Collaborate to Innovate

Five universal business plan challenges driving supply chain alignment in the 21st century


The fashion manufacturer is willing to invest in information technology to achieve that alignment objective. That includes equipping retail store managers with personal digital assistant devices (PDAs). The managers continually monitor customer preferences and use the PDAs to electronically forward data on customer behavior to a central planning office. Design decisions are made only after incorporating the critical, up-to-the minute customer behavior data from the stores. The Zara supply chain is all about using the best information possible to achieve an advantage. Zara's flexibility also makes it well prepared to adapt quickly when unexpected events occur.

4. Improving Cash Position

Supply chain collaboration can also improve a company's cash position. The Hong Kong trading firm, Li & Fung, employs a network of 7,500 suppliers in more than 40 countries. For each product, Li & Fung dissects the entire supply chain and has each task performed by the supplier and in the country where it will be done best, fastest and at the lowest cost.

At Longitudes Shanghai, Dr. Victor Fung, chairman of Li & Fung, said a product that costs $1 when it leaves a factory will cost $4 by the time it reaches the consumer. The final price is $5 if it's made in China, where system inefficiencies add to the cost. He terms these non-production costs as the "soft $3 or $4."

The way to reduce these soft costs associated with supply chains is through a synchronized supply chain in which production can be postponed to take place later. This can be achieved because of short cycle times and because better estimates are available. That results in less obsolete inventory, fewer markdowns and lower soft costs.

To drive supply chain efficiency, Li & Fung dissects the supply chain into its basic components, which Dr. Fung calls "atomizing." Each task is performed by the supplier in the country where it's most efficient to do so. This means creating a global network where suppliers are tapped based on expertise, availability, quotas and cost.

For example, in producing an order of shirts, the yarn might come from a factory in South Korea; the dyeing and weaving might take place at two factories in Taiwan; and the cutting, making and trimming might happen in three factories in Thailand. Conventional wisdom to the contrary, in this collaborative, "atomized" supply chain, China often represents just 20 to 30 percent of the total value added. China is often the final step in assembly, but atomization has offered opportunity to each supplier to define where in the supply chain it will specialize. That means more opportunities for specialized small and midsize enterprises in all countries.

5. Boosting Productivity

Of course, increasing productivity is an ongoing C-level priority. And it's here that several Longitudes experts believe we've just scratched the surface when it comes to what supply chains can do. They believe that, to attain maximum productivity, supply chains must be synchronized outside — as well as within — the four walls of the company.

Said Moffat of IBM: "I look at parallels outside the IT industry. I look at the Wal-Marts and the Proctor & Gambles. They understand the supply chain has to expand beyond their four walls. It can no longer be [a matter of] how efficiently can they do something inside their walls. It's really, how do they span, how do they make it so their suppliers and retailers are more productive, so they can get that moment of truth for the customer."

As companies seek out ways to boost productivity, they'll increasingly focus on their core competencies. They'll leave supply chain design and execution to partners with the expertise, scale and resources to get all elements of the supply chain to operate in unison.

As a group, the Longitudes supply chain experts agreed that the supply chain had reached a point where it could make a significant difference on each of the five universal business challenges. They agree that the supply chain no longer should exist independently of business strategy. In an era of synchronized commerce, its purpose is to help the company achieve its business plan priorities.

The vision of synchronized commerce supports that priority. In a way, it's much like Henry Ford's original conveyor belt. Ford believed his manufacturing employees would work much faster, cheaper and more productively if they could perform specialized tasks along the conveyor belt. Today, workers in different countries do the very same using supply chain conveyor belts that extend around the globe.

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