To succeed in the future global economy, companies will increasingly compete based on the strengths of their extended network of partners and suppliers. However, companies are struggling to get a handle on how they will manage the necessary level of collaboration among these multiple enterprises. A quick exercise can help organizations develop a basic understanding of their current and emerging needs, providing them a baseline of where they sit on the maturity curve for multi-enterprise collaboration.
The following questions illustrate if your company is experiencing the dynamics that drive the need for a strategic approach to managing external supply networks. If your company answers "yes" to more than half of the questions, consider investing time and resources to understand your current and emerging external supply network needs.
Are we struggling in any way to adapt our revenue models to the changing economic needs of the marketplace (e.g., power by the hour, end of cost plus, etc)?
Dynamic changes in how customers prefer to do business are dramatically impacting manufacturers' revenue models. End-customers increasingly desire contracts (or at least structured payments) based on usage, not asset delivery. Commercial airlines, for example, are shifting toward purchasing flight hours, not aircraft engines. Railroads need "freight-miles pulled," not locomotives.
Whether it's factory equipment or software-as-a-service, customers want contracts to include uptime, performance and maximum utilization of the assets in service. The drive is toward variable, service-based expense, not capital investment. These changes drastically influence how manufacturers are compensated for their goods and services. In the new model, companies can no longer low-ball the original sale and make it up selling high-margin aftermarket parts, upgrades and service. These value streams will be included in the competitive source selection process for the original purchase. Ultimately, many manufacturers will be forced to alter their supply chains to deliver against both the original production of goods as well as full product lifecycle support.
Are our customers demanding increased flexibility (e.g., pricing, terms, lead-times, configurations, etc.) despite rising platform complexity? Are we now responsible for work previously done by our customers?
Customers are demanding unprecedented flexibility in how they purchase major platforms. One aircraft manufacturer, in fact, is offering options to change new aircraft configuration up to six months before delivery, an extraordinary level of 11th-hour customization. The "increase" in demand volatility may be laughable compared with retail, consumer or electronics industries, but in aerospace and defense (A&D), where demand is often locked in for 10 years or more, companies must be able to respond quickly and effectively to changes in the demand signal.
Vendor-managed inventory and outsourcing of everything from quality control testing to warehousing to customer service illustrate the increasing demands customers are placing on their suppliers. While this "flow-down" is a good business opportunity for suppliers and an effective cost reduction strategy for customers, a high degree of risk is involved.
For example, will a historically solid component manufacturer have the processes, technology and skills to become a systems integrator for its key customers? Or, how does the original equipment manufacturer (OEM) orchestrate a distributed network of best-in-breed providers of parts, services and logistics to delivery against customer expectations?
Are we sourcing from, selling into, and servicing our platforms in global markets? Are we managing inventory and/or working with another party (e.g., a 3PL) for global delivery?