The synchronous supply chain 7 MM The extended enterprise and the virtual supply chain MM The role of information in the virtual supply chain MM Laying the foundations for synchronisation MM ‘Quick response’ logistics MM Production strategies for quick response MM Logistics systems dynamics In conventional supply chains each stage in the chain tends to be disconnected from the others. Even within the same company the tendency is for separate func- tions to seek to optimise their own performance. As a result the interfaces between organisations and between functions within those organisations need to be buff- ered with inventory and/or time lags. The effect of this is that end-to-end pipeline times are long, responsiveness is low and total costs are high.
To overcome these problems it is clear that the supply chain needs to act as a synchronised network – not as a series of separate islands. Synchronisation implies that each stage in the chain is connected to the other and that they all ‘march to the same drumbeat’. The way in which entities in a supply chain become connected is through shared information. The information to be shared between supply chain partners includes demand data and forecasts, production schedules, new product launch details and bill of material changes.
To enable this degree of visibility and transparency, synchronisation requires a high level of process alignment, which itself demands a higher level of collabora- tive working. These are issues to which we shall return. The box below indicates some of the key processes that need to be linked, upstream and downstream, to provide the foundation for supply chain synchronisation. 141 MM Planning and scheduling: Material positioning/visibility, advanced planning, scheduling, forecasting, capacity management.
MM Design: Mechanical design, electrical design, design for supply chain, compo- nent selection. MM New product introduction: Bill of materials management, prototyping, design validation, testing, production validation, transfer to volume. MM Product content management: Change generation, change impact assess- ment, product change release, change cut-in/phase-out. MM Order management: Order capture/configuration, available to promise, order tracking, exception management.
MM Sourcing and procurement: Approved vendor management, strategic sourcing, supplier selection, component selection. ‘Linking supply chains to support collaborative manufacturing’, Ascet, Vol.1 depicts the difference between the conventional supply chain with lim- ited transfer of information and the synchronous supply chain with network-wide visibility and transparency. The extended enterprise and the virtual supply chain The nature of business enterprise is changing. Today’s business is increasingly ‘boundaryless’, meaning that internal functional barriers are being eroded in favour of horizontal process management and externally the separation between vendors, distributors, customers and the firm is gradually lessening.
This is the idea of the extended enterprise, which is transforming our thinking on how organisations com- pete and how value chains might be reformulated. Underpinning the concept of the extended enterprise is a common information ‘highway’. It is the use of shared information that enables cross-functional, hori- zontal management to become a reality. Even more importantly it is information shared between partners in the supply chain that makes possible the responsive flow of product from one end of the pipeline to another.
What has now come to be termed the virtual enterprise or supply chain is in effect a series of relationships between partners that is based upon the value-added exchange of information.2 illustrates the concept. The notion that partnership arrangements and a mentality of co-operation are more effective than the traditional arm’s-length and often adversarial basis of relationships is now gaining ground. Thus the supply chain is becoming a con- federation of organisations that agree common goals and who bring specific 142 LOGISTICS & SUPPLY CHAIN MANAGEMEN T Figure 7.1 Achieving synchronisation through shared information: (a) before synchronisation; (b) after sychronisation (a) Tier 2 Tier 1 OEM Customer (b) Customer Tier 1 Tier 1 OEM Tier 2 Tier 2 Customer Key: OEM = Original equipment manufacturer Tier 1 and 2 = Supplier echelons Figure 7.2 The extended enterprise and the virtual supply chain Sources Converters Retailers Product and service flow Information flow Funds flow Suppliers Distributors Consumer Source: A. Kearney THE SYNCHrONOUS SUPPLY CHAIN 143 strengths to the overall value creation and value delivery system.
This process is being accelerated as the trend towards outsourcing continues. Outsourcing should not be confused with ‘subcontracting’ where a task or an activity is simply handed over to a specialist. In a way it would be better to use the term ‘in-sourc- ing’ or ‘re-sourcing’, when we refer to the quite different concept of partnering that the virtual supply chain depends upon. These partnerships may not be for all time – quite possibly they exist only to exploit a specific market opportunity – but they will be ‘seamless’ and truly synergetic.
The role of information in the virtual supply chain Leading organisations have long recognised that the key to success in supply chain management is the information system. However, what we are now learning is that there is a dimension to information that enables supply and demand to be matched in multiple markets, often with tailored products, in ever-shorter time-frames. This extension of the information system beyond the classical dimensions of simple planning and control enables time and space to be collapsed through the ability to link the customer directly to the supplier and for the supplier to react, sometimes in real time, to changes in the market. Rayport and Sviokla1 have coined the term ‘marketspace’ to describe the new world of electronic commerce, internets and virtual supply chains.
