The Best Fit Strategies — Strengthening the Weakest Link
The success of supply chain management depends on the visibility of demand. If EMS providers can master the art of demand forecasting, they can avoid coming under the "bullwhip effect" (the bullwhip effect refers to the phenomenon of major oscillations caused by the orders placed. This effect becomes more pronounced at higher steps in the supply chain). This increased flexibility will yield both short- as well long-term cost savings. The greatest advantage of increasing visibility is ensuring an optimal level of inventory.
EMS providers need to keep in mind that supply chain theory does not merely apply to the procurement of raw materials, production, inventory, warehousing, transportation, and customer service, but also involves the complete information system. Without the proper information flow it becomes extremely difficult to monitor the supply chain activities. The bi-directional flow of information is imperative for the success of supply chain strategies. "There is no advantage in being choosy while exchanging information." The ability to share information by itself is a competitive differentiator.
With regional boundaries becoming blurred, the partners in EMS providers' supply chains require exceptional levels of synchronized communication. A lot of effort needs to be expended in order to achieve total supply chain integration. Once this is accomplished, the chain becomes more transparent, offering better visibility for demand forecasting.
The other major consideration for a successful supply chain strategy is to make the supply chain more collaborative in nature. A collaborative supply chain will benefit from increased coordination and smooth bi-directional information flow. A collaborative supply chain will be more responsive and therefore ensure on-time order and demand fulfillment. Collaborative supply chains can very well be the cornerstone to achieving competitive advantage. In short increasing visibility and collaboration will yield better procurement leverage and logistics advantage. In the end, the success of a supply chain lies in the assurance of continuous supply and competitive pricing.
EMS providers also find themselves under constant pressure to squeeze out the lowest price possible. They try to diffuse this situation by increasing their procurement leverage. The reason for this is, since manufacturing is EMS providers' core competence, the amount of raw materials consumed by them is massive. This gives them the opportunity to obtain the best value possible for the materials. In order to realize this, EMS providers need to identify the best supplier that can provide the raw materials at the prescribed quality level and optimal price.
In order to improve and optimize procurement operations, EMS companies will need to automate the solutions for connecting their suppliers, providing replenishment and inventory information. To realize procurement goals, it is necessary to analyze costs and budgets but more importantly to translate corporate business plan into a procurement roadmap. EMS providers are also adopting lean management principles in order to optimize their processes. This enables them to provide better return for revenue and enhanced customer service, all at extremely low levels of inventory.
These factors will forever be the biggest drivers behind outsourcing supply chain operations or defining the EMS providers' competitive strengths. A more efficient supply chain will contribute to long-term success, irrespective of whether it is a matter of responding to a new flood of customers and products, or trying to reduce costs and maintaining customer loyalty at all times.
The long and short of it is that: "Efficient logistics and supply chain strategies can provide EMS providers the edge over their competitors. All EMS providers need, is the 'know how' to achieve it."
About the Author: Lavanya Ram Mohan is a research analyst at the global growth consulting firm Frost & Sullivan. www.frost.com.