A New Requirement for Supply Chain Management

Hundreds of Excel spreadsheets detailing supply chain plans and activity. An army of people keeping these spreadsheets in sync. Daily, hourly, even minute by minute tweaking to adjust expectations to figure out how to meet and exceed customers' exacting requirements profitably.

Supply chain nightmare ... or daunting reality?

Unfortunately, this is the reality for the new breed of brand owners or "virtual manufacturers" who outsource much of their manufacturing operations.

With this shift to outsourced manufacturing, companies are dependent on virtual supply chains and, therefore, must now focus on the challenges, risks and rewards shared mutually across the entire supply chain community. However, software hasn't kept up with market changes, forcing companies to manage their complex global supply chain networks via a duct-taped, labor intensive model of phone, fax, email, and lots of spreadsheets.

A Community-Centric Approach
Traditionally, the "supply chain master" was responsible for the direct manufacturing of the goods: raw materials, components and optimization of physical assets. Today, this supply chain master has been replaced in many industries by what we call the "brand owner," who, instead of focusing on the manufacturing function, now directs the community of partners that make up the manufacturing supply side.

In this community-centric model, where manufacturing is outsourced, the brand owner must manage by influence in order to lead the supply chain. With that, he handles both the risks and rewards of the entire community made more challenging without the direct control of traditional in-house manufacturing.

Throughout the 1990s, software vendors built supply chain solutions around the needs and constraints of the factory itself, which included equipment, assembly lines, labor and so forth. Veteran companies like SAP, Oracle, i2 and Manugistics, who all have roots in manufacturing-centric supply chains, first built software to optimize plant, machine and labor schedules, as well as sequencing and other factory production needs. From that manufacturing core, these companies added supplier and customer relationship management as well as intermediate warehouses to their supply chain, growing outward from the physical hub.

The problem is the software industry simply hasn't kept pace with the evolving business model. The needs of today's companies who depend on outsourced manufacturing cannot be solved by the asset optimization concepts and software solutions that drove the supply chain world for so long.

"Brand owners need better visibility into and control of the outsourced supply networks, but current technology options are not up to the task," stated an April 2005 AMR Report ("Contract Manufacturing at a Crossroads: Brand Owner Need for Visibility.")

Because of this, many brand owners have failed to realize the full benefits of this promising business model. They've found themselves strapped with excessive cost burdens, struggling to meet the ever more demanding customer service levels. Straight-jacketed in their inability to nimbly respond to the demand swings and supply disruptions characteristic of fiercely competitive global markets, they lack the visibility they need to effectively orchestrate today's supply chain ecosystem.

Turning Challenge into Opportunity for the Brand Owner
The majority of companies are still using Excel spreadsheets - by far the most popular supply chain management tool in the world - to manage this portion of their business that is now largely in the hands of partners. Or, they have heavily customized versions of existing supply chain management software.

By cobbling together processes to avoid falling behind, companies are not solving their problems; in fact, they're creating new ones, such as the high cost of keeping all partners in sync through manual processes. If companies are spending time and effort to do this - or they're missing business opportunities because they are not doing it - they're eating into the margins that this new model was supposed to achieve.

Today's brand owners are focused on three distinct goals:

1. Lowering costs by outsourcing manufacturing, thereby leveraging inexpensive labor and production with a community of diverse partners;
2. Increasing product velocity across the supply chain network, improving collaboration and moving product through partners that allow them to lower production costs; Managing and mitigating risk of the entire community so that all partners can continue to thrive and grow by contributing their expertise to the final outcome.

The unique traits defining virtual manufacturers require a compatible technology solution to support this shift away from the manufacturing-centric supply chains. Community Supply Chain Management (or C-SCM) software is an important tool to help companies adapt to the new market drivers.

Designed specifically to mitigate the risks involved in a virtual supply chain, C-SCM technology informs an organization as to how the smallest changes will impact its ability to meet demand. Additionally, it mitigates risk - namely, the fact that your company is giving up direct control through outsourcing - by providing real-time information about the flow of components and goods across the community.

Corporate giants, from Apple to Nike to Levi's, are leading the pack in embracing this new "virtual manufacturing" supply chain strategy. By re-prioritizing the focus - from optimizing assets on the factory floor to building strong, hyper-efficient supply chain communities - brand owners at these companies are managing from a more relevant point of view: outside-in, with an eye on the community impact.

