Choreographing the New Supply Chain
Connecting customers, distributors, manufacturers and suppliers to allow real-time workflow requires they all dance to the same music.
A customer service representative in Atlanta reviews an incoming order over the web. Are the products available to promise to the customer? The representative clicks the "search inventory" icon. Immediately, a software agent interrogates the global database, which includes inventories not only in the company's own warehouses across the United States, but also in the warehouses of its supply chain partners in Europe and Asia. The software agent locates the requested products, calculates the guaranteed lead time to source and assemble these items, and determines the most optimal transport route to the customer's site.
Elapsed time to execute this process: Three seconds.
A broker in Singapore is handling a large import order of women's garments for a major retailer. To process the inbound order, the broker needs approvals from 18 agencies that handle customs and trade approvals. The broker logs on to TradeNet, a 24/7 Internet-based system developed by the Singapore Trade Development Board, makes the request, and fills out the necessary forms online. The forms are routed through the 18 different agencies simultaneously.
The entire permitting process, which used to take days, is accomplished online within 15 minutes.
Five years ago, these scenarios were merely the stuff of dreams. Today, however, they are proof that the age of the real-time supply chain has finally arrived. Thanks to an emerging technology construct—the Internet supply chain mega-portal—true global online supply chains can now:
- Connect customers, distributors, manufacturers, and suppliers.
- Enable real-time information processing and collaborative workflows to occur simultaneously among all partners.
- Create web-based business models where a single event—a customer order—triggers multiple actions at once across the entire supply chain.
The Mega-Portal Defined
The supply chain mega-portal is an online, Internet-based hub of information, applications, and services accessible via a variety of devices (a personal computer, a cell phone, and a handheld PDA), capable of providing personalized content and views to help individuals better run their enterprise.
The Internet mega-portal provides a unified data picture of all the firm's business transactions, shared in real-time across the organization and, as appropriate, throughout the entire supply chain. It operates according to established business rules that recognize all users and their authorizations to view data and conduct transactions.
The Internet mega-portal evolved in response to significant inefficiencies inherent in traditional supply chain models. It is the product of several recent crucial technological and managerial developments in the supply chain world, including:
- Server innovations.
- Automated online supply chain choreographies.
- Total supply chain asset visibility.
Server innovations. Recent server technology innovations enable companies to authenticate users, and provide a truly rich and radically simplified user experience. New portal servers act as traffic cops, routing incoming communications and message packets from across the Internet into either secure or non-secure communications streams.
The portal servers control and customize user views based on user roles, interest profiles, and security classifications. They enable users to sign on only once to get access to a whole world of information and services.
Automated online choreographies.
Concurrent with these server developments, the business world is seeing the emergence of new Internet-based messaging/transaction architecture. This architecture enables a tremendous degree of virtual process integration and synchronized services delivery across multiple web sites and orchestrated, synchronized distributed databases. We call these sets of activities "supply chain choreographies."
This evolution of cross-machine and cross-system web platforms means that individuals and machines can communicate with one another across space and time in an increasingly accelerated fashion. Intelligent software agents can traverse the myriad worlds of the global Internet, hunt down information and services on behalf of users, and automatically execute complex transactions.
These supply chain choreographies allow a company to automate most aspects of its operations, thus enabling employees and supply chain partners to make better business decisions through the use of collaborative, shared software agents. They eliminate unnecessary handoffs and process disconnects, and enable the sharing of insights and decisions among key supply chain participants.
And by using built-in, automated business rules, the technology behind these choreographies accelerates enterprise processes to the level of velocity that the current business environment—and customers—require.
Figure 1 (page 137) depicts the concept of an end-to-end supply chain choreography. This choreography encompasses a confederation of players connected across multiple web sites, and executing an integrated end-to-end Internet business process. The enterprise mega-portal gives supply chain users across all the sub-processes a unified and real-time view of the end-to-end Internet choreography.
Visibility over operations throughput and material flows becomes a reality via collaborative decisionmaking across the extended enterprise web of core suppliers, distributors, and direct customers. Real-time intelligence transforms the role of business strategists and planners. They now have the tools to make better-informed decisions—based on facts and realities rather than on suppositions and conjecture. Planners can identify patterns in demand and supply much more quickly, and create more accurate short- and long-term forecasts.
This, in turn, enables companies to be fully prepared to meet customer demand—to stock the right mix of products, to orchestrate all the resources and activities of the enterprise toward meeting the needs of the customer successfully and profitably.
The End of Traditional Logistics
The Internet mega-portal and the choreographies it enables spell the end of traditional logistics. The traditional supply chain model is based on a rigid, static set of links. Information and material flows from one link to another in a sequential fashion. This construct creates friction, inertia, and inflexibility. It also results in channel participants "waiting" until they receive necessary information/goods before commencing their portion of the supply chain activity.
This waiting behavior adds time to the supply chain flow—something that companies increasingly cannot afford. Added time translates into higher inventories and longer cycle times all along the pipeline. It diminishes companies' competitiveness in the face of today's high-speed global business environment. In addition, every sequential exchange increases the risk of error—which, again, companies typically compensate for by adding inventory and buying premium transportation services.
The sequential supply chain model is a far cry from the concept of the Internet mega-portal. Why? Because the new, technology-based concept is centered on the customer and is dynamic, with links being added to and subtracted from the chain as the need arises.
According to Lisa Henriott, a supply chain software industry veteran, the Internet mega-portal concept can:
- Minimize time and distance among trading partners.
- Route information and product along the most effective path to meet market demand.
- Offer fluid, rapid integration of inter-enterprise business processes.
- Leverage volumes and alliances with preferred suppliers while using virtual inventory as market conditions change.
- Slash cycle time, process cost, and inventory.