In the marketspace, customer demand can be identified as it occurs and, through CAD/CAM and flexible manufacturing, products created in minimal batch sizes. Equally, networks of specialist suppliers can be joined together to create innovative yet cost-effective solutions for complex design and manufacturing problems. The way that Airbus now designs and assembles its advanced aeroplanes, for example, would not be possible without the use of global information networks that link one end of the value chain to the other. The Internet has in many ways transformed the ways in which supply chain members can connect with each other.2 It provides a perfect vehicle for the estab- lishment of the virtual supply chain.
Not only does it enable vast global markets to be accessed at minimal cost and allow customers to shorten dramatically search time and reduce transaction costs, but it also enables different organisations in a supply chain to share information with each other in a highly cost-effective way. Extranets as they have come to be termed are revolutionising supply chain management. Organisations with quite different internal information systems can now access data from customers on sales or product usage and can use that information to manage replenishment and to alert their suppliers of forthcoming requirements. One of Britain’s major retailers, Tesco, is using an extranet to link with its sup- pliers to share point-of-sale data.
At the same time the company is successfully running a home shopping and delivery system for consumers over the Internet. Within the business, intranets are in place that enable information to be shared between stores and to facilitate communication across the business. We are probably even now only scraping the surface in terms of how the Internet and its associated technologies can be used to further exploit the virtual supply chain.3 highlights some of the current applications of Internet-based concepts to supply chain management. 144 LOGISTICS & SUPPLY CHAIN MANAGEMEN T Figure 7.3 Internet applications and the supply chain Customer service Financial transactions Electronic distribution • Information and support • Selling and payment • Product, data, information products and services • Managing accounts Internal communications • Electronic help desk • Credit card payments • Complete internal, external, vertical • Mass customisation and and horizontal communications order processing • Groupware Marketing channel • E-mail • Public relations and advertising • Collaboration • Market research and test • Knowledge transfer Internet • Electronic mails and catalogues • Telecommuting Intranet Information retrieval Extranet Human resources and • Online news employee relations • Statistics, reports and databases • Job opening posting • Data mining • Expert search • Competitive analysis • Employee training and support Supplier relationships • Distance learning • Logistics Building strategic alliances Sales force automation • Product search • Newsletters, bulletin boards, • On-site configuration and order processing • Electronic data interchange discussion databases • Sales process transformation • Ordering and payment • Sharing knowledge and experience • Supply chain integration Source: A.
Kearney THE SYNCHrONOUS SUPPLY CHAIN 145 The IT solutions now exist to enable supply chain partners to share information easily and at relatively low cost. A major benefit that flows from this greater trans- parency is that the internal operations of the business can become much more efficient as a result. For example, by capturing customer demand data sooner, better utilisation of production and transport capacity can be achieved through better planning or scheduling.4 indicates some of the uses to which improved logistics information can be put.4 Functions of a logistics information system Planning function • Stock management • By product/ customer • By location • Demand forecasting • Strategy planning Co-ordination function Database Customer service communication function • Production • External data • Customer order status scheduling • Customer orders • Inventory availability • Materials requirement • Inbound shipments • By product planning • Internal data • By stock location • Sales/marketing • Production • Outbound shipment planning • Inventory status Control function • Customer service levels • Vendor performance • Carrier performance • System performance Increasingly, it seems that successful companies have one thing in common – their use of information and information technology to improve customer respon- siveness. Information systems are reshaping the organisation and also the nature of the linkages between organisations.
Information has always been central to the efficient management of logistics but now, enabled by technology, it is providing the driving force for competitive logistics strategy. We are now starting to see the emergence of integrated logistics systems that link the operations of the business, such as production and distribution, with the supplier’s operations on the one hand and the customer on the other.3 Already it is the case that companies can literally link the replenishment of product in the mar- ketplace with their upstream operations and those of their suppliers through the 146 LOGISTICS & SUPPLY CHAIN MANAGEMEN T use of shared information. The use of these systems has the potential to convert supply chains into demand chains in the sense that the system can now respond to known demand rather than having to anticipate that demand through a forecast.5 describes the architecture of such a system. One company that has recognised the importance of improving supply chain visibility through shared information is Cisco Systems, a market leader in telecom- munications and network equipment (see below).
Cisco Systems: creating a virtual supply chain through shared information Cisco Systems, one of the world’s leading players in the networking and tel- ecommunications markets, has created a virtual supply chain in which almost all manufacturing and physical logistics are outsourced to specialist contract manu- facturers and third-party logistics companies. Only a very small proportion of their 20,000 different stock keeping units are actually ‘touched’ by Cisco. Following a sudden collapse in sales as the Internet bubble of the closing years of the twentieth century finally burst, Cisco was forced to write off over $2 billion of obsolete inventory. Subsequent investigations highlighted the reason for this spec- tacular fall from grace: inadequate visibility of real demand across the entire supply chain leading to significant over-ordering of components.
Determined not to see a repeat of this catastrophic event – the size of the inven- tory write-off created a new world record and led to a major financial setback for the company – Cisco set out to build a state of the art communications network to enable information to be shared across the ‘extended enterprise’ of their major tier 1 suppliers and logistics service providers. This has been achieved through the creation of an ‘e-hub’.