Throw Off Your Chains, Take Up Nets

Driving business these days is the production of increased profit to the enterprise. Other drivers—globalization, outsourcing, customer satisfaction, RFID—pale in comparison to a positive profit picture. So, how can we look at the supply chain from a profit perspective?

First, we must ask ourselves, where is the profit in the supply chain? This sounds like a simple question, but the answer is more complex than you might think.

The supply chain has traditionally been presented as a sequential set of functions: plan, source, make, deliver, customer, return, and their many sub-systems and parts. We are used to ideas and systems presented in sequence because we learned both numbers and the alphabet this way by rote, as children.

As a consequence, we tend to think sequentially. Unfortunately the world is both sequential and very much non-sequential. The supply chain world, in particular, exists in the context of a multitude of simultaneous events.

Take, for example, the supply chain elements of plan, source, make, deliver and customer, which exist all at once. They also exist in multiples at a time. Planning goes on constantly, and sourcing goes on both constantly and in multiples.

A number of these elements may be de-coupled in some firms, such as computer makers who outsource their manufacturing. Outsourcing means not only planning internally, in multiple time frames and with multiple products, but it also takes into account planning alongside a whole other enterprise.

If we look at the supply chain as a non-sequential “profit net” we might see an enterprise negotiating the lowest cost, the fastest processing, and the highest quality in a dynamic context of time, place, and event.

If each purchase or movement of goods is thought of as a node in a network, then negotiations can exist between nodes or groups of nodes all along the profit net regardless of mode (source, make, deliver). In fact, what we might see is a series of profit nets clustered around either products or functions—or both.

When collaboration between enterprises is involved, a profit net might give birth to collective insurance or a buy into insurance for profit. The collaborating parties might share the risk of supply chain business just as insurance generally shares the risk.

Let’s look at the traditional breakdown of “make” as process make-to-stock, process make-to-order, and discrete make-to-order, make-to-stock and engineer-to-order. Each process is a world unto itself. The planning and negotiations around the events of a make-to-stock and a make-to-order are fundamentally different.

Within a profit net context, entirely different negotiations take place simultaneously all along the supply chain. These simultaneous processes allow for added profit value to come from sources not normally tapped.

Make-to-order normally means limited parts (usually of high value) and make-to-stock normally means a great many parts (often of lower value). That does not mean some commonality can’t exist. The make-to-order may well be a negotiation between profit net nodes that reach into the make-to-stock process.

The profit net can operate within a combination of databases and spreadsheets, making searches intelligently relational and changes automatic. In this context, a manager could virtually play for profit before deciding which negotiations deliver the magic profit number in regard to lowest cost, fastest processing, and highest quality.

New Generation Computing Inc. and Trade Card recently announced a software package that starts the march in this direction. It is a supply chain software and web-based package that allows executives and vendors who are sourcing to exchange information and manage the production process through the Internet in real time.

The software automates the financial processes within the supply chain and electronically connects sellers, buyers, and partners for management, settlement and financing of their specific transactions. This alliance allows companies to use data created at the point of procurement for multiple purposes. The process goes way beyond saving further keying. The big advantage is the increased visibility managers have over their working capital.

On a different level, ERP company IFS, partnering with IBM, offers a system that assesses an enterprise’s performance, identifies weak areas, and offers ways to deploy solutions.

These systems encourage interactive thinking and planning, with emphasis on negotiations across the entire profit net. With negotiations no longer limited to traditional sequential thinking, you may find yourself throwing off your chains and taking up nets.

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