Taking Performance Management Outside the Four Walls

As competition in the marketplace evolves from company-vs.-company to supply chain-vs.-supply chain, enterprises seeking competitive advantage are extending performance management beyond their four walls to encompass their customers, suppliers and trading partners.

[From Supply & Demand Chain Executive, April/May 2004]] Supply chain yarns rarely become the stuff of legends, but the story of cell phone giant Nokia and the lightning bolt is perhaps the exception that proves the rule. In a widely recounted incident, in March 2000 a lightning bolt struck a Philips Electronics semiconductor plant in Albuquerque, N.M., sparking a fire that lasted just long enough 10 minutes or so to take the facility offline for months. As it happened, both Finnish Nokia and Swedish competitor Ericsson used chips from the same plant in their cell phones, and the shutdown presented a threat to both companies' ability to meet rapidly rising demand for their respective products.

But here's where it gets interesting: Nokia learned of the impending chip shortage in just three days before Philips even reported the problem by monitoring production at its European plants. Alerted to the threat, Nokia was able to source the chips from other Philips plants and to redesign the chips so that it could use alternate suppliers in Japan and the United States. Meanwhile, Ericsson learned of the fire only weeks after the fact, too late to avoid a supply disruption. End result: Nokia not only fulfilled its production plans, the Finnish company also seized additional market share, while Ericsson lost market share and eventually outsourced the production of its cell phones.

The moral of the Nokia story, of course, is that early detection of potential supply disruptions is a necessary component of business continuity and disaster recovery planning. However, what is notable in this case is that Nokia did not, in fact, detect the immediate cause of the disruption, the fire and the New Mexico plant shutdown, but rather became aware of trouble only when the reverberations of the bullwhip effect penetrated the four walls of the extended Nokia enterprise. In that sense, this yarn is a testament to the power of internally focused business performance management (BPM) as an enabler of visibility into processes at work within an enterprise.

But imagine if Ericsson had a process in place to monitor operations at the Philips plant more closely and had therefore been able to learn of the disruption within hours, soon enough to take action to preserve its own supply of chips and put its competitor at a disadvantage. In that sense, this tale also suggests that the next level of competitive advantage could come from extended BPM, that is, from driving performance management outside the four walls of your own enterprise to encompass your customers, suppliers and trading partners.

The Case for Extended Business Performance Management

Recent economic trends have strengthened the case for extending business performance management into the supply and demand chain. For instance, Dave Haskins, executive vice president for development at Webplan, which provides solutions that help companies detect and respond to changes in supply and demand, points out that the shift toward greater outsourcing of manufacturing operations has increased the complexity of the supply and demand chain and has made it more difficult to detect and resolve problems within the supply chain. "The need for visibility and the loss of control that companies experience when they outsource has had a significant impact on how they need to compete going forward," Haskins says. "The supply chain, as a key element of how a company competes, has become more important than ever before."