By Roman Bukary, Head of Manufacturing and Distribution Industries at NetSuite, Inc.
The weakest link in a chain determines its reliability and performance. Until recently, supply chain technologies have focused on strengthening point-to-point connections, viewing the world as a straight line between raw material and final consumer. This linear view ignores the new reality of the supply web, a much more complex three-dimensional network of partners, customers, and suppliers that requires the same point-to-point excellence of execution as the supply chain, but has the added advantage of flexibility and transparency.
Nothing embodies today's interconnected 24/7 world as well as the modern supply web. Multiple tiers of raw supplies, intermediate parts, and final assembly manufacturers send their wares halfway around the world and back again, all in pursuit of the oldest capitalist objective—getting goods from Point A to Point B faster, better, and cheaper in order to better serve the needs of the customers, investors, and employees. The 24/7 world is only possible because of the free and clear flow of information.
How well a supply web creates and shares information defines how well that web holds together, how efficiently it operates, how much value it adds, and determines the success or failure—as a group—of the manufacturing venture. By sharing metrics, timelines, as well as demand and capacity data, the supply web can forge a common set of objectives, insulating the web against commodity pressures as well as the failure of any one node.
Manufacturing giants grappled with information flow for decades—a painful and expensive ”100 Year War”—reinforcing their supply webs with second- and third-tier suppliers to prevent a single failure from jeopardising their schedules. The reality of today’s world is that smaller manufacturers must cultivate the same ability in order to survive, and intermediate suppliers who make their livings in the middle of the supply chain need to understand how the health of an entire supply web applies to their success. Whether you employ 50 or 50,000 makes no difference—the amount of technical innovation and mastery required to be a valuable supply web participant is the same. And make no mistake, companies that have committed to the unencumbered and clear flow of information have found outsized value and profitability in the most commoditised markets imaginable.
In this pursuit, one web helps another. The Internet has democratised the flow of information throughout the supply web. Instead of being directed by proprietary exchanges or mandated by a single dominant player, the Internet has made it possible for supply webs to operate in the cloud, using widely accepted protocols and methods and delivering data in formats and languages easily customised to almost any situation. Operating with the free, multi-directional flow of information gives each player in the supply web control, command, and communication with the other key participants. The blood, sweat, and tears shed by the world's biggest manufacturers in the 1980s and 1990s trying to harmonise their supply chains were not in vain—but no one need suffer as they did any longer. What was once hammered out at great expense with rickety client/server architectures and armies of IT technologists can be deployed anywhere, anytime in the modern business cloud.
By integrating a supply web in the cloud, each participant is buffered from shocks suffered by the other. When natural disaster strikes, or shipping lanes clog, or a 100-mile traffic jam emerges in Asia, an entire slate of companies on other continents can see their businesses adversely affected. Production may be shut down because of the depletion of a key input, or inventory end up stranded on the wrong side of the country. By sharing timely, comprehensive, and relevant information the informed supply web is more resistant to these inevitable shocks and disturbances, able not only to relay the snags in the system but identify the right alternatives in the shortest possible time.
Clearly, the supply web together knows more and can accomplish more than any one of its parts. In some ways it is also more influential than even the customer. Without the customer there is no sale, but until final delivery is made, it is the supply web itself which calls the shots. Consider a construction project, where the customer as represented by the project manager is the nominal authority, setting the schedule and determining how and when the process will play out. But if the cement truck doesn't arrive on time, the entire project slips.
Some supply chain strategists fear transparency for this very reason. They worry that one bad actor with clear insight into their importance will be able to consistently extort the rest of the web. For instance, the cement contractor from the construction example might deliberately ransom an on-time delivery for more money if they were certain no competitor could fill the order in time.
Certainly, that kind of opportunism can happen in the real world. But the supply web looks out for team players who create value and punishes those who diminish it. Better awareness means that the entire supply web will know which links are weak and which are actively hostile to the success of their partners, and insist that they be punished, constrained, or excluded from future deals. Modern supply chain marketplaces introduce market efficiencies and are being used to rate and compare suppliers on their record for reliability and fair play.
Starving supply chain partners of information as a defensive measure is a huge mistake, because it ultimately starves the web of value-adding opportunities. Kept in the dark, supply chain participants can only hope to differentiate and excel on one dimension—price. As we have seen time and time again, being the cheapest producer creates no strategic advantage. Look no further than the blind and often self-destructive rush to cut costs which resulted as large retailers tried to dictate cost reductions in the late 1990s.
Faced with deep price cuts, the front-line suppliers simply turned to their suppliers and passed on the demand. The cost pressures escalated and many in the chain simply could not keep their businesses viable with that kind of pressure. There was no sense of a shared destiny, and no ability to collaborate to minimise the price shock through process improvements. Had they taken that approach, instead of racing to the bottom, they could have looked at how best to meet the new buying price, evaluating manufacturing techniques, capacity utilisation, the cost of raw goods, and the flow of the entire ecosystem to find opportunities to improve and survive. But they lacked the tools and the will to carry out that kind of collaborative analysis, so they suffered both individually and collectively.
Companies that understand this trap get results, whereas those that do not suffer. Imagine a mid-sized network equipment manufacturer with executives in the UK, engineering in Israel, with production in Korea, operating with antiquated supply chain processes. Every engineering change would require a flurry of paperwork, much of it flowing through the UK,creating further delays, confusion, version control and most critically inefficiencies.
Even then, the paperwork could fail, requiring engineers to fly to the production facility to sort out the problems. Adopting a cloud-based supply web, meanwhile, could provide each participant with clear, concise, and real-time insight into the requirements and capabilities of the others, and the resulting improvement in engineering and manufacturing processes would act as a significant contributor to growth.
The informed supply web is not driven by optimism, nor does it mean the end of traditional free-market competition. If anything, it promotes a renewed drive for excellence within the web, as lower-tier suppliers understand their position and their shortcomings, and fight tooth and nail to climb the ladder and claim top roles. With the right information, delivered through the cloud in the lingua franca of the supply web, you can plan your strategic moves, your next quarter, or your inventory buying based on the forecast of your buyer, the capacity of your second-tier supplier, or the availability of your diverse labor market. That's the kind of power no 21st century manufacturer can afford to be without.