Supply Chains – The Next Generation Challenges
Dr Goutam Sengupta
Economic trends are forcing organizations to pursue such strategies which shall deliver greater value out of their supply chains. With competition becoming more and more fierce in the market place, organizations are transforming themselves to be more and more leaner and eventually taking the shapes of Virtual Organizations. Today the Corporates are fighting the battle in the market place more and more on the supremacy of their Supply Chains forcing more and more innovations in their supply chain functions. The expectations from the Next Generation Supply Chains, therefore, shall be very high as the excellence of an enterprise in the next generation shall largely depend on how innovatively the supply chains have been designed. The Next Generation Supply Chains shall have much more compressed cycle times, much higher levels of information flows and highest level of connectivity amongst the partners. All these factors shall transform traditional linear supply chains into future supply chain webs. This article shall attempt to ascertain the challenges of the Next Generation Supply Chains and shall try to portray the nature of future generation supply chains.
Changes in future organizations
The future organizations shall operate in an environment where:
- Customers take charge
- Era of extreme volatility – ultra rapid changes in market, technology & policy
- Shifts in industrial zones
To survive in the above environmental conditions, the organizations necessarily shall have to adopt the following attributes:
- Leaner and faster
- Capable to operate under complexities
- Capable to operate under shorter and less predictable market forecasts
Future organizations, therefore, need to learn how to acquire the above skills and re-design their supply chain capabilities.
From “available-to-promise” to “capable-to-promise”
In the era of Manufacturing Resource Planning (MRP), a company manufactures a product from its raw materials and then supplies the same into the stock. The inventory is thus built up and gets promised to customers. More advanced inventory systems have made the companies better able to make that “available-to-promise” commitment to the customers. But think of a situation when your customer wants a product which is not in the company’s inventory, then the company as well as the customer loses. That is what shall be the challenge facing the Next Generation Supply Chains. The Next Generation Supply Chains shall have to be so dynamic that it shall have the inherent capability to deliver the wish of a customer which is called “capable-to-promise” mode. The challenge, therefore, is how to move companies from an “available-to-promise’ mode to “capable-to-promise” mode. In “capable-to-promise” mode the theory is that the company is dynamically linked in a web with a variety of potential suppliers from whom the company can identify the supplier best suited to participate in producing the end product. In this environment the company is no longer locked into a rigid chain but is free to choose its supplier from a potential supply base with the optimum mix of performance and available capacity. In this system, the company is optimizing the available capacities of the sources of supply and thus cost of ownership shall be much lower with the quality of the finished product for the end customer to be much higher. Such a dynamic, capable-to-promise function pre-supposes working together with customers and suppliers to design an end product and being able to identify the supplier best suited in terms of performance and capacity to participate in a given project. The term ESI (Early Supplier Involvement) was coined out of the above necessity.
Design For Supply Chain (DFSC) and not Design For Assembly (DFA)
Traditionally the organizations acquired the skill of Design For Assembly (DFA) where they said that design in isolation is no good and design should have the capability to be produced. This made some changes in the thinking process of designers. Future supply chains shall challenge this concept further as how the manufacturing systems can be designed without understanding the dynamics of sourcing? There are many examples where the companies have moved their design centers from Europe to far East and then to Mainland China. Probably the next destination for them shall be to move to India when the component suppliers more and more get established in this country. This is the trend in the consumer electronics manufacturing business and movements of sourcing are taking place for other products as well. Organizations introducing collaborative engineering tools that allow manufacturers to work with their customers and suppliers in an online environment to design new products and the potential of design collaboration goes well beyond the engineering function and consolidates procurement and other business processes with supply chain processes focused on product creation. Therefore, companies must move beyond “Design for Assembly” to achieve “Design for Supply Chain”. The end result: satisfied customers get products that exceed their expectations, the company optimizes its use of resource and its supply chain, and suppliers participate in a project in a most synergized manner.
Replacing Linear Supply Chains with Supply Webs
It is, therefore, becoming more and more evident that to evolve a system which is “capable-to-promise” and does not negate the desire of a potential customer shall essentially work on a web-like structure of supply chain to deal with many alternate supply options instead of linear relationships sidewise or up and down with single points of failure giving no flexibility to accommodate customer choices. The advantage of a web-like supply chain is depicted in the figure below:
The web shall enable an interactive pattern of relationship amongst customers, companies and their suppliers in a most optimized manner.
SRM: Leveraging the supply base
In today’s world economy, manufacturing companies are faced with the market realities of shrinking product life cycles and sharp price erosions. In this environment to leverage the supply base, appropriate management of supplier relationship is becoming increasingly important. The focus, therefore, is changing from transactional focused ERP to process focused SRM as depicted below:
Effective Supplier Relation Management (SRM) shall reduce the additional cost passed to the customer as the suppliers themselves shall be responsible enough to supply self certified components resulting into much desired excellence in supply chain environment.
The situation is depicted in the model below:
The Connectivity Challenge
The connectivity shall pose the real threat for success of future supply chain needs. The connectivity has moved over years from “human to human” to “function to function” and then to “system to system” as depicted in the model below:
With the advent of the internet, companies are starting to integrate their supply chains in a “system to system” manner, minimizing the need for human contact, human data entry or any sort of human involvement. However, the demand on the connectivity shall be ever increasing and appropriate technology must evolve in this area to meet the future requirements.
The “Virtual Enterprise”
The future enterprises shall become more and more leaner and eventually shall take the shape of a “Virtual Enterprise”. The “Virtual Enterprise” is nothing but a group of intricately linked companies that behave as though they are one company. The “Virtual Enterprise” shall become a necessity in the future to move companies from an “available-to-promise” mode to “capable-to-promise” mode. Next Generation Companies shall more and more outsource their peripheral activities and retain with them only the areas of core competences. The portrait of a next generation company may look similar to what is depicted below:
NEXT GENRATION COMPANIES CREATE NEW OPPORTUNITIES
In conclusion, the Next Generation Supply Chain shall throw up newer challenges due to:
- Extremely compressed cycle times
- Much enhanced information flows
- Extremely high connectivity amongst partners
- Technology shall become more standardized and more generic
- SCM practices shall reach its threshold and thus shall need to be pushed to further level of excellence
- Companies shall compete amongst themselves more on the differentiation in “Supply Chain Effectiveness” and thus new areas of research in SCM shall have to be evolved
We, therefore, need to see how the organizations shall adopt themselves to the above challenges and enhance their capabilities to stay competitive in business.
- Publications of The Chartered Institute of Purchasing and Supply (CIPS)
- Author’s own research work which was awarded fellowship under CRIMM (Centre for Research in Materials Management) in the year 2002
- Techniques of Continuous improvement – Prof Kiyoshi Suzaki
- SCM in the Internet Age: ICFAI Publication