Supply Chain Management Is Evolving toward Interdependent Supply Networks
Written By: Michael Bittner
Published On: November 7 2005
Supply Chain Activities Mature Beyond Linear Interactions to Networked Processes between Trading Partners
The advent of the Web as a major means of conducting business transactions and business-to-business communications, coupled with evolving web-based supply chain management (SCM) technology, has resulted in a transition period from "linear" supply chain models to "networked" supply chain models. This is where interdependent supply networks (ISN) come into play. Enterprises are moving toward real time operations by sharing information and interlacing processes with trading partners. Despite the millions of dollars enterprises have spent in recent years to optimize and connect the supply chain, further innovations and investments are expected. Enterprises are under continued pressure to work more closely with trading partners in order to stay even with, or gain advantage over, their competitors. The technologies to enable dynamic process changes and real time interactions between extended supply chain partners are emerging and being deployed at an accelerated pace. However, this transition is expected to take a considerable time.
Various software industry studies indicate that over the next five to seven years, inter-enterprise business relationships, information structures, and processes will evolve dramatically. Enterprises will blend internal production and supply chain processes with those of their external trading partners. Supply chain "champions" and "channel masters" like Walmart will drive partners toward a common set of business processes. We are also witnessing the rising adoption of radio frequency identification (RFID) as a supply chain tool and technology in virtually every industry. Over time, participating organizations will focus more on fulfilling the requirements of the customer more efficiently, rather than putting a more limited focus on what the direct "intermediate" customer requires. Linear interactions will give way to interactions that occur in parallel. Slowly, businesses are evolving toward the concept of the lean supply chain, working together toward a common set of customer-driven goals, and acting as an ISN.
SCM needs to become more about information exchange among the entire supply chain, and to expand beyond limited point-to-point integration with a select few partners. As manufacturing operations embrace and adopt "lean manufacturing" concepts and tools within their production operations, they are also refining the meaning of, and means for, SCM. A lean supply chain entails examination of any step, process, or movement of product in which value is gained or lost. The impact on suppliers and customers can be significant, and for this reason practices using lean techniques need to be deployed.
Supply Chains Moving beyond Optimization to Synchronization
Many enterprise resource planning (ERP) and SCM deployments have contributed little in the way of meaningful system and process integration or trading partner collaboration. Manual processes, "un-rationalized" data, and stand alone systems that churn out best-guess forecasts remain the rule, rather than the exception. Yet supply chain optimization will be a strategic factor for company competition and survival in 2005 and beyond. Enterprises "roll up their sleeves" in order to undertake the hard work of dealing with the most basic aspects of SCM process alignment and connectivity with trading partners.
Progressive enterprises are looking to move beyond optimization of internal production operations to the synchronization of networked supply chain business processes as part of their vision to increase the integrated value chain. The sophistication of multi-enterprise SCM processes will force such businesses to look outside of their four walls to ensure value is profitably delivered to customers.
The dynamic nature of customer-driven demand, along with the adaptive nature of SCM networks, will make the process of synchronization more complex. As customer requirements become more demanding, supply chains will be forced to move from linear to dynamic configurations of supply chain networks. In a non-linear model, core competencies and capital asset utilization and efficiencies come into focus. This will concentrate attention on how enterprises work and integrate with partners to extend visibility through multiple tiers of the supply chain.
As the mandate for capital asset efficiency and collaboration capabilities is enabled by Internet technologies, enterprises will look for supply chain projects to go beyond the optimization of internal production processes and focus on the synchronization of activities among trading partners. Despite huge advances on the internal side—reduced costs and shortened lead-times through lean supply chain initiatives and other efforts—the fact is that manufacturers are dependent on suppliers, distributors, transportation providers, consolidators, outsourcers, and other partners to help make and deliver products to customers. While parts and products travel "up" the supply chain, supply and demand information moves in both directions and is critical for responding rapidly to demand. Enterprises are beginning to realize that using workflow and business processes to automate the communication of critical information throughout their operations allows systems to respond to pre-defined conditions and stimuli.
Service Oriented Architecture (SOA)—the Future for ISN
In its simplest form, service oriented architectures (SOA) are defined as self-contained modular applications of business process logic or services that can be mixed and matched; are platform independent; and can be dynamically located, invoked, and called into use by whoever needs them from anywhere within a platform infrastructure. SOAs make developing, structuring, and using an enterprise system much more efficient and flexible. It is this type of flexibility that is required in an interdependent supply network.
The independent nature of the objects and services also makes the system and the users invisible to the service. The user could be an in-house employee working through a browser or desktop screen, another application on the same computer, another computer within the network, a trading partner accessing a service through the Internet, or a trading partner's application accessing data or service. Workflows and business processes can invoke services from anywhere, and are no longer confined to, or limited by, an individual internal system. SCM in an SOA provides the environment to extend workflow and business processes beyond the company's internal systems, thus facilitating interdependent supply network activity.
SAP Addresses SOA to the Forefront
During SAP's recent Teched conference, the emphasis was on how SOA and SAP's Enterprise Service Architecture (ESA) will accelerate process changes among trading partners and provide an opportunity for more flexible business process reengineering. The SAP installed base is huge, with some of the most progressive enterprises in business today as members.
SAP clients who aggressively strive for SOA are most likely to reach the status of ISN interoperability. Yet applying SOA remains a vision or at least a long journey for most enterprises. Issues of process proliferation, guidelines, costs, and performance are not totally understood, and the difficulties associated with them cannot be underestimated. Early adopters, such as Intel, will be revealing case studies in the SOA evolution and ISN transformation.
SOA provides the environment to extend the workflow idea beyond a company's internal systems, thus enabling ISN activities. Preparation for ISN starts with demand management. The ability to respond to demand is enhanced when trading partners are connected and information sharing is automatic, consistent, and allow for rapid-response. The transfer of data and event stimuli must be delivered in a standardized fashion and with flexible, actionable responses. Removing information barriers and tying supply chain partners closer together for rapid response are key to improving supply chain performance. ISN capabilities are achievable in the not so distant future, but will be dependent in large part on SOA frameworks.