- Broadcast information to all trading partners who may add value.
Indeed, asserts Henriott, the Internet mega-portal is characterized by collaborative/joint planning and execution, real-time response to market conditions and automatic, seamless integration. The developments of portal servers and real-time business choreographies (i.e., web-based services "trained" to learn user requirements and preferences and, based on those requirements and preferences, locate appropriate web sites with transaction capabilities designed to fill the customer's needs) enable firms to share data and make real-time decisions without having to translate information and data into a common format.
Thus, there is real-time data interchange for joint decisionmaking with respect to all the individual functions associated with the supply chain.
The vision of companies managing their supply chains with Internet mega-portals is exciting and perhaps a bit futuristic. Adopting this cutting edge approach requires fundamental shifts in both business practices and technology.
From a business perspective, the mega-portal provides supply chain managers with key performance indicators for all major sub-systems of the supply chain—e.g., on time deliveries, inventory turns, and order cycle times. From a technology perspective, the model requires a portal interface that links in real time all major business transaction and planning systems of the corporation while providing critical links to major trading partners.
The transition to the new paradigm will not be easy. The technological challenges alone are huge, and are matched by an equally significant set of human resource challenges.
Fortunately, while the overall task of transitioning to a mega-portal environment is imposing, it can be broken down into a reasonably discrete and achievable set of challenges and opportunities, including:
- Establishing a dynamic, fluid organization, with the ability to couple and de-couple links.
- Creating reciprocal interdependence among the partners facilitated by real-time information systems.
- Ensuring full and complete access of information to provide for inter-partner coordination.
- Empowering employees to use shared information for decisive decisions.
In short, the challenge in establishing a mega e-supply chain portal environment is to create a supply chain organization that is enabled with all the information systems and decision support tools required to make decisions in real time, as well as one in which employees are empowered to make decisions.
This supply chain paradigm requires a dynamic organizational structure in which there is a coupling and de-coupling of links to respond to changing market demands. Sirkka Jarvenpaa and Blake Ives described this paradigm in a 1994 article published in The Journal of Management Information Systems.
The new model requires the flexibility to add or subtract supply chain partners as necessary to best meet the customer's needs in a timely, cost-effective manner. Established partnerships are not only powerful and effective, but flexible and able to respond to different market conditions in a more effective manner than is possible in a traditional, linear supply chain.
The second challenge/opportunity—establishing a reciprocal interdependence among the partners in the chain—requires creating a foundation of trust among all supply chain partners. It also necessitates that supply chain partners share a single vision and similar values.
Unfortunately, while this kind of trust both within the enterprise and among external trading partners has long been discussed, it runs directly counter to entrenched business culture and behavior. Despite all the hype about collaboration and partnerships in supply chain management, fewer than 50 percent of U.S. companies have supply chain arrangements that go beyond traditional buy-sell relationships, according to a recent study by Michigan State University. Thus, this challenge of creating an environment of trust may be the most difficult to overcome.
Passing Info from One Partner to Another
To succeed, the real-time supply chain portal model requires that all partners share a common set of data based on real-time information freely exchanged among partners. In the traditional, linear supply chain, information is passed from one partner to another down the chain, with partners at each end of the chain sharing almost no information.
The Internet mega-portal model, in contrast, requires robust information exchanges among all partners, regardless of their position in the supply chain. It demands that all partners in the chain have full access to real-time information in order to ensure inter-partner coordination.
Finally, the e-supply chain portal model puts significant demands on the work force. The "ideal" employee must not only have excellent technical skills, but must also be adaptable, flexible, and willing to continually learn new skills. Equally as important is the need for employees in this new supply chain environment to be empowered to make decisions and act on the wealth of real-time data now available to them.
In the past, competition between companies focused on traditional items such as differences in price, differences in product quality, differences in reputation of firms, and differences in product support.
Gradually, however, this focus has been shifting from comparisons between individual firms and their products, to comparisons between supply chains and their integrated services. Competitive forces such as globalization, intense price pressure, escalating customer expectations and demand, and so on, are fueling this shift.
In the new competitive environment, therefore, organizations must provide customers with a range of information services in real time, as well as high levels of product customization/configuration options. In the new environment, customers want to know at all times the status of their order and its delivery date. They want assurances that their particular needs can be incorporated into product configuration. And they want to know that the company can provide full product back-up in case of any problems.
Thus, customer choice will be based on the totality of services offered by the individual competitors. Competitor A may have a price that is lower than that of Competitor B, but Competitor B can provide real-time shipping detail and tracking capabilities.
In addition, Competitor B might provide an online service that allows customers to access technical documentation and order spare parts. Only the real-time mega portal environment can support the range of services and activities offered by Competitor B.
The potential advantages of shifting to a real-time Internet mega-portal are enormous. An April 2002 NerveWire survey of 162 business and information technology executives reports the following improvements on average as a consequence of shifting to a real-time enterprise environment:
- 30-percent reduction in operating costs
- 23-percent reduction in headcount
- 40-percent increase in revenues
- 35-percent improved customer retention
- 37-percent decrease in cycle times
These reported improvements demonstrate the potential impact of shifting to the new business model. A handful of companies—Dell Computer, Cisco, IBM, General Electric, Wal-Mart and others—are aggressively pursuing the kind of real-time supply chain business model we have described.
The transition to this new model will be long and difficult. Even the optimists don't foresee the majority of companies moving to this new model until well into the current decade. As the above statistics indicate, however, those early-adopter companies that successfully embrace the real-time enterprise model will have a clear competitive advantage.
This article is excerpted from In Real Time: Managing the New Supply Chain, by Lisa Harrington, Dr. Sandor Boyson and Dr. Thomas Corsi, to be published later this year by Greenwood Publishing Group Inc.