Weaving the Fabric of Supply Chain Innovation

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Enjoying a walk through an old tobacco farm on one of the first warm days of an early Spring, I was fascinated by the remains of what had once been an animal enclosure. Examining the intricate mesh revealed what appeared to be two or three single threads creating a flexible but strong and secure fence. Further examination identified that several of the links on this particular piece of fencing had become unraveled, destroying the value of the construction and rendering it useless.

The failure of the single thread resulted in the unraveling of a whole section of fencing. This is reminiscent of the interdependence of the various entities in the global supply chain. Do you want virtual fabric or federated fabric? There are several key threads that must be strongly knotted together. These include:

  • Information, shared by all secure parties:
    From purchase order to proof of delivery;
    Physical flow of goods – in many cases through a series of hand offs and physical locations.
  • Fair flow of funds based on transparent and well understood agreements. (Terms of payment, in traditional global trade, are linked to logistics issues, terms of purchase defining change of ownership, encompassed by what are internationally known as INCO Terms.)
  • A common view of the market.

These are hard to achieve. As supply chains become more fragmented, extending across multiple geographical locations, the implications of terms of trade and the need to secure strong supply relationships grow in importance. Evaluation of potential new supply locations, service providers and modes of transportation have an impact on the final outcome – a profit or a loss.

Frequently it is hard to determine if a firm has actually made money on a product, a customer, a process operation they manage for their clients.

Implications of change

Also important to consider are implications of change in custodianship to political, social and insurance liability.

Strangers to the intricacies of global trade and transportation, many purchasing executives, operations personnel and related entities are finding out the hard way that (with a little license on my part) ‘they are not in Kansas anymore’.

In many cases, pressures to reduce costs have resulted in single threaded process improvements – for example manufacturing. The reality is that manufacturing costs are only part of the equation – in many cases savings in labor rates are more than offset by additional costs related to transportation, product shortages and increased inventory holdings to allow for variances in supply predictability. This is where the Virtual Model often breaks down. Responding to the challenges of a global market place requires mastery of these variables.

Leveraging 3rd parties, as well as best in class distribution techniques are critical. Distribution and logistics options include:

  • Distributed delivery centers – a global network of distribution centers – owned and operated by the Brand Master.

  • Partner fulfillment centers – a global network of distribution centers, owned and operated by suppliers who comprise the integrated supply chain.

  • Dedicated fulfillment centers – centralized distribution center, owned and operated by the Brand Master, at country or regional levels.

  • Third party fulfillment centers – centralized distribution centers, serving specific geographical regions.

  • Build to Order – to include a combination of distributed, centralized and third party operations where products are assembled based on demand at a global and regional level.

Each of these models has its inherent challenges and benefits – an aggravating factor is the need for real time visibility across a global supply environment. One solution is to view the supply chain network as a single virtual enterprise. All constituents have a role, but the focus is on the outcome – the customer experience and financial impact on all parties. Viewing this inter-related community based on outcomes versus activities enables a whole new paradigm. Information technology is an enabler to weave the threads of supply chain processes into a single virtual entity. Real time sharing of information related to fluctuations in supply, demand and constraints creates an effective ‘digital nervous system’. This federated, ‘neural’ model sounds like something out of Star Wars – the reality is that the technology enablers already exist in order to facilitate this.

The path forward

The path forward includes an evaluation of the following:

  • Process:
    • Roles and responsibilities – impact and outcome – of each of the supply chain participants.
    • Automation of workflows.
    • Round the clock response capabilities.
  • Policy:
  • Reevaluation of the IT Delivery Architecture: (see next issue)
    • Information needs and data sources. How can quality be achieved?
    • Communications infrastructure. Most IT networks need a review, as new technologies like mobility and RFID become widely adopted.
    • Security.
    • Data capture, auto identification and data synchronization capabilities across the network.
    • Exception management, alerting and response management.

Clearly defined and executed, the creation of this ‘federated supply chain’ will provide the richness and reach required to meet the challenges of globalization, plus a unified capability to identify and reap the rewards of new markets and opportunities.

The future is NOW. Are you ready for it??

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