Executive Briefings

Supply Chains Evolve into Multi-Enterprise Business Networks

There is nearly unanimous recognition of the need for supply chain transformation driven by factors such as the globalization of supply, increasing competitive pressures, and dwindling product life cycles from companies. This transformation's initial state is the linear supply chains of the past and the final state is a dynamic multi-enterprise business network.

The distributed nature of multi-enterprise supply chains has resulted in processes between business partners around both supply and demand interactions to become more complex. Buyers are providing stricter order fulfillment requirements to their suppliers, as well as maintaining the ongoing pressure to reduce costs. Electronically connecting and collaborating with suppliers, customers and other critical parties, such as transportation carriers, is vital to thriving in this demanding environment. Aberdeen refers to this set of complex interactions and supporting infrastructure as the business network.

Supply chain technologies have evolved. We are currently in the multi-party SCM (Generation 3 SCM) phase enabled by technologies like service-oriented architecture (SOA) and business process management (BPM) as identified in Aberdeen's Supply Chain Innovator's Technology Footprint 2008 report.

The key ingredients of multi-party SCM are:

• Inter-enterprise automation and visibility
• Multi-tier inventory management
• Supply chain finance
• Demand sensing and response
• Closed-loop SCE and SCP
• Extended warehouse management
• TMS and GTM as knowledge centers
• Centralized supply chain organization
• Integrated business planning

The above areas become much more challenging in a global environment where elongation of lead-times, cultural differences, and lack of common understanding of requirements may plague the efficient running of the supply chain.

The Outlook

The following are steps that organizations should take with respect to transforming their supply chain into a global multi-enterprise business network:

• Institute formal S&OP plan to execute reporting and metrics. Implement S&OP process with global supply planning capabilities and ensure that the S&OP plan can execute metrics. The first area of plan-execution is at the manufacturing facilities, especially those overseas that may not be accustomed to a formal S&OP process.

• Institute a risk assessment program. With a global supply chain, risks tend to be much higher due to more moving parts. Companies in recent times have realized the impact of some of these risks as evident in product recalls, quality issues and consumer safety concerns. Creating a risk assessment program is no longer a luxury but a necessity.

• Improve supply chain responsiveness and flexibility. Just visibility into the supply chain is not enough-there is a need to improve the flexibility of the supply chain to mitigate unforeseen events as well as responsiveness to react to market conditions.

• Institute a green supply chain mindset. Consideration of environmental issues at all stages of the supply chain (design, make, move, store, sell, service) is key to competitiveness in the market of the future. Get a jump-start by incorporating the following practical initiatives:

1. Select suppliers based on environmental costs-packaging, environmentally friendly chemicals, total costs, including disposal costs

2. Maximizing the efficiency of energy use-alternate energy suppliers or energy reduction programs, and measuring and monitoring the carbon footprint of products

3. Tie green initiatives into the other green ($)-ensure that business growth and strategy is factored into every decision instead of going green in a silo.

The distributed nature of multi-enterprise supply chains has resulted in processes between business partners around both supply and demand interactions to become more complex. Buyers are providing stricter order fulfillment requirements to their suppliers, as well as maintaining the ongoing pressure to reduce costs. Electronically connecting and collaborating with suppliers, customers and other critical parties, such as transportation carriers, is vital to thriving in this demanding environment. Aberdeen refers to this set of complex interactions and supporting infrastructure as the business network.

Supply chain technologies have evolved. We are currently in the multi-party SCM (Generation 3 SCM) phase enabled by technologies like service-oriented architecture (SOA) and business process management (BPM) as identified in Aberdeen's Supply Chain Innovator's Technology Footprint 2008 report.

The key ingredients of multi-party SCM are:

• Inter-enterprise automation and visibility
• Multi-tier inventory management
• Supply chain finance
• Demand sensing and response
• Closed-loop SCE and SCP
• Extended warehouse management
• TMS and GTM as knowledge centers
• Centralized supply chain organization
• Integrated business planning

The above areas become much more challenging in a global environment where elongation of lead-times, cultural differences, and lack of common understanding of requirements may plague the efficient running of the supply chain.

The Outlook

The following are steps that organizations should take with respect to transforming their supply chain into a global multi-enterprise business network:

• Institute formal S&OP plan to execute reporting and metrics. Implement S&OP process with global supply planning capabilities and ensure that the S&OP plan can execute metrics. The first area of plan-execution is at the manufacturing facilities, especially those overseas that may not be accustomed to a formal S&OP process.

• Institute a risk assessment program. With a global supply chain, risks tend to be much higher due to more moving parts. Companies in recent times have realized the impact of some of these risks as evident in product recalls, quality issues and consumer safety concerns. Creating a risk assessment program is no longer a luxury but a necessity.

• Improve supply chain responsiveness and flexibility. Just visibility into the supply chain is not enough-there is a need to improve the flexibility of the supply chain to mitigate unforeseen events as well as responsiveness to react to market conditions.

• Institute a green supply chain mindset. Consideration of environmental issues at all stages of the supply chain (design, make, move, store, sell, service) is key to competitiveness in the market of the future. Get a jump-start by incorporating the following practical initiatives:

1. Select suppliers based on environmental costs-packaging, environmentally friendly chemicals, total costs, including disposal costs

2. Maximizing the efficiency of energy use-alternate energy suppliers or energy reduction programs, and measuring and monitoring the carbon footprint of products

3. Tie green initiatives into the other green ($)-ensure that business growth and strategy is factored into every decision instead of going green in a silo.