Intelligence can be used here. Consolidated data is stored in a data warehouse for extended periods of time, analysis tools can then be used to understand what is happening and why.

This understanding allows the development of modeling tools that mathematically simulate how the eco-system will behave. This is where simulation comes in and where the difference is. Using simulation allows the analysis of multiple scenario's and the identification of how the supply chain should be transformed to be capable to react better to fluctuation in demand, absorption of events, and result in major reductions in risks of running a global supply chain. It is surprising to see how little companies are using simulation these days. It has been proven extremely valuable over and over again, but many companies seem to be bogged down in operational management, forgetting the importance of planning things right. Yes, when a fire burns, it needs to be extinguished, but doesn't avoiding the fire make more sense? This is why we, at HP, are focusing so much on business intelligence and intelligent decision making. Over and over again it has proven beneficial.

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.

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

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.

Thought Leader -- Reducing the Supply Chain Footprint

Thought Leader -- Reducing the Supply Chain Footprint

HP's Christian Verstraete brings a systems engineer's eye for the big picture to managing the supply chain's "ecosystem."

You might think that a person would run out of ideas after being at the same company for 30 years. Not the case with Christian Verstraete, who began his career with Hewlett-Packard as a systems engineer. These days he is pushing the lean frontier to see "how it can be incorporated into the wider view of the complete ecosystem." That view must extend beyond the boundaries of the enterprise and reach across the whole supply chain. For example, he warns, "Today companies must have a handle on risk management and mitigation across the supply chain while simultaneously reducing the variants. Rather than do Six Sigma within the company, do Six Sigma across the supply chain."

Q: How is HP able to continuously improve its supply chain?

A: Once we have identified potential improvements in our supply chain and before we implement the improvements, we develop a model. We inject multiple scenarios and variances and see how the model reacts. Simulation tools are relatively inexpensive and it is money that you can recoup very quickly by avoiding implementing the wrong thing.

Here's an example. In the mid '90s HP moved into the notebook business, and while they took off like rockets, we weren't making any money. We didn't understand why this was the case until we got our supply chain modeling people involved and discovered that there were a number of things that we hadn't taken into account. We revised our supply chain design and are now the largest notebook manufacturer in the world.

Q: HP won Wal-Mart's 2008 Home Entertainment Design Challenge. How did that happen?

Christian Verstraete

Chief Technology Officer / Manufacturing & Distribution
Industries Worldwide, Hewlett-Packard Co.

Responsible for thought leadership and innovation

Spends his time scanning trends and figuring out how to capitalize on them

Is busy figuring out ways to quantify "green" efforts

Proud of HP's efforts to help employees become environmentally conscious in
their own homes
A: It was actually very simple. Wal-Mart asked its top 100 suppliers to reduce the amount of packaging material in an effort to be environmentally responsible. One of our employees was contemplating how to protect the laptop when it was coming from China or Thailand. He found padded bags that were made from recycled material. He designed one package that was able to contain everything that the PC needs. It reduces shipping material by 97%, and it conserves fuel and reduces CO2 emissions by removing the equivalent of one out of every four trucks previously needed to deliver the notebooks to Wal-Mart stores.

Q: Looking forward, what "green" issues do you see?

A: First of all you need to measure the result of your green efforts. We are among the first companies to calculate the carbon footprint of the supply chain. While it's still in its early stage of development, we hope over the next three to five years we will be able to more closely calculate and express all of the aspects of an environmental footprint. We need to go beyond emission only and look at water and other resources. We are teaming up with research institutes and universities to ensure that we take a holistic approach.

From a manufacturing viewpoint we need to move environmental concerns up to the product development stage so that design takes into consideration the whole life cycle as well as the end use. For example, if we put the paint in the plastic rather than paint the end product, we can ensure proper recycling.

Watching out for the environment is a priority not only for HP but also for Verstraete personally. "A company is a community of human beings," he says. "Everyone is responsible for doing their part at work and at home."