Making the Supply Chain Community Tick

To effectively manage the complexities within the entire community, it's clear that virtual manufacturers need to focus on different areas of the supply chain. The following guidelines will help the brand executive become a more effective supply chain community leader.

1. Build a Supply Chain Team: To create a community, you can't get by with transactional relationships. You need to cultivate preferred partner relationships with your suppliers and prove your worth to each other so that your suppliers prioritize the work they do for you. Additionally, you need to set common goals and agree on key performance indicators (KPIs) to measure progress and success. For the team to thrive, all members must benefit from the community's work; not necessarily equally, but fairly. The key is teamwork, which is rooted in collaboration and the building of a trust model with incentives to solidify the partnership. Only then can everyone work together to overcome challenges for the benefit of the community.
2. Keep Supply Dynamic: In the community-driven supply chain model, brand owners do not have to assume that supply is "fixed," as we did in the planning algorithms of the old supply chain world. Rather, their new responsibility is to figure out how to juggle demand from all sources in order to make demand expectations work within the context of the virtual manufacturing reality. With a focus on elastic supplier capacity, lead times and inventory - rather than simply physical assets and raw materials - the brand owner can play with supply-side levers, aggregating, juggling and distributing demand across different manufacturing partners.
3. Create Cross-Community Visibility: Supply chain partners complain often and loudly about a lack of visibility, latency and inaccuracy of information within the business - and the toll these problems take on collaboration and confident decision-making. To grow into a true community, there needs to be multi-tier visibility across entities, with many-to-many relationships among the owner, suppliers and customers, as well as across business processes, including forecasting, purchasing and fulfillment. To lower costs, speed up work in the factory and improve customer service levels, real-time supply chain intelligence must be accessible and visible to all. With this approach, your company moves from a web of fragmented activities to a hub of end-to-end business processes.
4. Promote Management by Influence: By outsourcing manufacturing, virtual manufacturers give up direct control of product supply. This complicates the brand owners' jobs because they must manage by influence rather than directly. Good contracts can help, but brand owners will be far more successful if they build and nurture relationships with customers and suppliers, motivating them with community goals and rewards. Aligning trading partners around these goals, measuring performance, and rewarding success provides a firm foundation for a collaborative, sustainable supply chain community.
5. Create a Hub: To make this community work and truly foster real-time visibility into supply chain activity, communication and transactions are best managed on a common, web-based platform. It must be easy for partners to integrate and take into account the varied ways to communicate with other trading partners. With a single platform, or transaction hub, all community members gain access to a single system of record for operational data and cross-community processes. This single data repository, which needs to integrate with ERP systems, will be the central source for real-time business intelligence.

Technology in Action
Community-centric supply chain software must be easy to use. Otherwise, the most important cogs in the wheel, the users themselves, will not adopt it.

When applied to the supply chain, Software as a Service (SaaS), a web-based delivery platform, is the key to fast implementation and adoption. It is designed so that nobody within the community needs to replace any core systems and its low maintenance and intuitive interface make it easy for users to put in action. Providing a less expensive, more predictable cost of ownership than traditional software, SaaS solutions ensure that the entire community will be able to use the software to plan, source and fulfill products across a global trading network.

A successful community is dependent on successful individuals. In this case, that means all members of the community must have the ability to:

• Tailor software to their exact industry business processes;
• Seamlessly manage end-to-end business processes on a single platform;
• Continuously synchronize supply and demand across the extended supply chain community;
• View cross-community supply chain processes and metrics in real-time;
• Work within familiar industry standards, systems and regulations.

By overcoming architectural and manageability constraints of traditional supply chain management software, users can effectively coordinate intercompany business processes throughout the community.

The Payoff
The community-based supply chain model is here to stay. Within this, virtual manufacturers can collaborate around elastic supplier lead times and optimize each partner's schedules. Since planning is event-driven, changes and incremental runs will be less taxing to perform and far less disruptive to the community than when it relied on a traditional planning system.

By connecting the entire network - from customers to suppliers to the warehouse - this new approach can significantly enhance the goals of speed to market, supply chain collaboration and continuous improvement

In this global arena, where low cost and high service levels are king, companies who embrace the move to the community-centric supply chain will reap the rewards of true supply chain optimization.

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