Analysts, consultants and solutions providers continue to debate how companies ultimately will integrate those new tools into their operations and the shape of the supply chain of the future. However, some consensus is forming around one vision for the next-generation supply chain. The underlying theme: connectivity.
The supply chain has always been about companies working together, and these relationships have always involved some degree of collaboration to solve bottlenecks in the supply chain and overcome bumps in demand or supply. But as Chris Newton, a senior research analyst with AMR Research, notes, Traditionally these activities have been very silo based, and not a lot of real collaboration was going on. The problem was that the interaction between the individual players in the supply chain was primarily human-to-human. The speed with which information travelled limited the utility of that information.
Now, with the advent of the Internet, companies are starting to integrate their supply chains in a system-to-system manner, minimizing the need for human contact, human data entry or any sort of human involvement. Moreover, data can move in real-time and disparities in size are becoming less critical as software providers come up with solutions that allow small companies to connect with large customers through the Web. While the applications to connect companies with their trading partners are far from free, the Internet is a relatively inexpensive medium, unlike a value-added network (VAN) that charges a per-transaction fee for data transmission.
In addition, system-to-system connectivity can allow for communication between different functions within a single enterprise. Carl Drisko, president of online logistics optimizer Logistics.com, says that while the planning, forecasting and execution functions have had some degree of interaction all along, the combination of new standards, such as eXtensible Markup Language (XML), and new supply chain event management applications are allowing for closer cross-functional integration in real-time. I don't think any of that is particularly new, Drisko admits, but the technologies support it a whole lot better than what had been out there previously.
The Virtual Enterprise
The implications of this type of connectivity are numerous. Joe Pecoraro, chief operating officer at MaterialNet, a provider of sourcing and procurement applications for direct and indirect materials, says supply chains are evolving into supply webs. Instead of linear relationships up and down, with single points of failure, a web-like structure will grow as it becomes easier - and more advantageous - to deal with many suppliers, Pecoraro predicts.
The goal, says IBM's Carol Ptak, is a virtual enterprise, a group of intricately linked companies that behave as though they are one company. Ptak, who spent 20 years working in supply chain systems and six years in consulting prior to joining IBM, is program director for midmarket business and global services at Big Blue.
The virtual enterprise is a necessity, Ptak asserts, to move companies from an available-to-promise mode to what she calls dynamic, capable-to-promise. The assumption since the era of manufacturing resource planning (MRP), she argues, is that when a company completes a product it goes into stock and then that inventory gets promised to a customer. More advanced inventory systems have made companies better able to make that available-to-promise commitment. But when a customer wants something that isn't in the company's inventory, both sides lose. In this situation and under the dynamic, capable-to-promise function, the company - and possibly even its suppliers - would work with the customer to design the desired product, and the supply chain would align to produce that particular good. The theory is that because the company is dynamically linked in a web with a variety of suppliers rather than locked into a rigid chain, the company can identify the suppliers best suited (with the optimum mix of performance and available capacity) to participate in producing the end product. The idea is for the total cost to be much lower and the quality of the finished product for the end customer to be much higher.